Annuities are often used when a married couple attempts to qualify one spouse for benefits and the spouse living at home (the “Community Spouse”) may have more assets than are allowed. This strategy enables one spouse to receive the care they need without impoverishing the Community Spouse.
In order to qualify for MassHealth (the Massachusetts name for the federal Medicaid program), an applicant cannot have more than $2,000 in assets. If that individual is married, the Community Spouse currently may keep the home with an equitable value of $802,000 or less, one automobile of any value, and up to a maximum of $115,920 in other assets. This amount, called the Community Spouse Resource Allowance (“CSRA”), is the largest amount that a state may allow a Community Spouse to retain without a hearing or a court order.
One way to prevent impoverishment for the Community Spouse is to purchase an annuity with the countable assets in excess of the CSRA. By purchasing an annuity, the Community Spouse turns a countable resource into an income stream, which should not be counted as a resource by MassHealth. The annuity must meet certain qualifications in order not to be considered an asset transfer, including, but not limited to, (i) the annuity must be irrevocable, and (ii) there must be equal payments monthly over a term not to exceed the life expectancy of the Community Spouse.
Some states have denied benefits to an applicant where the Community Spouse has utilized this strategy, although Massachusetts is not one of them. However, a recent U.S. Court of Appeals case makes clear that this strategy is sound under current federal law.
In Geston v. Anderson (8th Cir., No. 12-2224, Sept. 10, 2013), John Getson, a North Dakota resident, entered a nursing home and his wife, the Community Spouse, purchased a single-premium annuity for $400,000. This annuity reduced the assets held by the Community Spouse below the CSRA and provided a monthly income stream of $2,735 to her for 13 years. The annuity was irrevocable and it designated the state as the beneficiary. Mr. Geston was denied Medicaid benefits by North Dakota based on the conclusion that the annuity was a countable resource. The applicant brought a claim in federal court, which, on appeal, held that the annuity was not a resource and should not be counted in determining Mr. Getson’s eligibility for Medicaid.
Although this strategy appears to be simple and straight forward, great care should be taken before making the decision to purchase an annuity. The wisest move would be to consult with an attorney experienced in estate planning and elder law, who could properly advise you on the plan that best suits your needs.