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A half loaf gifting plan can be generally explained as gifting half of your assets to your children and paying the other half to the nursing home or assisted living facility.  You preserve, on average, around 50% of your assets that would otherwise be subject to a Medicaid spend-down.


The details of the plan are much more complicated.  Gifting a portion of your assets creates a Medicaid divestment penalty.  The penalty is a number of months that you have no assets, but you cannot receive long-term care benefits.  The divestment penalty does not begin to run until you are otherwise eligible for Medicaid.  So, you cannot simply make the gift and use your remaining assets to pay the nursing home.  There is another required step to make the planning work.


Cash in your bank account is countable, and you cannot start the penalty period while it is in that form.  You need to use a Medicaid compliant annuity to turn the cash into a non-countable asset and create a stream of income to help pay for the nursing home during the penalty period.


So far, you have gifted half your assets to your children and used the other half to purchase a Medicaid compliant annuity.  How do you afford the cost of the nursing home during the penalty period?  The Medicaid compliant annuity does two things (1) turns cash into a non-countable asset, and (2) creates on income stream.  The income stream needs to be high enough that, when combined with your income, you have almost enough to pay the nursing home each month.  Why only nearly enough?  Because you are not eligible for Medicaid if the entire bill is paid, which is just another rule to complicate planning.


The appropriate amount of the gift and income stream is calculated with four main data points: (1) your income, (2) the cost of the nursing home, (3) your health insurance premiums, and (4) the average monthly cost of all nursing homes in Michigan.  Using these numbers a "burn rate" is calculated.  The amount to be protected is divided by the burn rate which gives you the length of the annuity.  The length of the annuity is multiplied by the average monthly cost of all nursing homes in Michigan, providing the amount of your assets that can be gifted.  The remainder of your assets are used to purchase the Medicaid compliant annuity.


Let's provide a concrete example to show you what the calculation looks like.


1.  Your income is:                                                      $2,500

2.  The nursing home costs:                                      $10,000

3.  The average cost of a nursing home is:             $8,469

4.  The monthly shortfall at the nursing home is:  $7,500

4.  The total amount to protect is:                            $150,000


The burn rate equals = $15,669

    $8,469 + $7,200 (subtracted $300 for calculation)


Dividing $150,000 by $15,669 gives us a divestment penalty of 9.57


The length of the annuity is 10 months (rounding up)


The gifted amount is $84,690


The annuity amount is $65,310


The monthly annuity payment is $6,531


The annuity and your income gives you $9,031 to pay the nursing home


The monthly shortfall of $969 is paid out of the gift for total payments of $9,690


The total amount protected is $75,000 ($84,690 - $9,690)


In the end, you protected $75,000, which is exactly half of the assets you started with, so half of the loaf.



John-Rizzo todd-millar

Why is this so complicated?

1.    In 2005, Congress enacted the Deficit Reduction Act, taking away most simple planning tools.


2.     The Deficit Reduction Act also forced the states to create estate recovery programs to seek Medicaid reimbursement from seniors who needed help with long-term care.


3.    The motivation for the harsh changes were the overuse of a type of annuity by insurance agents and financial planners.


4.     The sale of these annuities was so widespread that the government took notice and considered them a threat to the budget.

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