Understanding Medicaid, Medicaid-Compliant Annuities, and Irrevocable Trusts
By: Attorney Olivia Baginski
Navigating long-term care planning can be overwhelming, especially when trying to qualify for Medicaid while protecting assets. Two powerful tools that can work together in this process are Medicaid-compliant annuities and irrevocable trusts. Here’s a breakdown of what they are and how they work.
What Is Medicaid?
Medicaid is a joint federal and state program that provides health coverage to low-income individuals, including seniors who need long-term care. To qualify, applicants must meet strict income and asset limits. For many families, this creates a challenge: how to afford care without depleting all their savings.
What Is a Medicaid-Compliant Annuity?
A Medicaid-compliant annuity is a financial product that converts a lump sum of money into a stream of income for a set period. To qualify as “Medicaid-compliant,” the annuity must meet several legal criteria, including:
- Being irrevocable (cannot be changed or canceled),
- Being non-transferable,
- Naming the state Medicaid agency as the beneficiary (after a spouse, if applicable); and
- Providing equal monthly payments with no balloon or deferred payments.
This type of annuity can help a Medicaid applicant convert countable assets into a non-countable income stream, helping them meet eligibility thresholds while preserving funds for a spouse or heirs.
Benefits of a Medicaid-Compliant Annuity
- Qualify for Medicaid faster without spending down all assets.
- Preserve wealth for a spouse or family.
- Avoid penalties from improperly gifting or transferring assets.
- Gain predictable income during the annuity term.
What Is an Irrevocable Trust?
An irrevocable trust is a legal arrangement where assets are placed under the control of a trustee for the benefit of designated beneficiaries. Once assets are transferred into an irrevocable trust, the original owner gives up control and access, making those assets generally non-countable for Medicaid purposes (after a five-year look-back period).
How the Annuity Fits Into the Trust
In some estate planning strategies, the income from a Medicaid-compliant annuity can be directed into an irrevocable trust. This allows the trust to receive income, which can be used to support beneficiaries while preserving eligibility for Medicaid. However, the structure must be carefully tailored to comply with both Medicaid rules and trust laws.
How We Can Help
Our law firm specializes in Medicaid planning, trust administration, and elder law, including the use of Medicaid-compliant annuities and irrevocable trusts. We understand the complexities of the system and will work with you to create a plan that protects your assets and secures the care you need.
If you or a loved one are facing long-term care decisions, contact our office today at (815) 455-3000 to schedule a free consultation. Our attorneys are licensed in the state of Illinois, Wisconsin, and Washington. We’re here to guide you every step of the way.
Click here to learn more about Attorney Olivia Baginski.
*The content of this blog post is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. You should not rely on this information as a substitute for legal counsel, and we recommend consulting a licensed attorney in Illinois for advice specific to your situation. Viewing or interacting with this blog does not establish an attorney-client relationship, which can only be formed through a written agreement.