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How does a Medicaid compliant annuity work?

A Medicaid compliant annuity is a single premium immediate annuity that is purchased on or after February 8, 2006, that meets the guidelines described in the Deficit Reduction Act of 2005.

In order to qualify for Medicaid you must meet your state’s impoverishment rules, and if you transfer assets for less than their fair market value then you may be disqualified from receiving Medicaid benefits for a period of time. Since the income from a Medicaid compliant annuity is not considered a countable resource for Medicaid purposes, purchasing this type of annuity annuity may make sense for an individual or a couple who would otherwise have too many resources to qualify for Medicaid.

Medicaid-compliant annuities serve to ensure the healthy spouse (known as the “community” spouse) has sufficient income, while allowing the less healthy spouse to qualify for Medicaid, typically within a nursing home.

Instead of treating the purchase of the annuity as an impermissible transfer of assets, federal law treats the purchase as a permissible investment and the annuity payout stream as protected “income” for the community spouse.

In order to qualify as a Medicaid compliant annuity under federal law, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable to the community spouse, the contract must be irrevocable, and the payment term must be based on the life expectancy of the community spouse.

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