Medicaid Qualified Annuity, Buyer Beware and Agent Liability

The need for some clients to protect assets from Medicaid Spend down is obvious. It can be because of the well spouse?s needs, a handicap child or a myriad of good solid reasons. This is where the annuity salesperson come charging to the rescue.

Most agents know that certain types of annuities can avoid spend down and can provide protection for the assets in the annuity. These annuities have specific language to make them fully qualified under Medicaid rules. Most annuity contracts DO NOT contain the language to qualify for the Medicaid rules.

The monthly payout must be for the life expectancy of the annuitant. The annuity cannot have any free look in the contract and the value of the annuity is agreed by all parties to be zero. The only value of the annuity is the monthly income. These features are actually part of the contract and are allowed by 29 states in the US. It is sometime referred to as the ?name on the check rule.?

The personal liability comes into play when an agent does not fully understand the rules nor the process that must be adhered to in order to qualify the funds. An agent will sell ?just an annuity? explaining to the client the funds are safe from spend down. You have to ask yourself why would this happen? The reason is obvious, large commissions.

Commissions for the Medicaid spend down annuity are often very low while the commissions for a standard annuity are usually much higher. The agent will sell the concept of the annuity but provide a product that will never qualify for Medicaid spend down. This is where the liability issue comes to the surface. Of course by then the agent could be on to a different career or the obvious answer is ?I didn?t say that.?

At the time of need the client could be faced with additional stress and maximum exposure to exposed assets. This creates a very unfair situation for the client and the agent is almost never left holding the bag. Then of course there is this sales pitch and explanation.

Recently I ran into a situation where an annuity agent had sold a 17 year surrender contact to a widow aged 77. She was told that the annuity would protect all her assets and she could leave those assets to her children. In a couple of years she became ill and was in need of nursing home car and the annuity was the primary asset. Of course as a single person there was no way to protect the funds in the annuity and with the children, I called the agent. His reply was amazing, he said he knew the annuity was not going to be Medicaid qualified but it was not his problem, it was his ?errors and omissions? problem. He knowingly sold the product for the monstrous commission and had calculated the insurance company would make things right.

The client had to eventually cash in the huge surrender penalty annuity and suffer the losses. She was ill and not up to a fight with anyone and just wanted to be left alone.

The shame of this story is as annuity salespeople we are all considered guilty by the actions of a few. So here is my advice.

? Always work with an attorney who specializes in Medicaid planning

? Never call yourself a Medicaid specialist

? Never give legal advice

? If you sell a Medicaid qualified annuity make certain the contract will work in your state, ask the home office, they are there to help

And finally, be honest and open. Make certain the prospect understands exactly how a Medicaid Qualified Annuity works and how the benefits directly affect them and their personal situation.

Bill Broich is a 30 year annuity salesman who helps agents generate annuity leads. Visit his website to learn more - Annuity.com.