Are Annuities a Useful Medicaid Planning Technique in Hawaii?
Mrs. Henry Jones loves to play bridge. And she heard at her last bridge club that something called an "immediate annuity" could be a wonderful Medicaid planning technique.
As Mrs. Jones was told, with an immediate annuity, you send your money to the insurance company and in return for the lump sum payment, the company guarantees to pay you an income for either a certain number of years, or even for life.
The theory, from a Medicaid standpoint, is that when the annuity is purchased and then annuitized, assets such as bank accounts or securities are converted into an income stream. In other words, as far as Medicaid is concerned, those assets would no longer count as resources.
Her bridge club partner, Mrs. Smith had used this to help qualify her husband for Medicaid. Now Mrs. Jones thought she would do the same thing. So she contacted an insurance company and bought a Single Premium Immediate Annuity that was going to pay her $1500 per month for a minimum of 15 years. To do this at her age, she had to put $100,000 into the annuity contract. She thought she was all set.
Then the unthinkable happened. She had a stroke and needed nursing home care. When she went to apply for Medicaid, she was told that the annuity was not properly annuitized and the State of Hawaii considers the amount of money that she annuitized to be a transfer of assets without adequate consideration and subject to a penalty period from "the date payment to the client was restricted or foreclosed."
In other words, when she turned her assets into an income stream, at that point she incurred a one month period of ineligibility for every $7314 that was annuitized. Since Mrs. Smith put $100,000 into the annuity, she is ineligible for Hawaii Medicaid for 13 months.
And while it may be possible to fix this bad result by requesting a "hardship" waiver there is no guarantee that such a request will be successful.
In addition, the State of Hawaii, once she is qualified for Medicaid, will apply the income from the annuity toward her nursing home costs.
The bottom line is that the plan which her bridge club partner used may have worked for friend but the annuity that Mrs. Jones purchased did not fit the requirements on an annuity that will not cause a penalty period in Hawaii. That's why it's important to seek the advice of a knowledgeable Elder Law attorney so that proper planning can be done and you can be successful walking through the Medicaid maze.
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Legal Disclaimer
This information has been provided for informational purposes only. It does
not constitute legal advice. The receipt of this information does not establish
an attorney-client privilege. Proper legal advice can only be given upon consideration
of all the relevant facts and laws. Therefore you should not act upon any
of the information contained herein without seeking appropriate legal counsel.
Attorneys Judith Sterling and Michelle Tucker are both CPAs and licensed attorneys. They are the first two attorneys in Hawaii to be certified by the American Bar Association (ABA) accredited Estate Law Specialist Board, Inc., as Estate Planning Law Specialists, and are so certified by the Supreme Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only to lawyers in good standing who have successfully completed a specialty program accredited by the ABA.
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