Annuities Defined for Medicaid Purposes

Annuities Defined for Medicaid Purposes A. Annuities – General (Applies Regardless of Purchase Date) 1. An annuity is defined as a contract or agreement by which one receives fixed, non- variable payments on an investment for a lifetime or a specified number of years. a) An individual may buy an annuity by making payments over a period of time or purchase an immediate annuity by paying a lump sum to a bank or insurance company in return for regular payments of income in certain amounts. b) When an annuity is “annuitized,” the investment is converted into periodic income payments. c) These payments may continue for a fixed period of time or for as long as the individual or another beneficiary lives. 2. The annuitant is the person who will receive the payments during the term of the annuity. The annuity contract should identify the purchaser (owner) and the annuitant. The owner and the annuitant may or may not be the same; however, the policy described in this chapter applies to annuities purchased with the applicant’s or recipient’s own funds by the applicant/recipient, spouse, guardian or legal representative and which name the applicant/recipient or spouse as the annuitant. 3. An annuity may or may not include a remainder clause under which, if the annuitant dies, the contracting entity converts whatever is remaining in the annuity into a lump sum and pays it to a designated beneficiary. 4. Annuities, although usually purchased in order to provide a source of income for retirement, are occasionally used to shelter assets so that individuals purchasing them can be eligible for Medicaid. In order to avoid penalizing annuities validly purchased as part of a retirement plan but to capture those intended to shelter assets, a determination must be made with regard to the ultimate purpose of the annuity, i.e., whether or not it is part of a bona fide retirement plan. 5. Transfer of assets policy will be considered when an applicant or recipient’s own funds are used to purchase an annuity for someone other than the applicant/recipient or their spouse. Likewise, if the right to receive payment is assigned to someone other than the applicant/recipient, spouse or to a minor or disabled child of the applicant, a transfer of assets will be considered. B. Revocable Annuities (Applies Regardless of Purchase Date) 1. An annuity that is revocable is a countable resource unless it can be excluded under another provision, such as an income-producing asset meeting the 6% of equity provision for annuities purchased prior to 02/08/2006. Some annuities which appear irrevocable may be revocable with a penalty, reducing the total value. Generally, an annuity is revocable until the time the annuity is annuitized. Verification is needed to make a determination. 2. An annuity is a countable resource if it can be sold, cashed in, surrendered or revoked. An annuity that can be revoked is valued at the amount the purchaser would receive if canceled. 3. An annuity is a countable resource if it can be assigned to a new owner or the payments transferred to someone else. If an annuity is assignable, it is valued at the amount the annuity can be sold on the secondary market. C. Irrevocable Annuities (Applies Regardless of Purchase Date) 1. If an annuity cannot be revoked or cashed in and the annuity contract does not allow the annuitant to transfer ownership or payments to someone else, the annuity is not a countable resource, although it may be a transfer of assets if purchased within the five (5) year look back period as outlined in this chapter. 2. If periodic payments are not being made, the individual must take all steps necessary to receive periodic payments as outlined in this chapter. If periodic payments are denied but a lump sum payment is possible, the lump sum amount is a countable resource. D. Payments Produced by Annuities (Applies Regardless of Purchase Date) 1. Annuity payments paid to the annuitant are countable income regardless of whether the annuity itself is countable as an asset or treated as a disqualifying transfer. Certain conditions apply to the frequency and amount of the payments required in order for an annuity to avoid being treated as a transfer of assets, as described within this chapter. E. Non-Annuitized Annuity (or any portion thereof) (Applies Regardless of Purchase Date) 1. The equity value of an annuity that is not annuitized or any part of an annuity that is not annuitized is counted as a countable resource. Verification is needed to make a determination.