Nationwide Income Promise Select Medicaid Compliant Annuity

Nationwide Income Promise Select Medicaid Compliant Annuity is a single-premium immediate annuity in Medicaid planning.

What is Medicaid?

Medicaid, sometimes referred to as Title 19, is a federal and state program that provides medical assistance for those who qualify.

The specific requirements vary by state and even by local communities.

It is meant to assist those who don’t have the financial resources to pay for their medical care.

Medicaid is often used for those who need, but cannot afford the cost of, long-term care, and may also provide assistance to those with special needs.

It is a program that is meant to help the impoverished and needy.

Medicaid requirements

There are generally 3 factors that have to be considered to determine whether someone qualifies for Medicaid assistance.

• Asset limits
  • Exempt or noncountable assets
  • Nonexempt or countable assets
• Income limits
• Gifts 

A five-year look back for any transfers done for less than fair market value

Medicaid planning has to consider all three of these factors.

There are additional planning factors when a community spouse (the noninstitutionalized spouse) is involved because states have enacted non-impoverishment laws to allow the community spouse to live at home and not be forced into poverty.

States, and even communities within a state, will have differing asset and Income limitations.

How are immediate annuities used in Medicaid planning?

A Medicaid compliant annuity is used to convert assets into income to help bring the amount of countable assets down within the Medicaid asset limitations.

The Deficit Reduction Act (DRA) of 2005 established guidelines defining the characteristics an annuity must have to be considered a noncountable asset and excludable from the five-year look back.

The annuity must:

• Be irrevocable and nonassignable
• Use life expectancy tables equivalent to the Social Security life expectancy tables used by Medicaid
• Return all premiums to the client by the end of the client’s life expectancy
• Have a term no longer than the client’s life expectancy
• Have no cash value
• Be actuarially sound:
  • Cannot provide balloon payments
  • Must have equal payments
• Have the beneficiary arrangement set up to comply with the state’s Medicaid recovery rules

States may have their own variations on these requirements, especially related to IRAs or money in retirement plans.

Is Nationwide Income Promise Select Medicaid-friendly?

The client’s attorney has to determine whether Nationwide’s Income Promise Select is appropriate for the Medicaid planning being done.

There are requirements that an annuity has to meet for use in the Medicaid planning process if the intent is to prevent it from being a countable asset and excluded from the five-year look back.

The attorney will need to confirm that the annuity and the way that it is structured meets the client’s objectives and is Medicaid-compliant in the attorney’s opinion.

Some facts about Nationwide Income Promise Select that may make it an appropriate annuity for Medicaid planning:

1. It has a non-assignability election and subsequent endorsement (except in New York) that makes the contract nonassignable. (Nationwide Income Promise Select has not been approved in New York with the non-assignability election and therefore cannot meet the Medicaid requirements in New York.)
2. The Income Promise Select contract is irrevocable by its standard terms.  
3. The liquidity feature is declined, so the annuity does not have any cash surrender value and does not provide balloon payments.
4. The Cost of Living Benefit is not purchased, so the payments will be equal through the term of the annuity.
5. The term certain used, as directed by the attorney, is compliant with the Medicaid guidelines and doesn’t exceed the client’s life expectancy requirements.
6. The titling and beneficiary arrangements are compliant with the state’s Medicaid requirements, as determined by an elder care attorney.

A special note on liquidity and irrevocability

All annuity contracts under various state laws must provide the annuity purchaser with a right to examine or cancel, also known as the “free-look provision.”

The annuity contract during that time period, which can vary by state, is liquid and revocable until that time period passes.

The attorney needs to take that into consideration when doing Medicaid planning to determine the timing for the filing of Medicaid benefits. 

Guidance must come from the client’s attorney

A qualified, knowledgeable attorney who specializes in Medicaid planning in the client’s community must be involved if a client or client’s family is considering Medicaid.

Only that attorney can provide specific legal advice and direction on setting up a Medicaid plan for a client.

Does an annuity always have to be Medicaid-friendly?

There may be planning situations where an annuity doesn’t have to meet the Medicaid requirements, but the attorney will determine whether that is appropriate based on the client’s situation.

That’s why it is imperative that written direction from the attorney be provided for how the annuity has to be set up.

How about taxation and Income?

Because there are Medicaid Income limitations and because states may differ on how they view Income from the purchase of a nonqualified immediate annuity, it is important that the attorney take these into consideration to avoid a denial of a Medicaid claim.

The federal Income taxation of nonqualified immediate annuity payments is governed by Internal Revenue Code (IRC) Section 72.

A competent tax advisor should be consulted to determine what the tax ramifications will be for the client, considering his or her specific financial situation.

If qualified pretax dollars are used to purchase an immediate annuity, then generally the entire amount of the payment will be Income taxable.

Planning

Medicaid regulations and requirements have changed and may change in the future, so it is best to have a retirement income plan that is not dependent on Medicaid. Good planning, with proper investing and the appropriate insurance products like Nationwide annuity, allows the client to determine the type of medical care and lifestyle they want.