31 May I’m trying to plan for my dad. What happens with his annuity and Medicaid?

Q. I’m trying to plan for my dad: Right now, he has enough money to pay his rent for several years, but eventually we will exhaust his funds. With the Medicaid rules saying you can have virtually zero assets other than Social Security payments in order to qualify for assistance, how can you overcome the hurdle if you have an annuity that provides monthly income? The combined Social Security and annuity payment wouldn’t cover his monthly assisted living expenses. One of his annuities has zero cash value; the other valuation is about $35,000.
— Daughter

A. We’re glad you’re planning ahead.

There’s a lot to consider.

Medicaid regulations differentiate between income and principal, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

In order to qualify for Medicaid to cover care in a long-term care facility under the Managed Long-Term Services and Supports (MLTSS) program, the applicant cannot have more than $2,000 of countable assets, she said.

There are different kinds of annuities, and that matters here.

“A Medicaid-compliant annuity is a single premium immediate annuity that does not have a cash value, is actuarially sound, which means that it cannot exceed the life expectancy of the person receiving the annuity payments, is non-assignable, is irrevocable, provides for equal monthly payments and names the Medicaid agency as the beneficiary,” she said. “If the annuity is not Medicaid-compliant, the applicant will have to try to sell the annuity on the secondary market for the income stream.”

Annuities that were purchased with qualified saving assets such as an IRA cannot be sold on the secondary market and therefore, will not be a countable asset, Whitenack said.

“If the gross income is more than $2,742 per month in 2023, an individual may still qualify for MLTSS by establishing a Qualified Income Trust (QIT),” Whitenack said.

You should consult with an elder law attorney if your dad is going to need Medicaid in the future so you can take the proper planning steps today.

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This story was originally published on May 31, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.