“I don’t want to worry about Medicaid and a friend said that I should buy an annuity now, should I?”
Many clients come into our office having received all kinds of advice from their friends, families and neighbors. One piece of advice that we've heard several times is “I understand that I need to buy an annuity now to protect my money in the event that my spouse goes into a nursing home in the future, is that right?” or “I’ve been told I need to put my house into an irrevocable trust to protect it from the nursing home, is that a good idea?”
We would generally recommend that you not rely solely on family, friends, and neighbors for legal advice. While a particular decision may have been good for them, you don't know their financial and other circumstances and they do not know yours. Instead, you should have trained professionals – legal and financial – look at your particular situation to determine what's best for you.
When clients ask about annuities, they want an answer to their question “Should I go out and get an annuity today?” And, they are asking that question in the context of planning for Medicaid eligibility for a spouse who may,in the future, need nursing home care.
It is true that purchasing an annuity can be a very good planning tool for Medicaid planning – however – and this is an important “however” – it is helpful only when you are trying to meet a Medicaid “spend down” for a spouse. A Medicaid spend down doesn't happen until one spouse already has been admitted to a nursing home on a permanent basis. A nursing home admission generally is the only event that will trigger what is known as a “resource assessment,” and the resource assessment is what will determine how much money the community spouse will be allowed to keep and how much must be spent. It's at that time that you can review all available options to evaluate whether it is a good idea to obtain an annuity that would be annuitized immediately (i.e., turned into a monthly income stream at the time of purchase).
Purchasing an immediate annuity is one of many options and simply is not a one-sized-fits-all solution. If there has not yet been a nursing home admission and if you are not yet trying to meet a Medicaid spend down, you would not invest in an annuity for Medicaid planning purposes – you might do so if it is a good financial investment given your circumstances, but you would not do so to put yourself in a better position for getting a spouse on Medicaid.