Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.
In the past, Krause Financial Services and its New Jersey colleagues were faced with the lack of short-term Medicaid Compliant Annuities (“MCA”) being funded with tax-qualified/IRA funds. Previously, the shortest tax-qualified annuity term KFS was able to offer in New Jersey was 60 months. This posed a lot of concern with New Jersey attorneys and agents as it restricted the Medicaid planning options available for their clients. However, as of recent, Croatian Fraternal Union (“Croatian”) now accepts tax-qualified funds for short-term annuities, meaning we can now structure short-term annuities, both non-qualified and tax-qualified, in the state of New Jersey.
This opens a whole new realm of MCA planning options for New Jersey attorneys and agents. These annuities can now be structured as short as two months, allowing for a plan that is perfectly tailored to the clients’ needs, and ensuring the clients’ best interest is fully considered in their Medicaid eligibility planning.
In which situations are short-term annuities appropriate?
Individual Gifting/MCA Plan – An Individual Gifting/MCA plan is appropriate for most single individuals seeking eligibility. Commonly referred to as a “Half-a-Loaf Plan,” the Individual Gifting/MCA plan involves gifting a portion of the client’s assets to his or her intended beneficiaries, and using the remaining assets to fund a MCA. The gift induces the period of benefit ineligibility, and the MCA allows the client to privately pay for the cost of care through the end of the penalty while allowing the client to remain “otherwise eligible” for benefits.
In general, the amount gifted to the client’s beneficiaries is about one-half of the client’s total assets. The other half is the amount used to fund the MCA. The gift amount determines the length of the penalty period, which in turn determines the length of the MCA. Depending on the amount of assets held by the client, the penalty period could be as short as two months, with a MCA period certain of the same length. Generally speaking, annuities in these situations will always be “short-term,” or less than 60 months.
Traditional Spousal Annuity Planning – When considering traditional spousal annuity planning, excess assets of a married couple are converted into a MCA for the benefit of the community spouse, often structured over the entire life expectancy of the community spouse. For example, an 80-year old woman in New Jersey has a life expectancy of 9.58 years/114.96 months. If we were to structure a MCA over her entire life expectancy, the period certain would be 114 months. When planning for clients with longer life expectancies, a short-term annuity is often not necessary. However, if we were planning for a 92-year old woman, her life expectancy is 4.08 years/48.96 months. With the 60-month term restriction resolved, we can easily structure a 48-month annuity for this client.
Though the term of the annuity is often based upon life expectancy, there are other circumstances in which a short-term annuity is beneficial in community spouse cases, especially if the clients have limited resources. For example, if we have a community spouse that receives $900 from Social Security each month, and the clients have $30,000.00 in excess countable assets, it is reasonable to structure the MCA over 24 months, increasing the community spouse’s monthly income to $2,151.63 ($900 plus MCA monthly payout of $1,251.63) as it does not create unreasonable income for the community spouse, and the clients have easier access to their already limited resources.
What does this mean for New Jersey Medicaid Compliant Annuities?
With Krause Financial now being able to offer tax-qualified short-term annuities in New Jersey, attorneys and agents can now fully utilize the spectrum of MCA planning strategies that have been proven tried and true in other states. Though some common situations in which the use of short-term annuities have been touched upon above, there are a multitude of circumstances in which a short-term MCA is beneficial. This gives New Jersey attorneys and agents the ability to customize the plan that will achieve the best outcome for clients seeking Medicaid eligibility.
To learn more about this recent update in New Jersey, and to learn more about the use of short-term annuities in Medicaid planning, contact KF today!