Third Circuit rejects State’s claim that short-term annuities can’t meet Medicaid requirements

The Third Circuit federal Court of Appeals has just issued a precedential decision concerning Medicaid planning strategies that involve the purchase of short-term, immediate, irrevocable, unassignable annuities. Zahner decision The case is called

ANABEL ZAHNER, by her agent Raymond E. Zahner; ESTATE OF DONNA C. CLAYPOOLE, by Mitchell R. Claypool, Executor; CONNIE L. SANNER, by her agent Jamie R. Rybak,Appellants in No. 14-1328, v. SECRETARY PENNSYLVANIA DEPARTMENT OFHUMAN SERVICES, Appellants in No. 14-1406, Case: 14-1328




The Zahner case is out of Pennsylvania and involved two denials of nursing home Medicaid eligibility by the Pennsylvania Department of Human Services. Both of the applicants had transferred assets to their family members (which would trigger a transfer penalty) and used other assets to purchase immediate irrevocable annuity contracts that met all criteria of the federal Medicaid statute but happened to be for relatively short terms. The State argued that because the annuity’s term was quite a bit shorter than the actuarial life expectancy of the applicants, they were sham transactions, or were trust-like devices. As a result, the State sought to either impose a transfer penalty or continue to count the annuity as a resource. That would mean the applicant’s resources exceeded the required levels for eligibility.

Pennsylvania had actually enacted a law voiding any nonassignability clause in an annuity. The Court affirmed the Federal District Court decision which declared that that statute was pre-empted by the federal Medicaid law, under the Supremacy Clause of the US Constitution. The court further embarked on a lengthy detailed analysis of the requirements put in place by federal statute and CMS’ interpretive rulings concerning the purchase of annuities by Medicaid applicants. The Court concluded that if the annuity meets all of the criteria adopted by Congress and CMS, its purchase cannot be penalized, its value cannot be counted as a Resource, and there is no lawful basis to impose any additional criteria concerning the length of the annuity contract.

In New Jersey, careful Medicaid planning with properly structured immediate annuities enables applicants to preserve some assets for their families. Two of my earlier cases, PK and MW, resulted in Final Agency Decisions by DMAHS that confirmed the viability of such planning.


CALL US for asset protection in connection with Medicaid applications, and to prepare and file your application … 732-382-6070


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