Does it make sense for one client to purchase multiple Medicaid Compliant Annuities?
There are a couple of scenarios when it is advantageous for a client to purchase more than one Medicaid Compliant Annuity (MCA). The first scenario is the more common situation that comes up wherein a client has multiple types of accounts that need to be spent-down in order to qualify for Medicaid. For example, the client owns individual retirement accounts or other pre-tax retirement accounts (401k, 403b, etc.) and at the same time, the client owns after-tax accounts – i.e. checking, savings, investment accounts, etc. Assuming the goal of the MCA plan is preserve the pre-tax status of the retirement accounts, it will be necessary to purchase one IRA MCA and one Non-Qualified MCA. We cannot co-mingle or mix IRA and non-qualified funds in the same annuity as these monies are taxed differently. Alternatively, if the client is interested in paying the taxes due on their retirement account before purchasing the MCA, then only one after-tax / non-qualified MCA will be required.
The second scenario is less common but may come up from time-to-time. This is a situation where a client purchases an annuity based on the known assets/resources that need to be spent-down. Later, after the Medicaid application is made, an additional asset or resource is discovered that was not originally known to the attorney. With the additional asset discovered after the Medicaid application is made, the client was not Medicaid eligible based on having too many assets – over-resourced. Assuming the additional asset that was discovered is not a nominal amount that can be spent-down on purchasing a prepaid funeral or other personal items, the client may spend-down the additional asset by purchasing a second MCA.
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