Before You Buy a Medicaid Friendly Annuity Title: Before You Buy a “Medicaid Friendly” Annuity . . . I am occasionally asked, “What is a Medicaid friendly annuity?” The type of annuity used in Medicaid planning is an immediate, irrevocable annuity. Because it is irrevocable, once it is put into place it cannot be changed. Thus, before you buy, you should be careful that a Medicaid friendly annuity is right for your circumstances. Immediate, irrevocable annuities (also know as Medicaid friendly annuities) are sometimes useful in gaining eligibility for Medicaid nursing home benefits. If used, the annuity pays out a monthly income stream, but otherwise locks up funds during the term of the annuity. If not used wisely, the monthly income stream may actually jeopardize maximum benefits for both Veterans benefits and Medicaid. Before you buy an annuity, consider the following: 1. “Medicaid friendly” annuities are often sold (and bought) by those who do not understand Medicaid or Veterans benefits. In planning for Medicaid, the only reason to buy an annuity is to protect more assets than the standard division of assets will allow. But there may be other, better ways to protect assets. And as for Veterans benefits, an annuity may actual limit the monthly pension amount the wartime veteran or surviving spouse would otherwise be entitled to. 2. Some states are attempting to stop the use of annuities. Some states are trying to limit the use of annuities in order to reduce their Medicaid budgets. Be sure your state has not outlawed the use of annuities. As I write this, both Missouri and Kansas still allow the purchase of annuities in certain cases, but have imposed restrictions that may impact your purchase. Also, a state can change its policy at any time, so you could find yourself stuck with a nursing home bill that you thought Medicaid would cover. 3. There may be better options than an annuity. Medicaid’s rules are complicated. I like to compare the Medicaid rules to the IRS’s tax code. If you work with a tax professional who knows the IRS rules, you will likely pay less in taxes. Similarly, if you work with an elder law attorney, you will be able to take advantage of rules that Congress put into place that allow you to protect assets while gaining eligibility. Also, planning you do for VA benefits may later prevent Medicaid eligibility if coordination between the programs is not achieved in the initial planning. Remember that the reason you are buying an annuity is to qualify for Medicaid nursing home benefits. Purchasing a Medicaid friendly annuity may be an excellent option for you, but it may not be the best option. Before making the irrevocable purchase of an annuity, please seek advice from a qualified elder law attorney.

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