Medicaid Qualified Annuity: Little Known Ways to Preserve Wealth


A Medicaid qualified annuity has a number of benefits when it comes to preserving and protecting wealth. Now, people are living longer and more full lives than ever. The downside to a longer life is the rising cost of nursing home care and the depletion of wealth among seniors on an unprecedented scale. Many individuals are recognizing the importance of planning ahead and preserving the wealth they have built for future generations. This article is devoted to explaining how a Medicaid qualified annuity can help shield your assets.

Benefits of a Medicaid qualified annuity

At Senior Care of Michigan, we strongly believe that Medicaid qualified annuities are one of the safest investment vehicles available when it comes to preserving and protecting wealth. Annuities are safe retirement vehicles designed for retirement income. They have a guaranteed return and can protect against inflation and downside risk in bad market years. Of course, these Medicaid compliant annuities have specific language written within to make them compliant and not countable under program rules.

If you are considering an Annuity Specific to Medicaid Planning, here is what you need to know:

  • Converting countable resources to income through the purchase of an annuity or the amendment of an existing annuity on or after 09/01/05, is considered a transfer for less than fair market value unless the annuity:

  • Is commercially issued by a company licensed in the United States and is ued by a licensed producer, and

  • Is irrevocable, and

  • Is purchased by an applicant or recipient for Medicaid or their spouse and solely for the benefit of the applicant or recipient or their spouse, and

  • Is actuarially sound and returns the principal and interest within the annuitant’s life expectancy, and

  • Payments must be in substantially equal monthly payments and continue for the term of the payout (no balloon or lump sum payments).

  • In addition to the above conditions, an annuity purchased or amended on or after February 8, 2006 must name the state of Michigan as the remainder beneficiary, or as the second remainder beneficiary after the community spouse or minor or disabled child, for an amount at least equal to the amount of the Medicaid benefits provided.

So, this is helpful if you have yet to purchase an annuity, but what about annuities you already have?

Can a Tax-Deferred Annuity Be Converted into a Medicaid Compliant Annuity?

Yes, a tax-deferred annuity can be converted into a Medicaid Compliant Annuity. If the current carrier does not provide a Medicaid Compliant Annuity, the tax-deferred annuity can be “transferred” to the desired carrier by way of a 1035 exchange. It’s important that you contact a Medicaid planning specialist, rather than a broker or insurance provider.

What is a 1035 exchange?

A 1035 exchange refers to the section of tax code that allows investors the flexibility to exchange one insurance contract for another without incurring any immediate tax liabilities. Generally, the surrender of an existing insurance

contract is a taxable event since the contract owner must recognize any gain on the old contract as current income. However, under IRC § 1035, when one life insurance, endowment, or annuity contract is exchanged for another, the transfer will be nontaxable, provided certain requirements are met.

Even if you have working with a financial planner, unfortunately we have found that they are ill equipped to handle the intricacies of all Medicaid rules. Before you make any changes to your estate or financial products, you should always consult with a senior planning specialist or elder law attorney.

For more information: Contact Senior Care of Michigan below to speak with a Senior Planning Expert.


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