But the real question is why does the attorney think that this 5-pay SPIA is going to qualify the wife for Medicaid. It will work for the first year. But, as soon as the hubbie gets the first $160K check, she'll be disqualified for Medicaid.
I am aware of the issues mentioned in regards to income generated from this type of arrangement. However, when I pressed the Client for more information, etc. he politely has informed me he has paid for up to date legal advice on this matter and he only needs an agent to write the business. I always do case notes which I include in my files outlining all emails, conversations, and circumstances regarding the case. In this instance I will notate all the info., ask the Client to sign it. I don't want nor do I feel I should be giving advice on the Medicaid part of it and will not mention that a as a factor in my case notes. Does anyone else use a recap from first meeting to sale for their files?
Are you saying that as an insurance agent you are not responsible for determining the suitability of a product you sell?
With all of the scrutiny taking place by state attorneys general and departments of insurance regarding the sale of annuities (in general) and the sale of annuities to seniors (in particular), I think you'd want to be a little more circumspect.
So, insurancexec, you are correct in saying that the healthy spouse can keep "half of their countable assets" up to a pre-determined limit (that limit is a little over $109,000).
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We will have to agree to disagree. There was recently a case here in Arkansas that was up-held that employed the half-loaf strategy.
I am not a fan of any type of Medicare advoidance programs; but they do exist.
Even though the half-loaf strategy has been changed to accommodate the new laws; it has not been NULLIFIED.
I will let the attorneys do their job, and continue to do mine.
------------------------------------ Direct 1-866.417.9580 X 109 mail@ngfgllc.com
The soundest approach that I've heard of is where someone gifts all their assets to the children/heirs, then applies for Medicaid (and is disqualied for a period of time because of the transfer) and then the children use the assets to pay for their parent's care. Each month the children pay for the care reduces the penalty period by a month.
The reason the DRA did away with the 'half a loaf' strategy is because the DRA changed the start of the disqualification period (from the date of the transfer of assets to the date of applying for Medicaid.) So, now, in order to make it work, someone has to give away enough of their assets (usually more than half) in order to make sure that they can qualify for Medicaid immediately (both income-wise and asset-wise) except for the disqualification period. The point is: it ain't easy.
It WAS EASY before DRA, because the disqualification period started counting down from the date of the transfer of assets. Now, the disqualification period starts from the date of application for Medicaid. HUGE DIFFERENCE.
The soundest approach that I've heard of is where someone gifts all their assets to the children/heirs, then applies for Medicaid (and is disqualied for a period of time because of the transfer) and then the children use the assets to pay for their parent's care. Each month the children pay for the care reduces the penalty period by a month.
The reason the DRA did away with the 'half a loaf' strategy is because the DRA changed the start of the disqualification period (from the date of the transfer of assets to the date of applying for Medicaid.) So, now, in order to make it work, someone has to give away enough of their assets (usually more than half) in order to make sure that they can qualify for Medicaid immediately (both income-wise and asset-wise) except for the disqualification period. The point is: it ain't easy.
It WAS EASY before DRA, because the disqualification period started counting down from the date of the transfer of assets. Now, the disqualification period starts from the date of application for Medicaid. HUGE DIFFERENCE.
1) This confirms what I said earlier. The "half a loaf" strategy (which was the most commonly used strategy before the DRA) is NOT listed as a viable strategy post-DRA.
2) "spousal refusal" is not allowed in most states. To my knowledge, "spousal refusal" is only allowed in the state of NY (which is the state for which this list was created).
3) "gifting of assets" to a spouse is listed, but the community spouse can only keep up to $109k in order for the other spouse to qualify for Medicaid.
Is there something pertinent that I missed?
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One more point:
DRA compliant annuities is listed as one of the strategies that can work now.
That is true.
In order for an annuity to be "DRA compliant" it has to be "actuarially sound". In other words, an 85 year old can't take out a 20-year term certain annuity, because that's beyond her life expectancy.
Additionally, in order to be DRA-compliant, the state has to be listed as the primary beneficiary.
In other words, the DRA put a stop to a lot of the planning techniques (including "medicaid friendly annuities) that were used before the DRA.
A "DRA Compliant annuity" can still work. I gave an example of that yesterday. In that example, the married couple had $300,000 of "countable assets". Instead of choosing to spend $200k of it on one spouse's care, they could put between $200k to $300k in a DRA compliant annuity. And the community spouse would receive the payments from that (roughly $40k to $60k per year). The "countable asset" which would have had to have been spent down, is instead, turned into an income stream for the healthy/community spouse.
However, it can't work in the example which golfnut has given. The size of the annuity payments will automatically disqualify the wife from Medicaid each year.
Can DRA compliant annuities work? yes.
Will they work in every situation. No.
Last edited by Never_a_dull_moment : 04-19-2009 at 06:27 PM.
Reason: Posts merged
Is there something pertinent that I missed?
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NO. I have to say that you are right in that the new technique is not referred to as "half-a-loaf strategy. I referred to it incorrectly.
Why have you not mentioned this?
It is now referred to as "reverse half-a-loaf" strategy. In speaking with an attorney this afternoon; he told me that they, the legal profession, still refer to the strategy as the "half-a-loaf strategy".
The point, is that the 2 strategies are very different.
The pre-DRA "half a loaf" was a cakewalk. There was no doubt that it could be used EVERY TIME successfully. And it was.
The post-DRA "reverse half a loaf" is NOT a cakewalk. It's much harder to qualify for Medicaid using this strategy. And it's fraught with substantially greater risks than the pre-DRA half a loaf strategy.
The post-DRA "reverse half a loaf" requires that the potential Medicaid beneficiary give up total control of nearly all of their countable assets.
In pre-DRA days, they'd only lose control of about half of their assets.
The only thing that is similar between the two strategies is the names. The implementation is very different.
The point, is that the 2 strategies are very different.
The pre-DRA "half a loaf" was a cakewalk. There was no doubt that it could be used EVERY TIME successfully. And it was.
The post-DRA "reverse half a loaf" is NOT a cakewalk. It's much harder to qualify for Medicaid using this strategy. And it's fraught with substantially greater risks than the pre-DRA half a loaf strategy.
The post-DRA "reverse half a loaf" requires that the potential Medicaid beneficiary give up total control of nearly all of their countable assets.
In pre-DRA days, they'd only lose control of about half of their assets.
The only thing that is similar between the two strategies is the names. The implementation is very different.
Well at least we are on the same page now.........LOL
I was always referring to the post-DRA "REVERSE half a loaf" method, and apologize for the confusion.
So what is an appropiate recommendation on my part in this situatuion. Am I understanding you correctly that the Client can take up to $109,560 in income yearly? and still qualify wife for Medicaid. If this is the case would an appropiate recommendation be that he spend enough of his current assets for her care, then convert to SPIA's as mentioned. Or
Could he increase the term of the SPIA's to produce slightly under the $109,560? I do appreciate the feedback and have learned a lot about a little know subject.
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Never,
I am concerned about suitability, as any Agent should be. I should mention that I would not complete a deal of this nature until I was completely satisfied that the Client had all his bases covered and I had spoken to the Attorney in question.
Last edited by golfnut : 04-20-2009 at 09:53 AM.
Reason: Posts merged
[quote=golfnut;152664]So what is an appropiate recommendation on my part in this situatuion. Am I understanding you correctly that the Client can take up to $109,560 in income yearly? and still qualify wife for Medicaid. If this is the case would an appropiate recommendation be that he spend enough of his current assets for her care, then convert to SPIA's as mentioned. Or
Could he increase the term of the SPIA's to produce slightly under the $109,560? I do appreciate the feedback and have learned a lot about a little know subject.
Quote]
The $109,560 is the CSRA (Community Spouse Resource Allowance), and is allowed one time. Here is a link that discusses this more in detail.
So what is an appropiate recommendation on my part in this situatuion. Am I understanding you correctly that the Client can take up to $109,560 in income yearly? and still qualify wife for Medicaid. If this is the case would an appropiate recommendation be that he spend enough of his current assets for her care, then convert to SPIA's as mentioned. Or
Could he increase the term of the SPIA's to produce slightly under the $109,560? I do appreciate the feedback and have learned a lot about a little know subject.
Golfnut,
First of all, an SPIA is probably not going to be of much help in this situation. They have too much in countable assets. If you lengthen the "period certain" in order to lower the annual payments, the SPIA will not be "actuarially sound" and the SPIA will disqualify her from Medicaid.
Secondly, there's no limit to how much income the community spouse can be receiving. The problem is that there is a limit to the "countable assets" that the community spouse can have and still allow the other spouse to continue to qualify for Medicaid. The question that would be raised by the local Medicaid office would be, "when does the husband's income become a 'countable asset'?" If he keeps getting these checks every year and putting them in the bank, he'd have to spend at least half of it on his wife's care. He'd have to bury it in the backyard or try to hide it some other way. But, even then, they might still ask for an accounting of it. It's MESSY. VERY MESSY.
I don't have an answer to this situation.
First of all, I don't know enough about their unique circumstances: (their income sources, their home equity, their other assets, their ages, whether the $800K is qualified money or non-qualified money, her prognosis, their heirs and their distribution goals, what her care is currently costing per month, etc...)
Secondly, I'm not an elder law attorney.
The one thing I do know, is that an SPIA is not going to magically preserve their assets and qualify the wife for Medicaid.
I know that you said in an earlier post:
"...when I pressed the Client for more information, etc. he politely has informed me he has paid for up to date legal advice on this matter and he only needs an agent to write the business."
But, I seriously doubt that your client has gotten "up to date" legal advice. I don't think any elder law attorney would have told him to put all of his countable assets into a 5-year pay SPIA. He's just got too much money. It won't work. If he had considerably less, it could work. (as I've already demonstrated.) (I suspect that your client just read something on the internet and thinks it will work in his situation.)
Trying to qualify this gentleman's wife for Medicaid by using an SPIA is definitely NOT the answer.
Based upon the limited information you've given about their circumstances, probably the best idea is for them to pay for her care using the interest generated from their savings. She'll have a better choice of care facilities and they'll retain more control over their lives and finances than if they tried to artificially impoverish themselves to qualify for Medicaid.
First of all, an SPIA is probably not going to be of much help in this situation. They have too much in countable assets. If you lengthen the "period certain" in order to lower the annual payments, the SPIA will not be "actuarially sound" and the SPIA will disqualify her from Medicaid.
Secondly, there's no limit to how much income the community spouse can be receiving. The problem is that there is a limit to the "countable assets" that the community spouse can have and still allow the other spouse to continue to qualify for Medicaid. The question that would be raised by the local Medicaid office would be, "when does the husband's income become a 'countable asset'?" If he keeps getting these checks every year and putting them in the bank, he'd have to spend at least half of it on his wife's care. He'd have to bury it in the backyard or try to hide it some other way. But, even then, they might still ask for an accounting of it. It's MESSY. VERY MESSY.
I don't have an answer to this situation.
First of all, I don't know enough about their unique circumstances: (their income sources, their home equity, their other assets, their ages, whether the $800K is qualified money or non-qualified money, her prognosis, their heirs and their distribution goals, what her care is currently costing per month, etc...)
Secondly, I'm not an elder law attorney.
The one thing I do know, is that an SPIA is not going to magically preserve their assets and qualify the wife for Medicaid.
I know that you said in an earlier post:
"...when I pressed the Client for more information, etc. he politely has informed me he has paid for up to date legal advice on this matter and he only needs an agent to write the business."
But, I seriously doubt that your client has gotten "up to date" legal advice. I don't think any elder law attorney would have told him to put all of his countable assets into a 5-year pay SPIA. He's just got too much money. It won't work. If he had considerably less, it could work. (as I've already demonstrated.) (I suspect that your client just read something on the internet and thinks it will work in his situation.)
Trying to qualify this gentleman's wife for Medicaid by using an SPIA is definitely NOT the answer.
Based upon the limited information you've given about their circumstances, probably the best idea is for them to pay for her care using the interest generated from their savings. She'll have a better choice of care facilities and they'll retain more control over their lives and finances than if they tried to artificially impoverish themselves to qualify for Medicaid.
There are limits placed on the income of the community spouse. What are you referring too?
In 1988, Congress enacted provisions to prevent what has come to be called "spousal impoverishment" that can leave the spouse who is still living at home in the community (as they refer to it) with little or no income or resources. These provisions are designed to help ensure that this situation will not occur and that community spouses are able to live out their lives with independence and dignity.
2009 Resource Eligibility (According to CMS)
The spousal impoverishment provisions apply when one member of a couple enters a nursing facility or other medical institution and is expected to remain there for at least 30 days. When the couple applies for Medicaid, an assessment of their resources is made. The couple's resources, regardless of ownership, are combined. The couple's home, household goods, an automobile, and burial funds are not included in the couple's combined resources. The result is the couple's combined countable resources. This amount is then used to determine the Spousal Share, which is one-half of the couple's combined resources.
To determine whether the spouse residing in a medical facility meets the state's resource standard for Medicaid, the following procedure is used: From the couple's combined countable resources, a Protected Resource Amount (PRA) is subtracted.
The PRA is the greatest of:
The Spousal Share, up to a maximum of $109,560 in 2009;
The state spousal resource standard, which a state can set at any amount between $21,912 and $109,560 in 2009;
An amount transferred to the community spouse for her/his support as directed by a court order; or
An amount designated by a state hearing officer to raise the community spouse's protected resources up to the minimum monthly maintenance needs standard.
After the PRA is subtracted from the couple's combined countable resources, the remainder is considered available to the spouse residing in the medical institution as countable resources. If the amount of countable resources is below the State's resource standard, the individual is eligible for Medicaid. Once resource eligibility is determined, any resources belonging to the community spouse are no longer considered available to the spouse in the medical facility.
Income Eligibility
The community spouse's income is not considered available to the spouse who is in the medical facility, and the two individuals are not considered a couple for income eligibility purposes. The state uses the income eligibility standard for one person rather than two, and the standard income eligibility process for Medicaid is used.
Post-Eligibility Treatment of Income
This process is followed after an individual in a nursing facility/medical institution is determined to be eligible for Medicaid. The post-eligibility process is used to determine how much the spouse in the medical facility must contribute toward his/her cost of nursing facility/institutional care. This process also determines how much of the income of the spouse who is in the medical facility is actually protected for use by the community spouse.
The process starts by determining the total income of the spouse in the medical facility. From that spouse's total income, the following items are deducted:
A personal needs allowance of at least $30; A community spouse's monthly income allowance (between $1,750 and $2,739 for 2009), as long as the income is actually made available to her/him;
A family monthly income allowance, if there are other family members living in the household;
An amount for medical expenses incurred by the spouse who is in the medical facility.
The community spouse's monthly income allowance is the amount of the institutionalized spouse's income that is actually made available to the community spouse. If the community spouse has income of his or her own, the amount of that income is deducted from the community spouse's monthly income allowance. Similarly, any income of family members, such as dependent children, is deducted from the family monthly income allowance.
Once the above items are deducted from the institutionalized spouse's income, any remaining income is contributed toward the cost of his or her care in the institution.
Last edited by insuranceexec : 04-20-2009 at 10:34 AM.
Your points are well taken. This is the first situation of this nature I have encountered. I am meeting with the Client and will have more information after that meeting.
There are no limits to how much income the community spouse can have. That is why immediate annuities are used, to increase the income of the community spouse, because the income of the community spouse is not considered available to the spouse that needs care.
In the post you just made it clearly stated:
Income Eligibility
"The community spouse's income is not considered available to the spouse who is in the medical facility, and the two individuals are not considered a couple for income eligibility purposes."
There is no limit to how much income a community spouse can have.
There is a minimum amount of income that the community spouse can have.
The post you made called it: community spouse's monthly income allowance.
That is a misnomer and it's a bad misnomer because it gives the wrong impression of what it truly is. The actual name is "Minimum Monthly Needs Allowance". (MMNA)
It is the minimum amount that the community spouse can have. If the community spouse has income in his/her name that is below the MMNA then the community spouse can keep some of the income of the spouse who needs care so that the community spouse's income is at least as high as the MMNA.
If the community spouse's income is above the MMNA, then the community spouse canNOT keep any of the income of the spouse who needs care.
There is no limit to how much income a community spouse can have. There is a limit to how much in countable assets the community spouse can have.
Looking at this from an objective point of view, it seems as though insurance exec and Never_a_dull_moment are very knowledgeable on this DRA subject.
What appeared to me as semantics throughout this debate, I have to say that with my personal experience, it is not semantics anymore because insuranceexec intelligently brought up the new version of the Half-Loaf Strategy (post-DRA), which is the Reverse Half-Loaf Strategy. This is indeed a viable strategy and certainly does exist.
Re: Medicare Compliant Annuities
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