In last week’s post I told you about QLACs, qualified longevity annuity contracts. This week I’ll delve into the pros and cons. As I stated last week distributions under a QLAC begin at a specified starting date that you choose but no later than age 85. There are no benefits under the contract after the owner’s death.
The contract must be identified as a QLAC and it cannot be a variable or indexed contract. It may, however, contain a cost of living adjustment. Many insurance companies offer such riders. A QLAC also can offer a return of premium option (ROP). The ROP guarantees that upon the contract owner’s death a designated beneficiary is entitled to receive an amount equal to the original premium paid minus the total annuity payments received by the owner before he/she died.
The ROP is paid not later than the end of the calendar year following the year in which the account owner died. If the death occurred after the annuity payments have begun then the ROP payment is considered a required minimum distribution for the year in which it was paid and is not eligible for an IRA rollover. A QLAC can be purchased for the joint life of the account owner and a designated beneficiary, who may also receive annuity payments for life.
You may be wondering how a QLAC affects Medicaid eligibility. Since QLACs are relatively new, there is no history that we can point to. Medicaid compliant annuities are a permissible strategy to convert a countable asset to a stream of income, making it exempt from Medicaid spend down requirements. It is not clear whether a QLAC qualifies as a Medicaid compliant annuity or even if it needs to be. It probably still must name the State as a remainder beneficiary to the extent of the cost of Medicaid benefits paid on behalf of the account owner.
So what is the final word on QLACs? They are so new that there isn’t a final word. My view is that they are an option that certainly deserve a look and may prove useful in certain circumstances. They may prove to be very helpful given the right set of facts. It is best, however, to consult with a financial professional knowledgeable about these products as well as an elder law attorney.