Most elder law attorneys are familiar with the fact that the Deficit Reduction Act of 2005 outlined specific requirements for annuities used in a Medicaid planning context. The annuity must be:
Irrevocable,
Non-assignable,
Actuarially sound,
Make equal payments with no balloon payment, &
Must name the State as the primary remainder beneficiary (or as the second remainder beneficiary after a community spouse or minor or disabled child) for at least the value of the Medicaid assistance provided.
The last requirement is the one that seems to cause the most confusion, especially when working with a married couple. Assuming a minor or disabled child is not involved in the case we need to consider who the annuity owner is to determine how the beneficiary designations should be outlined.
If the annuity is owned by the institutionalized spouse, the beneficiary order may be as follows:
Primary: Community Spouse
Contingent: State Medicaid Agency to the extent Medicaid benefits are provided on behalf of the institutionalized spouse
Tertiary: Whomever the clients wish to name – i.e. children, a trust, charity, etc.
Alternatively, if the annuity is owned by the community spouse, the beneficiary order is typically as follows:
Primary: State Medicaid Agency to the extent Medicaid benefits are provided on behalf of the institutionalized spouse
Contingent: Whomever the clients wish to name – i.e. children, a trust, charity, etc.
Note: There are some states that allow the institutionalized spouse to be listed as primary beneficiary before the State Medicaid Agency which opens the doors to additional planning.
As always, if you’re unsure what your state requires as far as beneficiary designations, please be sure to check with us.
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