What Happens When Someone Predeceases a Medicaid Compliant Annuity?

Katie Camann

Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.

View an updated version of this post here.


While many individuals may outlive their Medicaid Compliant Annuity (MCA) term, some may pass away before the contract term ends. So, what happens then? Well, it depends on a few important factors, including who owns the annuity, who is listed as the primary beneficiary, and what state you’re in. If you have a client who predeceases their MCA, here’s what you need to know.

Who Is the Primary Beneficiary?

In most cases involving an MCA owned by a single person or the community spouse, the primary beneficiary will be the state Medicaid agency. However, some states allow the institutionalized spouse to be named the primary beneficiary ahead of the state Medicaid agency. Additionally, if the contract owner has a minor or disabled child, the child may be listed as the primary beneficiary. On the other hand, if the institutionalized spouse owns the annuity, the community spouse can always be listed as the primary beneficiary.

Contact Krause Financial to find out if your state or your client’s specific situation qualifies for any of these exceptions.

Read More: Does the State Have to Be Named the Primary Beneficiary on an MCA?

State Medicaid Agency

If the state Medicaid agency is the primary beneficiary of the MCA, it can collect up to the amount of benefits expended on behalf of the institutionalized individual. The remaining balance, if any, is then passed on to the contingent beneficiary.

Community Spouse or Other Loved One

If the community spouse, a minor or disabled child, or another loved one is the primary beneficiary of the MCA, they have a few options, depending on the insurance carrier. They can typically continue receiving payments until the end of the term or take a discounted lump sum payout of the remaining funds. One of our exclusive carriers offers an alternative option allowing the beneficiary to take a full lump sum payout with no discount.

Learn more: Mastering the Beneficiary Requirements of the Medicaid Compliant Annuity

What About the Contingent Beneficiary?

In cases where the state Medicaid agency is the primary beneficiary, the agency will make its claim, and the contract is then passed to the contingent beneficiary, which is typically the MCA owner’s spouse, children, or another loved one. If the community spouse, child, or other loved one is the primary beneficiary, they can take over the contract and name their own beneficiaries, effectively removing the state Medicaid agency from making any claim.

What If an Individual Passes Away Before the End of the Penalty Period?

If you have a single client who is using the Gift/MCA strategy and predeceases their annuity term, the state Medicaid agency has no claim on the annuity, even though they are most likely listed as the primary beneficiary. Since the MCA term is structured over the penalty period, the state Medicaid agency has not yet expended any benefits on behalf of the institutionalized person. That is, unless the individual received Medicaid benefits prior to this instance of institutionalization.

What to Do If Your Client Predeceases Their MCA

Did your client recently pass away? If so, contact our team at Krause Financial and let us know. Once we have the death certificate and other relevant documentation, we will go through the death claims process on your client’s behalf. If you have any questions about MCA beneficiary options and how the claims process works, get in touch with us today.


Katie Camann
By Katie Camann | Content Marketing Specialist

As Content Marketing Specialist, Katie drafts and edits content across multiple platforms, including blogs, emails, white papers, videos, brochures, website pages, and more. She conducts research and gathers up-to-date information to keep our clients well-informed.

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