Disclaimer: Since Medicaid rules and insurance regulations are updated regularly, past blog posts may not present the most accurate or relevant data. Please contact our office for up-to-date information, strategies, and guidance.
In the past, New Jersey has had problems funding MCAs (Medicaid Compliant Annuities) with tax-qualified/IRA funds. Unfortunately, 60 months was the smallest term The Krause Agency could offer a tax-qualified annuity for in New Jersey. While this created plenty of restrictions for Medicaid planning options, it appears as though a solution has come up. Croatian Fraternal Union has decided to accept tax-qualified funds for short-term annuities. This is great news for New Jersey since non-qualified and tax-qualified annuities can now be structured there.
There are a wider range of possibilities in regards to planning options in the state of New Jersey due to the new minimum two-month annuity structure. This is ideal for offering clients options that can be better personalized for them.
Which Situations Are Best For New Jersey Short-Term Medicaid Compliant Annuities?
Individual Gifting/MCA Plan – This plan (also known as “Half-a-Loaf Plan) is best for single individuals looking to achieve eligibility by gifting assets to their beneficiaries while purchasing an MCA with the remaining amount. This will create a short ineligibility period where the client must pay out-of-pocket, but it will keep them “otherwise eligible” for benefits.
Usually, the total amount gifted to the individual’s beneficiaries is half of their total assets, while the other half pays for the MCA. The penalty period length (and ultimately, the length of the MCA) is dependent on the gift amount. They could both be as short as two months, which would typically make the annuities less than 60 months (“short-term”).
Traditional Spousal Annuity Planning – In traditional spousal annuity planning, a married couple will use their extra assets to buy an MCA for the community spouse for that individual’s entire lift expectancy. Let’s take a look at an example. Suppose an 80-year old woman in New Jersey has a life expectancy of 9.58 years/114.96 months. Structuring an MCA for her entire life expectancy would put the period certain at 114 months. It’s unnecessary to structure a short-term annuity for clients with longer life expectancies. For an older client, say, a 92-year-old woman, the situation would be different. Since her life expectancy would be 4.08 years/48.96 months, we’d structure a 48-month annuity without a problem with the resolved 60-month term restriction.
It’s important to note that there are instances other than life expectancy that would make a short-term annuity ideal for community spouses. Take a community spouse receiving $900 from Social Security each month for example. With $30,000 in extra countable assets, it would make sense to create an MCA over 24 months while increasing their monthly income to $2,151.63 ($900 plus MCA monthly payout of $1,251.63) due to the fact that it wouldn’t create an “unreasonable income” for them. The community spouse would also more conveniently be able to access those limited resources.
How Does This Affect Medicaid Planning In New Jersey?
There are a much wider range of opportunities and strategies available now that The Krause Agency can offer tax-qualified short-term annuities in the state of New Jersey. We’ve provided you with only a few of the situations where short-term MCAs can be advantageous. To learn more, contact our office today!
