To qualify for Medicaid nursing home
benefits, the customer must meet low
income and resource limits. So, the
question here is whether the value of
the immediate annuity is counted as
a resource. If not, the purchase may
decrease the customer's resources
enough to meet the resource limits for
Medicaid nursing home benefits. In
addition, the income from the annuity
would have to be low enough so that the
income limits are not exceeded. Finally,
the transaction is intended to avoid the
usual waiting period that may apply,
such as for gifts to children or in trust.
Assuming that this is a valid technique
(more on that below), to accomplish
the desired results generally means
impoverishing oneself. What to do in
these situations is often anything but
clear. Here's why.
How Medicaid Works
Most people think that Medicaid
works the same everywhere. This is not
the case. Although Medicaid is a federal
program, it is administered by the
individual states. To determine income
and resources, there may be questions
of state law involved. Meaning that the
rules can be applied differently from
state to state. What may be a solution
for one state may cause a problem in
another. In other words, there is no silver
bullet that accomplishes the desired
How Can I Get in Trouble?
In some states, a customer indeed may
be able to place assets into an immediate
annuity for Medicaid nursing home
purposes. In these states, the rules must
be followed carefully. But, what if the
state where the customer resides does
not exclude immediate annuities for
resource purposes? Or what if the transaction
is not conducted properly? In that
case, the agent could create the worst of
all results. The customer not only can't
get Medicaid nursing home benefits, but
also the customer can't get to the money.
Remember, immediate annuities usually
do not have a cash surrender value.
Should Assets be transferred to the Children?
Sometimes we are asked if the Medicaid
qualification problem can be solved
by transferring assets to children, with
the understanding that the children will
spend the money for the parents' care as
needed. While an express arrangement
like that would probably not qualify for
Medicaid purposes anyway, this possibility
also is fraught with problems. What
if the children decide not to transfer the
assets back? There is no way to force them
to do so. What if a child goes bankrupt?
The parents' assets may be included in the
bankruptcy. What if a child gets divorced?
The parents' assets could be included in
a property settlement for the spouse. So,
while we all assume that everything will
work out and the assets will be available
(with a wink and a nod) later for the parents
if needed, the realities of life itself may
override what we assume will happen.
Who Wants to Go
to a Nursing Home?
Have you ever heard a customer say
that the customer's goal is to go into a
nursing home? I don't think so. More
likely, you have heard customers say
something along the line that they
would rather cut off their foot than go
into a nursing home. Or that they would
do everything possible to prevent their
spouse from having to go into a nursing
home. So why the concern with impoverishing
oneself to accomplish something
that the customer most likely does
not want to do in the first place?
The answer is usually that it's not the client
who wants to impoverish himself, but
rather, it is the customer's children. The
children are concerned that the customer's
assets will be spent down to provide
end-of-life care and the children's inheritance
will be lost or greatly diminished.
If one just considers what is best for
the parents, though, it usually is best for
them to retain control of their assets and
to utilize them as needed for themselves
at the end of their lives. In that way, the
parents can retain the most flexibility,
which is essential to planning with limited
So why would the parents agree to a
transaction like this? It's because the
parents are often relying on the children
to take care of them as they grow old and
they don't want to say anything that they
think might upset their children.
I learned this early in my career. A
child came in with his father to seek
my advice about Medicaid planning.
The father had some assets and income,
and the son spoke for about 20 minutes
about what was to be done with
them so they would not count as Medicaid
income or resources. The father
remained silent the whole time. When
the son was finished, I asked him if I
could talk to the father alone for a few
minutes. The son said, "Sure, my father
understands and agrees with all we have
discussed." At which point, the son left
the room and I turned to the father and
said, "You have not said a word yet. Do
you want to transfer all of these assets
to your son?" The father responded with
two words that I have never forgotten:
"Hell no!" was the response.
We spoke for a few more minutes.
Then I called the son back into the room
and explained that I did not think the
transfer of assets from the father was
the best thing for the father, based on
my conversation with him. The son
was not pleased. They left and I never
heard from them again. Presumably, the
son found a lawyer who was willing to
help accomplish the result that the son
wanted and the father went along with
it. I will never know.
In a different case, I remember sitting
with a husband at his home, with
his wife nearby in a wheelchair. He said
that he would spend his last penny on
care for her at home before he let her go
to a nursing home.
These are compelling examples that
illustrate the inherent difficulties in
What to Do in This Situation
The first question the advisor should
ask is "Who is my customer?" If the
parent would rather cut off a foot than
go into a nursing home, then it would
appear that the children are the customer,
not the parent. Make the choice
clear and put it in writing.
Next, insist that your customer
engage the services of a qualified attorney
for Medicaid planning advice. Neither
the advisor nor an insurer may give
a customer legal advice.
The lawyer may be someone that the
advisor likes to work with and who can
become a center of influence and source
Again, there are certainly situations
where Medicaid planning makes sense.
But try to identify situations where impoverishing
the parents may not make sense
for them. Let the attorney advise on what,
if anything, should be done. Then, if the
customer purchases an annuity, the lawyer
will have recommended it. It may not
keep you from being sued (nothing can),
but it may certainly help you in avoiding