One of the largest obstacles in Veterans Benefits planning can be taking future Medicaid benefits into consideration - planning for the unknown. When using annuities, many attorneys use a Medicaid Compliant Annuity simply to ensure that the product will not impede a future Medicaid application. However, this is not a requirement in Veterans Benefits planning, and can unnecessarily limit the insured's financial flexibility and planning options.
That's why I couldn't be more excited to unveil a revolutionary new product, which I expect to change Veterans Benefits planning. The new product is a traditional single premium immediate annuity - revocable and assignable, but still offering zero cash value. By remaining revocable and assignable it provides flexibility for the unknown, and leaves the door open to multiple planning options.
This is the revolutionary part. At any time the owner may elect to add a "restrictions endorsement," resulting in the state Medicaid agency being added as a beneficiary, and the annuity being made irrevocable and non-assignable. These changes result in an annuity compliant with the Deficit Reduction Act of 2005, more commonly referred to as a Medicaid Compliant Annuity. Or, if it was in the insured's interest to get rid of the annuity in exchange for a lump sum of cash, he or she could simply sell it in light of its assignability.
The following case study is provided to show you the planning options provided by the New VA Annuity:
Clarence, a single veteran residing in an assisted living facility, purchases a single premium immediate annuity to supplement his income and become eligible for the Veterans Aid & Attendance pension benefit - "The New VA Annuity." Clarence's annuity is revocable, assignable, and has zero cash or loan value. The annuity is not considered a countable resource for Veterans Benefits planning purposes, and is treated only as income. Clarence could opt for a term as short as two months, but decided on five years.
Note: At any time during the five-year term, Clarence can alter his beneficiaries as he experiences life changes (e.g. new grandchildren, family divorces, etc.). Had Clarence utilized a Medicaid Compliant Annuity this would not have been an option.
Note: Clarence would have been required to designate the state Medicaid agency as a beneficiary, up to the amount of Medicaid benefits provided on his behalf, had he purchased a Medicaid Compliant Annuity - irrevocable immediately upon purchase. Had Clarence then predeceased prior to receiving Medicaid benefits, it would have been an unnecessary hassle to obtain documentation from the state Medicaid agency that zero Medicaid benefits were provided, thus delaying the residual benefits being provided to intended heirs.
The Problem: Merging Onto the Medicaid Highway.
A few years into his assisted living facility stay, Clarence's medical condition worsens, causing him to enter a nursing home for custodial care. It is expected that Clarence will remain at the facility indefinitely. As such, he is interested in seeking Medicaid benefits in order to assist with the high costs. He is told that his annuity will be treated as a countable resource for Medicaid purposes, in that it is assignable. Clarence turns to his elder law attorney for assistance.
The Solution: Unmatched Flexibility.
Clarence's attorney explains that his annuity was specifically designed for this exact situation, and provides a wealth of planning strategies to smoothly transition to Medicaid eligibility. Depending on his planning goals, Clarence has the following options available to him:
Goal: Wealth Transfer.
- In that the annuity is assignable, Clarence can sell his annuity to a family member at a discounted value in exchange for a lump sum of cash.
- The family member will pay far less than the proceeds he or she will receive in annuity payments, resulting in a wealth transfer.
- If Clarence does not have a family member that can afford to purchase the policy, he can sell it on the secondary market.
- Upon receipt of the lump sum of cash, Clarence could then proceed with a Gifting/Medicaid Compliant Annuity plan, creating another wealth transfer to his intended heirs, and immediate Medicaid eligibility upon the end of the divestment penalty period.
Goal: Immediate Medicaid Eligibility.
- In that the annuity is revocable, Clarence can alter the beneficiary and add the state Medicaid agency as a primary beneficiary to the extent of Medicaid benefits provided on his behalf.
- With a simple letter of instruction to the insurance company, Clarence's annuity can be made irrevocable and non-assignable.
- Clarence's annuity is then compliant with the Deficit Reduction Act of 2005 - irrevocable, non-assignable, actuarially sound, and provides the state Medicaid agency as a beneficiary.
- Clarence is then immediately eligible for Medicaid benefits, assuming he meets all other financial eligibility criteria.
Advantages of "The New VA Annuity:"
- Beneficiary Flexibility: Because the policy is revocable and beneficiaries can be altered at any time, it was not a requirement for Clarence to designate the state Medicaid agency upon the purchase of the product just to prepare for future Medicaid planning.
- Planning Strategy Flexibility: Before adding the "restrictions endorsement," the policy ownership can be assigned to another individual, resulting in additional planning strategies.
- Ease of Use: A simple letter of instruction can convert the annuity into one that is compliant with the legislation of the Deficit Reduction Act of 2005 - commonly referred to as a Medicaid Compliant Annuity.