Under certain circumstances, annuities can be a great planning tool for financial advisers (and even estate planners, in some cases). However, for Medicaid applicants, they cause significant hurdles to resource eligibility, because they can be treated as available resources and sometimes as gifts. This often comes as a shock to persons applying for Medicaid who are otherwise eligible for benefits.
Since 2006, there has been no area of elder law litigation more uncertain than the use of annuities. Whereas the Deficit Reduction Act of 2005 more or less “blessed” certain annuities by creating safe-harbor provisions for annuities to be treated as income, the Act effectively excluded many commonly used annuity products. If you or a spouse own an annuity that is not (1) immediately payable in equal monthly installments, (2) designed to provide payments no longer than your actuarial lifetime, (3) irrevocable and non-assignable, and (4) names the PA Department of Public Welfare as secondary beneficiary, then you may be assessed an ineligibility period based on that annuity being treated as a gift.
For seniors with the potential for future nursing home care, any annuity purchase should be reviewed by an experienced elder law attorney prior to purchase, so that you can understand the potential consequences of that annuity in the future.