Planning for long-term care is one of the hardest financial puzzles families face. In New York, one woman laid it out in plain terms on an aging-care forum: Can my mother cash out her annuity to pay off her mortgage and still qualify for Medicaid to cover the costs of a nursing home?
She explained that her mother may need care in just a couple of months. Cashing out the annuity would mean a withdrawal fee, but she had already accepted that. What worried her was Medicaid's strict asset limit. If her mother left the annuity in place, she said, it would push her nearly $30,000 over the threshold of $32,396 for a single applicant in 2025. "We'd much rather see her pay off the mortgage with it than lose it to Medicaid altogether. If we do, is there still any risk Medicaid could penalize us for doing it?"
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The replies came quickly. One person said flatly:
"You need to sell the house and all her possessions. Pay out of pocket until she runs out of money and then file Medicaid."
Others said the situation was more complicated. Another poster wrote:
"You really have to see an attorney experienced with New York Medicaid. That annuity in payout mode might be treated as income instead of an asset. But the state may also require being named as the beneficiary so it can recover costs later."
That advice came with another warning: once Medicaid begins paying for nursing-home care, almost all of her mother's monthly income will go to the facility. The only personal allowance left is about $50 a month, leaving the family to handle the mortgage, taxes, and upkeep themselves.
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New York's Medicaid rules are clear on one point: paying off legitimate debts, including a mortgage, is considered a proper spend-down of assets. It is not treated as a gift and does not trigger penalties.
The challenge lies in how the annuity is handled. If it's cashed out, the lump sum counts as a resource in that month. To qualify, the family must spend it down until her mother's resources fall below $32,396. Another option is to convert the annuity into a Medicaid-compliant contract — one that is irrevocable, pays out over her life expectancy, and names the state as the beneficiary. In that case, it's counted as income, but that income must then be paid toward nursing-home costs.
For the New York woman who asked the question, the answer is yes: her mother can use the annuity to pay off the mortgage without penalty. The key is ensuring her remaining resources are below the limit at the time of application. Whether she cashes it out or restructures it into a compliant annuity, the details matter — and getting professional advice can prevent costly mistakes when Medicaid coverage is on the line.
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