Number One Provider of Medicaid Compliant Annuities

IRA Accounts - d(4)(A) Trusts and Medicaid

Recently, I worked on a case involving an individual who wanted to put his $90,000.00 IRA account into a self-settled   d(4)(A) (“the Trust”).  Even though I could get the IRA account transferred into a tax deferred annuity (“TDA”) by way of a tax-free rollover (the individual is the owner/annuitant), and the insurance company was willing to re-title the TDA into the Trust (the trust is the owner, the individual is still the annuitant, and the trust is the primary beneficiary), there was a question as to whether, or not, the transaction involved a taxable event.

 

Of course, the safest way to proceed in such a case is to obtain a favorable private letter ruling.  However, the cost to obtain such a letter is approximately $16,000.00, and there was some concern that a favorable ruling was not available.  Additionally, as a result of the high cost, he would only have net investable proceeds of $74,000.00  

 

In the alternative, I determined that if he put the IRA proceeds through the federal taxation system, after his personal exemption of $3,650.00 and standard deduction of $5,700.00, his federal income tax liability would be based on $80,650.00 of taxable income.   Accordingly, the federal income tax liability would be $16,350.00, leaving him net investable proceeds of $73,650.00.

 

Without any guarantees under the private letter ruling option and for the fact that he needed to qualify for Medicaid benefits as soon as possible, he chose the second alternative.  Additionally, in that he had no immediate income needs, the Trustee chose to invest the $73,650.00 into a TDA with a 5 year term, and a guaranteed interest rate of 5% over the term. Assuming no withdrawals from the TDA, at the end of the term the account balance would increase to $93,998.13.  However, if income was needed, the owner/Trustee could withdraw 10% of the account value once per year, with any unused 10% withdrawals being allowed to accumulate.  Finally, at the death of the individual/annuitant (the product is “annuitant driven”), the primary beneficiary/Trustee is entitled to collect the full account value and settle the Trust  

As a result of the cost effective planning, everyone achieved their goals, and the tax reporting was minimized.

Excess Income During a Gifting/Short-Term Medicaid Compliant Annuity Plan

Question: What needs to happen to the monthly income generated by a Gifting/Short-Term Medicaid Compliant Annuity Plan when the individual unexpectedly goes to the hospital and re-enters the Medicare system for skilled nursing home care?  Assume that the individual has a Medicare supplemental insurance plan.

Answer: By the end of the month, a Medicaid applicant/recipient must find a way to spend-down the monthly income.  If the income is not properly spent-down, it converts to a resource by the 1st of the following month.  Then, if the Medicaid applicant/recipient accumulates more than
$2,000.00 in countable resources, he or she is no longer eligible to receive Medicaid benefits.

To accomplish the income spend-down goal, I usually recommend that the Medicaid applicant/recipient should pay past bills, finalize their pre-paid funeral arrangement, and purchase personal items - clothing, medical equipment, eyeglasses, hearing aids, dental work, etc.  Additionally, in those cases where it is expected that the children will need to advance funds to cover out of pocket nursing home expenses not budgeted within the Medicaid Plan, I have the Medicaid applicant/recipient pay off the obligation. 

The obligation is evidenced by a DRA Compliant Demand Promissory Note in favor of the children which states that any amounts advanced by the children are legal obligations of the Medicaid applicant/recipient.  The promissory note is executed at the beginning of the Medicaid Plan.

Also, if the Medicaid applicant/recipient does not have a $1,500.00 face value life insurance policy - exempt resource, I would have them purchase one - Krause Financial Services, LLC, offers a guaranteed issue product.  As a last resort, if funds still exist, I would have the Medicaid applicant/recipient purchase a Stand-Alone Medicaid Compliant Annuity.  The funds will be lost to the nursing home as part of the monthly co-pay amount or under the primary beneficiary designation, but the Medicaid applicant/recipient's Medicaid benefits will never be in jeopardy.

Another strategy is that the Medicaid applicant/recipient could irrevocably pre-pay the attorney for future Medicaid re-certifications - no refund is possible.  The Medicaid applicant/recipient's family will take comfort in knowing that an attorney is involved in the annual Medicaid renewals.

Financial Product Sales in 2008 - Long Term Care Insurance - Medicaid

In 2008, according to a recent poll conducted by the NAIFA's advisorToday.com, annuity sales topped the financial product sales marketplace at 34 %.  Next, whole life sales followed at 25%, term life sales at 16%, disability income sales at 14%, universal life sales at 9%, and long term care insurance sales at 2%.  Did the last statistic surprise you?  

In an article entitled, "Discussing Life Expectancy", which appeared in the March of 2009 edition of NAIFA's advisorToday magazine,  I learned that a married couple has a higher exposure to the risk of living too long than does a single person.  What is the premise behind the argument?  According to the article, the argument is premised on the principle that the life expectancy of two people is greater than the life expectancy of one person.  The article goes on to say if a husband and wife are age 66, there is a 50-percent probability that one of them will live 25.3 years, which is about seven years more than the life expectancy of either the the husband or the wife as a single person.

In light of the above, it is my opinion that if the aforementioned result were to occur, the surviving party will certainly have a higher need for long term care.  Additionally, if the surviving party wants to avoid losing more than half of his or her assets to a long term stay in a nursing home in order to qualify for Medicaid benefits, he or she will need to purchase a long term care insurance policy. In order to get the best deal on a long term care insurance policy, an individual must be less than 80 years of age, and be in good health. 

Finally, in those cases were a couple has explored the opportunity to purchase long term care insurance and one of them is declared uninsurable, based on the aforementioned statistics, the insurable spouse still needs to purchase the long term care insurance coverage. 

The 2009 Financial Markets And Community Spouse Cases

Lately, with a plummeting financial market and shrinking investment portfolios, a new trend has emerged.  Community spouses are reluctant to qualify their institutionalized spouses for Medicaid benefits for the fact that their investment portfolios will need to be liquidated.  Is that so bad?  What if the market recovers?  What if it does not?  Is there enough time for a recovery?

In the case of a healthy community spouse, where a substantial amount of the wealth remains, the answer is "absolutely not!"  In such a case, the Medicaid plan will provide an immediate benefit.

Assume for the moment that the husband has gone into the nursing home, and the couple's investment portfolio has lost 30% of its value, or $300,000.00.  The wife would like to wait for the market to recover, but during the wait, she understands that the nursing home will be charging $7,500.00 per month.  Instead, following my plan, the wife opts to retain $100,000.00 of countable resources ("CSRA"), and invests the $600,000.00 spend-down amount into a Medicaid Compliant Annuity ("MCA").

As a result of the plan, the wife retains the family home, automobile, household furniture and personal property, the prepaid funeral arrangements, $100,000.00 of cash, and $7,200.00 of monthly income - most of which came from the MCA.  The plan allows the husband to immediately qualify for Medicaid benefits, with a monthly co-pay of $1,100.00, allowing the couple to save $6,400.00 per month.

Additionally, in order to recover the investment loss, the wife purchases a $300,000 face value life insurance policy, insuring her life.  The primary beneficiary of the life insurance policy is the couple's three adult children.  Further, in order to protect her assets from possible future long term care costs, the wife purchases a long term care insurance policy (LTCIP"), including a return of premium rider, which includes coverage for home healthcare, assisted living, and nursing home care.   As a result of the LTCIP purchase, the wife is certain that she will never have to rely on Medicaid.  Finally, after deducting the life insurance and long term care insurance policy monthly costs, the wife is confident that she has sufficient monthly income to meet her needs.

This is a win, win, and win situation for everyone involved.

Medicaid Planning Product - NEW

I am working with an insurance company which has developed the newest Medicaid planning product. The product was designed for families of all wealth, but really has a special interest amongst those families in the low to moderate range. The product is a single pay life insurance policy, and is a guaranteed issue to age 99.

Once the life insurance policy is issued, the owner/insured immediately assigns all of his or her interests to a trust controlled by the life insurance company.  The assignment is an uncompensated transfer for Medicaid purposes, and will disqualify the insured from obtaining Medicaid benefits for 60 months.

On the first day following the 60 month period, the insured is immediately eligible for Medicaid benefits - assuming that he or she has countable assets of no more than $2,000.00 and monthly income that is less than the private pay rate of the nursing home.  For most clients, the asset and income tests are easily satisfied. 

Finally, following the insured's death, the insured designated beneficiary(ies) will receive the life insurance proceeds.

The life insurance policy is an excellent tool for those clients who are looking to pre-plan for Medicaid.  The policy can accept a single pay amount of no more than $50,000 per insured, and the death benefit can be divided up amongst any number of beneficiaries or can be paid to a family trust. It is an outstanding product for those individuals who want to leave behind a small family legacy.

At Krause Financial Services, LLC., we specialize in working with the latest and greatest Medicaid products. To learn more, please get in touch with us.

Medicaid Compliant Annuities - Reinsurance

In a community spouse case, wherein the community spouse purchases a Medicaid Compliant Annuity ("MCA"), and the MCA is required to be structured with the state Medicaid Program as primary beneficiary to the extent of medical assistance benefits provided to the institutionalized spouse, the community spouse may want to reinsure the MCA with a term life insurance policy - assuming the community spouse is less than 90 years of age and in good health.

Can Your Clients Afford to Self Insure Their Long-Term Care Costs?

As a result of the Deficit Reduction Act of 2005, with the average nursing home charging $6,000.00 per month for nursing care, all gifts being subject to a 5 year look-back period and a delayed penalty fuse, and with half-a-loaf gifting plans consuming approximately 50% of a client's spend-down amount, your clients cannot afford to self insure their long-term care costs. 

What should your clients do?  If your clients can afford to purchase traditional long-term care coverage, and they are healthy enough to get a preferred rating, it is my opinion that traditional long-term care insurance coverage provides the best result, especially if the policy contains non-forfeiture and full return of premium riders.  However, in those cases where your clients are not healthy enough to qualify for traditional long-term care coverage, the next best solution would be for them to consider a non-traditional long-term care policy, such as "Money Guard Reserve."  This policy is a universal life insurance contract which provides the following 3 key benefits:

• Long-Term Care Coverage
• Money Back Guarantee
• Income Tax Free Death Benefit

To illustrate an example, assume that Alice Smith is 65 years of age, in good health, a non-smoker, and believes that $300,000.00 is necessary to pay for her anticipated long-term care needs.  If she self-insures, she will need to retain $300,000.00 of cash assets.  With a Money Guard Reserve policy, if she invests $100,000.00, she will be entitled to receive $83,203.00 per year, for 6 years, for her long-term care needs (that's a maximum of $6,934.00 per month benefit - for a potential benefit payout of $499,218.00).  In the alternative, if Alice does not require any long-term care needs during her lifetime, and dies with the policy, her beneficiaries will receive $166,406.00 in an income tax free death benefit.      

Money Guard Reserve is offered by Lincoln Life and Annuity Company of New York, Syracuse, New York.  The company has an AM Best rating of "A+" (2nd highest of 16).      

The Top 10 Reasons to Fund Your Funeral In Advance

Why consider funeral funding?

1.  An Exempt Asset.  The plan may be considered an excluded asset in order to qualify for Medicaid and Supplemental Security Income (SSI). 

2.  It's Flexible.  Your beneficiaries will be able to use the funds to pay for funeral costs or other final expenses such as medical bills and other debts.

3.  Single Payment Plans Increase Over Time.  When you set aside funds in advance, the death benefit increases at a predictable growth rate. 

4.  Makes Tax Time Easier.  By transferring funds from an investment vehicle such as a CD or money market, you don't have to worry about taxation on growth and annual 1099's.

5.  A Program for Everyone.  Krause Financial Services has a plan that will fit your needs in terms of payment options and health conditions.

6.  Consumer Friendly.  Any funds left  over after paying your funeral costs will be returned to either your beneficiaries or estate income tax free.

7.  Protects Your Loved Ones.  By making funding plans in advance, you will avoid placing a financial burden on your family and friends.

8.  Peace of Mind.  By knowing that your funeral expenses are taken care of.

9.  30 Day Free Look.  If you should change your mind, you have 30 days to cancel and receive a full refund.

10.  Solid Program, Solid Decision.  Advance planning is endorsed by attorneys, trust officers, and financial professionals as an effective way to provide for final expenses and preserve your assets for your beneficiaries.

Contact Krause Financial Services to learn more about this opportunity. 

Our Newest Product: The Capital Transfer - Available in Arizona, California, and Florida

Krause Financial Services is pleased to announce its newest Medicaid Planning product, entitled “Capital Transfer.”  Capital Transfer is a single premium, guaranteed issue life insurance policy, with no cash value.  For Medicaid planning purposes, the Capital Transfer product will be treated as a countable resource with a $0.00 valuation.  This Medicaid planning strategy allows an individual to immediately eliminate his or her spend-down amount. 

How does Capital Transfer work?

The Capital Transfer product works by converting the face value of the life insurance policy into two components.  The first component converts 75% of the face value into 75 equal and monthly payments.  The first monthly payment is made 30 days following the date of purchase.  The second component is a residual death benefit, and makes up 25% of the face value.   

At the death of the insured/Medicaid recipient, the beneficiary(ies) have the option of continuing the monthly payments or converting them to a commuted cash value.  The beneficiaries also receive the 25% residual death benefit.  All payments made to the beneficiary(ies) are free of estate recovery. 

The Capital Transfer product was designed to provide a better economic result than a traditional “Half-a-Loaf Plan.”