Private Annuities Can Be Used to Minimize the Medicaid Penalty Period

When applying for Medicaid coverage for nursing home care in the State of New York, it is important to be aware that Medicaid has a five year “look back” period, which requires you to disclose all of your financial or property transactions during the five years preceding the date of your Medicaid application. If you have transferred money or property to another person or to a trust within this five year period, you will be subject to a period of ineligibility for Medicaid benefits (the “penalty period”), the duration of which is based on the amount or value of the transfer and Medicaid’s “Regional Rate” for your county of residence.

The best way to avoid the penalty period is to plan ahead and hopefully avoid having any transfers fall within the “look back” period. However, sometimes nursing home care is needed sooner than anticipated, and there isn’t time to avoid the “look back” period. In most cases, a Private Annuity strategy can be used to help control the financial damage. Using this strategy may allow you to preserve 40% - 50% of your assets, instead of depleting virtually all of your assets paying for nursing home care.

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The Private Annuity strategy entails transferring roughly half of your assets to another person or to protective trust (the “initial transfer”). This transfer will result in a penalty period, however, one that is only approximately half as long as the penalty period that would have resulted from transferring all of your assets. The other half of your assets is then used to buy a Private Annuity. This is a contract between you and someone else, often a family member, who will agree to provide you with monthly income for a specified period. If properly drafted to comply with Medicaid laws, the purchase of the Private Annuity will not incur any Medicaid penalty. The Private Annuity payments should be structured to provide you with sufficient monthly income to pay the nursing home during your penalty period that resulted from the initial transfer.

By using this strategy, the initial transfer is protected and saved. The Private Annuity is a powerful strategy for those whose total assets do not exceed $1 million. Wealthier individuals may find it less useful.

If you need help figuring out how to protect your money and property, and pay for nursing home care, Lamson & Cutner can help. Contact Us today via our website, or you can call our office at: (212) 447-8690. If you would like to learn more about the Elder Law services we offer, click here.

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