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An annuity offers you the flexibility to help fund your retirement or pay for potential long-term care services or premiums for private insurance. Most importantly, an annuity can help you preserve your assets and protect your family's savings.

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• Private Pay?
• Long term care insurance?
• Medicare?
• Gifting?
• Taxes?
• Probate Court?
• Medicaid?

  There are many things to cover when planning for the future, but this list would be incomplete without considering the benefits of an annuity. Before looking at your options for long-term care funding, it is important to understand why long-term care should be part of your financial plan.
  It may be difficult to imagine you or your spouse entering a nursing home, but it can happen to anyone. The probability of someone needing skilled nursing facility care after age 65 is 40%. That's almost one in two Americans.
  More important than knowing the odds of needing nursing home care is knowing that a stay could be financially devastating. (Journal of Financial Professionals January 2001)

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  Your Financial Stability Could Be At Risk

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  Long-term care is defined as a stay of 90 days or longer in a nursing home, convalescent care facility, or similar facility. Long-term care goes beyond medical care and nursing care to include all the assistance you could need if you ever have a chronic illness or disability that leaves you unable to care for yourself over an extended period of time.
  The annual cost of nursing home care averages $54,000. These costs can be expected to rise. Combine this with the average nursing home stay of 30 or more months, and it's easy to see how high nursing home costs and a lengthy stay could rapidly deplete your assets.

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  Who Typically Pays The Bill?

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  Out Of Pocket

  From their own hard earned dollars (e.g., checking or savings account, investments).

  Private Insurance

  such as long-term care coverage designed to provide payment for nursing home, assisted living, or home health care.

  Government Benefits

  Medicare (Title XVlll of the Social Security Act), which provides limited, age based medical coverage and can potentially cover very limited convalescent care. Medicaid (Title XlX of the Social Security Act), which has strict eligibility requirements and covers long-tern care only if an individual is qualified.

  Many people begin paying for long-tern care with out of pocket resources but end up spending down their assets to a point where they actually qualify for government benefits.

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  What Is Medicaid, And What Is The Difference Between Medicaid, And Medicare?

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  Medicaid

  Signed into law in 1965, Medicaid covers medical care expenses as well as custodial care expenses and is a financial and medical need-based program. Benefits are primarily available to those who demonstrate a financial need. Eligibility depends on a persons assets and medical condition.

  Medicare

  Medicare also signed into law in 1965, covers medical expenses but not custodial care. It is not a financial need based program. Medicare benefits pay for covered medical costs, regardless of the recipients financial status

  Who Is Eligible For Medicaid?

  Each state covers Medicaid coverage independently, so it is important to know the law in your state. To qualify for Medicaid in most states, a person entering a nursing home must:

  • Be at least 65 or blind or disabled
    (as defined by your state of residency).
  • Be a resident of the state that provides the Medicaid benefits.
  • Need the type of care provided by a nursing home.
    (Most states have preadmission screening programs)
  • Most Important -- Meet his or her state's resource and asset eligibility requirements.

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  Resource And Asset Eligibility Requirements

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  When you apply for benefits your assets will be reviewed to determine if you're eligible. Each state has different restrictions.

  Income Cap

  Some states set monthly income limits, or " Caps," for persons entering nursing homes. In some income-cap states, the income of the healthy spouse is not considered when deeming eligibility. If you live in an income-cap state, you will not qualify for Medicaid if your income exceeds your state's income limit.
  If you live in an income-cap state and your income exceeds your state's income limits, there are steps you may take to satisfy the restrictions, such as establishing some kind of trust called a Miller Trust. Ask your attorney or financial advisor about this and other options available in your state.

  Spend Down

  Most state have spend down provisions, and eligibility is primarily dependent on the amount of your assets. Assets are counted jointly for married couples, and each state has stringent restrictions on the amount of countable assets you can own. When you apply for Medicaid, your assets are classified as either countable or non-countable.

  • Countable Assets - Considered in determining eligibility.
  • Non-Countable Assets - Not considered in determining eligibility. Non-countable assets are some times referred to as exempt.

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  To Qualify For Medicaid, Most People Spend Down Their Assets

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  Medicaid allows you to spend down your assets on any item for your own benefit. In some states, you can reduce debts - buy clothing, a television, a wheelchair, or a walker - put a new roof on your home, or buy a car for your own use.
  You may also convert countable assets to non- countable assets. For instance, you may buy a burial plot, create a prepaid burial fund, purchase an annuity, remodel your home, buy new furniture, pay off your mortgage, or make gifts. You may also be able to go to court or obtain a fair hearing to qualify for Medicaid without spending down assets.
  In many cases, people may end up disposing of what they've worked hard to accumulate, spending frivolously or leaving a spouse or family member with relatively little savings on which to live.
  By learning what assets are counted for eligibility in your state and examining your state's Medicaid eligibility requirements and other long-term care funding options, you can make informed choices that can help preserve your assets and protect your family's future.

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  What Types Of Assets Are Non-Countable?

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  • Principal residence of any value.
    Individuals - The principal residence is not counted, provided you specify on you Medicaid application that you intend to return home when your health improves.
    Married couples - the principal residence is not counted if your spouse still lives there.
  • One car of any value
  • Household goods and personal effects of any value
  • Prepaid burial plots of any value
  • A whole life insurance policy with a total cash value of $1,500 or less

  In addition to the items on this list, an annuity that is properly annuitized can be considered an unavailable asset and non countable in determining Medicaid eligibility.

  Annuitizing an annuity can convert countable assets to non-countable assets by simply exchanging premium dollars for irrevocable income payments. However, if the payments are made to the person entering the nursing home, the income generated by the annuity will be counted as income and will be required to be used toward the cost of care.

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  Benefits Of An Annuity

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  Annuities are most often used in retirement planning as a way to accumulate tax deferred earnings, obtain expert money management, and help supplement income during retirement years,

  An annuity is a contract issued by a life insurance company. In exchange for the premium paid, the insurer agrees to pay an income stream for a specific period of time. The owner(s) can select the appropriate time to start the income stream.

  There are two phases of an annuity contract: The growth period and the payout period. The growth period is the time between the purchase and payout periods. During this time, the annuity earns interest. This phase is also called the accumulation period.

  When an annuity is in the growth period, it gives you more control over when you pay taxes. This is because the income tax on your interest earning is deferred until you choose to access your savings. In addition, during this phase, your savings work harder because you earn interest on:

  • Your original premium
  • Your Interest
  • The money you would have paid in taxes
  The process is commonly referred to as triple compounding. During the payout period, the accumulated principal and earnings are converted into a series of periodic payments under a settlement option. This phase is also called annuitization.

  You will be required to pay any applicable state and federal taxes on deferred earnings when you begin to make withdrawals. Withdrawals prior to age 59 1/2 are subject to tax penalties in addition to taxes. Additionally certain charges referred to as surrender charges may apply if you withdraw your principal. Consult your tax advisor.

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  Annuities An Excellent Long-Term Care Funding Option

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  An addition to the traditional benefits of an annuity, an annuity offers you the flexibility to pay for potential long-term care services, pay premiums for long-term care insurance, or possibly help you or your spouse qualify for Medicaid without spending down assets. However an annuity should be purchased primarily as a retirement planning tool rather than for Medicaid preplanning, unless there is some imminent need.

  For an annuity to be considered an unavailable asset (ie non-countable) for Medicaid eligibility purposes, it must be properly annuitized. A properly annuitized annuity meets the following guidelines, outlined in the Centers for Medicaid and Medical Services "State Medicaid Manual".

  • Actuarially Sound. The income stream is scheduled for a time period that is equal to or less than you or your spouse's life expectancy, and the life expectancy is calculated using Social Security Administrative tables.
  • Irrevocable. The annuity is non-surrenderable, meaning you can not sell or cash it in., there is no surrender cash value, and it is nontransferable (you can not transfer it to someone else).
  • Non-Assignable. You can not borrow against it or use it for collateral.
  • Non-Commutable. You can not change the income payment stream while the annuitant is living.
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