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The kind of annuity most people are familiar with is the kind typically sold by insurance companies. Commercially, an annuity is a contract you buy from an insurance company. You pay a lump sum up front and afterwards you receive a guaranteed stream of income. The stream continues either for a specific period of time, or for the rest of your life.
Federal law has allowed Elder Law attorneys to use this concept in a modified form to protect a portion of the assets of clients who are going into nursing homes, and who will be subject to the “look back” period if they make transfers or gifts to other people or to a trust.
Here’s how the annuity concept is used in Elder Law practice. An Elder Law firm can draft a private annuity for you. This is the same type of contract the insurance company offers, except that it is between you and someone you choose. Instead of paying a lump sum to an insurance company, you pay it to your chosen child/friend/relative (your ‘counterparty’). The counterparty then provides you with a guaranteed stream of income for a specific period of time. The contract is individualized so that the stream of income you receive is structured to protect a gift or transfer that is subject to a Medicaid penalty.
These annuities need to be structured on a case-by-case basis. Their unique nature, and their terms and conditions, mean that insurance companies are not interested in writing this type of contract for you.
Lamson & Cutner employs this strategy to enable you to protect at least some of your money if you need nursing home care and need to do some last-minute planning. We explain the strategy under “Private Annuities” on our website, www.lamson-cutner.com.