ElderLaw News

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Annuities and Long-Term Care Planning

A recent Pennsylvania Commonwealth Court case provides some insight on the use of annuities in long-term care planning.

In Ross and Ross v. Department of Public Welfare (No. 137 C.D. 2007), the wife entered a nursing home on February 5, 2003. On April 8, 2005, her husband transferred $418,026.66 into a single premium immediate annuity. The annuity contract pays the husband $10,211.83 per month from May 15, 2005 to September 15, 2008. The husband established the annuity in order to qualify his wife for Medicaid Assistance-Nursing Home Care (MA-NHC) benefits (equivalent to Virginia Medicaid) and to pass assets to his children. The husband is the sole owner of the annuity, and his three children are the sole beneficiaries. The wife has no interest in the annuity, and, after the annuity purchase, she had no funds to pay the nursing home. The payment for the annuity is irrevocable, and the husband cannot terminate the annuity, but he can change the beneficiaries or sell his right to the income stream.

The husband filed an MA-NHC application, and the county assistance office determined that the annuity was an available resource with a value of $202,364.00. The husband filed an appeal on behalf of his wife, and the Administrative Law Judge (ALJ) denied the appeal. The ALJ determined that: (1) the language of the annuity did not interfere with the husband's ability to sell his right to the income stream, thereby converting the annuity into immediate cash; (2) the present value of the income stream exceeds the resource limit; and (3) the annuity was purchased not only for the benefit of the husband and wife, but also as a way to pass assets to the children and qualify the wife for MA-NHC benefits. On further appeal, the Department of Public Welfare (DPW) affirmed the ALJ's decision. The husband and wife petitioned the court for review, claiming that the DPW erred in concluding that the income stream from the annuity is an available resource for the wife’s eligibility for MA-NHC benefits. The court agreed and reversed the DPW order.

The court stated that under 42 U.S.C. §1396r-5, income and resources are treated differently, and that "no income of the community spouse shall be deemed available to the institutionalized spouse." Therefore, "[t]he community spouse's income does not affect the determination [of] whether the institutionalized spouse qualifies for Medicaid." The court said that if the payment of income is made solely in the name of the community spouse, the income is income only to that spouse. In this case, the payment of the income from the annuity is made solely in the husband's name, the income is considered income only to the husband, and none of the income is deemed available to the wife. The DPW treated the husband's income as an available resource, but the court cited an opinion by the Superior Court of New Jersey for the proposition that 'treating the market value of an income stream paid to a community spouse 'blurs the distinction between resource allocation and income allocation' under the federal law." The court concluded that DPW "improperly considered [the husband's] income stream from an irrevocable and non-assignable annuity as an available resource based on the existence of a secondary market for such income streams."

Although this case is not precedential in Virginia, it does provide valuable information for the treatment of annuities when applying for Medicaid. Persons contemplating the purchase of an annuity should consult with an elder law attorney before the purchase to ensure that the annuity complies with the requirements of the Virginia Medicaid Manual.

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