Annuities Are One Path to Medicaid, but Think Long and Hard Before Taking It
Q I’m trying to find out more information about annuities that allow you to qualify for Medicaid or Medi-Cal. My tax preparer is no help, and even my insurance agent doesn’t seem to know what I’m talking about. Can you help?
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A Indeedy. Here’s the help: Proceed with caution.
Be particularly suspicious of anyone who touts annuities as a sure-fire way to qualify for government-paid nursing home care. It’s not that easy.
You first should do some soul-searching. Medicaid, known as Medi-Cal in California, is designed to help the truly indigent. Artificially impoverishing yourself to qualify for help means that you are using resources meant for someone else. Some states, including New York and New Jersey, have sharply limited Medicaid planning schemes, and other states may follow suit.
And if you have enough money to pay for a nursing home or to purchase a long-term care policy, why in the world would you want to wind up on the government rolls? You’ll get better care paying your own way.
As financial planner Errold F. Moody so bluntly puts it, people who deliberately try to qualify for indigent help had better be absolutely sure they want “to die in a Medicaid ward with a bunch of other screaming Alzheimer’s patients.”
That may be overstating the case a bit--and apologies to the many hardworking and qualified nursing home employees who work with Medicaid patients--but think long and hard before you volunteer to be poor.
You may be trying to shelter some of your assets should your spouse need to be confined to a nursing home--an understandable goal. Know that Medicaid and Medi-Cal have policies to protect at least some of your assets in this event.
Certain kinds of carefully structured annuities can indeed help you shift your assets so that you or a spouse would qualify for Medi-Cal. But the annuities must pay out at a fixed rate, which means you’d be vulnerable to inflation. Furthermore, the income could be tapped to pay some of the nursing home fees, because Medi-Cal may require you to share some of the costs.
Another pitfall is that in selling assets to buy the annuity, you may have to pay a capital-gains tax.
Meanwhile, the person trying to get you to buy the annuity may well stand to collect a nice, fat commission, making for a pretty hefty deterrent to your being told the full story.
Sometimes annuity sellers will operate free “informational” seminars designed to make them seem like disinterested parties. But if they stand to make money from the advice, they’re far from disinterested.
If you still want to pursue this path, get objective advice, either from an elder-law attorney or from a financial planner who specializes in elder care (preferably one who doesn’t sell annuities).
Visit https://www.latimes.com/finplan for more information about finding a financial planner; call your local bar association or the National Academy of Elder Law Attorneys at (520) 881-4005 for referrals to elder-law attorneys.
Accounts for Market Newcomers
Q. My wife and I are trying to start investing in the stock market, but we don’t have much spare cash. Are there any starter investments for as low as $25 a week?
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A. Good for you for getting started with an investment plan. There are indeed several mutual fund companies that will open an account for you with a $100-a-month minimum investment. T. Rowe Price, Invesco, Dreyfus, American Century and Strong all offer several highly rated funds with low minimums if you sign up for automatic monthly investments deducted from your bank account.
If you’re looking for low-cost investing, Dreyfus and T. Rowe Price offer index funds that mimic the Standard & Poor’s 500; Dreyfus’ minimum commitment is $100 a month, and T. Rowe Price asks for $50 a month.
There are also a number of stocks you can buy directly from the companies themselves with a $100-a-month purchase. If you’d like to know more about investing without a broker, visit The DRIP Investor site at https://www.dripinvestor.com.
If you’re really just starting to invest, however, it might make more sense to stick with a mutual fund, which can give you broad diversification and professional management while you learn more about the markets.
Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
