Many seniors invest in fixed or variable annuities, because they often provide a better investment return than savings accounts or CD’s, and unlike bonds, are not subject to changes in value.

However, annuities usually turn out to have been an imprudent investment if Medicaid planning is needed. Since the cash value of these annuities is counted as a Medicaid resource, the annuity will have to be liquidated, and the proceeds transferred, in order to satisfy eligibility rules. Unless the annuity has been held for years (typically 6 or 7), you will lose your anticipated investment return and pay a financial penalty in addition.

If you have owned the annuity long enough to avoid a penalty, liquidation or transfer of ownership will be a taxable event, and you will have to recognize all of the accrued income at once.

Also, deferred annuities are rarely a good estate planning tool, because, unlike life insurance, the income is taxable to the beneficiary upon your death.

Note that immediate annuities (also called single premium lifetime annuities) are a different product. These offer a stream of income, and are irrevocable.

There are a broad variety of annuity products on the market today. Before investing in one, you may want to consider whether it is appropriate to your planning for long-term care, or to your estate plan.