While Krause Financial Services rarely experiences an annuitant predeceasing the term of his or her Medicaid Compliant Annuity, in the rare occurrence of a premature death, if the designation is not correct the results can be detrimental to any remaining heirs.
42 U.S.C. § 1396p(c)(1)(F)
(F) For purposes of this paragraph, the purchase of an annuity shall be treated as the disposal of an asset for less than fair market value unless--
(i) the State is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant under this title; or
(ii) the State is named as such a beneficiary in the second position after the community spouse or minor or disabled child and is named in the first position if such a spouse or a representative of such child disposes of any such remainder for less than fair market value.
Take for example the following designation:
I always advise providing as specific of a designation as possible, such as: The State of Texas - Department of Health and Human Services for the total amount of medical assistance benefits provided on behalf of the institutionalized individual, namely John C. Smith. This specific of a designation appears to leave no room for error, or for the State of Texas to use its own judgment as to the claim amount, in the instance where the institutionalized spouse predeceases the community spouse.
Thus, the most appropriate designation, covering all instances, appears to be: The State of Texas - Department of Health and Human Services for the total amount of medical assistance benefits provided on behalf of the institutionalized individual, namely John C. Smith; the primary beneficiary's claim amount ends on the date of death of the owner, namely Shirley C. Smith. This designation ensures that the state's claim amount does not continue to run past the date of the death of the community spouse - typically the owner of the Medicaid Compliant Annuity.
Several other interesting points exist 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.
Two 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 have extensive experience in the appropriate beneficiary designations, and reviews each Medicaid Compliant Annuity application to ensure that the language meets each state's 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 service you need - and the knowledge behind it, are completely different things.
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Krause Financial Services specializes in helping families qualify for Medicaid benefits through the use of Medicaid Compliant Annuities, and Veterans Aid & Attendance benefits through the use of various life and annuity insurance products.