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Should You Ever Buy an Immediate Annuity at a Bank?

February 20, 2013

The “financial consultants” or “investment advisors” at banks don’t seem to know much about how MassHealth works, so my suggestion is that you never buy an immediate annuity at a bank without running the idea by an elder law attorney, such as one found via the National Elder Law Foundation.

Within the past month, a financial planner at a Plymouth bank suggested that one of my clients, a married person who has been diagnosed with Alzheimer’s disease, buy an immediate annuity with the funds in his IRA. This pressurized sales attempt occurred after his wife explained that she had met with me and that the plan was to be moving funds to her name.

The relentless selling of annuities at that bank appears to have no bounds. The clients involved in this situation were initially pressured by other people at the bank to meet with the financial consultant, then tried to cancel and received further pressure to keep the appointment.

Here’s why that financial consultant’s annuity idea was atrocious: When one member of a married couple buys an immediate annuity (which can be similar to buying a short-term pension) and soon thereafter needs nursing home care, that check will continue to be received by the institutionalized spouse, and will be treated as the institutionalized spouse’s income for MassHealth purposes.  Therefore, the funds that were invested into that immediate annuity, which could have been preserved for the at-home spouse if sensible financial planning had been done, usually are essentially lost. (For further explanation, see Protecting Assets and Maximum Income for the Community Spouse When Applying for MassHealth in 2013 to Help Pay for the Unhealthy Spouse’s Nursing Home Bills in Massachusetts)

You might think that someone who claims to have been an investment advisor for many years would have learned in detail about how annuities are treated by MassHealth, but you should not ever make that assumption when you are dealing with a bank. That is yet another reason not to be buying annuities at banks, where they may not even realize that they are causing financial harm to some married senior citizens.

One Comment leave one →
  1. February 21, 2013 1:37 am

    Good article. In California, no annuity purchase by either spouse would be necessary to render the IRA as non-countable. However, if owned by the institutionalized spouse, the MRD’s would go toward his SOC. For this reason, it sometimes makes sense to liquidate the IRA, incur the tax, and transfer funds to the ownership of the At-Home spouse, but this is a case by case decision after one “runs the numbers”. Alternatively, sometimes the full MRD’s can be reallocated from the Ill spouse over to the At-Home spouse even without a liquidation, if the latter needs more Spousal Allocation to make up her MMMNA.

    Most financial advisors have no idea as to how these issues impact couples such as your clients.

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