Handling Annuities that Don’t Comply with DRA

Jan. 9, 2014 - PRLog -- I frequently see Medicaid and Veterans Benefits planning cases come through my office that include previously purchased annuities.  In most of these cases, the annuities that already exist don’t comply with the requirements outlined in the Deficit Reduction Act of 2005 (“DRA”).  We know that for Veterans Benefits planning this may not be an immediate concern; however, in Medicaid planning this is detrimental to the applicant’s eligibility.

A tax-deferred annuity is almost always a “bad” annuity to own for Medicaid planning purposes.  The investment can usually be accessed at any time, making it a countable resource to the policy owner.  On the other hand, an immediate annuity may or may not be a “bad” annuity, depending on several factors.

So where does that leave your client’s annuity?  The available options usually consist of surrendering it, transferring it, or selling it on the secondary market.  Options will vary depending on the type of policy and the insurance company the policy was purchased from.  So, how can you tell which option may be best?  This flow chart is an excellent starting point:


If you think your client has a “bad” annuity, don’t hesitate to send a copy of the entire policy to Krause Financial Services.  In return, you will receive recommendations as to what actions may be necessary in order to make it a “good” annuity – one compliant with DRA.

Note:  Additional exceptions exist if the annuity consists of tax-qualified funds (e.g. an IRA).