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Annuities Can Be Tool For Obtaining Medicaid Coverage

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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.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.