In a case where an individual is in a nursing home and is in need of Medicaid benefits, when evaluating the countable resources a determination must be made with regard to any existing annuities that may be owned by the individual or the individual's spouse.
Tax-Deferred Annuities
With respect to a tax-deferred annuity, if the annuity contract can not be converted into a Medicaid Compliant Annuity with the present insurance company, and if the tax-deferred annuity has any gain, the best way to handle the conversion is to initiate a 1035 tax-free exchange to an insurance company which offers a Medicaid Compliant Annuity. With the 1035 exchange, the individual will not have to recognize all of the taxable gain at one time, and instead will recognize the taxable gain proportionately over the period certain of the Medicaid Compliant Annuity.
Immediate Annuities
In the case of an immediate annuity, if the annuity contract is not Medicaid Compliant - in that the contract can be assigned to a third party for value, the Medicaid caseworker will determine it to be a countable resource to the extent of its value. Thus, the best way to liquidate an immediate annuity is to have the policy valued on the secondary market. After the valuation is obtained, the policy owner could then either sell the contract directly to a family member for the secondary market value, or sell it directly to the secondary market valuation company.
