Monday, September 6, 2010

Court Upholds Medicaid-Planning Annuity Purchase -- Income Stream From An Annuity Is Not An Asset For Medicaid Eligibility

An interesting and useful case was decided in Connecticut federal court last month regarding whether the income stream from an annuity can be treated as an "asset" for Medicaid (or here in California Medi-Cal) eligibility. The decision was in favor of the annuity owner whose husband was in a nursing home.

On August 30, 2010, a federal court in Connecticut ordered the state Medicaid agency to determine the eligibility of an institutionalized applicant without regard to his wife’s purchase of a single-premium annuity, which converted assets to income. It rejected the agency’s attempt to treat the annuity as an asset, which would have put the applicant over the resource limit until the couple spent down about $180,000. The agency’s denial of assistance was based on the wife’s failure to cooperate, specifically, her refusal to sell her interest in the annuity as it directed. The case is Lopes v. Starkowski (U.S.D.C. Conn., No. 3:10-CV-307, August 10, 2010).

The Annuity

The terms of the annuity provided that no interest in it could be sold or transferred, including the right to payment of the income. The spouse named the state agency as remainder beneficiary up to the amount expended for her husband’s care as required under the Deficit Reduction Act (P.L. 109-171) and state regulations. Payment of the premium depleted the couple’s assets by about half, and the amount remaining was close to the resource allowance allowed to a community spouse under Soc. Sec. Act §1924.

Court Holding

The federal court found that the Medicaid agency violated federal law when it demanded that the wife sell the annuity. Soc. Sec. Act §1902(a)(10)(C)(i) requires that the agency’s methodology for determining financial eligibility for Medicaid for institutional care be no more restrictive than the methodology used for the Supplemental Security Income (SSI) program. The SSI program treated annuities with similar terms as income, not an asset that the spouse could be required to sell. The applicant and spouse were granted judgment as a matter of law.

Attorney Commentary

Estate planning with respect to Medi-Cal eligibility has become a more important consideration given the costs of health care, long-term care and longer life spans. One of our partners Bentley Mooney was at the forefront of this issue in California and continues to write and speak about it. Thus, our firm is uniquely situated to address these issues for our clients where it could be an issue.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

Mr. Moravec is a very experienced Los Angeles estate planning attorney, Los Angeles trust attorney and Los Angeles probate attorney. He has more than 20 years' experience in estate planning and is extremely dedicated to his clients and helping them create a plan that is tailored to their wishes, finances, helps avoid probate and taxes, and takes into account their families' unique situation.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office.

The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

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