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Does an annuity utilized in VA planning have to follow the same guidelines as that of an annuity utilized in Medicaid planning (i.e. irrevocable, non-assignable, zero cash value, etc.)?  I hear this question quite often, which is completely understandable - the VA does not provide for specific annuity requirements, unlike Medicaid.

Notwithstanding the above, the VA program does not require that an immediate annuity contract be compliant with the Deficit Reduction Act of 2005 in order to be treated as an income stream versus a countable resource.  It is important to keep in mind that a tax-deferred annuity will be considered a countable resource until it is annuitized, and an immediate annuity will be considered an income stream only.

However, the annuity planning that Krause Financial Services provides in VA scenarios is not to be confused with the planning provided by many self-dubbed "VA Planning Specialists" that have recently created quite the reputation.  I always advise that an applicant seek the counsel of an accredited elder law attorney prior to proceeding with any type of plan.  Furthermore, I do not advise that the applicant and/or the applicant's family utilize annuity products with inappropriate features - no liquidity and high surrender charges.  Rather, we strive to provide flexibility and options in every VA plan.  Below are several interesting features provided by the annuity products typically used in appropriate VA plans:

• As for a balloon-style immediate annuity, if prior to receiving the balloon payment, the owner decides it is not in his or her best interest to receive the balloon payment as it may jeopardize benefits - still on VA benefits, the owner can elect to continue/rollover the balloon-style immediate annuity.
• Following the death of the owner of an immediate annuity contract, some insurance companies offer the beneficiary a cash commutation value, instead of continuing the monthly payments.  If the beneficiary elects the cash commutation a discount does apply.
• As for a balloon-style immediate annuity, at any time during the period certain the owner can elect to convert the balloon-style immediate annuity into a level-pay immediate annuity; this is a one-time election.  The primary reason for doing so is that the owner needs to increase his or her monthly cash flow, as a result of increased unreimbursed monthly medical expenses.  The secondary reason for doing so is that the owner is transitioning from VA benefits to Medicaid benefits - a Medicaid Compliant Annuity requires equal monthly payments.
• An immediate annuity can also be "Medicaid compliant" if it is actuarially sound, irrevocable, non-assignable, has equal payments, and names the state Medicaid program as the primary or contingent beneficiary to the extent of Medicaid benefits provided to the institutionalized individual.  Almost every insurance company offers an immediate annuity, but only a handful of insurance companies offer a Medicaid Compliant Annuity.  The problem for most insurance companies is that they cannot offer an immediate contract that is irrevocable as to the parties, and also is non-assignable.