Annuity in a Trust

[Hockeynut]

I have a question about a Special Needs Trust that I am setting up for my father (86). This is to replace his existing trust so that he will be eligible for about a $20,000 a year pension from the Va and be excluded form capital gains taxes on his previous investments. Were are basically knocking his net worth down to nothing and his income will be negative after the cost of the assisted living cost.

He has moved into an assisted living home at about $72,000 a year. He has a pension and SS as income now and some investments in money market accounts and stock.

By setting up the new trust he will be eligible for about an additional $20,000 a year pension benefit. With this, he is still short about $20,000 a year on the cost of the assisted living. He has a substantial amount of money to invest to cover the difference.

He has a LTC policy from Bankers that will cover about 100 days at $160 a day benefit until I get this set up. He had a policy similar to this for my mother who passed away 2 years ago that was never used. When I called Bankers they told me that she was paid up for $14,000 . They told me I would not receive anything back on this policy?

I am working with a Lawyer and Financial Planner on this.
The Financial Planner is suggesting to put about half of this into an Annuity at about 3 to 3-1/2% interest with the balance in cash and CD's. This should get him close to breaking even on his cash flow.

My main concern is when my father dies will the fixed annuity cease and become liquid at that time with no penalties or costs?

Also, if you have any suggestions for any good annuities I would appreciate any input you may have.

Many thanks,

Eric

 

[Arthur Rudnick]

Eric,
You've got a lot going on here. I'll end this post in suggesting that before you do anything, you need to speak with an elder-law attorney, who specializes in trusts. Most elder-law attornies do.

A financial planner should be a part of the conversation, but It's the attorney who knows all the tax & Medicaid ramifications.

I'm not sure what type of annuities you're looking at but in NY, you'd be hard pressed to find any fixed annuity paying more than 1.80%.

If your dad died before annuity payments were completed and if your anticipated end result is to plan on applying for Medicaid, by law, the beneficiary listed on the annuity is his state's Medicaid Department.

BTW, very few state's Medicaid Departments will pay for assisted living. They usually only pay for a nursing home.

In addition, any income that he has (pensions, ss, unearned income) will go towards paying for his stay in a nursing home.

Again, you want to set up a trust properly and a finacial planner can't do that. So, contact an elder-law attorney and explain the situation.
Good luck..........

 

[Tahoe Ray]

I echo Arthur's comments about letting the attorney take the lead here.

Maybe I misunderstood the post but it looks like he is setting up the trust to get the VA pension increased, not to go on Medicaid. It seems as if he is going to be paying for the assisted living using SS, pension and cash flow from the annuity/CD...but I could be wrong.

Speaking strictly about the annuity option, you can certainly find rates better than NY (as they are the lowest in the country) and 3% is not unreasonable (you'd have to go out 10 years to get 3.5% though...).

His age will knock a couple of companies out of the picture but depending on your state and the amount that you're looking to place in an annuity, Guggenheim (B++) may be a good option.

You'll sacrifice about 50bp in interest to get a more highly rated company (like Midland/North American; A+) depending on for how long you wish to tie the money up.

Most fixed annuities will waive surrender charges upon death but you'll want to verify that with the carrier before your purchase. This is where the planner (or an insurance forum) should be able to offer some assistance.

Good luck.

 

[Hockeynut]

Hello and thanks for responses.

I am working with an elder law attorney who is setting up the new special needs trust and the financial planner.

We are changing the existing revocable living trust to the special needs irrevocable trust. The purpose is to save money on capital gains and be eligible to receive the Aid and Attendance Benefit for people who have served in the military. It pays $1,703 per month if you are in need of home care, nursing home or assisted living. You can not make more then $11,000 per year after all medical expenses and have more then $80,000 in assets. We are not really looking for help with medicaid in the future.

We are liquidating all of my fathers assets into one account that will be gifted into to my sister and I into the new special needs trust. On the old trust we were the beneficiaries and the new trust will have him as the beneficiary on the new trust with no assets. We will pay his expenses above his SS pension and VA benefit out of this account.

I have never invested in annuities and do not fully understand all the ins and outs of them. If I know that the annuity ceases upon death with no penalty or fee's I would be OK with them. I feel more comfortable with very conservative stocks paying 3-4% dividends with a portion set aside for cash and CD's.

The attorney and financial planner work together and I will be meeting with them again in a few weeks to go over the investment strategy. I'm just trying to learn about as much as I can about annuities as I can.

Many thanks,

Eric

 

[Tahoe Ray]

Your planner should explain the pros and cons of using an annuity vs. other options. That's what they're compensated for so hopefully they can provide you with some facts and then make a recommendation based on your situation.

Most fixed annuities are about certainty. You know what your liquidity is, what your current rate is, what your minimum rate is etc. If you outline your needs to someone who works with these products, they should be able to find a solution that you'll understand and that fits your parameters (assuming that your parameters are reasonable).

There are a lot of different types of annuities so do your research (like you seem to be doing now) to make sure that what you end up buying is in line with your objective.

You can always come back here with the actual recommendation for a second opinion.