Gift-Medicaid Annuity Plans

Navigating the Complex World of Medicaid Eligibility: The Strategic Use of Gift-Annuity Plans

Qualifying for Medicaid is best accomplished with advanced planning, at least five years ahead of when an individual may enter a skilled nursing facility. Successful advanced planning is most commonly accomplished by making gifts or transfers to an irrevocable Medicaid Asset Protection Trust and then waiting out Ohio’s five-year lookback period.

But what if an individual has not done any advanced planning and is entering a skilled nursing facility? Many families believe the only option available at this point is to spend down all available resources until the individual becomes Medicaid eligible; however, depending on the circumstances, a Gift- Annuity Plan is a tool that can be used to qualify for Medicaid benefits without having to spend down the entirety of the individual’s available resources.

To understand how a Gift-Annuity Plan works, it is first necessary to understand how the State of Ohio treats gifts or transfers made inside of the five-year lookback period, i.e. the five-year period prior to the date of a Medicaid application. In short, if an individual is otherwise eligible for Medicaid benefits but has made an improper gift inside of the five-year lookback period, then the State of Ohio will withhold paying Medicaid benefits to the individual for a period of time. This period of time during which benefits are withheld is calculated based on the size of the gift, which comes out to approximately one month of suspended benefits for every $7,000 gift made. So, for example, if someone makes a $70,000 gift, the individual will be denied Medicaid benefits for a period of 10 months.

A Gift-Annuity Plan takes an individual’s excess resources (resources above the Medicaid eligibility limit) and divides it into two parts, with one part used to make a gift and the other part used to purchase a Medicaid-compliant annuity.

The below example helps illustrate how a Gift-Annuity Plan works.

Let’s imagine Jane is in the following situation:

• She has $120,000 in excess resources.
• She receives $2,000 per month in income (Social Security or other income).
• She is in a nursing home and paying $7,000 per month for care.

To implement the plan, Jane first gifts $70,000 to her family. Second, she takes the remaining $50,000 and purchases a Medicaid qualified annuity, which will pay out $5,000 per month for 10 months. Jane has successfully depleted her assets below the Medicaid eligibility threshold and will qualify for Medicaid; however, due to the $70,000 gift, Jane will not receive benefits for a 10-month period. Fortunately, Jane is able to pay her $7,000/month nursing home bill during this 10-month period because she is receiving the $5,000 monthly annuity payment and she has $2,000 in monthly income from other sources. At the end of the 10-month Medicaid penalty period, the annuity payments stop and Medicaid benefits kick in. By implementing a Gift-Annuity Plan, Jane was able to gift $70,000 of her $120,000 to her family and qualify for Medicaid rather than spend down the entire $120,000 in order to qualify.

Although it does not fit every circumstance, a Gift-Annuity Plan can often be a viable strategy for those who find themselves without prior Medicaid planning and are facing the imminent need for skilled nursing care. By utilizing this method, individuals can preserve a portion of their assets for their loved ones while still achieving Medicaid eligibility. It’s a sophisticated approach that requires careful execution and an understanding of the specific Medicaid rules. As always, consulting with a knowledgeable Medicaid planning attorney is crucial to ensure that the plan is implemented correctly.

If you have any questions about Medicaid Gift-Annuity Plans, please contact your FGKS Law attorney.