This past week I received a very favorable result in a federal lawsuit that I filed against the state of New Jersey over a Medicaid issue.  The result of this lawsuit is important for several reasons that I want to quickly discuss in this brief article.  First, the decision is important because it provides full-throated support for an important issue concerning Medicaid planning.  Second, and much more esoterically, the decision is important because it provides empirical evidence as to why a person should retain the services of an attorney to assist them with Medicaid applications and Medicaid planning as opposed to a non-attorney Medicaid consultant.

First, I’ll discuss the direct implications of the decision.  Medicaid is a federal-state health payment plan for needy individuals.  There are various programs of Medicaid, but the program I work with helps pay for long-term care services, such as nursing home care.

In order to qualify for Medicaid benefits, an individual must have a very limited amount of assets and insufficient income to pay for his care.  When an individual who seeks to qualify for Medicaid benefits is married, his spouse can retain a certain amount of the assets (for instance, the house, a car, and some cash assets) and all of her income.

One planning technique with which I have assisted clients involves the spouse who is home, called the “community spouse,” purchasing a Medicaid-complaint annuity in order to increase her income, which she can then retain.  A Medicaid-complaint annuity is an annuity that is irrevocable, non-assignable, actuarially-sound, and names the state of New Jersey as first remainder beneficiary for any Medicaid benefits that the State pays to her spouse if she dies before the annuity pays her back in full.

A plan might work as follows:  Mr. Smith is a resident of a nursing home.  He and his wife own a home, a car, and $240,000 in cash.  Mrs. Smith is 75 years of age and has fixed monthly income of $800 from Social Security.  Under basic Medicaid rules, Mrs. Smith would be permitted to retain the house, the car, and one-half the cash, or $120,000; she would also be permitted to retain all of her income of $800 per month.

If Mrs. Smith came to see me, I might advise that she purchase a Medicaid-complaint annuity for $120,000.  The annuity would be irrevocable and non-assignable.  Mrs. Smith’s life expectancy given her age, 75, is 12.97 years, so as long as the annuity pays her back in 12.97 years or less, the annuity will be deemed to be actuarially sound.  The annuity must also name the state of New Jersey as first remainder beneficiary if Mrs. Smith were to die before the annuity paid her back in full.  So, I might advise her to purchase an annuity with a five-year term; over the next five years, the annuity will pay her back on a monthly basis the $120,000 plus interest.

By purchasing this annuity, Mrs. Smith has converted the excess $120,000 into a stream of income that belongs to her and no longer counts against Mr. Smith’s eligibility for Medicaid.  Mr. Smith qualifies for Medicaid right away.  Mrs. Smith has income with which to live.

In the recent case that I filed and won, the annuity contained language that permitted the president or secretary of the annuity company to modify an annuity contract that the company issued.  The state claimed that this language made the annuity revocable and the annuity must be irrevocable.

The federal court pointed out that the ability of the president of the annuity company to modify the annuity did not make the annuity revocable to Mrs. Smith.  Mrs. Smith could not modify the annuity; Mrs. Smith could ask the president to modify the contract and the president could just say “no” to her request.  Far from making the annuity revocable, the language actually demonstrates why the annuity is irrevocable from Mrs. Smith’s perspective.

So why does this prove that you should use an attorney instead of a non-attorney to apply for Medicaid?  Because Medicaid is a complex law.  One of the most complex laws on the books.  If you apply for Medicaid and are denied, you want a lawyer to advocate for you.  In fact, only a lawyer can advocate for you.  Non-attorneys cannot represent you in court.

Families often assume they have run out of options once a loved one needs nursing home care, but that is not always true. Careful Medicaid planning can sometimes protect assets, reduce stress, and create opportunities families did not realize were still available.