Spousal Medicaid Annuities No Longer Have Beneficiary Requirements

DE PERE, Wis. - April 9, 2015 - PRLog -- The State of Michigan is scheduled to follow U.S. 6^th Circuit Court of Appeals decision in Hughes v. McCarthy, wherein it was determined if a community spouse’s annuity was for his/her sole benefit it need not follow the beneficiary requirements.

As you might recall, in Hughes v. McCarthy (https://www.medicaidannuity.com/hughes-v-mccarthy-sixth-circuit-medicaid-annuity-win/) it was determined if a Medicaid applicant’s spouse purchased an annuity that is actuarially sound and provided for payments only to the spouse during his/her lifetime that the annuity was solely for the benefit of the spouse.  The question then became whether an annuity that is for the sole benefit of an applicant’s spouse must also satisfy the beneficiary requirements.

Hughes v. McCarthy provided an in-depth analysis of the interplay between the requirements. However, it was ultimately found that 42 U.S.C. § 1396p(C)(2)(B)(i) is an exception to transfer penalties outlined under paragraph (1):

An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that– (B) the assets—(i) were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse.

The paragraph (1) referenced encompasses the requirement to designate a state Medicaid agency as a beneficiary of an annuity in order for it to be treated as a compensated transfer. The Court agreed that the Hugheses correctly contended in their second supplemental brief that an annuity satisfying the sole-benefit rule need not satisfy the beneficiary requirement rule. The decision is applicable (http://www.ca6.uscourts.gov/internet/court_links/courtlin...) in Michigan, Kentucky, Ohio, and Tennessee.

Through advocating efforts by elder law attorneys Amy Tripp (https://mielderlaw.com/attorneys/amy-r-tripp/) and David Shaltz (https://mielderlaw.com/attorneys/david-shaltz/) Michigan has released Policy Bulletin 2015-007 (https://www.medicaidannuity.com/wp-content/uploads/2015/04/New-Annuity-Policy-5-1-2015-2.pdf) which states:

"An annuity purchased for the sole benefit of the applicant’s spouse is not a transfer for less than fair market value and is not required to name the State of Michigan as a remainder beneficiary if the annuity is actuarially sound and payments are made only to the applicant’s spouse during the spouse’s lifetime. An annuity purchased or amended for the sole benefit of the applicant’s spouse, on or after February 8, 2006, that does not meet these requirements and does not name the state as a remainder beneficiary is a divestment of the total purchase price."

The bulletin indicates it will be effective May 1, 2015. Will the remaining states soon follow suit?

And what does this mean for spousal Medicaid annuity planning?
Due to the requirement of designating the state Medicaid agency for the amount of Medicaid paid on behalf of the institutionalized spouse, the trend for community spouse annuity planning has been to structure them over a much shorter term – one that the community spouse fully expects to outlive. Thus, the chance of payback is nearly eliminated.  However, in proceeding with a shortened term the monthly payout is increased, usually pushing the community spouse’s income over the monthly maintenance needs allowance and eliminating any shift of income from the institutionalized spouse.

With a longer annuity term and a lesser total income for the community spouse, a shifting of income may occur thereby reducing the monthly Medicaid co-pay to the nursing home.

Consider Mary and James, who have a $150,000 Medicaid spend-down.