Medicaid Qualified Annuity, Buyer Beware and Agent Liability

It is evident that clients need to protect assets from Medicaid Spenddown. This could be due to the needs of the spouse, handicapped child, or any number of solid reasons. The annuity salesperson comes to your rescue.

Agents are well aware that annuities of certain types can be avoided by spending down and provide protection for assets. These annuities are fully qualified under Medicaid rules because they contain specific language. The language required to be eligible for Medicaid is not included in most annuity contracts.

The annuitant’s life expectancy must be taken into account when calculating the monthly payout. Annuities cannot be viewed without the agreement. The value of an annuity must also be agreed upon by all parties. The monthly income is the only value of an annuity. These features are part of the contract, and they are permitted by 29 US states. Sometimes, it is called the “name on check rule”.

An agent who does not understand the rules and the process to qualify funds can be held responsible. An agent may sell “just an annuity”, explaining to clients that the funds are safe and cannot be spent down. This is why it happens. Large commissions are the obvious reason.

The commissions for an annuity that is Medicaid spend down are typically very low, while those for an annuity that is standard are much higher. Although the agent may sell the idea of an annuity, they will not provide any product that is eligible for Medicaid spend down. Here is the risk issue. The agent could have a new career, or the obvious answer to the liability issue is “I didn’t say that.”

The client may be subject to additional stress or exposed assets when they are in greatest need. This can create a very difficult situation for the client, and the agent almost never leaves the bag empty. There is also the sales pitch and explanation.

An annuity agent sold a 17-year surrender contract to a widow at 77. The annuity would cover all her assets, and she could also leave these assets to her children. She became seriously ill in a few years and needed a nursing home car. The annuity was her primary asset. As a single person, there was no way to protect annuity funds. I called the agent. He replied with an amazing response. He said that he knew the annuity would not be Medicaid-qualified, but that it wasn’t his problem. It was his “errors & omissions” problem. He knew he had sold the product to make a huge commission, and he calculated that the insurance company would fix the problem.

The client was forced to cash in the large surrender penalty annuity, and then suffer the losses. She was not healthy and didn’t want to fight anyone.

This story is shameful because we all are guilty of the actions of a few. Here is my advice.

Work with an attorney who is a specialist in Medicaid planning

Do not call yourself a Medicaid specialist.

Never give legal advice

You can sell an Medicaid-qualified annuity, but make sure it will work in your state. Ask the home office for assistance.

Finally, be open and honest. Make sure the prospect is fully informed about the Medicaid Qualified Annuity and how it affects them personally.