We’ve talked before about how many Massachusetts residents should consider Medicaid planning as they approach the age in which they may have to rely on a nursing home for full-time care.

The cost of this type of care is expensive, potentially costing tens of thousands of dollars every month. Even those who have built up some savings through years of hard work will find it quickly drained.

Qualifying for Medicaid

As we’ve discussed before, while the Medicaid program will pay for nursing home care, only those of limited income and assets can qualify for this government benefit.

While the first thought may be simply to spend or give away one’s assets, there are also penalties should one do so without, early planning, careful thought.

These penalties can leave a person figuring out how to pay for nursing home care out of pocket for several months before Medicaid will kick in and pay the bills. By that time, though, it may be too late for a family to preserve any savings, and they may even have incurred debt.

Annuities generally

People purchase annuities for a variety of reasons, including to meet retirement or estate planning needs. Annuities are detailed financial transactions, but the idea behind them is that a person places a sum of money up front into the annuity account.

At some point, the person can draw a monthly stream of income from the annuity so that they have a steady flow of money

Medicaid-compliant annuities

As the name implies a Medicaid-compliant annuity allows families to dispose of their assets, qualify for Medicaid and not have to worry about penalties.

The purpose of this type of annuity is to benefit a loved one, a spouse for example, who may not need nursing home care at the same time as the person doing the Medicaid planning.

This situation can lead to a predicament since, otherwise, the person needing long-term care will need to dispose of assets, but the other person, who is otherwise fully able to do so, really needs those assets to continue to live independently.

The distinctive feature of a Medicaid-compliant annuity is that it kicks in immediately. In other words, the family member who does not need nursing care trades a lump sum of their assets for a stream of income that can help support him or her.

The idea behind the Medicaid-compliant annuity is to invest enough in the annuity so that the person needing care can qualify for Medicaid and do so without a penalty.

These annuities are complicated legal and financial transactions. They are not right for every situation. When they are a good idea, they must be carefully and exactly prepared in order to accomplish a couple’s estate planning goals.