When using a Medicaid Compliant Annuity (MCA) as part of your client’s crisis plan, one of the key factors to consider is estate recovery. Estate recovery refers to Medicaid’s ability to reclaim costs from a recipient’s estate after they pass away. Many clients may be hesitant to use an MCA due to the requirement of naming the state as a beneficiary, but understanding how estate recovery works can alleviate those concerns.
Why the State Must Be a Beneficiary
In order to be Medicaid compliant, an MCA must name the state Medicaid agency as a beneficiary. Typically, the state is listed as the primary beneficiary unless there are specific exceptions, such as when the MCA owner has a minor or disabled child. The state’s right to recovery is limited to the amount of Medicaid benefits paid on behalf of the institutionalized individual.
Read More: What Makes an Annuity Medicaid Compliant?
Exceptions to the Primary Beneficiary Rule
In some cases, exceptions allow for someone other than the state to be named as the primary beneficiary. For instance, if an institutionalized spouse purchases an MCA, the community spouse may be named as the primary beneficiary, with the state as the contingent beneficiary. Additionally, if the owner has a minor or disabled child, that child can be listed as the primary beneficiary ahead of the state.
Balancing the Risk of Estate Recovery
While the possibility of estate recovery may raise concerns, the benefits of using an MCA often outweigh this risk. An MCA helps clients accelerate Medicaid eligibility by converting excess assets into an income stream. In most cases, the state can only recover Medicaid benefits if the MCA owner dies before the annuity term ends. For single individuals using the Gift/MCA plan, the annuity is typically used to privately pay for care during the penalty period of ineligibility, which eliminates any balance owed to the state (unless they previously received Medicaid benefits). If the state is owed a balance, it makes its claim, and the remaining amount goes to the contingent beneficiary, the client’ intended heir(s).
Structuring the MCA for Success
When purchasing an MCA for the community spouse, properly structuring the MCA’s term based on their health and longevity is crucial. By choosing the right term, clients can ensure that they gain Medicaid eligibility for the institutionalized spouse while minimizing the chance of estate recovery.
Read More: Determining If a Medicaid Compliant Annuity Is Right for Your Client
Although estate recovery is an element to consider when using an MCA, the financial and planning advantages it provides far exceed the potential risks. If you have questions about how to navigate estate recovery with an MCA, contact our office.
