What is the Appropriate Length for a Spousal Medicaid Compliant Annuity?

DE PERE, Wis. - Aug. 20, 2013 - PRLog -- "How does the community spouse's monthly income affect planning the payout period of the Medicaid Compliant Annuity?"  This was a question recently submitted through this website.  It's an excellent question and one that is asked quite often in spousal Medicaid Compliant Annuity planning.

The trend in many states is to use a short-term Medicaid Compliant Annuity - less than 36 months, in order to avoid a potential pay-back to the state Medicaid agency.  However, it has always been my opinion that this type of planning could lead to increased restrictions in community spouse planning (e.g. the NASMD letter).  As such, it is not always best to simply "go short."

Quite a few factors should be taken into consideration when determining the appropriate length of a community spouse's Medicaid Compliant Annuity.  Above all else, it is highly recommended that the length should not be so short as to create an unreasonable amount of monthly income.  The total monthly income received should be reasonable in light of the annuitant's current and future monthly needs.

It may be better to "go short" if:

1. the community spouse is in poor health;

2. the spend-down amount is very small;

3. the community spouse has excessive monthly expenses; or

4. the planning goal is to return all funds to the community spouse as soon as possible in that the community spouse's future placement is uncertain - may transfer to an assisted living facility or nursing home in the near future.

On the other hand, it may be better to "go long" if:
1. the community spouse is in excellent health and has a family history of longevity;

2. the spend-down amount is large;

3. the community spouse has minimal monthly expenses;

4. the community spouse has excessive monthly income;

5. the spend-down amount consists of tax-qualified funds - stretching out the investment will minimize the income tax consequences;

6. the planning goal is to provide a steady stream of guaranteed income to the community spouse for his or her lifetime; or

7. the community spouse will receive a shifting of income from the institutionalized spouse.