What Happens to Funds in a Medicaid Annuity After the Annuitant Dies?
When the community spouse purchases an annuity as part of Medicaid planning, the state must be named primary beneficiary of the annuity, to receive a payout of up to the amount Medicaid paid for the institutionalized spouse’s nursing home care.When a single person purchases an annuity as part of Medicaid planning, the state must be named primary beneficiary as well, up to the amount of Medicaid benefits paid for the annuitant’s care. However, there are exceptions to this, such as when the annuitant has a disabled or minor child.
The Law on Medicaid Annuities
After passage of the federal Deficit Reduction Act of 2005, many changes were made to state laws regarding eligibility for Medicaid benefits. Some Medicaid planning strategies, including those that involve the use of Medicaid annuities, are still being tested. Therefore, there is some risk associated with the purchase of a Medicaid planning annuity because the state Medicaid agency may have issues with the annuity or other transactions made during the five years prior to submission of the application for Medicaid benefits.
Techniques Used in Medicaid Planning
There are many different techniques that may be used to preserve assets, depending on the circumstances. For an overview, see Medicaid planning books.
Buying a Medicaid Annuity to Preserve Spouse's Quality of Life
When Medicaid reviews a married applicant’s assets for purposes of determining eligibility for benefits, the couple’s assets are pooled or combined. The community spouse is permitted to keep a portion of the couple’s assets, called the community spouse resource allowance. Nevertheless, having to give up a large portion of the couple’s assets to qualify for Medicaid can leave the community spouse impoverished compared to his or her prior standard of living.While the income from a Medicaid annuity is counted as income by Medicaid, the annuity is not treated as a countable asset if it complies with applicable laws. Therefore, using assets to purchase an immediate annuity from an insurance company may be part of an effective Medicaid planning strategy because such assets are preserved and converted to income for the community spouse.
Before You Gift or Transfer Assets
If a Medicaid applicant or his spouse has made gifts or asset transfers for less than fair market value during the five year period prior to applying for benefits, the applicant may be disqualified from receiving Medicaid for a period of time. The period of disqualification varies and is calculated using a formula based on the value of assets gifted or transferred and the cost of nursing home care. The federal Deficit Reduction Act imposed greater penalties for gifts and uncompensated asset transfers made by individuals who subsequently seek government assistance for long term care. Using assets to purchase an annuity which does not meet stringent Medicaid requirements can be deemed a disqualifying transfer. For this reason, it is important to seek the advice of a lawyer before purchasing an annuity to ensure it is Medicaid compliant. See finding an attorney.If a member of your family needs long term care and you are concerned about protecting assets for the community spouse, consult an attorney for information about Medicaid planning. Do not purchase an annuity marketed or promoted as a Medicaid Annuity without having the annuity contract reviewed by an attorney with experience in elder law, Medicaid, and estate planning. While annuities can be a valuable tool in protecting your assets for the benefit of your spouse, children, and other heirs, there are far too many insurance brokers eager to sell you an annuity that does not comply with Medicaid regulations.
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