With the Deficit Reduction Act of 2005 (DRA '05) having eliminated the stand alone Medicaid Compliant Annuity as a viable Medicaid planning opportunity for an individual faced with a long-term nursing home stay, what reasonable Medicaid planning option exists for that individual? In the majority of states, the individual will proceed with a Gifting/Short-Term Medicaid Compliant Annuity (“MCA”) Plan (“the Plan”). How does the Plan work?
The Plan works because the individual will simultaneously make a gift, purchase a Short-Term MCA, and apply for Medicaid benefits. Why does this Plan work?
The Plan works because the gift amount will create a divestment penalty period. During the divestment penalty period the individual will be deemed ineligible for Medicaid benefits, and will have to privately pay for his or her nursing home stay. Additionally, with the individual purchasing a Short-Term MCA at the same time as the gift, and with the period certain associated with the MCA mirroring he divestment penalty period, the Short-Term MCA will create almost enough income so that the individual can privately pay his or her nursing home stay. Now, with the individual having $2,000 or less of countable resources, he or she is deemed otherwise eligible for Medicaid benefits.
Finally, with the individual having made application for Medicaid benefits, the divestment penalty period associated with the gift will commence to run. At the end of the divestment penalty period, the individual will be economically entitled to go onto Medicaid benefits.
