Once upon a time in a land far, far away, Dale Krause worked with insurance companies to create the product he needed. After months and months of hard work, and the Deficit Reduction Act of 2005 ("DRA") looming on the horizon, the first Medicaid Compliant Annuity was born.
2. A Medicaid Compliant Annuity can be level-pay or balloon-style, and we can tell you which is appropriate for your state and/or your situation.
Depending on who is purchasing the annuity, and what type of investment the annuity is being purchased with, a balloon-style Medicaid Compliant Annuity may in fact be a viable planning option. We know! We almost couldn't believe it either!
3. A Medicaid Compliant Annuity can be funded with tax-qualified (e.g. an IRA) or non-qualified (e.g. a checking account) funds.
So many attorneys are still unaware of this, and continue to subject their clients to avoidable income tax consequences by instructing them to liquidate their IRAs.
4. A Medicaid Compliant Annuity can be issued with a term as short as two months.
That is, depending on your state. As such, never worry that your client doesn't have enough money to make Medicaid Compliant Annuity planning worthwhile. We have a product to fit almost every need.
5. Three states have restrictive definitions of what actuarially sound means.
We all know the traditional definition outlined in DRA - the annuity must return interest and principal within the Medicaid life expectancy. Three states have taken the definition into their own hands, and we have yet to see it challenged. Any takers?
6. Most states require the state Medicaid agency to be a beneficiary of tax-qualified funds.
It used to be that the state Medicaid agency never had to be a beneficiary on tax-qualified funds. Sadly, that is no longer the case, although a handful of states still ring true to the original requirement.
7. Krause Financial Services is the primary reason Medicaid Compliant Annuities are still available for use.
The product obviously is not as popular as traditional annuities, in that Medicaid Compliant Annuities are only used for a specific purpose. If Krause Financial Services didn't market the product as actively, thus resulting in the increased awareness and use of the product, insurance companies throughout the nation would terminate it. Point and case: have you ever seen an insurance company actively market the product? Not to toot our own horn...
8. Any insurance agent can obtain a Medicaid Compliant Annuity - how they advise you to use it makes the difference.
If you know exactly what you need in a Medicaid Compliant Annuity, that's excellent. If you don't and you need to rely on an advisor, be wary. There are some great advisors out there, especially those under the wing of Krause Financial Services. But there are also some unscrupulous ones that only see dollar signs and want to stretch the annuity over the applicant's Medicaid life expectancy, even though it may not be appropriate for the client.
9. Some post-DRA states still don't abide by the Social Security actuary tables, but instead use their own.
Yes, DRA outlines the use of the life expectancy tables published by the Chief Actuary of the Social Security Administration. Yet, some states still prefer to use their own tables for reasons we aren't certain.
10. Not all states apply DRA in its entirety to community spouse annuity purchases.
In a handful of states a community spouse's annuity needs to designate the state Medicaid agency, but it might not need to provide equal payments or be actuarially sound. This opens the door to other planning techniques, such as the use of balloon-style Medicaid Compliant Annuities.
11. Every state requires equal annuity payments, but not every state requires monthly payments.
This leaves the door open to quarterly payments, annual payments, and more. The use of annual payments can be quite advantageous when planning with IRA funds.
12. Several states allow you to designate the institutionalized spouse as a beneficiary before the state Medicaid agency when a community spouse owns the annuity.
Why would you want to do this, you ask? If the Medicaid Compliant Annuity offers cash commutation to the policy beneficiaries (instead of being forced to continue the monthly payments), the institutionalized spouse could then take the death benefit and proceed with a Gifting/Medicaid Compliant Annuity plan upon the death of his or her community spouse.
13. Some states apply the monetary value of a fractional penalty period to the Medicaid co-pay for that month, and some simply enforce the ineligibility period associated to the fractional penalty.
It's important to keep an eye out for this in Medicaid Compliant Annuity planning. If you structure a full annuity payment to occur in the month of the fractional penalty, the client's Medicaid co-pay for that month could end up being more than what the actual private pay rate is.
14. Some Medicaid Compliant Annuities come with a "denial clause," providing the owner a refund if they are denied Medicaid benefits.
This is an added safety net for those cases that contain odd facts, and you're just not sure if it'll pass muster. It's not taking a gamble when you know you have a way out if need be (certain rules and restrictions apply).
15. A client's existing annuity can have potential to be transferred into a Medicaid Compliant Annuity.
Too many times we see unaware attorneys instruct their clients to just liquidate their current annuities, presenting the client with a slew of surrender charges. Sometimes there are other, and better, options.