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October 2016

Annuity Ownership and Medicaid Qualification

By | Uncategorized

How does the State of Rhode Island address owning an Annuity with Medicaid qualification?

Rhode Island DHS regulations as to owning or holding an Annuity states as follows:

0382.15.35 Annuities

REV: February 2014

An annuity is an investment of funds from which an individual is paid or promised regular payments over a lifetime or a fixed period of time. Generally, an annuity is established with a lump sum of money which is paid to a bank, insurance company, or other entity.

A deferred annuity is one under which payments begin at some date to be specified in the future. Once an individual selects a periodic payment option (frequency, amount, and duration of payments), and begins to receive income, the annuity has been annuitized.

An annuity may guarantee periodic payments for a stated period (termed period certain) or guarantee periodic payments for the remainder of the life of the individual, without regard to how long the individual lives (termed life annuity).

All applicants must disclose any interest in an annuity that the applicant or his/her spouse has at the time of application and/or recertification of eligibility. Under 42 U.S.C.1396p(e), as amended by the Deficit Reduction Act, the State becomes a remainder beneficiary of all of the couples’ annuities (or other similar financial document) which were purchased or transacted by either spouse on or after February 8, 2006 by virtue of the provision of such Medicaid up to the amount of Medicaid paid on behalf of the institutionalized spouse.

Upon the determination that an applicant is eligible for benefits under LTSS-Medicaid, the Medicaid agency will notify the issuer of any annuity disclosed for purposes of section 1917(c)(1)(F) of the State’s rights as a preferred remainder beneficiary.

The Medicaid agency will additionally require the issuer of the annuity to notify the Medicaid agency regarding any changes in a disbursement of income or principal from the annuity.

When determining eligibility for Medicaid,

Count as an Available Resource:

The cash value of an annuity which can be surrendered or “cashed in.” The cash value is equal to the amount of money used to establish the annuity, plus any earnings, minus any earlier withdrawals and surrender fees. No consideration in determining cash value is given for income tax withheld or tax penalties for early withdrawal.

Annuity contracts that do not allow for cash surrender but instead allow the owner to sell the annuity on the open market are assignable. Annuity contracts that are silent regarding assignability are presumed to be assignable. Assignable annuities are countable resources. The countable value of the resource is equal to the outstanding principal balance unless the individual can furnish evidence from a reliable source which shows that the annuity is worth a lesser amount. Reliable sources include banks, other financial institutions, insurance companies, brokers, viatical settlement companies, etc.

Charming senior man and woman reading an annuity contract at their house

Reading your annuity contract is important.

Count as Available Income:

Payments made to the individual from an annuity are counted as unearned income. Any change in the income from the annuity must be reported within ten (10) days to the agency and may affect eligibility and/or post-eligibility treatment of income.

Transfer of Asset Provisions for Institutionalized Individuals May Apply When:

A non-cashable, non-assignable annuity was purchased by the individual (or by the individual’s spouse):

  • Within thirty-six (36) months (if purchased prior to February 8, 2006), or OR
  • Within sixty (60) months (if purchased or after February 8, 2006)
  • Immediately prior to, or any time after, the date the individual was both institutionalized and applied for Medicaid. See Sec. 0384.10 for a description of how the 5-year look-back on resource transfers is phased in).

In this case, a determination must be made as to whether its purchase constitutes a transfer of assets for less than fair market value.

Determine Whether Any Annuities Create a Penalty Period of Ineligibility For LTSS Medicaid

A non-cashable, non-assignable annuity purchased by the individual (or by the individual’s spouse) may be determined to be a transfer of assets for less than fair market value, and therefore create a penalty period of ineligibility.

There are two situations in which this may occur:

  1. When the asset was literally converted, within certain time frames, into an annuity which does not meet the criteria for being a “VALID TRANSFER FOR FAIR MARKET VALUE” in return (See the remainder of this Section, along with Section 0356.15.35 AND 0384.35 for detailed discussions of these topics). and/or
  2. When the annuity (if purchased on or after February 8, 2006) does not name the “State as Beneficiary” of the annuity. When such an annuity does not comply with this requirement, it is defined as being a transfer for less than fair market value.

(This requirement to name the state as beneficiary is found in Section 1917(c)(1)(F)(i) of the Social Security Act (42 U.S.C.) 1396p(c)(1)(F)(i)), as added by section 6012(b) of the Deficit Reduction Act of 2005, and as amended by the Tax Relief and Health Care Act of 2006. (See the remainder of this Section, along with Section 0356.15.35 AND 0384.35 for detailed discussions of these topics).

Time-frames for evaluating the transfer of resources DHS may “look back” at resource transfers for the 36 months, or for the 60 months, immediately prior to the date that the individual was both institutionalized, and applied for LTSS-Medicaid.

(Transfers which occurred prior to February 8, 2006 are subject to the 36 month “look back”).

(Transfers which occurred on or after February 8, 2006 are subject to the 60 month “look back”).

Additionally, transfers which occur any time after the application are also evaluated to determine whether they generated a penalty period of ineligibility for LTSS-Medicaid.

(See Section 0356.15.35 and 0384.10 and 0384.35 for detailed discussions of these topics).

To be considered a valid transfer for fair market value, an annuity must:

  • Be irrevocable and non-assignable;
  • Provide regular payments in both frequency and amount, with no deferral and no balloon payments, to or for the sole benefit of the individual; and
  • Be actuarially sound. Scheduled payments must return at least the principal within the number of years of expected life remaining for the individual.

Life expectancy tables compiled from information by the Office of the Chief Actuary of the Social Security Administration for this purpose are used to determine the number of years of expected life remaining for the individual. (See MCAR Section 0382.15.35.05).

If based on life expectancy tables compiled by the Social Security Administration’s Office of the Actuary and published by HCFA CMS, the individual is not expected to live longer than the guaranteed period of the annuity, the guaranteed period of the annuity, the annuity is not actuarially sound, and a transfer of assets for less than fair market value has taken place. The transfer is considered to have taken place at the time the annuity was purchased. The uncompensated value of the transfer is based on the amount projected to be paid beyond the individual’s reasonable life expectancy. (See Section 0384- Resource Transfers).

If an annuity is purchased or transacted on or after February 8, 2006 whether by the applicant or by their spouse, the beneficiary clause of the annuity must provide that the beneficiary of the annuity is as follows:

  • Must, except as provided in this section, name the State of Rhode Island as the remainder beneficiary in the first position for at least the amount of Medicaid paid on behalf of the institutionalized individual.
  • If however, the institutionalized individual has a minor or disabled child, such child may be named as the beneficiary in the first position, provided the State of Rhode Island is named as a beneficiary of the annuity in the second position for at least the amount of Medicaid paid on behalf of the institutionalized individual.
  • In the event such child or his or her representative disposes of any such remainder for less than fair market value, the State of Rhode Island must be named in the first position.
  • Any change in the beneficiary clause must be reported to the Medicaid agency within ten (10) days of any change and may result in a transfer of assets penalty.

An institutionalized spouse, that is, an institutionalized individual who has a community spouse:

  • Must, except as provided in this section, name the State of Rhode Island as the remainder beneficiary in the first position for at least the amount of Medicaid paid on behalf of such institutionalized spouse.
  • However, the institutionalized spouse may name as the beneficiary in the first position his or her community spouse or his or her minor or disabled child, provided the State of Rhode Island is named as a beneficiary of the annuity in the second position for at least the amount of Medicaid paid on behalf of the institutionalized spouse.
  • In the event the community spouse or such child or his or her representative disposes of any such remainder for less than fair market values, the State of Rhode Island must be named in the first position.
  • Any change in the beneficiary clause must be reported to the Medicaid agency within ten (10) days of any change and may result in a transfer of assets penalty.

A community spouse:

  • Must name the State of Rhode Island as the remainder beneficiary in the first position for at least the amount of Medicaid paid on behalf of his or her institutionalized spouse.
  • The community spouse may not change the beneficiary of the annuity after the death of the institutionalized spouse.
  • Any change in the beneficiary clause, before or after the death of the institutionalized spouse, must be reported to the Medicaid agency within ten (10) days of any change and may result in a transfer of assets penalty.

In the event the community spouse becomes institutionalized and applies for Medicaid, the beneficiary clause must be amended to additionally name the State of Rhode Island as the remainder beneficiary in the first position for at least the amount of Medicaid paid on behalf of such community spouse who becomes institutionalized, at the time such spouse applies for Medicaid for himself or herself, if the annuity was purchased during the look-back period.

Cases involving annuities are referred by field staff to the LTSS Administrator (or his/her designee) for evaluation. The agency representative forwards a copy of the annuity document, including date of purchase to the LTSS Administrator.

The LTSS Administrator (or his/her designee) consults, as needed, with the Office of Legal Services, and determines:

  • Whether the annuity is an available or unavailable resource;
  • The countable amount of the resource (i.e., the cash surrender value and/or negotiable value of the annuity); and
  • Whether the State has been made a remainder beneficiary for at least the amount Medicaid paid on behalf of the institutionalized individual; and
  • Whether a transfer of assets for less than fair market value has occurred as well as the amount of the uncompensated value and date of the transfer.

MJL Blog Footnote

Lawmakers grill state administrators on problem-plagued computer upgrade

By | Uncategorized

PROVIDENCE, R.I. — State officials responsible for Rhode Island’s month-old, $364-million public-benefits computer system — and its many reported problems — were grilled for four hours Thursday by lawmakers. Two House Oversight and House Finance Committee members, Rep. Michael W. Chippendale and Rep. Patricia Morgan, said just the day before they had talked to people seriously affected by the arrival last month of the Unified Health Infrastructure Project, UHIP. The

Source: Lawmakers grill state administrators on problem-plagued computer upgrade

2017 Social Security Benefits Increase

By | Uncategorized

Social Security Cost of Living Adjustment Announced

retirement benefits

retirement benefits

The annual cost-of-living adjustment (COLA) usually means an increase in the benefit amount people receive each month. By law, the monthly Social Security and Supplemental Security Income (SSI) federal benefit rate increases when there is a rise in the cost of living.

 

The government measures changes in the cost of living through the Department of Labor’s Consumer Price Index (CPI-W). The CPI-W rose this year. When inflation increases, your cost of living also goes up. Prices for goods and services, on average, are a little more expensive. Since the CPI-W did rise, the law increases benefits to help offset inflation.

As a result, monthly Social Security and SSI benefits for over 65 million Americans will increase 0.3 percent in 2017.

Social Security Wage Base Increases to $127,200 for 2017

Other changes that would normally take effect based on changes in the national average wage index will begin in January 2017. For example, the maximum amount of earnings subject to the Social Security payroll tax will increase to $127,200.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers-one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).

For 2017, the FICA tax rate for employers is 7.65%-6.2% for OASDI and 1.45% for HI.

For 2017, an employee will pay:

  • (a)  2% Social Security tax on the first $127,200 of wages (maximum tax is $7,886.40 [6.2% of $127,200]), plus
  • (b)  45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • (c)  35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

For 2017, the self-employment tax imposed on self-employed people is:

  • 4% OASDI on the first $127,200 of self-employment income, for a maximum tax of $15,772.80 (12.40% of $127,200); plus
  • 90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), plus
  • 8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).

There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

Note: On a salary of $127,200 (or more), an employee and his employer each will pay $7,886.40 in Social Security tax in 2017.

Note: A self-employed person with at least $127,200 in net self-employment earnings will pay $15,772.80 for the Social Security part of the self-employment tax in 2016.

Note: Self-employed workers deduct half of their self-employment tax above-the-line in arriving at adjusted gross income.

Information about Medicare changes for 2017, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.

Want to discuss how this impacts you and your retirement planning? Contact us for a free consultation.

Matt Leonard

Feds warned R.I. not to launch new computer system

By | Uncategorized

Noting “high-level defects” in the RIBridges software, officials of the federal Food and Nutrition Service urged the state to test the $364-million system before the Sept. 13 rollout.

Source: Feds warned R.I. not to launch new computer system

Despite warnings from federal regulators, Rhode Island pushed forward last month with its launch of a new $364-million computer system and quickly ran into “serious issues” with the administration of public assistance, including food stamps, according to correspondence from the U.S. Department of Agriculture.

One letter sent to the state in September says staff with the federal Food and Nutrition Service had noted “serious issues” with the new United Health Infrastructure Project, dubbed RIBridges, and with “business processes.”

The “implementation issues may already be having a significant impact on program access and application processing times,” says the Sept. 22 letter, sent to the director of the Rhode Island Department of Human Services, Melba Depena Affigne.

In early September, the administrator of the Nutrition Service’s Northeast region, Kurt Messner, had warned Depena Affigne that launching the new system without first carrying out a “live pilot” program would be “against our best advice” and also “against the intent of the regulations.”

Are we approaching the limits of human life span?

By | Uncategorized

All animals – with the exception, perhaps, of the seemingly immortal little sea creature known as the hydra – have a shelf life. They may live shorter or longer spans in captivity, in times of feast or famine, or in different habitats. But eventually, even with all the resources and coddling the world can possibly provide, a species will reach the limit of its natural life span. Even the most beloved, pampered pet pooch cannot live forever. According to a new study, humans are no exception to

Source: Are we approaching the limits of human life span?

Why can’t I make gifts and still qualify for Medicaid?

By | Gifting and Medicaid Eligibility, Uncategorized

I can gift up to $14,000 per year without jeopardizing my rights to Medicaid! Right?gifts wrapped in money with a red bow

Perhaps the most common-and dangerous-myth of all confuses the federal gift tax with Medicaid qualification. These are two distinct sets of rules, established for entirely different purposes. In 2016, a person may gift up to $14,000 per year, per beneficiary without having to file a gift tax return or incurring any tax liability.  But, Medicaid is concerned with any gifts of any amount if made within the 60 months preceding a Medicaid application. That period, often referred to as the “look-back period,” is inflexible, unless it can be proved that the gift was made exclusively for reasons other than hastening Medicaid eligibility.

Transfers of assets in exchange for sno giftsomething of equal value or transfers to a spouse do not affect Medicaid eligibility. Otherwise, the penalty for making gifts can be severe. The number of days that the penalty triggers may be reasonably modest (the penalty in days is calculated as the amount actually gifted divided by the average daily cost of local nursing homes). Since 2006, however, the penalty period does not begin to run until the applicant would otherwise be qualified for the program. Thus, the penalty does not begin to run at the time of the gift but much later, i.e., when the applicant has spent down all countable assets to $4,000 or less. 

Applicants can remedy imprudent gifts in two ways. They can, if possible, “cure” gifts by refunding them; in that case, the returned money must be spent down before a successful application can be made. Or, they can justify such gifts if they were made, exclusively, for purposes other than accelerating rights to Medicaid.

If making gifts is important to you there are other solutions, such as transferring assets to an Irrevocable Trust and then have the trust make distributions out to the beneficiaries, however, much care should be given to the drafting of the trust and to the distributions to ensure the distributions are not deemed disqualifying. Want to discuss further? Contact our office for a free consultation.

Source: Medicaid Myths: Clients’ Misconceptions Can Be Costly, Estate Planning Journal, Oct 2015, Estate Planning Journal (WG&L)

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