An annuity is an investment of a resource in order to receive a fixed payment. Once the investment is annuitized, the original investment cannot be returned. At that point, the characterization of the investment is changed from an asset to income. An annuity is considered marital property and subject to division in the event of divorce. Parties should be careful to review the terms of the annuity contract in determining the best way to split this asset. The goal should be to minimize any tax implications or penalties in dividing the asset. The best option may be off-setting the value of the annuity with another asset in the divorce such as a marital residence.
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An annuity may be desirable in terms of long term care planning. Specifically, if a party is looking to qualify for Medicaid and they are over the limit for resources, they may consider changing a resource to an annuity and thereby having it count as income instead. Parties should be careful since there are also income limits for qualifying for Medicaid. Other requirements include naming Medicaid as a second beneficiary for the annuity and electing a period certain annuity as opposed to a life annuity.