2 Federal Courts Rule that Spouse of Nursing Home Resident Can Protect Assets by Purchase of Annuity

For a married couple, the cost of a nursing home care for one of them can rapidly deplete assets that have been saved over a lifetime of careful planning. An entire nest egg can be extinguished.  The Medicaid program, however, will pay for the nursing home costs of disabled spouse when the couple’s joint assets are reduced to a specific level. This level, or amount of protected assets, is known in Medicaid planning parlance as the CSRA. The amount of the CSRA for 2009 is $109,560. (see: http://info.dhhs.state.nc.us/olm/manuals/dma/abd/chg/MA_CN04-09.htm#P34_1689).

Fortunately, two recent decisions by federal courts (one in NJ and one in Pa.) ruled that the purchase of a single premium, irrevocable and non-assignable, immediate annuity is a permissible use of the amount that exceeds the CSRA.

As an example, suppose a married couple, who have not engaged in any advanced planning, have a home and $200,000 in savings. One spouse becomes disabled and is admitted to a nursing home. Assume the nursing home expenses are $5,000 per month. The $200,000 must be spent-down at $5,000 per month until the healthy spouse at home has $109,560 left ( and can also keep the home, it need not be sold). Thus, $90,440 must be spent on nursing home care before Mediciad will kick-in to start paying the bill.                            READ MORE BELOW

Now, let us say that the healthy spouse wanted to take some legal steps towards protecting more of the $200,000 in savings. If the healthy spouse took the $90,440 and purchased a qualifying annuity, the healthy spouse would be taking a block of assets and turn it into a protected income stream that is paid directly to the healthy spouse (probably a rather large income stream, and larger than might be needed).

Two basic Medicaid rules allow this technique to work:

Rule 1.)  A healthy spouse’s level of income has nothing to do with the eligibility of the disabled spouse, the amount of the monthly annuity payment has no impact on eligibility of the disabled spouse.

Rule 2.) Mediciad rules are very strict about giving assets away. A healthy spouse could not take the same $90,440 and give it to a child for safekeeping. That is a gift. A purchase of an annuity is not a gift.

Of course the two federal cases mentioned above originate from 2 states other than South Carolina. It is impossible to say with 100% certainty that South Carolina courts will rule exactly the same way. But precedent has great import in this area of the law, where caselaw decisions are quite sporadic. It shows at least trend heading in the direction favorably to elderly disabled families. ANY asset plan has risks and a client must always decide after being provided a full explanation of the current laws, whether taking the risk is worthwhile.

But one thing is certain, these two cases may have significantly changed the law in South Carolina concerning the use of annuities to help elderly state residents remain in their homes.