How to Evaluate Annuities for Medicaid Crisis Planning

Many seniors purchase annuities to secure a stream of income for their later years. However, when pursuing Medicaid eligibility, they may face challenges due to their annuity. It’s essential for you, as an attorney, to understand how annuities impact Medicaid eligibility.

There are two main types of annuities: immediate and deferred. Immediate annuities begin payments right away, while deferred annuities accumulate value before payouts start. Once an annuity is annuitized and making payments, it generally cannot be modified.

If your client is seeking Medicaid eligibility and you’re uncertain about their annuity type, begin by reviewing the contract’s payout terms, deferral period, surrender charges, and whether it is fixed or variable. These factors will help you determine the annuity type and explore options to preserve the funds while pursuing Medicaid eligibility.

Read More: What to Expect from the Secondary Annuity Market

Medicaid Compliant Annuities (MCAs)

An MCA is a single premium immediate annuity that converts excess funds into an income stream with no cash value. When properly structured, an MCA accelerates Medicaid eligibility, while protecting your client’s assets. To qualify as Medicaid-compliant, the annuity must be irrevocable, non-assignable, actuarially sound, offer equal monthly payments, and name the state as the primary beneficiary (in most cases). Non-compliant annuities, however, could jeopardize eligibility.

Non-Compliant Annuities

Non-compliant annuities that don’t meet Medicaid’s criteria are treated as divestments or countable assets. Your client may be able to liquidate, transfer, or sell the policy in order to pursue Medicaid crisis planning options.

Dealing with Tax-Deferred Annuities:

Tax-deferred annuities often have accessible cash value, making them countable assets for Medicaid. To accelerate eligibility, clients can liquidate the contract or transfer it to an MCA via a Section 1035 Tax-Free Exchange, which avoids immediate tax consequences but may involve surrender charges or penalties.

How to Handle Immediate Annuities:

Immediate annuities, whether purchased as such or converted from deferred, are often considered divestments or improper transfers. If the annuity is revocable and assignable, Medicaid may treat it as an available asset. If your client has been assessed with a period of ineligibility due to an annuity purchase, they may be able to expedite eligibility by selling the policy and spending down the proceeds.

Learn More: Our Annuity Valuation Service

Working with Experienced Annuity Providers

By partnering with us, you have a team of experienced annuity providers in your corner. We offer Medicaid Compliant Annuities, free annuity valuation services, and assistance throughout the transaction. If you’re wondering how to handle your client’s annuity, contact us for a complimentary review, or start a non-compliant annuity valuation proposal online.