JUNE 22, 1998 VOLUME 5, NUMBER 51
A patient in an Arizona nursing home is likely to incur expenses of $3500 to $4000 (or more) per month. For patients who have already paid nursing home expenses for months or years, and who have exhausted their savings, ALTCS, the state’s Medicaid program, usually ends up subsidizing nursing home costs. If the patient is married, however, and the spouse continues to live at home, the couple’s assets do not have to be completely exhausted before ALTCS subsidies can begin.
The rules for calculating how much a married couple can retain (while still qualifying for ALTCS/Medicaid) are fairly complicated. Those rules do, however, offer a number of planning options for the couple faced with institutionalization of one spouse. One of the choices such a couple might consider is the use of “immediate annuities.”
An illustration (drawn from an actual case recently handled by FLEMING & CURTI, P.L.C.) might help to demonstrate how annuities can be used. Mr. and Mrs. Brown (not their real names) are both in their late 80s, and have been married for over sixty years. They have accumulated a modest estate, consisting of about $125,000. They do not own a home, having sold the family residence and moved into an apartment several years ago. Mrs. Brown now requires nursing home placement.
Under Medicaid eligibility rules, Mrs. Brown will qualify for assistance with nursing home costs once the couple’s assets have been reduced to $65,000. If the Browns pay for her nursing care at $4,000 per month, she will not qualify for about two years (since they will continue to receive both investment and Social Security income, the net shortfall each month will be less than the cost of the nursing home).
The Browns have several options available to them. They could buy a new home, but neither one is well enough to really care for a home. They could make gifts to their children, but that would create a period of ineligibility for Mrs. Brown that would last for almost two years. Or they could look into a single premium annuity.
Mr. Brown can purchase an annuity with $65,000 of the couple’s assets. The terms of the annuity would have to be very precise, however. First (and most importantly), the annuity must be “immediate.” This means that it is irrevocable, and that the Browns may not later cash it in and receive any principal payments. Even the more common type of annuities sold to seniors, in which a penalty is assessed for early withdrawals, is inadequate for this purpose. Mr. and Mrs. Brown must have no access to the principal of the annuity in any circumstances.
Given Mr. Brown’s age, his life expectancy is only about five years. The annuity contract will be limited to that five-year period. Under the terms of the proposal he received, he will be paid $1,147.18 per month; after sixty payments he will have received $68,830.80 back from his original $65,000 investment and the payments will cease.
Mrs. Brown will immediately be eligible for Medicaid subsidization of her nursing home care. Because her only income is $340 per month of Social Security, she will pay about $266 per month to the nursing home, and ALTCS will pay the balance. Mr. Brown will be permitted to keep all the annuity payments and his own pension and Social Security income, and he can also retain the remaining $60,000 of assets the couple has accumulated.
There is, of course, more to the Browns’ story than this simple illustration, and the use of immediate annuities is a complicated process. Insurance agents occasionally try to navigate these issues without legal help, sometimes causing future problems for patients and family members. A handful of Phoenix and Tucson lawyers have experience with these planning devices, and can explain the complex interaction of assets, income and annuities.
