Predeceasing a Medicaid Compliant Annuity

Published: 23rd January 2012
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"If a single person buys a Medicaid Compliant Annuity to provide income during a disqualification period, and the state Medicaid agency is designated as the primary beneficiary, what if the individual predeceases the annuity?"

This is an excellent question that I receive quite often. Krause Financial Services has a vast amount of experience with individuals predeceasing their Medicaid Compliant Annuities, and has worked with many states' Medicaid agencies in meeting outstanding Medicaid claims.

In the event an individual was to predecease his or her divestment penalty period, a Medicaid agency would not be entitled to the residual benefits remaining in the Medicaid Compliant Annuity in that the Medicaid agency did not provide any medical assistance benefits to the applicant throughout the duration of the divestment penalty period. Exceptions do apply, such as in an instance wherein the applicant was previously on Medicaid benefits and already had a claim amount prior to entering into the divestment penalty period. Or, if the individual received Medicaid coverage for items such as medications throughout the divestment penalty period, a small claim amount may exist.

After an individual passes, the death is reported to Krause Financial Services. We then contact the state Medicaid agency and determine if a claim amount exists. In most cases the state Medicaid agency will return a letter stating that zero Medicaid services were provided, and there is no amount owed to the state. When that letter is provided to the insurance company that issued the Medicaid Compliant Annuity, the state Medicaid agency's primary beneficiary position is determined irrelevant and the residual benefits are paid to the contingent beneficiaries - usually the children.

To avoid any outstanding Medicaid claim repayment issues, I always recommend making beneficiary designations as specific as possible - include the specific Medicaid agency name and the name of the individual for whom benefits were paid on behalf of. For example:

"The State of Wisconsin - Department of Health Services Estate Recovery Program for the total amount of medical assistance paid on behalf of the institutionalized individual, namely [John Smith]."

This way there is no room for the state Medicaid agency to make an error in judgment, in that the designation is spelled out very clearly. In spousal cases, wherein the community spouse owns the Medicaid Compliant Annuity, I recommend including the following language in addition to the above:

"The primary beneficiary's claim amount ends on the death of the owner, namely [Betty Smith]."

Several interesting points regarding designating the state Medicaid agency as a beneficiary of a Medicaid Compliant Annuity:

When an institutionalized spouse owns a Medicaid Compliant Annuity, the community spouse can always be designated before the state Medicaid agency.
15 post-DRA states* allow for the institutionalized spouse to be designated before the state Medicaid agency in instances where a Medicaid Compliant Annuity is owned by a community spouse.
2 post-DRA states* do not require the state Medicaid agency to be designated as a beneficiary on annuities consisting of tax-qualified funds (i.e. funds from an IRA, 401(k), etc.).

The staff of Krause Financial Services has extensive experience in the appropriate beneficiary designations, and reviews each Medicaid Compliant Annuity application to ensure that the language meets each states' requirements. Other advisors may tell you they can "get the same product," but don't be fooled - they can't! Purchasing a product and obtaining the services you need - and the knowledge behind it, are completely different things.

Dale M. Krause, J.D., LL.M., has provided Medicaid Compliant Annuities to elder law attorneys, and their clients, throughout the United States. As a result of his practice, Mr. Krause has been labeled "The Pioneer of Medicaid Compliant Annuities."

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