This just in regarding the use of annuities as a Medicaid Planning technique:

It has long been the position of certain advisors, both financial and legal, that the use of annuities, if done "right," would not violate the Medicaid regulations and would be an acceptable way to protect assets from having to be spent on nursing home care. I have always advised caution in this area and have rarely used annuities in my planning––there are safer (i.e., certain not to be challenged by the State) methods that can accomplish near similar results.

The following summary from a recent North Dakota case furthers the reason to proceed cautiously when using annuities. The case is the Estate of Gross v. North Dakota Department of Human Services, Supreme Court of North Dakota, October 12, 2004.

Here is the case summary:

The Medicaid applicant's wife purchased an actuarially sound, nonassignable, immediate annuity for $150,000, providing for payments of $2,855.91 per month for 60 months with the expectation that the assets, now that they were converted into an income stream, would be protected. The Medicaid agency determined that, though the annuity itself was not assignable, the secondary "factors" marketplace would offer something for the spouse's right to receive payments, and when she did not offer it for sale in that marketplace for at least 75% of its fair market value, she could not then demonstrate that she had made a good faith effort to sell the stream of income.

When the Medicaid agency denied eligibility, the applicant appealed to an administrative law judge, then to the trial court and ultimately to the state Supreme Court, losing at each level. The Supreme Court affirmed the Medicaid agency's finding, citing the state administrative code's provision that "contractual rights to receive money payments" are available assets. The Supreme Court decision notes that a nationally–known annuity practitioner testified that there were no buyers for the annuity because it was non–assignable, and that two potential buyers had declined to make an offer to purchase the stream of income. The trial court evidence of a secondary market for annuity "stream of income" payments came solely from the testimony of two individuals: a Medicaid administrator who testified that "certainly there's a market. I usually refer it to as a Factors Market or a Factoring Market" and an official of the annuity company who acknowledged that he was aware of "a secondary market for the sale of payments for annuities."

Not a good outcome. The full text of the decision can be found at:

http://www.court.state.nd.us/court/opinions/20040071.htm

If you have questions on any Medicaid or Elder Law matter or know of a client who has planning needs in this field, please feel free to give one of our lawyers a call.

Sincerely,

Paul T. Czepiga