Annuity Sale to Son Considered a Divestment
In June of 2012 my office was contacted by an elder law attorney whose client resided in an assisted living facility. The attorney was interested in qualifying her client for the Veterans Aid & Attendance pension benefit; the individual had excess resources and limited income. My office developed an outline including the VA Annuity – an assignable single premium immediate annuity with revocable beneficiaries (click here for more information on the product and how it is used in VA planning). Approximately $60,000 was invested into the VA Annuity, which provided the claimant with $3,400 per month for 18 months.
Five months into the plan the claimant fell and broke both of her arms. She was then moved to a nursing home, at which time the attorney contacted my office again. We discussed the available options for her client to "merge onto the Medicaid Highway." The VA Annuity afforded the options of being (1) converted into an annuity compliant with the Deficit Reduction Act of 2005 (e.g. a Medicaid Compliant Annuity), or (2) sold on the secondary market or to a family member. In light of the family's desire to make a wealth transfer, we decided to sell the VA Annuity to the claimant's son and use the sale proceeds in a half-a-loaf plan to establish Medicaid eligibility.
We obtained annuity valuations from companies on the secondary market to determine what the fair market value of the VA annuity was. The claimant's son then purchased the VA Annuity for an amount that was in line with the valuations. The half-a-loaf plan fell into place accordingly, and a Medicaid application was made thereafter.
To our surprise, the Medicaid application resulted in a penalty period much higher than we had anticipated. The Medicaid office was of the opinion that the VA Annuity was transferred for less than fair market value, and assigned an added penalty period for the amount of the remaining payout less the sale price. The Medicaid office wouldn't consider the valuation letters that were provided to support the sale price of the annuity. The attorney filed a request for a fair hearing.
The fair hearing occurred just last week. I testified as an expert witness, and summarized the facts of the case, the annuity sale to the son, and the valuation letters supporting the fair market value of the annuity on the secondary market. The fair hearing ended in both sides setting deadlines to submit their briefs. Several days after the fair hearing the Medicaid office called the attorney handling the case and informed her that they would be removing the VA Annuity sale from the divestment calculations and would send a Notice of Action stating the same. A win for the VA Annuity!
This was the first instance of a Medicaid office balking at the sale of the VA Annuity when valuation letters were provided to support it. I'm pleased to announce that the valuation letters prevailed, and the annuity sale was accepted as a transfer for fair market value.
Five months into the plan the claimant fell and broke both of her arms. She was then moved to a nursing home, at which time the attorney contacted my office again. We discussed the available options for her client to "merge onto the Medicaid Highway." The VA Annuity afforded the options of being (1) converted into an annuity compliant with the Deficit Reduction Act of 2005 (e.g. a Medicaid Compliant Annuity), or (2) sold on the secondary market or to a family member. In light of the family's desire to make a wealth transfer, we decided to sell the VA Annuity to the claimant's son and use the sale proceeds in a half-a-loaf plan to establish Medicaid eligibility.
We obtained annuity valuations from companies on the secondary market to determine what the fair market value of the VA annuity was. The claimant's son then purchased the VA Annuity for an amount that was in line with the valuations. The half-a-loaf plan fell into place accordingly, and a Medicaid application was made thereafter.
To our surprise, the Medicaid application resulted in a penalty period much higher than we had anticipated. The Medicaid office was of the opinion that the VA Annuity was transferred for less than fair market value, and assigned an added penalty period for the amount of the remaining payout less the sale price. The Medicaid office wouldn't consider the valuation letters that were provided to support the sale price of the annuity. The attorney filed a request for a fair hearing.
The fair hearing occurred just last week. I testified as an expert witness, and summarized the facts of the case, the annuity sale to the son, and the valuation letters supporting the fair market value of the annuity on the secondary market. The fair hearing ended in both sides setting deadlines to submit their briefs. Several days after the fair hearing the Medicaid office called the attorney handling the case and informed her that they would be removing the VA Annuity sale from the divestment calculations and would send a Notice of Action stating the same. A win for the VA Annuity!
This was the first instance of a Medicaid office balking at the sale of the VA Annuity when valuation letters were provided to support it. I'm pleased to announce that the valuation letters prevailed, and the annuity sale was accepted as a transfer for fair market value.
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