Mom went into nursing home, I'm cashing in an annuity. Can I pay her credit cards given the look back 5 years for medicaid in PA?

? on annuities, don’t most annuities have to be surrendered to be changed? It doesn't seem to be a simple name change conversion from say a variable to a Medicaid compliant one. Surrender charges are nothing to gloss over either. About 7% maybe plus fees?

Since annuities are an insurance product, the commission structure is really important to the seller. Don’t most states put a cap on commission & fees for the Medicaid compliant ones? If so, between the restrictive endorsement & required reporting for the Medicaid ones, well to me it seems is a lot of trouble for a lower or set commission on a product that can have no afterlife. Maybe viewed not worth the agents time, so that is why they are hard to find?

Also unless you are doing long term planning in all this, they may not meet the age criteria to be actuarially sound to get an annuity.

For me, the only way I’d ever do an annuity is if I was up against the wall and had to do something to enable hubby to qualify for NH Medicaid asap, then I would do a SPIA annuity. For community spouse situations SPIA’s make sense.

Maybe I’m missing something on why an individual Medicaid compliant annuity makes sense?? Anybody??

About the “filial responsibility” laws. The case that almost all of the articles refer to is “HCR vs. Pittas”. Pittas is not the usual elderly momma with dementia in a NH who dies and kids held responsible for payment situation.

For Pittas, the mom, Maryann, entered a HCR (Healthcare and Retirement Corporation of America) owned facility (Liberty Nursing & Rehab) after an auto accident (two broken legs). At Liberty from Sept, 2007 – March, 2008 (6 months / 92K bill). She applied for Medicaid & was “Medicaid Pending”. She was under 65 so no Medicare. In March, 2008 she left rehab & moved to Greece to live with her husband. Now the son – upon being billed 92K for his mom’s care - took the situation to an arbitration hearing. (I bet arbitration was required to be done as per the admissions contract.) Now in arbitration, it was ruled in the son’s favor. He won. HCR wasn’t content with this and HCR appealed the arbitration ruling in son’s favor to a Pennsylvania trial court (judges only, no jury).

From WestLaw: “As a result, on or about May 12, 2008, HCR instituted a filial support action against Appellant. Pursuant to 23 Pa.C.S.A. § 4603, entitled “Relatives' liability,” HCR sought to hold Appellant liable for the outstanding debt incurred as a result of his mother's treatment and care. The parties submitted the case to arbitration, whereupon a three-member arbitration panel found in favor of Appellant. HCR appealed the arbitration award to the trial court. The trial court held a three-day non-jury trial, after which it entered a verdict in favor of HCR in the amount of $92,943.41. Appellant filed post-trial motions, which the trial court denied on January 13, 2011."

In reading the transcripts, my thought is that Pittas & his attorney did a poor job for the trial court. He did not substantial his bills; did not provide documentation; did not join his father or his sisters for support-burden (not to have filed a join was totally loco, if he had, his share would have been 23K). He did not seem to make an attempt at completing the details & documentation needed for mom’s Medicaid application; or pursuing litigation on the auto accident. HCR just had to show the trial court he had income and bills due. If Pittas thought was that he did not have to do anything because he won in arbitration, that was a huge costly mistake.

Most NH bills are not going to be what Pittas was. There is going to be Medicare or other health insurance paying for things; the elder is going to have some $ to pay towards the bill; family is going to make an effort to pay something. If rehab is due to auto accident, your auto policy may pay for some of the costs & if not someone else’s auto insurance is gonna get sued. You are going to complete the Medicaid application. And momma is not going to leave rehab & take a flight to Greece and permanently move out of the US! Its an extreme situation.

BTW HCR was taken private in 2007 with The Carlyle Group ($ 185B in assets under management in 2013) as the majority owner. HCR name changed to HCR ManorCare & had $4B in annual revenues in 2009.

frustrated - I do think that not paying CC is an option to consider.

My perspective is to Realistically look at the larger picture to determine how best to use $. Say the annuity is 30K & mom has 1K monthly income. Mom is still able to live in her home & has done no planning - no will; no burial / funeral done; house not maintained; hasn't kept up w/dental or medical needs; 30K CC debt; and her car needs new brakes.

What is the best use of the funds? For me, first would be getting those brakes done if she is still able to drive; then all her legal done; then a funeral & burial done; then a good visit with her to her doc's and dentist to see what she may need done (dental work, new glasses, hearing aids, walkers, etc) & then buying those immediate things for her to use right now. If she could stay in the home if she paid for home health care workers, then pay & get done repairs to make the house safe & secure for her continued stay at her home & pay for home health to come in. Mom can still pay the monthly on the CC.

OR say mom just moved into a 5K a mo NH. Mom has enough funds to private pay for 6 months and with the annuity for a full year. OR mom can pay off CC today & Medicaid (your tax $) can start paying the NH @ month #7 for the rest of her lifetime.

Which approach is best?

BUT whatever the choice, once mom applies to & qualifies for Medicaid, she will NOT HAVE $$ TO PAY CC DEBT from then on. Medicaid requires a co-pay or "SOC" (share of cost) of all their income less a small personal needs allowance. PNA varies from $ 35 - 90. PNA just enough to pay phone or cable bill at NH or for beauty shop & some clothing replacement. Mom will be forced to walk on the CC debt AND all other debts she may have once on NH Medicaid.

It's been my experience that the "SOC" aspect of Medicaid often comes as a surprise to both the elders & their family. Ditto for MERP - Medicaid Estate Recovery Program. I think that Medicaid really does not do a good job of explaining how Medicaid works for the elder & their families even from the grave.

I didn't think so either and still not sure but recently someone posted something regarding that. I was not saying I was sure; just saying good idea to find out!

I don't think an heir inherits the debt. My brother died and owed money to IRS and WI state tax and house and my mother did not inherit the debt. I agree to consult with an elder law attorney. It would definitely be worth the money.

It is great to hear the information from different perspectives on what to do if your parent has some money.

Also, aren't some states' laws written such that heirs are responsible for parents' debt? I would ask a lawyer about that or research laws to that effect in her/your state. Maybe she can afford bad credit but can you?

I am wondering about how much the credit card debt is as well as what it was used for. I ask this following question out of the motivation of what is right and moral: Shouldn't at least the minimum payments be made on the credit cards? Once she passes away you cannot bleed a turnip, so to speak, but the prevailing mentality anymore of just ditching the debt because it's what you can get by with just doesn't sit well with me. I am not suggesting that they be paid off, but why not make minimal payments? Hopefully all credit cards are out of her possession now, if she has been using them irresponsibly or if she is mentally unable to handle having them. Agree about the rest of Igloo's advice.

I would not advise stiffing the credit card company when you have the money to pay them back for legitimate expenditures your mother made. If a person has a legitimate debt and the means to pay it back, then the person should do so.

Regarding the annuities, before you cash them in consider converting them to a type of annuity known as a "Medicaid-qualifying" annuity. This type of annuity pays out a monthly amount, while the balance of the annuity is no longer a countable asset for Medicaid eligibility purposes. Essentially, the annuity balance has "disappeared" for Medicaid purposes. This type of planning is explicitly approved by the federal government in the Medicaid laws. Note that not all annuity salesmen are familiar with how this works, so choose carefully and consult with an elder law attorney for the best advice about these.

Correction: straight MEDICARE. The HMO will cause you nothing but grief. Unless the Dr that sees the patients in your nursing home is in that HMO you will be transporting her every time you need to see a Dr. You have to switch during enrollment periods which are usually at the end of the year do do it now or you will be stuck.

Igloo572 has given you EXCELLENT advice. Just went through this process with my MIL in Texas. In addition to what Iglooo said, make sure your mom is on straight Medicaid, NOT one of those HMO's and if you can, get on a supplemental policy. They run about $150/month. The supplemental picks up all the extras and she can keep that even when she is on Medicaid in a nursing home. When you cash her annuity out buy the pre planned funeral policy, clothes, work on her car or home, dental... Anything that will keep the financial burden off you. Just keep all of the receipts and match them to the bank statements as proof that the money was spent in necessities for her. In Texas you can have a house and a car and $2000 cash (not a penny more) and a prepaid funeral (not cash set aside, it must be a pre paid plan. Dignity is a good one.) After she passes the state may come back and take the house so don't use the annuity to remodel the house, but if a dead tree is about to fall on it, have it removed, etc. Keep good records. Most nursing homes have staff that can guide you through this process. God bless you.

Igloo572 I would like to thank you also. We are trying to plan for my MIL going on medicaid at some point and what you said above about taking into consideration dental care etc. is something we had not considered if she no longer has an income or savings!

igloo572 - THANK YOU so very much for this complete explanation. It has helped me take a breath and calmed my fears that I will be doing what is right. I will 'pay it forward' and share information as needed for others but will always be grateful to you for your time and information.

Cmor - I'm going to approach the CC & annuity issue from a different angle.

OK so mom has an annuity about to expire, correct? And I'm assuming that you want to go ahead and cash it in and not renew it as she likely will be applying for Medicaid in the near future. If this is the scenario, I faced something similar for my mom. For what it's worth, here's my experience: mom had CD's, T bills - several of them some 3, some 5 and some 10. Once she hit 90, she basically stopped the auto renewal & redeemed then. They all went into her main checking account. This I didn't think about, it just seemed the easiest way to deal with it for both mom and for the bank. When she applied for Medicaid, the fact that they were totally deposited into her checking account was a good thing for her Medicaid application. My mom's app was a 3 year & 6 mo review of all her finances (and 5 year lookback on real property ownership). Now for all her banking, I had to get a letter (on bank letterhead signed by bank officer too) as to the disposition on any & all account closed within the 3 yr 6 mo period of time and submit the letter with all the other documents required by Medicaid. Letter was like "Jane Smith CD # 1234 $ 5,678.00 redeemed 6/3/09 deposited Jane Smith checking account # 5678 for $ 5,678.00 on 6/3/09" and for each and every one too done for the past 3 years & 6 months. All of them were done this way so no way for any transfer penalty issue to come up on where the CD,Tbill went. If she had cashed it out and took the $, I'm sure there would have been an transfer penalty inquiry letter done. I'd suggest that you take the entire annuity payout amount and deposit it fully into whatever is going to be mom's main checking account for the rest of her life - will just make the Medicaid reporting on all this easier to verify.

Now about the CC, depending on mom's finances you may or may not want to pay them. Its not like mom needs a good credit report anymore, so if she wants to walk on the CC, it is an option to consider. Now doing this will be a total PIA to deal with debt collections, etc. But could be the way to go. Realize that to be able to be on Medicaid, mom will basically have to be impoverished. About 2K in income and 2K in assets, if she is over that for assets she will have to spend-down on things for her care or her needs. And once on Medicaid every month all of mom's monthly income will have to be paid to the NH except for a smallish personal needs allowance of $ 35 - 90 a month (varies by state as each state runs it's Medicaid program uniquely). Mom will have no $, so if there is not the $ to fully pay off the CC right now, there won't be the $ in her future to ever do.

So what would be the best thing to do with mom's $$? If mom does not have a prepaid funeral & burial policy already done, then the costs for that will fall totally on family to pay; if mom needs dental work done, then the costs will fall totally on family to pay (dental is very expensive too, we did lots of mom's spend-down on dental and well worth it for elderly health); if mom still has a home or a car, then the costs will fall totally on family to pay. Get my drift??? It may be better to use the annuity payout to do or buy things for mom that benefit her in the long run rather than pay on or pay off a CC. The CC won't be happy but there isn't too much they can do in most states as CC is unsecured debt. In a few states even their home is protected from any CC debtor action too. If she doesn't have a home, even less to worry about. Really take a hard realistic look at mom's financial situation and the best way to maximize the annuity funds. Good luck.

Thank you for info - I have POA and handle everything legally as she has macular degeneration so I don't think that would be an issue.

Wait a minute. Depends what the credit cards were used for. If the statements prove these were all her expenses, OK. If she bought somebody a new living room set, red flag and penalty from Medicaid. If she paid airfare for someone to visit her, red flag. You really need to know where it went. If she sent you to shop for her and you signed for purchases, not a good thing.