Gifting & Medicaid Compliant Annuity Planning for an Individual Client
When implementing a Gifting & Medicaid Compliant Annuity (MCA) Plan for an individual client (no spouse), the goal is to maximize the amount transferred out of the individual’s name as a gift and then determine the appropriate amount to be placed into a MCA to provide almost enough income during the ineligibility/penalty period. The goal is to make the gift and purchase a MCA with all of the individual’s countable resources, with the exception of $2,000 (in most states). Therefore, you can think of the Gifting Plan as three different “buckets of money”. In Bucket 1, we have the amount of money the client will keep in his/her name as his/her available resources – typically $2,000, or less. Bucket 2 is the Gifted funds transferred out of the individual’s name, typically to an irrevocable trust or to children directly. Bucket 3 is the MCA which will convert a lump-sum of resources into an income stream. As for the MCA amount, we don’t want to create exactly the amount of income the client needs to pay the nursing home with the MCA. We intentionally want a slight shortfall in the monthly income so that the client is deemed “otherwise eligible for Medicaid”. Below is a list of 10 Steps we use to calculate a Gifting & MCA plan:
Step 1: Determine the monthly cost of nursing home care. The client may provide you with the cost of care as a monthly or per day amount. If a per day rate, multiply the rate by 30 days.
Step 2: Determine the individual’s gross monthly income from all sources – social security, pension, rental income, etc. Then deduct any “consistent allowable monthly medical expenses” from the gross income. For example, Medicare Part B, supplement insurance premiums, etc.
Step 3: Determine the monthly income shortfall by subtracting the net monthly income calculated in Step 2 from the cost of nursing home care in Step 1.
Step 4: Determine the monthly divestment penalty divisor amount by visiting the State Resources tab on our website.
Step 5: Determine the “burn rate” by adding the monthly income shortfall from Step 3 to the monthly divestment penalty divisor from Step 4.
Step 6: Determine the spend-down amount by adding all of the individual’s available/countable resources together, including any previous gifts made within the past 5 years.
Step 7: Determine the length of the penalty period by dividing the spend-down amount calculated in Step 6 by the burn rate calculated in Step 5. The fractional amount is typically rounded up or down to the nearest whole number.
Step 8: Determine the Gift Amount by multiplying the length of the penalty period calculated in Step 7 by the divestment penalty divisor amount determined in Step 4.
Step 9: Determine the MCA Amount by subtracting the gift amount calculated in Step 8 from the spend-down amount calculated in Step 6.
Step 10: Invest the amount calculated in Step 9 in a MCA. Contact AshBer for specific information regarding the exact MCA monthly payment amount.
As always, we’re happy to assist with these calculations for your individual clients. Please don’t hesitate to reach out to us.