Lifestyles over 50 Finance & Money
Nursing homes cost over $125,000 a year. Medicare and health insurance don’t pay for this. Fortunately, Medicaid does. But impoverishment is the price of admission into the Medicaid program. While most spend themselves broke, a savvy few manage to qualify for Medicaid without forfeiting their estate. One way for single clients to do that is with the “gift & annuity” strategy.
Under gift & annuity, a person gifts a substantial portion of their estate – typically about half of their assets - outright or into a trust. At the same time, the remaining assets are converted into an income stream via purchase of a Single Premium Immediate Annuity, or “SPIA.”
An individual pays an up-front lump sum to the insurance company to buy a SPIA. Beginning the following month, the insurance company makes monthly payments to the owner for life or for a fixed term. This guarantees the owner a fixed income.
With gift & annuity, the SPIA meets specified legal requirements under the Medicaid law. It pays out equal monthly installments for a fixed period. That fixed payout period corresponds to the period of ineligibility for Medicaid imposed because of the gift. It’s not illegal to make gifts and then seek to qualify for Medicaid. But a penalty for gifting is imposed in the form of a period of ineligibility for benefits. The penalty period is calculated based upon the size of the gift. A larger gift incurs a longer period of ineligibility. Many mistakenly believe Medicaid eligibility can’t be achieved if gifting occurs within five years prior to the date of application for benefits. Not so with gift & annuity.
During the penalty period the income from the SPIA pays for the individual’s care. When the penalty period expires the applicant qualifies for Medicaid.
STANLEY M. VASILIADIS is a Certified Elder Law Attorney as accredited by the Pennsylvania Supreme Court. He is a long-time member of the National Academy of Elder Law Attorneys, charter member of the Academy of Special Needs Planners, and Past-President of the Pennsylvania Association of Elder Law Attorneys. Vasiliadis successfully litigated the landmark elder law case, Mertz v. Houstoun, and has received numerous awards in his field, including the Excellence in Elder Law Award by the Pennsylvania Bar Association and recognition as a Pennsylvania Super Lawyer by Philadelphia Magazine every year since 2005. He is Of Counsel with Vasiliadis Pappas Associates LLC, located in Bethlehem. The firm serves clients in the fields of long-term care planning, trust & estate administration, estate & tax planning, asset protection planning, and special needs planning.