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New Texas Law Promotes Using Life Settlements In Connection with Medicaid Planning

Governor Perry has just signed a law (to be effective as of September 1, 2013) that allows Medicaid applicants to sell their life insurance policies to life settlement companies and not jeopardize Medicaid benefits provided certain conditions are met.

Medicaid is a jointly run state and federal health program that often assists with paying the cost of home health care, assisted living and nursing home services.  Medicaid  is “means tested” – so at the present time if a life insurance policy has a face value of over $1500, then the cash surrender value counts toward the countable (certain resources such as a homestead, car, pre-need funeral, etc. do not count) resource limit. So, generally, to get eligible for the Medicaid benefit, applicants often cash in their policy, borrow against the policy and buy non-countable resources or pay bills such as the cost of care or sell the policy and then use the proceeds similarly.

The new law allows a Medicaid applicant who enters into a life settlement contract (a contract that allows policyholders to sell their life insurance policies at a discount in the secondary market and the buyer takes over the premiums and gets the death benefit) to avoid the life insurance policy being considered as an asset or resource in determining Medicaid eligibility provided the policy is at least $10,000 and that the payments be made directly to: (1) a health care provider for the provision of those services to the insured; or (2) the state to offset the costs of providing those services to that recipient under the medical assistance program. The proceeds of the policy must be used for long-term services except that the lesser of 5% of the face amount of the policy or $5000 is reserved and is payable to the owner’s estate or a named beneficiary for funeral expenses. The balance of the proceeds under the life settlement unpaid at the death of the owner must be paid to the owner’s estate or a named beneficiary and specify the amount payable for the benefit of the recipient of long-term care services and support under the life settlement contract.

If one uses a life settlement, they can use the proceeds for the health care provider of the life insurance policyholder’s choice.  This endorsement of life settlements by the state is with the hope that the policyholders won’t simply surrender their policy and get on Medicaid quicker. However, it is this author’s opinion that many will simply continue to borrow against the policy and keep the death benefit to the beneficiary of the policyholder’s choice.

Contact our Dallas office for more information about Medicaid planning 214-720-0102.

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