Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

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Nutmeg
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Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

For Medicaid qualification purposes, a SNF resident may have a maximum amount of assets, as determined by the state ($2,000 in my case). As a result, owners of whole life insurance policies in amounts greater than that amount must redeem them or convert them to a “long term care benefit plan” or “Life Care Funding.” I have read everything relevant that I could find online, including an overview at:

https://www.payingforseniorcare.com/lif ... nefit-plan

Have you had any experience with life insurance conversions for Medicaid planning purposes?
Last edited by Nutmeg on Sun Aug 14, 2022 11:17 pm, edited 1 time in total.
Rex66
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Re: Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Rex66 »

Doesn’t sound that useful since the money has to be used for care which you could do without this product. Use your cash value to stay wherever you want then go on Medicaid. If you are super I’ll then just take loans against the value so heirs get remaining death benefit minus loans.
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Nutmeg
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Re: Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

Thanks for responding!

The SNF resident will stay where he is regardless of this decision.

My understanding was that there are only two choices for Medicaid qualification to reduce assets below $2,000: cash out the policy or convert it to long term care benefits. Are you saying that Medicaid won’t count the policy as his asset if he borrows against it? If that is an option, how does that work in practical terms?

We don’t anticipate any money to be available for heirs, as the SNF resident or his wife (in Medicaid terms, the “community spouse”) will need it all for living expenses.
Rex66
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Re: Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Rex66 »

No I’m saying if he or she will die soon then use loans to pay until it’s used up. That way you get the remaining death benefit. If life expectancy is long then probably no money will be left. You actually have to be doing real care for the new policy to pay. It isn’t a way to shuffle the money to heirs.
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Nutmeg
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Re: Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

Rex66 wrote: Sun Aug 14, 2022 4:08 pm No I’m saying if he or she will die soon then use loans to pay until it’s used up. That way you get the remaining death benefit. If life expectancy is long then probably no money will be left. You actually have to be doing real care for the new policy to pay. It isn’t a way to shuffle the money to heirs.
Thanks for clarifying. We have no idea how long the nursing home resident will live, and we aren’t trying to preserve money for heirs (other than making sure that the community spouse has enough).
Rex66
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Re: Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Rex66 »

You probably need to talk to a lawyer who specializes in this. Unlikely this is a good option. Medicaid is for when you run out of money and has a 5 year look back. Considering it appears he already is in a facility, I’m not sure you have a lot of options.
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Nutmeg
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Re: Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

Rex66 wrote: Sun Aug 14, 2022 8:12 pm You probably need to talk to a lawyer who specializes in this. Unlikely this is a good option. Medicaid is for when you run out of money and has a 5 year look back. Considering it appears he already is in a facility, I’m not sure you have a lot of options.
Yes, that is good advice, and I plan to consult an expert in the field. (I am a retired attorney, but didn’t practice in this field).

I found introductory info about converting the whole life policy on the attorney’s website, which is why I posted, to see if other Bogleheads had had experience with this, so I can be prepared before meeting with the attorney. We are in the spend-down phase, and during this phase, we need to make sure the SNF resident’s funds are used for his care, and that he retains no more than $2,000 in assets, which is why the whole life policies need to be redeemed or converted.
Chardo
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Chardo »

Does the whole life policy even include a long term care benefit? Policies can't automatically be used for LTC. That would need to have been included in the policy or added as a rider.
HomeStretch
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by HomeStretch »

If the couple hasn’t already done so, they should consult ASAP with an experienced elder law attorney in their state of residence.

How close is the couple to being eligible for Medicaid based on their current countable assets?

What is the current cash surrender value of the life insurance policy?

Will the community spouse’s monthly income from all sources (SS, pension, etc.) exceed the state’s maximum monthly needs allowance?
——————————-

A SNF’s monthly room & board charge covers everything but personal needs for the institutionalized spouse (IS). So if the life insurance policy is converted to a long-term care policy for the IS, the benefits paid under such policy would benefit the state only as it will reduce the amount that Medicaid pays monthly towards the negotiated SNF room & board charge.

If the life insurance policy is cancelled, any cash surrender value (CSV) would be used to pay the couple’s expenses (prior to Medicaid eligibility) until the couple’s countable assets are at/below the maximum Medicaid allows to qualify for Medicaid long-term care benefits. For the IS, your post says the state max is $2,000. The community spouse (CS) is allowed more (in my parents’ state, the max is $137,400 for the CS).

The better choice financially, if allowed by Medicaid regulations, is likely to cancel the policy and spend down the proceeds. The spend down could include:
(1) prepay burial costs using Medicaid-compliant burial trusts which are not a countable asset (at least in my parents’ state).
(2) upgrade the CS’s sole vehicle if old/unsafe and upgrade anything necessary in the CS’s primary residence that Medicaid will allow them to keep while the CS resides there.
(3) if allowed, perhaps a long-term care policy for the CS who isn’t going to be left with a lot of assets to live on as usual or for their own possible future care needs.

If any excess funds remain that need to be spent down, if the CS’s monthly income is below Medicaid’s maximum monthly allowance, some/all of the excess funds could be used to purchase a Medicaid-compliant SPIA (annuity) that pays the CS a fixed monthly benefit over a fixed period of time. Medicaid will be named the beneficiary up to the cost Medicaid has paid out for the IS’s SNF care.

Your expectation that there won’t be any estate $ for heirs is reasonable as the couple isn’t going to have a lot once the IS is granted Medicaid LTC benefits. However, the elder law attorney should review their DPOAs, wills and account beneficiary designations prior to applying for Medicaid.

Although up-to-date, my parents’ estate documents needed amending because:
(1) the DPOAs needed to include language (to pass Medicaid review) to give specific powers to their attorney-in-fact (AIF) to allow gifting, etc. This allowed, among other things, for spousal transfers of assets (i.e., putting the title to one car and primary residence in the name of the CS only) and to set up the Burial Trusts.
(2) the CS’s Will was revised to only leave the state-required Elective Share to the IS. If the CS dies first, the IS’s inheritance under the will will make them ineligible from Medicaid until the inheritance is spent down. So if the IS is on Medicaid and then inherits $, the IS comes off Medicaid (and private pays for SNF care), and then goes back on Medicaid once the assets are reduced back to $2,00 or less (in your couples’ case). Edit - I don’t expect my CS-parent in poor health to have a significant estate. But in the event my CS-parent passes first after the IS-parent is on Medicaid, I didn’t want to deal with the Medicaid interruption.
Last edited by HomeStretch on Mon Aug 15, 2022 12:30 pm, edited 4 times in total.
Rex66
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Rex66 »

Chardo wrote: Mon Aug 15, 2022 5:43 am Does the whole life policy even include a long term care benefit? Policies can't automatically be used for LTC. That would need to have been included in the policy or added as a rider.
My guess from the link is this is a 1035 exchange to a new policy
Chardo
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Chardo »

Rex66 wrote: Mon Aug 15, 2022 7:33 am
Chardo wrote: Mon Aug 15, 2022 5:43 am Does the whole life policy even include a long term care benefit? Policies can't automatically be used for LTC. That would need to have been included in the policy or added as a rider.
My guess from the link is this is a 1035 exchange to a new policy
Whoa, just looked at the link. That's not a "conversion", which has a different meaning for insurance. That's a life settlement. You are literally selling your insurance policy to a third party. In this instance, instead of cash, that third party would pay for some amount of LTC benefits in exchange for ownership of the policy and the death benefit. Tread very carefully. It's not for everyone.
Rex66
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Rex66 »

It’s not clear to me if that 3rd party is another insurance company and with an unusual annuity since they discussed time period payments. It seems to lack details possibly purposefully.
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Lee_WSP »

Unless you need the annuity and it's somehow cheaper to do the exchange, it's usually easier and wiser to just cash out the policy.
Chardo
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Chardo »

Rex66 wrote: Mon Aug 15, 2022 11:33 am It’s not clear to me if that 3rd party is another insurance company and with an unusual annuity since they discussed time period payments. It seems to lack details possibly purposefully.
Purposefully, for sure. It's a third party, a standard life settlement. Except instead of a lump sum purchase, they are spreading the payments over time.

If it was another insurance company with an unusual annuity, payments would be based on the cash value of the whole life policy. Which could be accomplished by an ordinary 1035 exchange to any SPIA, or even annuitizing the policy itself.
Rex66
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Rex66 »

The other odd thing though is how they talk exclusively about paying family members. Almost implied a regulated product.

A 1035 could go into some annuity with rider that has a “bonus” so they offer the appearance of more than the csv.

Either way not sure how it would help the op
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Nutmeg
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

HomeStretch wrote: Mon Aug 15, 2022 7:28 am If the couple hasn’t already done so, they should consult ASAP with an experienced elder law attorney in their state of residence.

How close is the couple to being eligible for Medicaid based on their current countable assets?

What is the current cash surrender value of the life insurance policy?

Will the community spouse’s monthly income from all sources (SS, pension, etc.) exceed the state’s maximum monthly needs allowance?
——————————-
Thank you, everyone for your responses! There is a lot to consider, so I will start by answering some good questions.
If the couple hasn’t already done so, they should consult ASAP with an experienced elder law attorney in their state of residence.
Attorney: I could not agree more. The couple first consulted with an elder law attorney recommended by the SNF. This was not my area of practice, so I am just learning myself, but I think we need a more-experienced second opinion. For example, that attorney recommended that we buy a Medicaid-compliant annuity soon, when the couple had over $600,000 in liquid assets. That would reduce flexibility enormously. That would also require that Medicaid would be named as contingent beneficiary and receive all remaining assets (to the extent Medicaid had made payments.) I am also concerned that an annuity of that amount for someone with a 10-year or so expected lifespan would not be considered Medicaid-compliant, as the primary case on the topic involved annuities of about $100,000. The local attorney didn’t really have an answer when I asked about that. Also, the initial POAs the local attorney prepared didn’t allow the agent (the couple’s adult child) to name the agent as a beneficiary on brokerage accounts. The couple clearly didn’t intend to disinherit their trusted child, so we had to redo the POAs. I am not the couple’s child but know the couple well and feel that I should understand as much as I can when I recommend consulting a more-experienced attorney.
How close is the couple to being eligible for Medicaid based on their current countable assets?
The couple has $200,000 or so remaining that would need to be spent down or used to purchase a Medicaid-compliant annuity before they reach the approximately $137,400 in assets that the community spouse is allowed to keep. Because they have decent income (but not enough to pay for a SNF out of pocket from income), that money could last 2 to 4 years as a private pay patient. It seems difficult to know the best time to apply for Medicaid, because applying reduces flexibility. For example, I don’t think Medicaid would pay for a top-of-the-line hearing aid; hearing is quite important for qualify of life. Applying also can reduce the community spouse’s flexibility; for example, it could make changing living arrangements more difficult.
What is the current cash surrender value of the life insurance policy?


I don’t know, and that is something we should find out. The face value of all the policies is about $40,000, so cash surrender value is less than that.
Will the community spouse’s monthly income from all sources (SS, pension, etc.) exceed the state’s maximum monthly needs allowance?
No.

***
That is all I have time to answer at the moment, but I will come back and read other responses, and will welcome other comments (even if they don’t relate directly to the initial question; I am trying to learn what I need to know as fast as possible.)
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Nutmeg
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

Chardo wrote: Mon Aug 15, 2022 1:05 pm
Rex66 wrote: Mon Aug 15, 2022 11:33 am It’s not clear to me if that 3rd party is another insurance company and with an unusual annuity since they discussed time period payments. It seems to lack details possibly purposefully.
Purposefully, for sure. It's a third party, a standard life settlement. Except instead of a lump sum purchase, they are spreading the payments over time.

If it was another insurance company with an unusual annuity, payments would be based on the cash value of the whole life policy. Which could be accomplished by an ordinary 1035 exchange to any SPIA, or even annuitizing the policy itself.
The concepts in the last paragraph are new to me. Are you saying that it is possible to annuitize the whole life policy in order to reduce the assets of the owner, thereby converting the asset into income, without doing a conversion? If so, how does one do that in practical terms?
Chardo
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Chardo »

Nutmeg wrote: Tue Aug 16, 2022 9:05 pm
Chardo wrote: Mon Aug 15, 2022 1:05 pm
Rex66 wrote: Mon Aug 15, 2022 11:33 am It’s not clear to me if that 3rd party is another insurance company and with an unusual annuity since they discussed time period payments. It seems to lack details possibly purposefully.
Purposefully, for sure. It's a third party, a standard life settlement. Except instead of a lump sum purchase, they are spreading the payments over time.

If it was another insurance company with an unusual annuity, payments would be based on the cash value of the whole life policy. Which could be accomplished by an ordinary 1035 exchange to any SPIA, or even annuitizing the policy itself.
The concepts in the last paragraph are new to me. Are you saying that it is possible to annuitize the whole life policy in order to reduce the assets of the owner, thereby converting the asset into income, without doing a conversion? If so, how does one do that in practical terms?
You take the cash value of the policy and annuitize it for a lifetime income. Now you have no more life insurance or cash value, just an income stream. Or you can 1035 exchange to a SPIA at another company to accomplish the same thing. I cannot say whether there would be implications with Medicaid qualification, you need to consult an attorney. Regardless, you said the face amount is about 40k. The cash value is probably substantially less. Is this too small to even bother?
HomeStretch
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by HomeStretch »

Chardo wrote: Wed Aug 17, 2022 9:12 am
Nutmeg wrote: Tue Aug 16, 2022 9:05 pm The concepts in the last paragraph are new to me. Are you saying that it is possible to annuitize the whole life policy in order to reduce the assets of the owner, thereby converting the asset into income, without doing a conversion? If so, how does one do that in practical terms?
You take the cash value of the policy and annuitize it for a lifetime income. Now you have no more life insurance or cash value, just an income stream. Or you can 1035 exchange to a SPIA at another company to accomplish the same thing. I cannot say whether there would be implications with Medicaid qualification, you need to consult an attorney. Regardless, you said the face amount is about 40k. The cash value is probably substantially less. Is this too small to even bother?
From a Medicaid perspective (which varies by state), my understanding (n=1) in my parents’ state is:

1) the life insurance policy for the institutionalized spouse (IS) needs to be annuitized or cashed in /spent down as the IS’s assets cannot exceed $1,600 to qualify for Medicaid long term care benefits.

2) If the life insurance is annuitized for the spouse in the SNF (IS), it is of no benefit to the couple as the monthly annuity benefit just reduces the amount Medicaid pays to the SNF for the IS’s room & board.

3) If the life insurance can be annuitized for the community spouse (CS) or cashed in/annuity purchased for the CS, the monthly annuity benefit will be paid to the CS. The CS’s total monthly income after Medicaid is granted may or may not increase due to the annuity income because:
- If the CS was to receive any Applied Income (AI) from the IS’s retirement income, any annuity income would reduce the AI dollar for dollar.
- if the CS’s monthly income with the annuity income exceeds the state’s Medicaid maximum monthly needs allowance for the CS, the CS excess income is paid to the SNF and reduces Medicaid’s payment to the SNF.
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Nutmeg
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

Chardo wrote: Wed Aug 17, 2022 9:12 am
Nutmeg wrote: Tue Aug 16, 2022 9:05 pm
Chardo wrote: Mon Aug 15, 2022 1:05 pm
Rex66 wrote: Mon Aug 15, 2022 11:33 am It’s not clear to me if that 3rd party is another insurance company and with an unusual annuity since they discussed time period payments. It seems to lack details possibly purposefully.
Purposefully, for sure. It's a third party, a standard life settlement. Except instead of a lump sum purchase, they are spreading the payments over time.

If it was another insurance company with an unusual annuity, payments would be based on the cash value of the whole life policy. Which could be accomplished by an ordinary 1035 exchange to any SPIA, or even annuitizing the policy itself.
The concepts in the last paragraph are new to me. Are you saying that it is possible to annuitize the whole life policy in order to reduce the assets of the owner, thereby converting the asset into income, without doing a conversion? If so, how does one do that in practical terms?
You take the cash value of the policy and annuitize it for a lifetime income. Now you have no more life insurance or cash value, just an income stream. Or you can 1035 exchange to a SPIA at another company to accomplish the same thing. I cannot say whether there would be implications with Medicaid qualification, you need to consult an attorney. Regardless, you said the face amount is about 40k. The cash value is probably substantially less. Is this too small to even bother?
The answer to the question I just italicized is no, it is not too small to bother. The assets owned by the Institutionalized Spouse must be spent down to less than $2,000 in this state to qualify for Medicaid. Owning assets above $2,000 entirely disqualifies the IS from receiving Medicaid benefits for nursing home care. Therefore, the amount isn’t a matter of $40k face value in whole life insurance policies; it is a matter of $120,000 per year for the rest of his life. We need to figure out how to best spend down the assets while protecting assets to the extent possible so the Community Spouse has enough to live on.
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Nutmeg
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Re: Whole Life Insurance Conversion to LT Care Benefit Plan for Medicaid SNF Planning

Post by Nutmeg »

HomeStretch wrote: Wed Aug 17, 2022 10:28 am
Chardo wrote: Wed Aug 17, 2022 9:12 am
Nutmeg wrote: Tue Aug 16, 2022 9:05 pm The concepts in the last paragraph are new to me. Are you saying that it is possible to annuitize the whole life policy in order to reduce the assets of the owner, thereby converting the asset into income, without doing a conversion? If so, how does one do that in practical terms?
You take the cash value of the policy and annuitize it for a lifetime income. Now you have no more life insurance or cash value, just an income stream. Or you can 1035 exchange to a SPIA at another company to accomplish the same thing. I cannot say whether there would be implications with Medicaid qualification, you need to consult an attorney. Regardless, you said the face amount is about 40k. The cash value is probably substantially less. Is this too small to even bother?
From a Medicaid perspective (which varies by state), my understanding (n=1) in my parents’ state is:

1) the life insurance policy for the institutionalized spouse (IS) needs to be annuitized or cashed in /spent down as the IS’s assets cannot exceed $1,600 to qualify for Medicaid long term care benefits.

2) If the life insurance is annuitized for the spouse in the SNF (IS), it is of no benefit to the couple as the monthly annuity benefit just reduces the amount Medicaid pays to the SNF for the IS’s room & board.

3) If the life insurance can be annuitized for the community spouse (CS) or cashed in/annuity purchased for the CS, the monthly annuity benefit will be paid to the CS. The CS’s total monthly income after Medicaid is granted may or may not increase due to the annuity income because:
- If the CS was to receive any Applied Income (AI) from the IS’s retirement income, any annuity income would reduce the AI dollar for dollar.
- if the CS’s monthly income with the annuity income exceeds the state’s Medicaid maximum monthly needs allowance for the CS, the CS excess income is paid to the SNF and reduces Medicaid’s payment to the SNF.
1) Yes, $2,000 in my state.
2) That makes sense.
3) It appears that I need to do some math. The CS’s current monthly income doesn’t exceed the Medicaid maximum monthly needs allowance, but could after annuitizing the assets that are preventing the couple for applying for Medicaid now. That means that the timing of the application is very important.

Thanks for posting; this is a lot to consider.
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