In most states, retirement accounts and retirement annuities are treated differently for Medicaid purposes. A statutory account will be traditionally considered in accordance with the rules of retirement and appropriately applied to the requirements. An annuity for retirement will traditionally be considered in accordance with the rules of the annuity and be applied accordingly to qualify for participation. In short, the investment vehicle is first considered, and then the tax status of the funds inside.
The retirement account will either be treated as a counting resource, or an asset released, sometimes depending on whether the required minimum allocations are accepted and whether the account is owned by a Medicaid applicant or a community spouse. A retirement annuity usually must comply with some, but not all, of the legislation excluded in the Deficit Reduction Act 2005 (“DRA”). Through the senior legal community, it is well known that DRA legislation provides preferential treatment for annuities consisting of qualified pension assets; but to what extent?
In most states, an immediate annuity with taxable status does not have to be irrevocable, unacceptable, provide equal monthly payments, or actually be reasonable. However, it is usually necessary to develop a Medicaid state agency as a beneficiary. Only a limited number of states do not require tax qualification annuities to designate a Medicaid state agency as a beneficiary.
In Entz vs. Reed, Index No. 2009-10454 (Sup. Ct Monroe County, March 9, 2010), a woman living in a New York nursing home receiving Medicaid benefits bought an immediate annuity, qualified funds from her IRA from her deceased husband. The taxable annuity did not designate the state Medicaid agency as the beneficiary. Thus, the office in New York in Medicaid terminated the Medicaid program of the woman, arguing that the purchase of an annuity was an unauthorized transfer. The applicant raised the following questions:
Whether the Department incorrectly placed an annuity contract owned by an IRA as an available resource;
No matter what kind of annuity contract an IRA owns, it must call the Department beneficial for the amount of benefits paid so as not to be valued as an available resource; and
Regardless of which department is in conflict with federal law.
In New York, if a Medicaid applicant or community spouse receives the required minimum mailings from their IRA, the account will be considered an exempted resource for participation in the Medicaid program. The applicant has an IRA, which then acquired an annuity as an investment asset. The applicant received annuity amounts that met the minimum allocation requirements. It was found that the IRA itself is exempt from circulation as a resource and is free to purchase any investment, provided that the IRA makes the required monthly allocations, which is exactly what is happening.
As a result, it was decided that there were no additional requirements that the annuity belonging to an IRA should also name the state advantageous. The cancellation period of the dispute was canceled and the applicant’s benefits were restored without interruption. In addition, a similar decision was made recently in Wisconsin on a case that has very similar facts. Is this a new trend?
The content of this article can vary greatly depending on the state of the application. As such, please check your government policy or contact your Krause Financial Services representative for further clarification on how annuities are assessed for Medicaid purposes in your state.
