A recent example of “medicaid planning” gone wrong once again demonstrates the importance of having a qualified attorney involved at all stages of your planning.

On July 28, 2011, the California Court of Appeals upheld a decision disqualifying a widow's application for California's Medicaid program.

At age 91, Mary Lind had purchased a $92,000.00 single premium “life insurance” endowment contract that was not really a life insurance policy. The court found instead that it was an annuity or a trust that had to be counted at its full value. The contract therefore exceeded the $2,000.00 asset limitation to qualify for Medicaid, including nursing home payments.

Michigan's laws are similar and this California case is a warning to Michigan residents as they embark on their own Medicaid Planning for nursing home and other relief.

Relief can be obtained, but not with this method.

Instead of promising to pay a certain death benefit amount to a beneficiary after she died, the contract paid her monthly income and promised a payment at maturity, which was defined as the policy anniversary date in five years--if she survived that long.

The Court found the $92,000.00 “life insurance” contract “did not qualify as life insurance because it promised to repay Mary her premium plus dividends if she survived, whereas life insurance requires that benefits [be] paid to the beneficiary upon the death of the insured.”

The court also pointed out the fundamental distinction between true annuities and true life insurance policies:

“From the viewpoint of risk, a life insurance policy and an annuity contract are, in fact, diametrically different. Under the (life insurance) the company will lose in the event of the insured’s premature death; under the (annuity) the company will gain.”

She also lost when the court confirmed this contract did not qualify as an irrevocable trust that was not payable to or for her benefit. Again, the contract was a disqualifying “countable asset” because the contract amount was to be disbursed to her directly if she survived to the fifth year.

So, they tried, but this annuity or trust was still an annuity or trust even though they called it a life insurance policy. Per Shakespeare “a rose by any other name. . . .”

The case is an unpublished opinion, Lind v. Maxwell-Jolly, issued July 28, 2011, and found at

http://www.courtinfo.ca.gov/opinions/nonpub/C061912.PDF.