Long-term Care, Part XVI (“Crisis” Transfers for Medicaid)

The Greatest Financial Risk for Seniors: Paying for

Long-term Care, Part XVI (“Crisis” Transfers for Medicaid)

Last month’s article concerning exempt transfers ended with a discussion of “immediate annuities.” Unlike a tax-deferred annuity, which the Medicaid rules treat as a countable resource – just like a bank account, CD, or other financial asset – an immediate annuity is a stream of income. Furthermore, if the annuity meets the Medicaid requirements, its purchase is not treated as a gift. For this reason immediate annuities are an important asset-protection tool for clients who are already in a nursing home and so cannot take advantage of the 5-year look-back period.

To understand how immediate annuities can be used to help clients protect assets, it’s necessary to understand how gifting affects Medicaid eligibility. In my experience, this is the most widely misunderstood of all the Medicaid rules. Here is a correct statement of the Medicaid gifting rule from a prior article in this series:

“If you have made any gifts:

  • within the “look-back period” – currently 60 months (five years) prior to filing a Medicaid application;
  • in excess of $500 total in any one month; and
  • not otherwise covered by a specific exemption in the Medicaid law;

then you will not be eligible to receive Medicaid payment to cover your nursing-home care for a period of time. This period is calculated by dividing the total gifts by the average cost of a nursing home in your state at the time you file the application.” [1]

I think the key is to understand that Medicaid has two separate “time periods” concerning gifting:

  • the five-year “look-back period” (which is simply a disclosure requirement in the Medicaid application process); and
  • the “period of ineligibility” created by gifts made during the look-back period.

The period of ineligibility does not begin to run until you have applied for Medicaid and shown that you meet all of the eligibility requirements except for the gifts. That is, had you not made any gifts during the look-back period, you would now be eligible to receive Medicaid to pay for your long-term nursing care.

Well, one of the requirements for Medicaid eligibility that I think everyone understands is that you have to be impoverished – that is, that your assets cannot be more than a few thousand dollars. This is where immediate annuities come into play as an important tool for helping clients protect part of their remaining assets from all having to be spent down on their nursing-home care.

It’s time for an example. Suppose we get a call from a daughter saying that mom has just gone into a nursing home. And suppose mom’s total assets are $110,000 in the bank, that the nursing home costs $10,000 a month, and that mom’s income is $1,500 a month. Without planning mom will go through her entire life savings in less than a year. And the only way to protect any of this money is to get it out of mom’s name.[2]

Now, simply having her gift the entire $110,000 to her children would not be a good plan. That’s because after filing the Medicaid application and disclosing the $110,000 gift, the Medicaid agency will say this gift created about 11 months of ineligibility. But if Medicaid will not pay for mom’s care for the next 11 months, and mom doesn’t have enough left to pay for even one week of nursing-home care, the children will have to use the gifted money. But at $10,000 a month, almost all of the $110,000 gift will have to be spent down before mom is eligible for Medicaid and so hardly anything would have been protected.

However, with the use of an immediate annuity, a much better asset-protection plan is possible. We have mom gift, say, $60,000 to the children – which will create about 6 months of ineligibility – and use $48,000 to purchase a 6-month immediate annuity that meets all of the Medicaid requirements. Mom will now receive an $8,000 deposit into her checking account each month for the next 6 months. This, plus mom’s $1,500 income, the $2,000 she has left, and about $1,000 from the gifted money, will be enough to cover the nursing-home cost during the 6-month ineligibility period, at which point mom will be eligible for Medicaid. In this way, nearly all of the $60,000 gift was protected.

I am aware that this entire discussion has been solely about protecting money. That’s not because I think this is what is most important, but because I cannot help the family with more important matters, such as mom’s medical condition. However, it’s important to understand that Mom’s care has not been compromised by this planning – she gets the same care in the nursing home whether she is paying privately or Medicaid is paying. And, as to the complicated asset-protection strategy discussed above, this is how Charles Sabatino, past president of the National Academy of Elder Law Attorneys, put it: “The fact that some planning options sound strained is a testament to the fact that, unlike most Western countries, there is no national policy to provide long-term care in the United States. Instead, families are left to find their way through an uncoordinated hodge-podge of programs not covered by Medicare nor most conventional insurance.”

The next article in this series will discuss how an experienced elder-law attorney can use immediate annuities to help a married couple protect a significant part of the couple’s lifetime of savings when one spouse is already in a nursing home.


The content herein is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified elder law attorney

Note: Working with the long-term care system we have in this country, seniors and their families need to understand that despite the restrictions in the Medicaid law, it is almost never too late to protect part or your remaining assets, even when facing an immediate crisis and with no advance planning. Whether you are 75 years old and living in your own home, or have an 85-year-old spouse in a nursing home, there are steps you can be taking now to preserve part – and often a very significant part – of your life savings otherwise at risk of being spent on your nursing care. But “time works against you.” Every day of delay in a crisis can result in $250 or more of irretrievable loss, so it is important to contact a knowledgeable and experienced elder law attorney for advice sooner rather than later.

Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at schelly@losscaleselderlaw.com. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.

  1. For several examples illustrating how the Medicaid gifting rule works, see Part XII in this series in the April, 2019 issue of The Tri-State Senior News.

  2. Note: If mom is not mentally competent and does not have a financial power of attorney that includes an unlimited gifting authority, her agent might not be able to protect any of mom’s assets.