Annuity as an asset in an irrevocable trust

[caring_son]

What is the name of your state (only U.S. law)?New York

Wanted to know if an annuity is a good asset to add into a Medicaid irrevocable trust? My mother would like to do that. Is it better to open the annuity in the name of the trust or my mother's name and transfer the asset in? The annuity allows 10% of the principal to be withdrawn each year. What kind of tax ramifications would that have if it were a trust asset? Any help appreciated.

 

[anteater]

It's certainly good for whoever is selling the annuity. Nice commissions.

So what is the reason for buying the annuity?

In creating this trust, is your mother working with an estate planning or elder law attorney? Does she really understand what creating and funding the trust means?

 

[caring_son]

She worked with an Elder Law Attorney to initially establish the trust. She is looking for guaranteed income from the annuity, but also wants the principal to be protected from nursing homes, should she have to go to one. I was trying to convince her that other assets, like mutual funds could accomplish the same thing for her. The commissions won't be paid by her. There are no fees that she will face for establishing the annuity or surrendering at the end of the guaranteed period.

 

[anteater]

What kind of annuity is this? A variable annuity? An indexed annuity? A deferred fixed annuity?

And, if I may ask, whose idea is this annuity?

The commissions won't be paid by her. There are no fees that she will face for establishing the annuity or surrendering at the end of the guaranteed period.

Tell your Mother not to kid herself. This is "annuity sales rap." Just because she is not explicitly paying the commission, the fees, and for the 10% withdrawal feature, it does not mean that she isn't paying for them.

 

[caring_son]

It is a deferred fixed annuity. My mother's sister has done a lot of investing in annuities and has convinced my mother to do this. I have been trying to get her to look into other options, like mutual funds, but her mind is pretty much made up.

 

[anteater]

It is a deferred fixed annuity. My mother's sister has done a lot of investing in annuities and has convinced my mother to do this. I have been trying to get her to look into other options, like mutual funds, but her mind is pretty much made up.

That's not so bad. Deferred fixed annuities are pretty straight froward. If she has made up her mind to be conservative, it will probably yield slightly better than CD's. Overall evaluation really depends on the size of her assets and her goals.

I am not anywhere being an expert on Medicaid trust asset protection details. It does concern me that the 10% withdrawal feature seems to be a selling point for your mother. If your mother can invade trust principal, asset protection may be defeated. I would suggest that she run the idea past the elder law attorney who wrote the trust.

I will defer to any of the tax gurus here. But the tax deferred character of the annuity should not be affected by its placement in the trust.