A recent win in the Superior Court of New Jersey, Appellate Division, caps a long series of wins with regard to Medicaid-complaint annuities. Medicaid is a federal and state needs based medical payment plan.
Unlike health insurance and Medicare, the Medicaid program will pay for custodial, long-term care—such as care in a nursing home or assisted living residence. Medicaid will also pay for a home health aide to come into your house to provide care in that setting.
Long-term care is expensive. A nursing home costs anywhere from $10,000 to $15,000 a month. An assisted living residence costs anywhere from $6,000 to $12,000 a month. A home health aide costs about $30 an hour. And since long-term care can last for a long-time—sometimes years—these monthly expenses can add up to hundreds of thousands, even a million, dollars. Long-term care is by no means affordable.
In order to qualify for Medicaid benefits, an individual must have a limited amount of assets and income that is insufficient to pay for her care. If a person gives away her assets within the five-year period of time before applying for Medicaid benefits, the applicant can be rendered ineligible for a period of time that can be unlimited in duration. This time period is commonly referred to as the “lookback period.”
When applying for one spouse of a married couple, all of the assets of the couple count against the eligibility of the institutionalized spouse except a limited number of resources that the community spouse can retain. The community spouse can retain a maximum of approximately $130,000 in countable resources. (The community spouse can also retain the house and one automobile.)
Let us assume that Mr. and Mrs. Smith own a house, a car, and $300,000 in cash. Mrs. Smith is residing in a nursing home costing $12,000 a month, or approximately $150,000 a year. Mr. and Mrs. Smith’s combined, monthly income is $3,000. The Smiths need their income to pay their ordinary expenses (real estate tax, utilities, food, etc.), so the $12,000 a month nursing home cost will have to be paid directly from their life’s savings. In two years, the Smiths will not have any cash remaining.
The Smiths—like most people—would probably be very frightened by the costs associated with Mrs. Smith’s long-term care. Making an incredibly wise decision, Mr. Smith contacts a certified elder law attorney to assess his options. The attorney advises Mr. Smith to purchase a Medicaid-complaint annuity. A Medicaid-complaint annuity is irrevocable, non-assignable, actuarially-sound and pays Mr. Smith on a monthly basis. The annuity must also name the state of New Jersey as first remainder beneficiary for the amount of Medicaid benefits the state pays for Mrs. Smith’s benefit if Mr. Smith dies before the annuity pays him back in full.
Mr. Smith can retain $130,000 of his $300,000 in cash, so the attorney advised Mr. Smith to purchase a $170,000 Medicaid-complaint annuity. By making this purchase, Mr. Smith has converted $170,000 in assets into a stream of income that belongs to him and does not negatively affect his wife’s eligibility for Medicaid benefits. Mrs. Smith qualifies for Medicaid benefits immediately.
In the recent case, the state tried to argue that a provision in the annuity contact that permitted the present of the annuity company to modify the annuity to comply with possible changes in the law caused the annuity to be revocable, despite the fact that the annuity specifically and repeatedly stated that it was irrevocable. I recently won a federal court case on this very issue and obtained a federal injunction against the state enforcing this policy.
In this most recent case, a colleague of mine obtained a judgment from the New Jersey appellate division holding that the provision permitting the president of the annuit company to amend the contact did not render the contract revocable. This decision is a major win for the use of Medicaid-complaint annuities for purposes of Medicaid planning. If you need long-term care, contact me. I can help.