Immediate Annuities and Medicaid Planning

Immediate Annuities and Medicaid PlanningImmediate Annuities

Immediate annuities are financial instruments that are often used when conducting Medicaid planning and estate planning.  They are especially useful when a spouse is receiving long-term nursing home care. Immediate annuities are, essentially, a contract with an insurer in which the consumer pays a specified amount to the company, and the insurance company responds by sending the individual a monthly check for the rest of his/her life (the annuity). This device is sometimes referred to as a single premium immediate annuity (SPIA).

State rules may vary concerning immediate annuities. In New York State, for instance, immediate annuities are considered an investment purchase.  Immediate annuities are often used to transfer assets to better ensure Medicaid eligibility, making a countable Medicaid asset into noncountable income, assuming the income is under the name of the community spouse and not the institutionalized spouse. This is not the case in every state, however, and a Medicaid Planning attorney should be consulted regarding the rules in your state. Income from immediate annuities under the community spouse’s name is subject to Medicaid review.

Immediate Annuities To Be Considered “Uncountable” for Medicaid

Immediate annuities must meet three basic requirements to not be considered a countable asset transfer and to be in compliance with the Deficit Reduction Act of 2005 (DRA). The immediate annuity must be irrevocable, which means you have no rights to the funds outside of the monthly payments. You must receive back no less than what you paid into the annuity during your actuarial life expectancy and, if the immediate annuity is purchased for a term certain, that term must not exceed your actuarial life expectancy. Your state of residence must be named the remainder beneficiary for the amount that Medicaid paid on your behalf, unless a spouse or a young or disabled child is involved.

It is typically recommended that immediate annuities be purchased when the institutionalized spouse is moved into a nursing home facility.  For term certain immediate annuities—in which a guaranteed amount of payments are made regardless of the annuitant’s lifespan—that term must not exceed the life expectancy of the community spouse. Should the spouse predecease the annuity, those payments must be made payable to the state for payment the amount that Medicaid paid for either spouse.

Immediate Annuities for Single People

Immediate annuities do not offer the same asset protections for single individuals seeking low-income health programs, such as Medicaid.

The monthly interest income derived from the annuity is payable to Medicaid. An unmarried person applying for Medicaid, in some states, can use immediate annuities to extend the spend-down of excess assets. Remaining payments are paid to beneficiaries at the person’s death after qualified money from the annuity is returned to the state to cover unpaid nursing home bills. If the annuity exceeds Medicaid’s life expectancy determination for the annuitant, the annuity will become a disqualifying transfer.

Tax Planning and Immediate Annuities

The goal, when applying for Medicaid for a spouse, is to, whenever possible, preserve as many assets as possible for the community spouse or those assets become available to pay to Medicaid to cover the institutionalized spouse’s long-term nursing home care. This can be prohibitively expensive and could exhaust the estate, leaving the community spouse impoverished. In some cases, immediate annuities offer a safe way in which to transfer assets, making them uncountable for Medicaid; however, because there are many laws and regulations for both immediate annuities and Medicaid, it is best to speak with a Medicaid Planning attorney before any financial move is made.

Contact Us to Discuss Immediate Annuities and their Impact on Medicaid

Be sure to speak with a Medicaid Planning attorney regarding the use of immediate annuities for Medicaid planning in your state and before taking any action. Just call us, toll-free, at (888) 987-ELDER / (888) 987-3533 to speak with one of our Medicaid Planning attorneys when dealing with long-term care and Medicaid issues. We have helped thousands of clients and are ready to address your unique situation.

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