Jenette M. Schwemler, PC

Annuities And Medicaid Planning

One of the only times a gift within 5 years of an application for Medicaid is permissible

Filed in Medicaid & Medicare, on July 18, 2017

With proper planning, you can use your monthly income (social security and/or pension) along with monthly annuity payments to cover most of the penalty period due to unauthorized transfers (also known as “gifts”) during the 5 year look back period.

Planning with a Medicaid compliant annuity will create a “penalty period” because you will make a gift.  However, if done correctly, the plan will will make monthly annuity payments to you to help you cover most of the costs of the facility for each of the months of the penalty.  Part of the money that you “gift” under this plan may need to be paid to the nursing home to cover any monthly shortfall.  The calculations should be done by your elder law attorney in consultation with a financial services company that specializes in Medicaid compliant annuities). You must be sure to ask questions if you don’t understand the plan.

How an Annuity Is Used in Medicaid Planning

A calculation will be done by your elder law attorney to determine how much you can gift to loved ones and how much will be placed in a Medicaid compliant annuity. Such calculation will also take into account any prior gifts you made that will cause a penalty period. So you must be sure to inform your lawyer about all significant gifts that you made to loved ones or charities.  The Medicaid compliant annuity is designed to help to cover the costs of the nursing home during the penalty period.

You will sign a contract to purchase an annuity and mail the company a check for the amount of the annuity. I like to use Krause Financial Services Inc. (KFS) to obtain the annuity (and assist with the calculations). KFS will be paid a minimum of $1,300 for their work (if you decide to get the annuity). KFS will assist with the calculations (to determine how much to gift and how much to put into the annuity) without charge (they are only due a fee if you go ahead and sign the contract to purchase the annuity).

The annuity will state the following:

  • your name as the annuitant
  • the annuity company’s name
  • the amount of money paid to the annuity company
  • that the company will pay back so much in total (including some interest)
  • how much the company will repay to you each month
  • when monthly checks will begin
  • that if you die before all money has been repaid to you, then the State of Illinois will have the right to be reimbursed first for any Medicaid benefits you have received before any remaining money may go to your relatives

If all other planning has been done, then you will apply for Medicaid (first checking with your elder law attorney to make sure everything is in order).

The annuity checks will begin to come to you (and help pay part of the facility’s monthly charges). Your monthly income (social security and/or pension) will also help partially pay the facility. The monthly shortfall (what isn’t covered by your income and the annuity check) will be paid by one or more of the loved ones who received gifts from you.

You cannot use an existing annuity for this planning. You must purchase a new, special annuity (the amount paid each month, and the number of months it will pay, are all planned out specifically).

Other options

Instead of purchasing an annuity, you could loan money to a loved one (who will sign a promissory note) who will pay you money back each month to help cover the facility’s costs during the penalty period. The borrower will pay you back in a calculated manner, also paying you some interest.  This planning method often raises “red flags” with the Department of Healthcare Services, so be sure you discuss this with your elder law attorney.

Do other lawyers in Illinois use the annuity method?

Use of the annuity method is a common crisis planning method in Illinois.  Many elder law attorneys also choose to use the annuity method when non-allowable gifts are made in combination with an applicant being over-resourced (rather than the promissory note method).


Law Office of Jenette M. Schwemler, PC
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Lakemoor, IL 60073 MAP

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