How to Structure a Medicaid Compliant Annuity Beneficiary Designation

Transcription

1 How to Structure a Medicaid Compliant Annuity Beneficiary Designation PART OF A MEDICAID & VETERANS BENEFITS PLANNING HOW-TO SERIES

2 A great amount of confusion surrounds how to properly structure the beneficiary designation of a Medicaid Compliant Annuity.! Over the next three minutes you ll learn the right way, the wrong way, and what kinds of exceptions may exist. -Krause Financial Services

3 42 U.S.C. 1396p(c)(1)(F) (F) For purposes of this paragraph, the purchase of an annuity shall be treated as the disposal of an asset for less than fair market value unless- (i) the State is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant under this title; or institutionalized individual (ii) the State is named as such a beneficiary in the second position after the community spouse or minor or disabled child and is named in the first position if such a spouse or representative of such child disposes of any such remainder for less than fair market value.

4 Why did you cross that out? The federal rules were later corrected to refer to the amount of benefits paid on behalf of the institutionalized individual, rather than annuitant. Why? Recovering up to the amount paid on behalf of the annuitant left a major hole in community spouse planning: the community spouse is usually the annuitant the community spouse is not on Medicaid there is no claim on the community spouse

5 Check your rules. Some states still allow you to refer to the amount paid on behalf of the annuitant rather than the institutionalized individual. This is a major advantage in community spouse planning.

6 Common Mistake Primary Beneficiary: State of Texas WHO IS THE CLAIM AMOUNT BASED ON? WHAT GOVERNMENT AGENCY IS ENTITLED TO REPAYMENT?

7 Instead, Be Specific Primary Beneficiary: State of Texas - Department of Health and Human Services for the total amount of medical assistance benefits provided on behalf of John C. Smith.

8 What if there is a Community Spouse? Then things can be a little different.

9 Annuity Owner: Institutionalized Spouse Primary Beneficiary: Community Spouse and/or Minor or Disabled Child Contingent Beneficiary: State Medicaid Agency Beneficiary Breakdown: Rarely will an institutionalized spouse own an annuity when there is a community spouse - usually only when IRA funds are involved A community spouse and/or a minor and/or disabled child can always be named before the state Medicaid agency

10 Annuity Owner: Community Spouse Primary Beneficiary: State Medicaid Agency for benefits paid on behalf of institutionalized spouse Contingent Beneficiary: Children Beneficiary Breakdown: A community spouse will almost always own an annuity so that the income is theirs In some states an institutionalized spouse can be designated before the state Medicaid agency WHY WOULD YOU? If the annuity has a commuted value feature the institutionalized spouse can use the proceeds in a half-a-loaf plan

11 Annuity Owner: Community Spouse Primary Beneficiary: State Medicaid Agency for benefits paid on behalf of institutionalized spouse. The primary beneficiary s claim amount ends on the date of death of the owner. Beneficiary Breakdown: The added language ensures that the state s claim amount does not continue to run past the date of death of the community spouse WHY DOES IT MATTER? If the institutionalized spouse is continuing to receive Medicaid benefits, the state could allow the claim to build and continue recovering from the annuity until the benefits are exhausted

12 What if it s IRA money? Then the state Medicaid agency might not need to be named at all - check your rules.

13 Thank You for Watching! Next Episode: Using an IRA to fund a Medicaid Compliant Annuity