Search Articles

Find Attorneys

Court Approves Use of Short-Term Annuities for Medicaid Planning

  • November 24th, 2015

Money faucetImmediate annuities are among the tools elder law attorneys use to help married nursing home residents qualify for Medicaid coverage while protecting the standard of living of the healthy spouse and to help preserve assets for the families of unmarried or widowed nursing home residents.

Immediate annuities can help Medicaid applicants in two basic ways: First, when one spouse enters a nursing home most couples must spend down their savings to at least approximately $120,000 before the nursing home spouse will qualify for Medicaid. Purchasing an immediate annuity can convert assets into an income stream for the healthy spouse while avoiding a penalty for transferring assets.  Second, an institutionalized individual can buy an annuity that will provide income to pay the nursing home while waiting out a Medicaid penalty period caused by a gift made within the previous five years.  Often, these latter annuities are of short duration – only as long as the penalty period.

Local Elder Law Attorneys in Your City

Elder Law Attorney

Firm Name
City, State

Elder Law Attorney

Firm Name
City, State

Elder Law Attorney

Firm Name
City, State

But some states, including Pennsylvania, have maintained that short-term annuities – usually two years or less – are still subject to a transfer penalty.  This should change now that the Third Circuit Court of Appeals has ruled that Medicaid officials must accept applicants' short-term annuities, and that these types of annuities cannot be counted as resources and be made subject to penalty.  Zahner v. Secretary Pennsylvania Dept. of Human Services (3rd Cir., Nos. 14-1328, 14-1406, Sept. 2, 2015).  

In reaching its decision, the court combined three separate Pennsylvania cases.  In one, Donna Claypoole and her husband transferred more than $100,000 to family members.  When Ms. Claypoole was admitted to a nursing home and applied for Medicaid, the transfers resulted in a period of Medicaid ineligibility.  In part to pay for her nursing home care during the period of Medicaid ineligibility, Ms. Claypoole paid $84,874 for an immediate annuity that would give her an income of $6,100 a month for 14 months.  She was 86 years old at the time of the purchase, with a life expectancy of more than six more years.  Another Medicaid applicant, Connie Sanner, also transferred assets and then bought a 12-month annuity to pay for her nursing home care during the period of ineligibility.  In both cases, Pennsylvania’s Medicaid officials determined that the annuity's term was less than the purchaser's life expectancy and was therefore a “resource” that required a new period of Medicaid ineligibility. (The original plaintiff in the case, Anabel Zahner, is deceased and no longer a party.)

The Medicaid applicants filed a case in federal court, arguing that the annuities met the requirements of federal Medicaid law and should not have been considered asset transfers.  The U.S. district court ruled that the short-term annuities are countable assets subject to asset transfer rules, holding that the term of the annuity must "bear a reasonable relatedness to the beneficiary's life-expectancy."

U.S. Court of Appeals for the Third Circuit has now overturned this decision.  The court found nothing in federal Medicaid law to suggest that an annuity cannot be shorter than a person’s actuarial life expectancy.  The only requirement, the court said, is that the annuity not be longer than the beneficiary’s life expectancy, to prevent people from purchasing overly long annuities as a way to leave money to heirs. The court further held that an annuitant's motive in purchasing an annuity should not determine whether it is viewed as a resource.  Although the Third Circuit is only one of 13 federal appeals courts, the court noted that its opinion is “precedential” federal law for Medicaid-compliant annuities.

While the decision provides more certainty, immediate annuities must still meet a number of stringent requirements to be accepted as legitimate by Medicaid authorities.  Families considering them should get help from a qualified elder law attorney.  

To read the court’s decision, click here.  

For more about annuities and long-term care planning, click here.

 


Last Modified: 11/24/2015
Learn the secrets of estate planning from an expert
ADVERTISEMENT
Medicaid 101
What Medicaid Covers

In addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.

READ MORE
How to Qualify for Medicaid

To be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.

READ MORE
Medicaid’s Protections for Spouses

Spouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.

READ MORE
What Medicaid Covers

In addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.

READ MORE
How to Qualify for Medicaid

To be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.

READ MORE
Medicaid’s Protections for Spouses

Spouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.

READ MORE
Medicaid Planning Strategies

Careful planning for potentially devastating long-term care costs can help protect your estate, whether for your spouse or for your children.

READ MORE
Estate Recovery: Can Medicaid Take My House After I’m Gone?

If steps aren't taken to protect the Medicaid recipient's house from the state’s attempts to recover benefits paid, the house may need to be sold.

READ MORE
Help Qualifying and Paying for Medicaid, Or Avoiding Nursing Home Care

There are ways to handle excess income or assets and still qualify for Medicaid long-term care, and programs that deliver care at home rather than in a nursing home.

READ MORE
Are Adult Children Responsible for Their Parents’ Care?

Most states have laws on the books making adult children responsible if their parents can't afford to take care of themselves.

READ MORE
Applying for Medicaid

Applying for Medicaid is a highly technical and complex process, and bad advice can actually make it more difficult to qualify for benefits.

READ MORE
Alternatives to Medicaid

Medicare's coverage of nursing home care is quite limited. For those who can afford it and who can qualify for coverage, long-term care insurance is the best alternative to Medicaid.

READ MORE
ElderLaw 101
Estate Planning

Distinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.

READ MORE
Grandchildren

Learn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.

READ MORE
Guardianship/Conservatorship

Understand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.

READ MORE
Health Care Decisions

We need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

READ MORE
Estate Planning

Distinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.

READ MORE
Grandchildren

Learn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.

READ MORE
Guardianship/Conservatorship

Understand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.

READ MORE
Health Care Decisions

We need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

READ MORE
Long-Term Care Insurance

Understand the ins and outs of insurance to cover the high cost of nursing home care, including when to buy it, how much to buy, and which spouse should get the coverage.

READ MORE
Medicare

Learn who qualifies for Medicare, what the program covers, all about Medicare Advantage, and how to supplement Medicare’s coverage.

READ MORE
Retirement Planning

We explain the five phases of retirement planning, the difference between a 401(k) and an IRA, types of investments, asset diversification, the required minimum distribution rules, and more.

READ MORE
Senior Living

Find out how to choose a nursing home or assisted living facility, when to fight a discharge, the rights of nursing home residents, all about reverse mortgages, and more.

READ MORE
Social Security

Get a solid grounding in Social Security, including who is eligible, how to apply, spousal benefits, the taxation of benefits, how work affects payments, and SSDI and SSI.

READ MORE
Special Needs Planning

Learn how a special needs trust can preserve assets for a person with disabilities without jeopardizing Medicaid and SSI, and how to plan for when caregivers are gone.

READ MORE
Veterans Benefits

Explore benefits for older veterans, including the VA’s disability pension benefit, aid and attendance, and long-term care coverage for veterans and surviving spouses.

READ MORE