Many people buy and use annuities in their financial portfolio. For years they have been the subject of much legal maneuvering in the Medicaid field to reconcile the principal versus income aspects of an annuity and exactly how they should be treated for eligibility purposes. Now we have another wrinkle with annuities.

As mentioned in other posts, Connecticut recently issued their new regulations to be consistent with the statutory changes incorporated in the Deficit Reduction Act of 2005. An important portion of these regulations concerns annuities and how they will be handled by the Department of Social Services.

Straight from Policy Transmittal 07-02:

Annuities purchased on or after February 8, 2006 will now be subject to other considerations. First, the department will now automatically become a remainder beneficiary under the annuity [...] by the provision of LTC Medicaid benefits to an individual.

Second, the purchase of annuity will automatically be considered to be a transfer of assets unless: the department is named as the remainder beneficiary in the first position for at least the total amount of Medicaid paid on behalf of the annuitant; or, the department 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 the spouse or representative of the child disposes of any such remainder for less than fair market value. In addition, the annuity must meet all of the following criteria: it must be irrevocable and nonassignable; it must be actuarially sound; and it must provide for payments in equal amounts during the term of the annuity with no deferral and no balloon payments.

I am not a psychic, but I think we can reasonably expect to see many conflicts in the future surrounding these provisions that seek to alter the terms of an annuity contract by law.

What else do the new annuity rules mean? Well, if you are purchasing an annuity or you own an annuity you should certainly be aware that Connecticut is making a new claim to recover from them Medicaid benefits paid to an individual. If you are a financial professional engaged in the selling of annuities, make sure you are familiar with these new regulations in order to minimize any professional risk on your part.

Related posts:

1. Estate Planning Beyond the Documents – Annuities
2. Medicaid Recovery Law More Aggressive Than Ever
3. Estate Planning For Title 19