Just wanted to update this little group on the Medicaid Annunity rules changes.
In the past we have discussed the protection of assets for a Community spouse by purchasing a Medicaid qualified Annunity that produces an income stream for the community spouse. These rules have now changed in the fact that the Annunity is counted as a resource it is not revocable (that has always been the case) but they have also added the change that if the income stream can be re-assigned then it is countable. Thus if an annunity has been purchased for lets say $100,000, then the monthly income stream is multiplied by the amount it will pay out and the complete principal of the Annunity will be counted as a resource, thus dis-allowing the Medicaid coverage. So if you purchase an Annunity for this reason be sure that neither the Annunity can be re-assigned and also the Income stream cannot be re-assigned.
These changes are the reason I always tell everyone, what works today may not work tomorrow when it comes to Medicaid and Long Term care coverage.
Let me add this note to the above. In my opinion it would be not be wise to even consider buying a spousal annunity with these new rules, even if the Annunity is un-assignable I would be inclined to think that the income stream could still be sold on the open market. This would definitely be something for an elder law attorney before purchase.
Jane, any advice on what to do with life insurance policies, mine and his? I know his would be considered an asset - so would it be better to cash it in or take a loan against it? Since he is beneficiary of mine, that would also be an asset for him - right?
Life Insurance are treated differently. It depends on the type of life insurance policy you own. If it is a term life, the face value is not counted as a resource, it will go to the beneficiary in most cases. In some States they have what is called extended probate, meaning that they include in the estate anything the deceased person owned immediately before death, and this takes in the payments on life insurance policies. In most cases a Term policy is safe as there is no cash value until the person dies. With an Ordinary life insurance policy, again in most States the value of the policy is not counted unless the face value of all policies combined is more than $10,000. Then only the cash surrender value is counted. So if you have a policy that has a cash value, then yes the cash value will be counted if the policy face is over a certain amount in most states. Changing the beneficiary has nothing to do with protecting the accrued cash value.
We found that, in Illinois anyway, if the recipient of Medicaid is the "owner" of the policy it is counted as his asset. It doesn't matter who the "beneficiary" is. It's not clear to me what determines who the owner is. I just know it isn't necessarily the same person as the beneficiary. My mother had to cash in my dad's $10,000 whole life policy, because he was the "owner." She could use the money to pre-plan and pay for his funeral.
Janet, my dh used to sell Insurance and he took out a small Life Insurance Policy for himself and listed our Church as owner and Beneficiary of the policy. The Church held the Policy until recently when I told them he had stopped paying on it and they could cash it in for a small amount of money. Sometimes Employeers will buy a Insurance Policy for an important employee (used to be called Key Man Insurance. ) The Company held the Policy and if the Employee died the Company was the Beneficiary.
Janet, That is correct, some States do count the policy no matter what the value but they only count the cash surrender value.
The best thing a person can do to protect the policy from Medicaid if they happen to have a Term policy, which in my opinion is really the best kind to have, you can if the Alzheimer patient is still competent and able to do so, have them sign the policy ownership over to the spouse, also continue to have the spouse as beneficiary and that causes the proceeds not to be in the Alzheimer patients estate for Medicaid estate recovery. A term life policy is not counted as a resource for Medicaid because it does not have a cash surrender policy and with the assignment of ownership to spouse, does not go into the estate, therefore it is completely safe. That is the route we took.
Anything that goes to a beneficiary in reality does not go into the deceased's estate but with Medicaid in SOME STATES, they do count anything that the deceased had ownership in immediately before death.
39 States are now working to make it a State Law that the Income stream from an Annunity has to be assignable. So there goes that protection for a spouse. No Annunity could be sold that is against State Law.
Again this is the reason I always say, don't bring information forward for rules after the fact. What worked one day will not always be allowed the next day. The Medicaid offices in many states are applying this rule to Annunities bought AFTER August 2005, those sold before that date seem to be ok.