Medicaid Compliant Annuity

March 7, 2018


A Medicaid Compliant Annuity is a financial product that helps elder law attorneys protect their clients’ assets from being lost to nursing home costs.

Essentially, the Medicaid Compliant Annuity converts funds that are not exempt from Medicaid into a stream of income that is exempt from Medicaid. When done properly, this expedites eligibility for Medicaid while preserving assets for the family.

Medicaid Compliant Annuity Requirements

A Medicaid Compliant Annuity is a special type of annuity that strictly complies with the requirements of the United States Deficit Reduction Act of 2005. Key requirements of the Deficit Reduction Act of 2005 include the following:

  1. The trust must be irrevocable.
  2. The trust must be non-assignable.
  3. The trust must be actuarially sound.
  4. The trust must provide equal, monthly payments.
  5. Under some circumstances, the trust may be required to name the state Medicaid agency as the primary death beneficiary.

Actuarially Sound

The “actuarially sound” test may be more easily understood by examining its origin. In November 1994, the Secretary of the Health Care Financing Administration issued Transmittal 64 to the State Medicaid Manual:

“Annuities, although usually purchased in order to provide a source of income for retirement, are occasionally used to shelter assets so that individuals purchasing them can become eligible for Medicaid. In order to avoid penalizing annuities validly purchased as part of a retirement plan but to capture those annuities which abusively shelter assets, a determination must be made with regard to the ultimate purchase of the annuity (i.e., whether the purchase of the annuity constitutes a transfer of assets for less than fair market value). If the expected return on the annuity is commensurate with a reasonable estimate of the life expectancy of the beneficiary, the annuity can be deemed actuarially sound.”

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