Lump-Sum Balloon Style Medi-Cal Compliant Annuities – Still a Viable Planning Tool
With California not having yet adopted the annuity provisions outlined in the Deficit Reduction Act of 2005*1, which eliminated the use of a Lump-Sum Balloon Style Medi-Cal Compliant Annuity, you should know that your clients still have time to act!
To help you understand how to utilize a Lump-Sum Balloon Style Medi-Cal Compliant Annuity, assume that Alice Smith, an 85 year old widow, is a custodial care resident of a California nursing home. With her life savings dwindling to $100,000.00, Alice is concerned that she is going to run out of money paying for her care, and she will be unable to leave anything to her two children. As such, Alice would like to qualify for Medi-Cal benefits. In discussing the matter with an elder law attorney, the elder law attorney recommended that Alice should immediately purchase a $10,000.00 Irrevocable Funeral Expense Trust, any personal items that she needed, and after retaining $1,800.00 in a separate bank account – protected resource amount, she should invest the remaining balance in a Lump-Sum Balloon Style Medi-Cal Compliant Annuity.
After the aforementioned expenditures, Alice was left with $87,700.00. With this amount invested in a Lump-Sum Balloon Style Medi-Cal Compliant Annuity over Alice's Medi-Cal life expectancy being 6.40 years/76.80 months, Alice would receive the following guaranteed monthly payments:
Months 1-75:82.12
Month 76: $87,022.12
Total Payout: $93,263.24
With the purchase of the Lump-Sum Balloon Style Medi-Cal Compliant Annuity, Alice was immediately eligible for California Medi-Cal benefits. At the same time, with her monthly income from social security of $850.00, plus the monthly payment from the Lump-Sum Balloon Style Medi-Cal Compliant Annuity, less her $35.00 monthly personal needs benefit, Alice was able to reduce her monthly nursing home bill from $5,500.00 to $897.12. Additionally, in the event that Alice does not survive the 75 month term of her Lump-Sum Balloon Style Medi-Cal Compliant Annuity, her two children will benefit from the remaining monthly payments. This is an outstanding result!
*1 To the date of this article, over 30 states have already passed the annuity provisions related to the Deficit Reduction Act of 2005. The annuity provisions require that an annuity used for Medi-Cal purposes must be actuarially sound, irrevocable, non-assignable, have equal payments, and must name the respective state Medi-Cal Program as the primary beneficiary to the extent of medical assistance benefits provided to the institutionalized individual – this last provision only relates to non-compliant accounts.
