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Recent Case of Decision Permits Purchase of Annuity by Community Spouse

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.

On October 25, 2013, the Sixth Circuit Court of Appeals decided that the community spouse’s purchase of an annuity for himself was not improper because the transfer occurred before the Department of Job and Family Services determined that this individual’s spouse, who was in a nursing home, was eligible for Medicaid coverage.

Congress established the Medicaid program in 1965 to provide medical care for individuals who could not afford to cover their own medical expenses.  The Medicaid program is administered by the Secretary of Health and Human Services.  Each state who participates in the Medicaid program must develop a plan for determining eligibility for this medical assistance.

In 1988, Congress passed the Medicare Catastrophic Coverage Act which was intended to protect community spouses from becoming paupers.  In this Act, a detailed set of requirements was established which states must comply with when allocating a couple’s income and resources when determining whether or not an individual is eligible for Medicaid.  Specifically, the community spouse is permitted to keep a certain portion of the couple’s assets without affecting the institutionalized spouse’s eligibility.  When calculating the community spouse’s resource amount, the total of all the couple’s resources are added together at the time the institutionalized spouse’s institutionalization begins.  One half of the total is allocated to each spouse.  Once this spousal share is determined, the community spouse resource allowance is calculated by determining the spousal share allocated to the community spouse based on each state’s amount that the community spouse can retain.
 
For example, effective July 1, 2013, the minimum community spouse resource allowance in Ohio is $23,184.00 and the maximum community spouse resource allowance in Ohio is $115,920.00.  In addition, in Ohio, certain assets are considered exempt from determining this community spouse resource allowance as long as they are owned by the community spouse and the community spouse can retain them.  Three of these main exempt assets are the residence, one vehicle, and all of the household goods and furnishings owned by the couple.  Therefore, if the couple had other assets worth $200,000.00 on the date that the institutionalized spouse went into the nursing home, then the community spouse resource allowance for the community spouse would be $100,000.00.  Therefore, the community spouse would be able to retain the house, one car, all of the household goods and furnishings, and $100,000.00 of other assets.  The remaining $100,000.00 would be allocated to the institutionalized spouse and would have to be spent down to $1,500.00 before the institutionalized spouse would be qualified for Medicaid.

In addition, a community spouse’s monthly income is not considered available to the institutionalized spouse for eligibility purposes.  For example, if the community spouse has $2,500.00 of monthly income from social security and retirement, the community spouse would be able to retain all of that monthly income.  The minimum monthly maintenance needs allowance (the minimum amount of income a community spouse may keep) in the state of Ohio effective July 1, 2013, is $1,939.00.  Applying the rule, if the community spouse’s income was $1,000.00 and the institutionalized spouse’s income each month was $1,000.00, then the community spouse would be able to retain their own income and $939.00 of the institutionalized spouse’s income each month.  
In the recently decided case, the institutionalized spouse entered the nursing home in 2005.  The community spouse paid for the institutionalized spouse’s nursing home costs using the couple’s resources.  In June, 2009, approximately three months before the institutionalized spouse applied for Medicaid coverage, the community spouse purchased a $175,000.00 immediate single premium annuity for himself, using funds from his IRA account.  The annuity guarantied monthly payments of $1,728.00 to the community spouse for approximately ten years, which is approximately the community spouse’s life expectancy.  After the payments from this annuity, the community spouse’s monthly income was $3,460.00 per month.  The institutionalized spouse was named the primary beneficiary of the annuity and the Ohio Department of Job and Family Services was named the contingent beneficiary for the total amount of Medicaid assistance provided to the institutionalized spouse. 

The institutionalized spouse then applied for Medicaid coverage in September, 2009, and was denied by the County Department of Job and Family Services as a result of the community spouse’s purchase of the annuity.  A determination was made that the purchase of the annuity was an improper transfer.  The couple appealed this decision and the primary issue on the appeal was whether the transfer of a community resource to purchase an annuity for the community spouse’s sole benefit after the institutionalized spouse is institutionalized, but before the institutionalized spouse’s Medicaid eligibility is determined is an improper transfer. 

The 6th Circuit Court of Appeals ruled that since the transfer occurred before the Department of Job and Family Services determined that the institutionalized spouse was eligible for Medicaid coverage, the community spouse’s purchase of an annuity was not an improper transfer of assets.

As a result of this decision, couples in similar situations as described by the facts above should contact a knowledgeable Medicaid planning attorney to determine whether or not the purchase of an annuity may be a potential option in these types of situations.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663
Phone:  (330) 364-3472
Fax:  (330) 602-3187
Email:  jcontini@kwgd.com

 
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