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Bar News - September 18, 2009

Medicaid Law: Protecting the At-Home Spouse from Nursing Home Costs: Annuitizing the Spend-down


Kerri S. Glover

John E. Laboe
This article will cover familiar ground for those comparatively few attorneys regularly practicing in the area of elder law, an area that has become almost synonymous with "Medicaid planning." However, this article is not written for them; rather, this article is written for the much larger group of attorneys who may not delve into this area of the law very often, but find themselves occasionally dealing with the elderly and disabled in the areas of guardianship, estate planning or even personal injury.

The scenario is all too familiar: a husband or wife enters a nursing home and the at-home spouse is left bearing the burden of dividing the couple’s precious assets between the need to pay for both the nursing home and the on-going fundamental needs of the at-home spouse (referred to as the "community spouse"). With an $8,000+ nursing home bill to pay every month, this task can be quite daunting, if not impossible. This is much like having to divide the scarce supply of loaves and fishes, without the benefit of miracle.

In a respected attempt to save money, the community spouse seeks Medicaid benefits on behalf of the institutionalized spouse. The Medicaid office will require the couple to complete a resource assessment – that is, a snap-shot picture of the couple’s net worth as of the date the institutionalized spouse entered the hospital or nursing home. After reviewing the resource assessment, the Medicaid caseworker will typically then advise the community spouse that, while the house and vehicle may be exempt assets, the couple has too much in the way of non-exempt assets (e.g. bank accounts, mutual funds, annuities, life insurance, etc.) and that these excess assets must be spent before Medicaid eligibility can be attained.

The Spend-down and the Medicaid Annuity

The spouse is instructed to spend down the excess assets on items such as irrevocable funeral contracts, household improvements and (not surprisingly) nursing home costs. Then, once that certain amount has been completely and properly expended, the spouse would be eligible for Medicaid assistance. What he/she may not realize is that it is not in the state’s interest to advise the at-home spouse to take several simple steps that would largely protect the couple’s assets from any major loss to further nursing home costs.

There is a way to meet the spend-down requirement without continuing to pay for nursing home costs: the Medicaid annuity.

Federal statutes allow the excess assets (otherwise referred to as the "spend-down amount") to be converted into a stream of income, and protected from spend-down by placing the assets into an immediate annuity. So long as the annuity conforms to federal and state statutes, the amount of funds placed into the annuity is no longer considered a countable asset. The transfer of the assets into a qualifying annuity is not subject to any look-back period; the purchase of such an annuity is deemed to be a transaction for fair market value and not a gift. The institutionalized spouse is quite promptly found "eligible" for Medicaid and a substantial part of the spend-down is redirected to the long-term support of the at-home spouse.

A typical example is a couple that owns a home, a vehicle, a few life insurance policies, a modest stock portfolio and the usual checking and savings accounts. The home, its entire contents, and the vehicle are exempt assets when one spouse is still residing in the community. State and federal law permit the at-home spouse to retain the greater of $21,912 or one-half of the non-exempt assets, up to a maximum of $109,560 (this amount changes annually with increases in the Federal Consumer Price Index). For purposes of this example, the non-exempt assets have a cash value of $235,000. Of this amount, $109,560 may be kept by the community spouse and $2,500 may be kept by the institutionalized spouse, leaving $122,940 to be "spent-down" before the institutionalized spouse will qualify for Medicaid.

What the Law Allows

As stated above, the uninformed couple believes they must use all of the excess funds to pay continued nursing home costs. However, the law does not actually require this. Instead, the couple can purchase an immediate qualifying annuity and convert the $122,940 into a stream of income for the benefit of the at-home spouse.

The state case worker will not volunteer this information to the couple.

A Medicaid annuity has several qualifying parameters. It is necessary that the annuity conform precisely or it will be considered a countable asset by the state and further act to disqualify the institutionalized spouse for Medicaid.

The annuity must be "actuarially sound," meaning the annuity contract must be written for a term no longer than the annuitant’s life expectancy as set forth in the Actuarial Life Tables published by the Social Security Administration and must provide for equal payments to the contract owner (i.e. no balloon payments).

The annuity must be irrevocable and non-assignable. Once the annuity is purchased, the owner cannot revoke the contract and request a refund nor can she trade or assign the income stream to another for a lump-sum payout or as a gift.

Lastly, the annuity must either (a) name the State of New Hampshire as the primary remainder beneficiary for at least the total amount of medical assistance (Medicaid) paid on behalf of the annuitant or the spouse; or (b) name the State of New Hampshire as the contingent beneficiary after the community spouse or minor or disabled child and the state is named as the primary beneficiary if such spouse or a representative of the child disposes of any remainder interest for less than fair market value.

Consequently, without regard to which spouse is the actual owner of the annuity, the state must be named as a remainder beneficiary. That said, however, if the annuitant can survive the term of the annuity, he/she will have received all of the couple’s funds in return, with nothing more to pay to the state. The funds can be used for his/her own continued care.

Making Use of a Wise Option

The central point here is that if any part of the "spend-down" amount is committed irrevocably to the financial support of the still independent at-home spouse, that expenditure is completely permissible when done by means of a qualifying annuity. At the moment the remaining spend-down amount is expended by the purchase of the irrevocable annuity for the independent at-home spouse, the institutionalized spouse is then eligible for Medicaid.

If given the options of either spending down the excess resources on nursing home costs or committing those same funds to the long-term benefit of the at-home spouse, who would not take the relatively simple steps to establish this annuity? At the risk of over-generalizing, the only people who would not do this are those who are unaware that this option is allowed under the law.

Of almost universal concern to every married couple is the possibility that one of them will be placed in a nursing home while the other is still relatively independent. This ought to be dealt with in the couple’s estate-planning documents. Preserving the financial integrity and autonomy of the at-home spouse is something the law and underlying policy allows and actually encourages. That which might be deemed "excess assets" is not in reality "excess" at all when it comes to meeting the everyday support needs of the at-home spouse. The law provides a ready safety valve to allow for the preservation of funds for the at-home spouse’s living requirements. But if /when the situation arises and the couple has failed to plan for and take the opportunity the law allows, the state’s default position is for the couple to expend all of their so-called "excess" assets on the nursing home, even those that may be rightfully preserved for the future needs of the at-home spouse.

Kerri S. Glover is an associate attorney and John E. Laboe is the managing attorney at Laboe Associates, PLLC in Concord, where they practice in the areas of Medicaid planning, guardianships, estate planning and probate and trust administration. They may be reached at and

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