Federal Court Allows Annuity Strategy to Protect Assets

The United States District Court for the District of New Jersey has issued an important decision concerning the use of annuities for Medicaid planning.  The Honorable William J. Martini rendered this favorable decision in the case of Jane Cushing v. Jennifer Langer Jacobs, et al; Docket 20-cv-130.

The legal issue presented in the Cushing decision concerned the legality of an immediate annuity with an insurance company which was designed to protect that person’s life savings and assets.  Judge Martini noted in his decision that annuities purchased by Medicaid applicants are not countable assets if they satisfy the federal statute.  The applicable federal statute requires that the annuity be irrevocable, immediate, may not be transferred and it must have no cash or loan value.  In the Cushing case the Court determined that the annuity that was established with the Croatian Fraternal Union of America did satisfy this federal statute.

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The applicable federal statute requires that the annuity be irrevocable, immediate, may not be transferred and it must have no cash or loan value. 

Annuities can be used to shelter assets from Medicaid and the cost of long-term care.  The terms of the annuity, however, must satisfy the stringent requirements of the federal statute.    

New Jersey Changes Calculation of Penalty for Gifts

If a person provides a gift within five years of the Medicaid application, then there is presumption that the gift was provided for the purpose of establishing Medicaid eligibility.  A person has the right to provide “convincing” evidence that the gift was made for reasons other than Medicaid but it is a difficult burden to overcome.  In most cases a gift provided within five years will result in a period of ineligibility for Medicaid.

The period of ineligibility for Medicaid is known as the penalty period.  The duration of the penalty period is based upon the average cost of skilled nursing care per day in the State of New Jersey.  Until recently, the average daily cost of skilled nursing care in New Jersey was $351.84. 

The New Jersey Division of Medical Assistance and Health Services (DMAHS) has determined that the average cost of skilled nursing care per day in the State of New Jersey is now $357.67.  Therefore, the penalty period is now calculated by taking the value of the gift and dividing it by $357.67.

By way of illustration, if $21,818.00 is transferred as a gift within five years and the County determines that the penalty period commenced on June 1, 2020, then that person will be denied Medicaid assistance for 61 days covering the period of June 1, 2020 through July 31, 2020.  This 61 day penalty period was calculated as follows:

$21,818.00 (Gift)

÷$357.67 (Penalty period divisor)

=61 days (Duration of penalty period)

Medicaid Laws Change on July 1, 2020

Most nursing homes in New Jersey charge at least $130,000 per year for a basic semi-private room.  Medicaid will help pay for that person’s care but only after their assets and life savings have been depleted.

If a spouse is in a nursing home facility then the couple’s assets as well as income can be protected for the healthier spouse.  The healthier spouse is entitled to support from the institutionalized spouse based upon a complicated formula involving the poverty level for a family of two and certain shelter expenses.  The laws concerning spousal support will change in New Jersey as of July 1, 2020.

Normally a person’s income must be paid to the nursing home facility each month.  Effective July 1, 2020, New Jersey will allow the healthier spouse to acquire spousal support from the institutionalized spouse if the healthier spouse’s income is less than $2,155.00 per month.  The healthier spouse is allowed spousal support based upon the difference between $2,155.00 and his or her monthly income.

In addition to a minimum income of $2,155.00 per month, the healthier spouse is allowed additional support based upon his or her shelter expenses.  Effective July 1, 2020, any shelter expenses, such as rent, mortgage, utilities and property taxes that are in excess of $646.50 per month, will be added to the spousal support.  This is known as the excess shelter allowance.

The recent changes to our Medicaid laws will increase the likelihood that the healthier spouse will receive support from the institutionalized spouse’s income.

Change in Medicaid Laws Allow a Spouse to Keep More Assets

If a husband or wife requires long-term care in a nursing home facility, then that care can quickly deplete their life savings.  Most nursing home facilities in this area charge more than $120,000.00 a year for a basic semi-private room.  After the family’s assets are depleted and exhausted on long-term care, then Medicaid will help pay for that person’s care in a nursing home.

There are federal and state laws that are designed to prevent the healthier spouse from being impoverished due to these circumstances.  According to both federal and state law, all assets owned by husband and wife are evaluated, but the healthier spouse can keep the house, personal effects, an automobile and a portion of the remaining assets.  The healthier spouse can keep one half of the remaining assets but no more than a ceiling that federal law imposes.  Last year the maximum amount of assets that the healthier spouse could keep was set at $126,420.00. 

Effective January 1, 2020, the maximum amount of assets that the healthier spouse can keep has increased to $128,640.00.  This is known as the “Community Spousal Resource Allowance” or “CSRA”.

If husband and wife own a house, automobile and cash assets of $300,000.00, then if the husband were to enter into a nursing home facility the wife can keep the house, automobile and $128,640.00 of the cash assets.  The remaining cash assets of $171,360.00 would be subject to the Medicaid spend-down process in order to qualify the husband for Medicaid.

Stimulus Check, SSI and Medicaid

The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, was enacted on March 27, 2020 as Public Law 116-136.  It is a $2 trillion economic stimulus bill.  The goal of this legislation is to provide relief to individuals and businesses that have been impacted by the coronavirus crisis.

Many individuals will receive $1,200 as an economic stimulus payment.  The payment of $1,200 should not affect Medicaid eligibility as long as the funds are spent down within 12 months.

According to applicable federal law, the New Jersey Medicaid program is not allowed to have more restrictive income and resource requirements than Supplemental Security Income, also known as SSI.  If an individual qualifies for SSI based upon income and assets, then he or she will also be eligible for Medicaid in the State of New Jersey.

Social Security will not consider the economic impact payments of $1,200 as income for SSI beneficiaries.  In addition, the payment of $1,200 is excluded from resources for 12 months.  Based upon federal law, Medicaid must also treat the payment of $1,200 in the same manner as SSI.

The payment of $1,200 will not be considered by Medicaid to be income.  In addition, the $1,200 received from the government will not be considered a resource as long as the funds are spent down within 12 months.