When planning for an individual client (no spouse), it is common to implement a Gifting & Annuity Plan wherein the Medicaid applicant makes a gift and purchases a Medicaid Compliant Annuity (MCA) to provide almost enough income to privately pay during the private-pay/penalty period. Most attorneys are aware that in order for Medicaid to start a private pay/penalty period, the Medicaid applicant must be deemed “eligible for Medicaid but for the gift”. This means that the Medicaid applicant must be spent-down to $2,000 or less in most states, their income must be less than their cost of care, and a Medicaid application must be completed & submitted.
One common question we receive when doing this type of planning is “how do the numbers change if the client resides in an income cap or Miller trust state?” The gift and annuity numbers really don’t change; however, the Medicaid applicant must implement a Qualified Income Trust (QIT) Miller trust for income over the current cap amount of $2,523. The annuity income and other income will be deposited into the QIT before paying the nursing home. With the annuity and other income being deposited into the QIT, the Medicaid applicant is satisfy the income cap requirement.
Furthermore, there are a few states – Colorado, Kansas, & Oklahoma, that are even more restrictive than Miller trust states when implementing Gifting Plans as these states have a cap amount that cannot be exceeded in order for the penalty period to commence. For example, a state like Oklahoma has a cap amount of $5,725. Therefore, if the client is paying $6,000 per month for his/her care, we cannot create more total income than the cap of $5,725. The difference between the actual cost of care of $6,000 and the client’s total income will need to be paid for/covered by the giftee(s). The result of this type of income cap is that the initial gift amount is greater with a smaller annuity purchase amount. Ultimately, the giftee(s) will need to cover the difference between the income cap ($5,725) and the actual cost of care ($6,000) so that the end gift amount is slightly less.
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