Using Annuities in Medicaid Planning

A common belief among people facing long-term care issues is that once a person is in a nursing home, they can no longer protect any of their assets.  Such is not true.

A popular planning technique among elder law attorneys can be described as a “gift – annuity” plan.  The plan combines gifting to a non-spousal beneficiary (usually the children of the nursing home resident) to protect some of the assets from being spent on nursing home bills and the purchase of a “Medicaid Annuity”.

A Medicaid Annuity is not one that you can purchase from your local bank or financial institution.   There are only a few financial institutions in the country from which you can purchase such an annuity.

Here is an example of how the annuity can help:


Assets of nursing home person                                              $100,000
Monthly income of nursing home person                                   2,500
Monthly nursing home expenses                                                  7,500
Monthly “drain” – amount taken from principal each              5,000
month to pay the nursing home bill


Person makes a one-time gift to the children                       $  45,000
this gift creates a Medicaid penalty period of almost 7 months (the number of months Medicaid will not pay the nursing bill due to the gift)

How does the nursing home get paid for those 7 months?  A person can use about $53,000 of the $55,000 to pay the 7 months to purchase a Medicaid Annuity, which is structured to pay out over the 7 month penalty period to cover the “drain” the Medicaid Annuity.   After 7 months, the Annuity has been depleted so the person now has less than $2,000 in assets (the Medicaid level), the penalty period has expired, and the person qualifies for Medicaid. The result?  45% of the assets have been protected.  This figure can be greater if the person’s income is greater, if they are entitled to Veteran’s benefits, or if they have long-term care insurance.

Joseph P. Mattera  focuses his practice on estate planning, elder law, special needs trusts, guardianships and probate.  He is an accredited attorney with the Veteran’s Administration and frequently lectures on estate and long-term care issues.   If you have question about Medicaid Planning or Estate Planning, he can be reached at or by calling 937-223-1130.

AUTHOR: Joseph Mattera

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