Estate Planning

Beware of "Medicaid Friendly" Annuities versus "Medicaid Compliant" Annuities

By Kristin L. Burrows

I have had a few clients who have been sold 'Medicaid Friendly' Annuities. In at least one case, the annuity salesman sold the client a 'Medicaid Friendly' annuity in the local senior center. I don't know who the salesman was, or the details of his sales pitch, but what he sold the client made an extreme mess of her Medicaid eligibility.

Annuities can be an invaluable tool in Medicaid planning. When used correctly, an annuity can convert a person's spend-down amount (excess resources) to a stream of income for the spouse at home, or, in the case of a single or widowed person, can preserve some of the spend-down amount for expenses not covered by Medicaid.

Medicaid regulations became much more strict in recent years, and the criteria that an annuity must meet to be excluded as a resource for Medicaid eligibility are very specific. They must be:

...        Irrevocable

...        Non-assignable

...        Non-saleable

...       Provide equal payments

...       Name the NC Medicaid Program as beneficiary for benefits paid on behalf of the annuitant

Most of the 'Medicaid Friendly' annuities being sold out there do not meet these requirements and will count against a person applying for Medicaid benefits. Often the seniors are advised by the annuity salesman that all they need to do is annuitize the annuity if and when they enter a nursing home in order to become eligible for Medicaid. This is often not true because these annuities do not meet ALL the other Medicaid requirements for them to be considered a non-countable resource.

Most annuities are simply a tax-deferred investment tool. Medicaid Compliant Annuities, on the other hand, are a very specific product offered by only a limited number of insurance agents and companies. Medicaid Compliant annuities are best used when a person knows that nursing home care is imminent and the annuity is then tailored to immediately convert the person's spend-down amount to an income stream. So, be wary of 'Medicaid Friendly' annuities being marketed to the senior community at large.

Full post as published by North Carolina Estate Planning Blog on September 27, 2010 (boomark / email).