Dont Use Joint Annuities For LTC Artificial Impoverishment
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Artificial impoverishment has been practiced for years and still is by a good many elder law attorneys. Now, sadly, it has become the hottest long term care planning scheme, and some practitioners are using the joint annuity contract to make it all happen.
In my opinion, this is not a good development for the consumer and its not good for the financial professional or the insurance industry. Well see why momentarily. First, lets review the landscape.
Artificial impoverishment is the name given to the practice of placing an otherwise financially disqualified individual on Medicaid via financial sleight of hand.
For years, certain elder law attorneys have stretched credulity–not to mention the law–to gain access to Medicaid paid services for their middle income and often times upper income clients. These "schemes," as I call them, have ranged from purchase of cattle (cattle are exempt from Medicaid spend-down for ranchers) to privately structured financial arrangements (actuarially sound, of course) made with family members.
Alas, in recent months, Ive noticed that a growing number of insurance marketers have decided to jump into the Medicaid planning game, too. And, in my region at least, they are doing it big time. They are "inviting" all classes of consumers to attend seminars to explain how they, too, can get something for nothing with a little strategic money management, courtesy of joint annuities.
In my opinion, the people who attend these seminars are gullible and uninformed individuals who hope to avoid the fate of a LTC nursing home expense by a loophole (soon to be filled) provided through the unique characteristics of the annuity contract.
Annuities are financial vehicles that allow for a lump sum of invested principle to be converted into a guaranteed income for the life of the annuitant or for a period certain. This ability of turning a lump sum into an income is the loophole that has made the annuity the hot ticket for those with money assets to guard and fears of nursing home expenses dancing in their heads.
In particular, a joint annuity allows a disabled individual co-owner of such a contract to qualify for Medicaid while avoiding Medicaids normal and expected "spend-down your money first" requirements. This situation allows the marketer to perform a type of magic acti.e., he or she recommends that the owners morph the joint annuitys invested principal into income for the other co-owner (the well spouse). Voila! You now have artificial impoverishment for the disabled joint annuity co-owner.
Remember, only the income of the disabled spouse is counted toward Medicaid eligibility and must be forfeited to care costs. The well spouse can–income wise–live like the rich and famous. All at taxpayers expense–taxpayers who will now be picking up the tab for the care in the nursing home of the shrewd annuity client.
