What Happens If the Owner Passes Away Before the MCA Term Ends?

Part of crisis planning with a Medicaid Compliant Annuity (MCA) is ensuring both you and your client understand what happens if the contract owner passes away before the end of the MCA term. After all, the state Medicaid agency must be named primary beneficiary in most cases. Although MCAs can be structured to reduce the risk of Medicaid estate recovery on the annuity, the owner predeceasing the contract is always a possibility. Here’s what to expect if this happens.

1. Contact our office to initiate the death claims process.

If you have a client with an MCA who recently passed away, contact our team at Krause Financial and let us know. Once we have the death certificate and other relevant documentation, we will go through the death claims process on your client’s behalf.

2. The primary beneficiary makes its claim against the MCA.

Who is the primary beneficiary? In most cases, the primary beneficiary of the MCA is the state Medicaid agency. However, it could also be the community spouse, the institutionalized spouse, or a minor or disabled child.

• The state Medicaid agency: As the primary beneficiary of the MCA, the state Medicaid agency can collect to the extent of benefits paid on behalf of the institutionalized individual. The remaining balance, if any, is then passed on to the contingent beneficiary.
• The community spouse, institutionalized spouse, or a minor or disabled child: If one of these individuals is the primary beneficiary, they have a few options, depending on the MCA carrier. They can either continue receiving payments until the end of the MCA term or take a discounted lump sum payout of the remaining funds.

Read More: Does the State Have to Be Named the Primary Beneficiary on an MCA?

What about cases involving the Gift/MCA strategy? If a single client using this strategy passes away before their MCA term ends, the state Medicaid agency typically has no claim on the annuity, even if they are listed as the primary beneficiary. This is because the MCA term is congruent with the penalty period, during which the state Medicaid agency has not yet paid any benefits for the institutionalized person. However, this does not apply if the individual received Medicaid benefits before this period of institutionalization.

Learn More: Mastering the Beneficiary Requirements of the Medicaid Compliant Annuity

3. The remaining balance, if any, goes to the contingent beneficiary.

Who is the contingent beneficiary? If the state Medicaid agency is the primary beneficiary, the contingent beneficiary is typically the MCA owner’s spouse, children, or another loved one. If the primary beneficiary is the community spouse, institutionalized spouse, or a minor or disabled child, the state Medicaid agency must be listed as the contingent beneficiary.

• The spouse, children, or another loved one: After the state Medicaid agency makes its claim against the MCA, the contingent beneficiary can collect against the remainder, if any. They can either continue receiving payments until the end of the MCA term or take a discounted lump sum payout of the remaining funds.
• The state Medicaid agency: If the state Medicaid agency is the contingent beneficiary, that means the MCA owner’s spouse or child, as primary beneficiary, has already taken over the contract, effectively removing the state Medicaid agency from making any claim.

If you have any questions about MCA beneficiary options and how the claims process works, get in touch with us today.