An annuity is an insurance product. It can pay a steady stream of income to the annuitant as part of retirement planning. The size of your investment and the payout option selected determines the amount of monthly income received. There are several types of annuities and several payout options.
Although there are several types of annuities and payout options, there a strict limits on annuities for Medicaid eligibility. For annuities purchased by the Medicaid recipient or the spouse of the Medicaid recipient on or after July 1, 2006, the annuity must:
- Be irrevocable and nonassignable.
- Be actuarially sound. This means a commercial annuity that pays principal and interest out in equal monthly installments over the actuarial life expectancy of the annuitant. Actuarial life expectancy is established by the Periodic Life Table of the Office of the Chief Actuary of the Social Security Administration (SSA). For transactions on or after July 1, 2008, the payout period must be within 12 months of the actuarial life expectancy.
- Be issued by a business that is licensed and approved to issue a commercial annuity by the state in which the annuity is purchased.
- Comply with one of the following regarding remainder beneficiary:
- The first remainder beneficiary is the spouse of the Medicaid recipient, and if the spouse transfers any of the remainder of the annuity for less than fair market value the Department of Human services is the second remainder beneficiary for up to the total amount of medical benefits paid on behalf o the recipient.
- The first remainder beneficiary is the annuitant’s child (biological or adoptive child under age 21, or any age AND meets the SSA criteria for blindness or disability), and in the event that the child or child’s representative transfers any of the remainder of the annuity for less than fair market value, the Department of Human services is the second remainder beneficiary for up to the total amount of medical benefits paid on behalf of the recipient.
- The first remainder beneficiary is the Department of Human services for up to the total amount of medical benefits paid on behalf of the recipient.
If the annuity meets all the requirements above the distributions are treated as unearned income to the recipient.
If the annuity does not meet all the requirements above it is treated as a resource with cash value equal to the amount of money used to purchase the annuity plus any additional payments used to fund the annuity.
If the Medicaid recipient is the annuitant and the annuity does not meet all the requirements above, or if the spouse of the Medicaid recipient is the annuitant and the annuity does not comply with the remainder beneficiary requirements above, there is ALSO a disqualifying transfer of assets with a penalty period assessed.
An experienced Elder Law attorney can help you understand how your annuity will affect Medicaid eligibility. Contact the Elder Law attorneys with the Law Offices of Nay & Friedenberg in Portland, Oregon at (503) 245-0894 to set an appointment.
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