Filed in Medicaid & Medicare, on July 18, 2017
1. When you apply for Medicaid in Illinois, if you are in a nursing home or in an assisted living facility, you must provide complete information about:
2. Small incidental gifts (such as for a child or grandchild’s birthday, or Christmas present, or other special occasion or small gifts to charities) normally should not create a problem (should not cause a penalty period) if they were not made to avoid having the money/assets available to pay for your costs at the facility.
3. Gifts to your loved ones (made in the 60 months prior to you applying for Medicaid) can cause you to be disqualified for Medicaid for a period of time.
Gifts made during the 60-month look back period can create a penalty period (a period of time when you won’t qualify to receive Medicaid benefits).
But with proper planning, you can use your monthly income (social security and/or pension) along with monthly annuity payments to you to cover most of the penalty period. The amount you are short each month will need to be paid by the loved ones that you made gifts to before applying for Medicaid. (The plan will create a “penalty period” because of the gifts you make, but the plan will include you also paying a lump sum of money to a company that will provide you with an annuity (which will make specific monthly payments to you to help you cover most of the costs of the facility for each of the months of the penalty). The calculations will 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.Gifts made during the 60-month look back period can create a penalty period (a period of time when you won’t qualify to receive Medicaid benefits).
1. A calculation will be done by your elder law attorney to determine how much you can gift to loved ones. 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.
2. A penalty period will be calculated (meaning how long of a period you will be disqualified from receiving Medicaid, which could be for many months).
3. You will sign a contract to purchase an 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 $1,000 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).
4.The annuity will state the following:
5.You will sign the annuity contract, then mail it in with a check to the annuity company (and a check to Krause Financial Services Inc. for their work)
6.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).
7.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 cover by your income and the loan repayment check) will be paid by one or more of the loved ones who received gifts from you.
8.You cannot use an existing annuity you have. 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). The annuity can be arranged with the help of your elder law attorney through Krause Financial Services, Inc. There would be a minimum fee of $1,000 to FFS to go this route.
9.The Illinois Dept of Healthcare and Family Services defines an annuity as follows (PM 07-02-17), “An annuity is a contract to receive, fixed periodic, payments, either for life or for a specified number of years. When an annuity is purchased, the person usually pays a lump sum premium in exchange for guaranteed payments.”
An annuity could also be purchased to pay you for a specified number of months (rather than a number of years).
What is an “allowable transfer”?
An “allowable transfer” doesn’t create any penalty period (the giver is not penalized for making the gift). Here are some examples:
What is a “non-allowable transfer”?
A “non-allowable transfer” creates a penalty period (a period of time where the giver, or his/her spouse, doesn’t qualify for Medicaid benefits). The more valuable the non-allowable gift, the longer the penalty period will be. Here are some examples:
Why can’t I just gift to my loved ones, and then pay the nursing home each month with the rest of my money?
If you make gifts to loved ones, have money to pay the facility for a number of months, and then apply for Medicaid, the following will occur:
Note that if you make any non-allowable gifts, and you have enough remaining assets (and income) to pay for 60 months of future nursing home care, then you might be able to make the non-allowable gifts to loved ones, pay your nursing home care costs for 60 months, and then apply for Medicaid after 60 months have passed.
What other options are available?
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:
Why can’t my monthly income and the money I receive each month from the annuity cover “all” to the facility’s costs for each month of the penalty period?
If a 5-month penalty is assessed against a Medicaid applicant (MA) because of non-allowable gifts that the MA made, then once the MA has spent his/her assets down to two thousand dollars ($2,000), then the 5-month penalty period begins. A month only counts as a “penalty month” if the nursing home is not paid in full from the MA’s income and assets (not counting the $2,000 that the MA is allowed to have, now called the “resource disregard” in Illinois):
May I use my $2,000 (the “resource disregard”) to the shortfall each month?
You can use your $2,000 to help cover the monthly shortfall during the penalty period, if you need to do so.
Who pays my prescription drug costs during the penalty period?
If you take prescription drugs that aren’t fully paid for by your private health insurance coverage, then you (or your loved ones) will need to pay for your prescription drugs during the penalty period.
Do other lawyers in Illinois use the annuity method?
Use of the annuity method is a common method in Illinois. I believe that most elder law attorneys choose to use the annuity method when non-allowable gifts are made and a plan is created to help cover the facility’s costs during the penalty period (rather than the promissory note method).