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Elder Law in Valley Stream, NY: Review Your Annuities

Medicaid law states that, effective August 1, 2006, if an applicant or recipient seeking coverage for nursing facility services purchased an annuity on or after February 8, 2006, the purchase will be treated as a transfer of assets for less than fair market value unless the annuity is:

1. an annuity described in subsection (b) or (q) of Section 408 of the Internal Revenue Code of 1986, or

2. purchased with the proceeds from an account described in subsection (a), (c), (p) of Section 408 of such Code; a simplified employee pension within the meaning of Section 408(k) of such Code; or a Roth IRA described in section 408A of such Code; or the annuity is:

3. irrevocable and non-assignable; actuarially sound (as determined in accordance with actuarial publications of the Office of the Chief Actuary of the Social Security Administration); and provides for payments in equal amounts during the term of the annuity with no deferral and no balloon payments made.


Victor of Valley Stream, NY applied for Medical Assistance (“Medicaid”) on August 26, 2016. He was first admitted to a Skilled Nursing Facility on August 3, 2016, and he was seeking coverage of skilled nursing facility services retroactive to this date.

As part of the eligibility process, Medicaid reviewed Victor’s assets for a five-year look back period and determined that Victor made an uncompensated transfer of assets during the relevant period. Specifically, Medicaid found that Victor purchased a Single Premium Immediate Annuity on October 18, 2011 for $70,000.00. Victor was the owner and primary annuitant, and his wife, Victoria was the joint owner and secondary annuitant. On November 10, 2011, Victor received his first payment of $447.34, which, per the terms of the annuity, would continue until the death of both the primary and secondary annuitant.

Medicaid’s sole challenge to Victor’s annuity purchase was that it was not actuarially sound. Using the Life Expectancy tables of the Office of the Chief Actuary of the Social Security Administration, the Agency determined the Appellant’s life expectancy at age 80 to be 8.20 years. The Agency multiplied $447.34 by 12 months to calculate the yearly annuity payout to Victor, which was $5,368.08. The yearly amount was then multiplied by 8.20, the life expectancy of the Appellant in 2011 at age 80 as stated in the Social Security Administration tables to arrive at a total expected return value of $44,018.26. Because the total expected return was less than the annuity purchase price of $70,000, Medicaid found that the purchase was not actuarially sound, and the resulting difference of $25,981.74 was transferred for less than fair market value. The Agency then divided the uncompensated amount ($25,981.74) by the 2016 regional nursing home rate of $12,811.00, resulting in the proposed penalty period of 2.02 months.
Victor’s sole argument in response was that Medicaid should have used the Internal Revenue Service (IRS) Life Expectancy Tables to determine if the annuity was actuarially sound. Victor maintained that had Medicaid used the IRS tables, Victor’s life expectancy increases to 18.7 years and therefore the annuity would be actuarially sound.

RESULT: Medicaid wins.

The Judge found Victor’s argument unpersuasive and stated that for the purposes of calculating a transfer penalty, the actuarial soundness of an annuity will be “determined in accordance with actuarial publications of the Office of the Chief Actuary of the Social Security Administration.” This plain language leaves no discretion to Medicaid to apply the IRS tables when determining the actuarial soundness of an annuity for transfer penalty purposes.

If you own an annuity and would like to review the terms of the contract and how it plays a part of your Medicaid plan, call to schedule a free consultation.

Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and Valley Stream, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.

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