There are two situations where the purchase of an immediate annuity is appropriate for long-term care planning in California.  However, except for these two circumstances, I believe annuities are rarely a good choice for planning in California.

The first situation where an annuity is appropriate for long-term care planning is in reducing significant excess assets held in retirement accounts in order to qualify for the VA’s Improved Pension with Aid & Attendance benefit.  The VA counts the value of a claimant veteran’s and/or his/her spouse’s retirement accounts (IRA, 401k, 403b, etc) in determining whether the claimant is over asset.  Investing the funds in an immediate annuity contract held inside of the retirement account reduces the excess assets by making them illiquid and unavailable.  At the same time, by not withdrawing the funds from the retirement account, the claimant and/or his/her spouse avoids the income tax consequences that would have resulted from a large withdrawal from the retirement account.  Naturally, for the annuity to have been the right choice the claimant must have sufficient unreimbursed medical expenses to set off against the added income produced by the annuity payments.

The other situation where an annuity may be appropriate is in Medi-Cal long-term care planning where the married applicant and his/her well-spouse have significant excess countable liquid assets and the well-spouse has a very high income.   In the perfect case, the well-spouse’s income usually significantly exceeds both the Medi-Cal minimum monthly maintenance needs allowance and his/her living expenses, thus limiting other planning choices.   There will be no disadvantage to giving the well-spouse the additional income from the annuity in the right cases for two reasons.  First, once the ill-spouse is on Medi-Cal, the well-spouse can acquire additional assets from the annuity payments without disqualifying his/her ill-spouse from Medi-Cal benefits.  And, second, the well-spouse’s income is not counted in determining the ill-spouse’s eligibility and never becomes part of the ill-spouse’s share of cost (co-payment) to the nursing home.

One of the most knowledgeable financial advisors with regard to using annuities in VA and Medi-Cal planning I know is Dale M. Krause of Krause Financial Services.  I recently read a blog post by Dale entitled, “Do I Have to Use a Medicaid Compliant Annuity in VA Planning?”  which is available at Dale’s website.

“We learned on December 7, 2010, that a former employee of SF-HSA removed documents with confidential client information from SF-HSA and took them home,” according to the agency’s patient notification letter. “The former employee also e-mailed some documents to her home computer between 2006 and 2009 and shared some documents with her attorneys and union representatives as part of a legal action. We have recovered all of the documents and ensured that all copies have been destroyed or returned to SF-HSA. We have also obtained a court order prohibiting any disclosure or unauthorized use of the information in the legal matter.”

The agency issued a press release and started mailing notification letters on Feb. 4. The San Francisco Examiner reports the former employee was terminated because of performance issues and was considering legal action. She took the records to prove she was dealing with a disproportionately high caseload, according to the newspaper.

In addition to Social Security numbers, the agency says breached information included case account number, client identification number, age or date of birth, address, eligibility status, aid codes (type of Medi-Cal) and case status. The agency says the risk of identity theft is very low but is arranging for free credit-monitoring services for affected beneficiaries.

More information is available at sfhsa.org, then click on Public Notices and What is New.