Convert a Deferred Annuity into an Immediate Annuity

Last updated: May 07, 2024
Medicaid Long Term Care | Questions and AnswersCategory: AnnuitiesConvert a Deferred Annuity into an Immediate Annuity
medicaidplanner Staff asked 4 years ago

Can Someone Convert a Deferred Annuity into an Immediate Annuity to Make it a Medicaid Compliant Annuity?

1 Answers
medicaidplanner Staff answered 4 years ago

Yes, a deferred annuity can be converted into an immediate annuity to make it a Medicaid compliant annuity. (Medicaid compliant means it is allowed by Medicaid and won’t negatively impact one’s eligibility).

An annuity is a contract between an individual and an insurance company in which a lump sum of cash (or a series of payments) are converted into a monthly income stream. For the purposes of Medicaid eligibility, a Medicaid Compliant Annuity can help one meet Medicaid’s asset limit. Essentially, countable assets are turned into income, lowering the amount of assets counted towards the asset limit. See state-by-state asset limits, as well as learn which assets are not counted towards Medicaid’s asset limit here.

A deferred annuity is not a Medicaid Compliant Annuity. Funds in a deferred annuity will still count towards Medicaid’s asset limit and will not help to lower countable assets. With this type of annuity, monthly cash payments do not start immediately. Rather, they are “deferred” and the funds in the annuity accumulate and earn interest. Deferred annuities are revocable, which means the annuity can be cancelled at any time and the owner of the annuity is able to withdraw the funds. Therefore, the funds are technically available to pay for long-term care.

An immediate annuity is Medicaid compliant and can be used as a Medicaid planning strategy to lower countable assets. With this type of annuity, payments start immediately, and the annuity is irrevocable (it cannot be terminated or changed). Furthermore, it does not violate Medicaid’s Look-Back Period, a timeframe in which the Medicaid agency checks to make sure assets were not given away or sold under fair market value.

Because deferred annuities are not Medicaid compliant, individuals with this type of annuity who wish to apply for long-term care Medicaid need to take action to convert it into an immediate annuity. The rules surrounding a Medicaid Compliant Annuity may differ slightly based on the state in which one resides. If you are thinking about utilizing an annuity as a Medicaid planning strategy or need to convert a deferred annuity into an immediate annuity, it is highly suggested that you contact an expert Medicaid Planner.

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