How can I ensure annuity protection when seeking Medicaid coverage?

A fellow caregiver asked...

How can I ensure annuity protection when seeking Medicaid coverage? I am an only child and both my parents are living and reside in Virginia. In 2003, after my mother had a stroke, my father and I met with a financial advisor about protecting their assets if a nursing home became an issue in the future. We were advised to put their money in an annuity in his name only with my mother and me as beneficiaries. My dad had the interest deposited into a bank account that has my mother's 'name as well as mine on it, and had ownership of the annuities transferred to me in late May 2006. My mother now has dementia and may be facing a nursing home. We would hope to qualify for Virginia Medicaid. What should we do about the annuities and home ownersip?

Expert Answer

Liza Hanks is the founder and owner of FamilyWorks Estate Planning, a law firm with offices in Campbell and Los Altos, California, and the author of The Busy Family's Guide to Estate Planning (Nolo, 2007).

The rules for qualifying for Medicaid, as you've already discovered, are complex.

Medicaid began, really, as a welfare program to provide medical care for the indigent. To qualify, a participant may, as a general rule, have no more than $2,000 ($3,000 for a couple) in non-exempt assets. But many assets are exempt from that tally, including one vehicle, family residences, and trade or business property that is essential to their self-support.

The federal government sets the general guidelines, but each state has specific eligibility requirements, administered by the department of social services. All of your parents' assets, including that property in Tennessee, will be counted in determining their eligibility for the program.

Beware that there can be criminal penalties for the failure to disclose all assets. A transfer subjects that asset to the 5-year "look-back" rule because state administrators do not want people to hide their assets by giving them away before they go into a nursing home so that they can qualify for Medicaid.

If authorities find an asset transferred within this look-back period, the person is ineligible for a period of time that is equal to the value of the resource divided by the average cost of nursing facility services to a private patient in the community. The idea here is to deny coverage for the amount of time that the gift would have paid for nursing home care.  

For help, consider contacting Virginia's department of social services and an elder law specialist near where your parents live.