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Single Person Case Study

Hi, I’m Stuart Otto, Sales Manager for Krause Financial Services. Today, we’re going to walk through a Case Study of a Gift/MCA plan for a single person.

If your client is single and looking to obtain Medicaid eligibility as quickly as possible, this is one plan they can take. The Gift/MCA plan is also referred to as “half a loaf” plan and consists of your client gifting roughly half of their assets and using the other half to pay for their care during their penalty period.

Let’s take Richard, an 83-year-old resident of North Carolina. He was recently diagnosed with Parkinson’s and is looking to quickly become eligible for Medicaid, while also creating a wealth transfer to his children. Because he is single and his longevity is still considered good, the Gift/MCA plan is the best option.

Richard has $150,000 worth of assets and an income of $1,200. And his cost of care is $6,900. And the divestment penalty divisor for the state of North Carolina is $6,810.

First, we will determine the spend-down amount. Richard is allowed to keep $2,000 for his Individual Resource Allowance. With the countable assets of $150,000 being reduced by his individual resource allowance, he has $148,000 to spend down.

Next, we will need to figure out the amount of the annuity and the gift. With the cost of care at $6,900 and Richard’s income sitting at $1,200, his shortfall is $5,700 a month. We then add that shortfall to the divestment penalty divisor of $6,810 for a total of $12,510. That sum represents the burn rate, or the amount of cash Richard will burn through in one month of the plan.

To figure out the length of the plan, we need to take the spend-down amount and divide it by the burn rate. We get 11.83, and we will round up to 12 for a length of 12 months.

Using the 12-month length, we will multiply the length by the divestment penalty divisor in North Carolina to find the gift amount. Richard can immediately gift his children with $81,720.

Subtracting his spend-down amount from his gift amount will find the amount he will fund into an annuity. His total annuity amount will be $66,280. His monthly payment from the annuity will be $5,545 a month for 12 months.

Because his monthly annuity amount added to his income still does not equal his cost of care, that $155 can come from his Individual Resource Allowance, or his children can help him pay that amount.

With the gift to Richard’s children and the purchase of the MCA, Richard applies for Medicaid to commence his 12-month penalty period. In month 13, Richard will be eligible for Medicaid benefits, and his Medicaid co-pay will be $1,170.

Richard was also able to make a wealth transfer to his children with the gift amount being over 50% of his spend-down amount. Had he done nothing, he would have used up his entire spend-down amount in roughly 26 months.

If for any reason, Richard has unexpected medical expenses or the cost of care increases during his penalty period, his children would be able to cover that cost with the gift amount.

Allowing your client to transfer some of their wealth to their children or loved ones allows them to use some of their life savings to gift rather than divesting it all on a costly nursing home stay. Although they still have to pay privately for their care for a few months, this is the most advantageous plan for someone who has not pre-planned, needs care, and wants to gift money to their family.

Regardless of your client’s situation, we have solutions to help them become Medicaid eligible. If you’d like to learn more about your client’s options when needing care, contact our office at 855-552-5893 to speak with a Benefits Planner.

I’m Stuart Otto, and thanks for watching.

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