While an annuity might serve you well from a financial planning perspective, financial planners and clients must be aware of the treatment of annuities for Medicaid purposes. For Medicaid eligibility purposes, the cash value of an annuity is considered an available resource. This means that an annuity is treated like cash and if you need to apply for Medicaid, something needs to be done with the annuity, such as transferring the annuity to a spouse or in other cases surrendering the annuity. When surrendering or transferring an annuity, there could be penalties imposed by the insurance company, or worse, recognition of ordinary income for tax purposes. What is important to note here is that an annuity is an available asset for Medicaid eligibility purposes.

Fortunately, if you meet with an elder law attorney well in advance of requiring care, there are planning techniques that can preserve the value of an annuity and avoid grief for everyone. You can create the very popular Medicaid Trust that I have written about many times over. In addition to transferring other assets to the trust such as your home, you can also transfer annuities to the trust. The trust provides that you will receive the income from the trust, thus, if the annuity is annuitized (turned into an income stream), the payments can come out of the trust to you. There are no tax consequences to transferring an annuity to a Medicaid Trust. Financial planners should review their portfolios to identify their clients having annuities and educate them about this planning technique.

  1. September 1, 2020

    I watched the video about Medicaid planning (spousal refusal, etc.), and I found it very interesting. There was a problem with the sound, because it was recorded outside, and I guess you were a good distance from the mike. So there was a lot of background noise, and it was difficult to hear your talk. The person asking the questions was very loud and clear, so my guess was that she was much closer to the mike. This is not a critique of the talk; it was very informative. However, for us older folks, the sound could have much clearer.

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