Medicaid friendly annuities (Vermont). Any advice? - AgingCare.com

Medicaid friendly annuities (Vermont). Any advice?

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My mother and father are both around 80 and in poor health. They have depleted their savings below $20,000 and are living primarily on Social Security. My mother has had a modest inheritance from a recently deceased sister that is enough to keep them comfortable for 10 years if it were put in a 10 year annuity at 3%.

I've been looking into Medicaid friendly annuities because it's very likely one or both of my parents could require institutionalization and I worry the inheritance could be jeopardized by the bills. But it seems like most of what I read relies on the concept of a "community spouse" which is the person who is not institutionalized and in whose name the annuity is typically purchased. The problem is, it's a roll of the dice which one of them succumbs first.

Am I understanding the problem correctly? Essentially I want to put the money in an investment that can't be liened or seized for medical expenses in the event one or both of my parents are institutionalized. I want the whole thing to liquidate over the next 10 years leaving nothing.

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JLM - I'm going to approach your ? a bit differently. Is it at all realistic to think that both parents would be able to stay in their home for the next decade totally on their own? Would they be able to be there for when the "annuity" complete's its run?

Will they need caregivers? For my mom, home health ran $ 20 hr 4 hr minimum & a minimum of 3 days a week (it was done for about 3 months when she was recovering from surgery and could not drive). Is there enough money to pay for home health for say 5 days a week for them for 10 years from the "annuity".

If one went into a NH, consider that NH run from 5K to 15K a month per person. Look at the costs of your parents current medications and then double that for an idea of what those costs could be in a facility. Add in the costs of PT & or OT to the NH costs. My mom is now in a NH and it runs 5K a month for room & board (this is based on $ 145 Medicaid reimbursement rate for TX which is pitiful low) and then add on whatever other costs like PT. Basically 8K a month, 96K a year. Really NH monthly costs & fees are huge. So would the annuity be able to even pay that for 1 parent? and for how long?

How does the math look? The harsh reality is that unless your parents have mid 6 figures in assets, they are going to run out of $ to private pay for care with or without an annuity. It is my belief that if they live long enough, they will run out of funds & eventually apply for NH Medicaid. You want to do whatever to make their qualifying for Medicaid be as simple & uncomplicated as possible.

Annuities are an insurance product which creates a cash flow. For the most part they are considered an asset for Medicaid. Now some are OK for Medicaid. Medicaid compliant annuities usually mean that the state Medicaid program is named the beneficiary of the policy for those that pay when the annuitant dies OR named as the payee for the balance of the annuity contract or for a CS. For most folks, having the state be the beneficiary is not at all what they want the annuity to do…..like they buy deferred annuity to be able to pass assets non-testamentary (they pass without dealing with probate; they are outside of your will).

Perchance, were you looking into a SPIA? These, imho, are quite nice but really seem to work best if the spouse is a younger 2nd or 3rd wife situation, perhaps with kids. This is not your folks.

I will totally agree with AK in that annuities are not appropriate for those in their 80's. Most often the type of annuities promoted to elders are deferred annuities. Deferred are promoted as there is no income tax on the interest until the annuity is paid. This is enticing lure for most especially seniors. But deferred annuities have pretty severe penalty provisions for early withdrawal of funds. Could be 10 % or more of the principal (not the balance, but the original principal). Also the sales commissions for annuities are higher that for most other investments. Look to see that if you need to change the beneficiary or the payee, that it is allowed under the contract and if so what the penalty & fees are.

Pam's idea of just using their funds to private pay for their care is probably the best use of their $ at this late point in time. Be sure to clearly speak with any facilities as to if they take Medicaid and what the timeframe is for private pay before Medicaid will be considered. Private pay NH often have a few medicaid beds and the list for them will always come from within the current resident group. Could be 2 years before a Medicaid bed opens up. You want to keep this in mind when your choose a place for them. This is really common where I live in that the really nicer facilities, although they take Medicaid, never ever have openings for the general public. You can place them on a waiting list but you are always going to be on page 2. Beds are filled from those there on private pay for years prior.

Good luck, none of this is simple.
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JLM, the best person for you to talk to would be an eldercare attorney familiar with Vermont's programs and laws. Is your primary worry that your parents will outlive their money? As Pam points out, if you can get them into a facility on private pay for a year or two, it opens up MUCH nicer places.
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I was told by a financial planning professional that an annuity is not an appropriate investment for a person over 70 years old. They often have high penalties if money is withdrawn early. At the least, make sure that the annuity you purchase has a clause allowing for penalty-free withdrawal if the owner(s) need to enter a skilled care facility. Also, since it is likely that a ten year annuity will outlive your parents, be sure you understand what happens to any remaining funds. You should consult with a professional to see if there may be a better investment for your parents' situation.
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Thank you pamstegman. I am probably wrong but was under the impression that certain annuities could be used to remove assets from consideration when qualifying for Medicaid. I know so little about this process it's hard for someone knowledgeable like you to make me understand you. I don't think there's any reason the money would be transferred to me or my siblings and there's no concern for the money outliving my parents. We'd like the last penny spent the day before the second of them passes.
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There really is no such thing as hiding assets from Medicaid anymore. Were they to transfer the asset to you, large gift taxes are imposed on them and income taxes on you. Medicaid looks back five years at ALL their finances.
You may be hoping for an inheritance, but that is not going to happen unless both of them simply drop dead. Also consider that on Medicaid, they don't have any choice on which facility they go to. It could be far away or it could be a real dump. Far better to get them in on private pay in a nice place, spend down their assets and convert to Medicaid as needed and be able to stay in the better facility.
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