Medicaid Spend Down – More Involved than First Meets the Eye (Part 4)

In this week’s blog post I continue with Mary’s call to our office about qualifying her mom for Medicaid.  In my post 3 week’s ago I told you that Mary thought her mom would be able to transfer her remaining assets to a special needs trust for Mary’s brother.  I explained that for a couple of reasons that transfer is not exempted from Medicaid’s transfer penalty rules.  Last week I explained that Mom actually has $150,000 in cash value from a life insurance policy.  This money must be spent down before qualifying for Medicaid.

This week I will examine the annuity which Mary told me her mom purchased years ago and which provides monthly income.  The question, however, is whether Medicaid will consider it to be an asset or income.  If it is an asset then we must determine the value, which must then be counted towards the $2000 asset limit. 

So, what makes something an asset for Medicaid purposes?  The key is whether that annuity can be converted to cash –  can it be sold or surrendered?  For that I needed Mary to provide me with the annuity contract.  Annuities come in many different “shapes and sizes”.  In this case, I saw that Mary’s mom had purchased a lifetime annuity with a 15 year period certain.  This means that the annuity pays out for Mom’s life but if she dies less than 15 years after purchase, the insurance company will pay the designated death beneficiary the remaining payments up to that 15 year period.

Examining the contract I saw that it does not allow the annuity owner (Mom) to cancel the contract, also known as surrendering it.  If she could surrender it for a lump sum, Medicaid then counts that sum as an additional asset that must be spent down.  That, however, is not the entire answer.

The other key factor I looked for was whether the annuity can be assigned.  This means that Mom has the right to sell or otherwise transfer to another person the right to receive these payments.  There was nothing in this contract that prohibited assignment.  So, while Mom can’t surrender the contract for cash, she can sell it to a third party in return for cash.  The insurance company would then send the monthly payments to that third party.

So, does that make the annuity an asset?  We would need to “shop” it to find out.  There are companies that buy annuities for cash.  If no company is willing to buy it then we would need proof of that so Medicaid will not count the annuity as an asset.

After I explained all this to Mary she asked me the bottom line question.  “Where does she go from here?”  I’ll answer that question next week.