Usually, when we think of annuities, we think of a deferred annuity or an investment type annuity.
An investment annuity is like a combination of an investment and insurance policy. The annuity can be invested in many different kinds of investments, and the investor usually shops for the best rate of return. In addition, it has a death benefit, like an insurance policy. Examples of investment annuities can include deferred annuities, fixed annuities and variable annuities.
In return for promising to let the annuity company keep your money for a period of time, the company promises you a better rate of return. Your ability to get your money back is deferred or postponed. People purchase annuities for savings or investment, or sometimes to generate income.
Deferred annuities are sometimes not a good investment for my elderly clients, as they tie up and restrict your access to your cash and savings for a period of years, that otherwise may soon be needed to pay for the costs of long-term care.
In elder law asset protection planning, we sometimes use very specialized kinds of annuities in complex planning transactions that are designed to help achieve eligibility for benefits to pay for nursing home care. Simultaneously, we protect assets that would otherwise have to be spent down before the benefits become available.
For a person entering a nursing home – at a private payor self-pay cost of $10,000 to $12,000 a month! – there are really only three ways to pay. First, you can pay yourself, but that’s a mighty bleak prospect. Second, if you had the foresight and opportunity to purchase private long-term care insurance, you’re in a much better position. Third, enroll in Medicaid.
For most of my middle-class clients, though, who don’t want to or can’t pay these catastrophic costs themselves, and don’t have long term care insurance, I try to get Medicaid long-term care benefits to pay for them to be in the nursing home – and still save as much of their own money for them as possible.
Medicaid long-term care benefits are supposed to only be available, under Medicaid rules, after you have spent down almost all of your own money. Depending on the situation, there are lots of strategies that can be used to shelter and protect assets.
If you are a single, unmarried person entering the nursing home, these strategies involving specialized annuities can usually help protect and save about half of everything you have left at that time – which is a lot better than losing it all.
For a single, unmarried person, the strategy involves making a gift to a trusted recipient such as a family member, who will hold the money safely or put it into a trust for the nursing home patient. The rest of the nursing home patient’s money is converted into income, that they can use to pay their nursing home bill for a period of time. Most of the gifted amount, usually about half of the total, remains available in the hands of the trusted recipient, for the benefit of the nursing home patient.
The even better news is that for a married couple – when one spouse is heading toward nursing care and the other spouse is staying home – By using these specialized annuity strategies, we can usually help you save all of everything that you have left at that time.
As a married couple using these sophisticated strategies, you can be allowed to shift all of your wealth to the non-nursing home spouse, the “community spouse” still living at home. However, to accomplish this we need to change the character of this wealth from assets – bank accounts, stocks, investments, IRAs, etc. – into a stream of periodic income payments for the community spouse. The community spouse is allowed to keep all the income that they receive in this manner.
These annuities must be compliant with Medicaid rules and are only sold by a very few number of carriers and agents. Your regular financial advisor can ordinarily not help you buy these kinds of annuities.
If this is all a little too convoluted to easily grasp, you’re not alone. Call if I can help.