In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Retirement assets present some of the most difficult problems in elder law, but there are solutions. With some intricate planning, one can use a solely for the benefit of trust, for example to preserve the tax-deferred funds and obtain qualification. This is an important alternative for families to consider so that retirement assets are not unnecessarily depleted by the cost of long-term care or restricted to minimal returns and subjected to estate recovery.

First, you should understand that the rules are different for single people and those who are married. To make things just a little more complicated, if both spouses of a married couple are in the nursing home, they are both subject to the rules of a single person, with each spouse qualifying separately.

Single people are permitted $2,000.00 in assets and $60.00 a month in income. The remainder of non-exempt assets will have to be spent down until the asset threshold is reached. The additional income will be used to pay the cost of long-term care, even after qualification for Medicaid. See below for details on what assets can be exempt.

Married people are entitled to keep 1/2 of the couple's non-exempt assets, with a minimum protected amount of $20,880.00 and a maximum of $104,400.00. This protected amount is known as the Community Spouse Resource Allowance or CSRA. For some thoughts on increasing the CSRA, click here.

Exempt assets in Michigan include a home with less than $500,000.00 in equity value, one automobile, a burial space, a pre-paid funeral contract, up to $1,500.00 in face value of life insurance, wedding and engagement rings, household goods, and very little else.

Assets that are not exempt include bank accounts, stocks, bonds, retirement accounts (IRAs, 401ks, etc) and virtually anything else of value.

It is widely anticipated that there will soon be limitations placed upon the automobile, including that it must be worth less than $25,000.00 and it must be purchased by a single person before entering the nursing home. So there will be no more purchasing a Cadillac on the eve of qualification, which has previously helped many families preserve assets.

Giving away assets now results in a period of ineligibility that will not begin to run until one is otherwise qualified for Medicaid. In other words, one must be completely out of non-exempt assets before the period of ineligibility will begin to be served. This makes it extremely difficult to preserve assets in the case of Medicaid crisis situation, i.e., there has been no previous planning for a person who is now or will soon be in long-term care.

It is difficult to lay out every complexity of this area of law in an article such as this and indeed, I have not done so. There are many fact-sensitive exemptions and asset protection strategies and other issues that are outside of this scope of a brief note like this. But as a general rule of thumb, I can help you to preserve 50% or more of long-term care patient's assets. Feel free to email me if you would like to discuss your situation and learn more.