Medicaid Planning continued

Although we try to avoid generalizations, many deferred annuities are sold to elderly persons because of large commissions, rather than for good investment reasons. It is generally inappropriate to sell an 80-year-old person in a 15% tax bracket a deferred annuity at a low interest rate that carries a surrender charge for the next seven years. When the children inherit the principal, they will most likely be in a higher tax bracket, and, without the stepped up basis, will pay tax at ordinary income tax rates on all of the deferred income.

Many seniors purchase annuities out of the misplaced fear of protection from nursing home costs and often with the discouragement of purchasing valuable long term care insurance. Individuals should consult their financial advisor before purchasing a deferred annuity after retirement.

If an individual has three years of nursing home insurance they, or their power of attorney holder, can legally give away their wealth to their children more than three years before application for Medicaid. Only as a last resort should that certain kind of Medicaid annuity be considered.

However, as a last resort, annuities may save much of the couple’s net worth from the feared nursing home “spend-down”. They may also preserve the single nursing home resident’s estate for their children, all perfectly legal if you follow the rules. With proper Medicaid planning, a client can protect a large portion of their net worth from the erosion of the almost inevitable nursing home costs.