Medicaid annuity planning is alive and well in NJ

When a person applies for Medicaid under the NJ MLTSS program after having made gift transfers during the most recent 5 years, there will likely be a penalty period in which Medicaid will not pay for the care that this person needs (unless the transfers were exempt, such as transfers to a spouse or disabled child). This transfer penalty is mandated by federal law, and the greater the amount that was transferred, the longer the transfer penalty will be. If an applicant addresses this issue before the end of his spend-down period, there may be opportunities to protect the applicant by using some of the spend-down funds to purchase an annuity contract that can provide the income needed to pay for care during the penalty period.

The type of annuities that fit the bill are highly restricted and are not designed to maximize the rate of return the way conventional annuities might be. The reason that the technique works is because under federal and state Medicaid law, a distinction is made between “income” and “resources.” Resources must be reduced to a certain level before the person can even apply for benefits. Income, on the other hand, is usually received on a monthly basis and is turned over to the facility as a contribution towards the cost of care (with certain deductions). For the annuity plan to work, the contract cannot be countable as a “resource” as defined by Medicaid law. We had successfully litigated an IRA annuity case with the NJ Division of Medical Assistance and Health Services (DMAHS) in 2009-10 (the P.K. case) PK FAD  A few years later, after several cases were decided in out of state venues,Lopes 2nd Cir ; Carlini we successfully litigated a non-IRA annuity case against DMAHS in 2013 (the M.W. case; M.W. FAD 1-28-140001 M.W. Initial ALJ decision ) leading to confirmation that if properly structured, an annuity effectively transforms countable resources into an irrevocable stream of income. If properly done, this technique can provide protection for the Medicaid applicant as well as his/her community spouse, and can also help to assure that there is a way to pay for care during an anticipated Medicaid penalty period.

Seniors who are planning for their care have many tools in their toolbox; the question is always which tools to use and how to get the results that the senior needs.

Call us to discuss a Medicaid spend-down plan that suits your circumstances … 732-382-6070

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


A QLAC for IRAs is not a “Medicaid Annuity.”

This year, the IRS  adopted final regulations which allow an IRA or 401K account holder to direct 25% of the qualified funds into a new structure called a Qualified Longevity Annuity Contract (QLAC). This is a deferred-income annuity contract purchased from an insurance company with qualified funds. The portion of qualified assets used to purchase the QLAC will not be subject to the Required Minimum Distribution (RMD) rules. The QLAC will begin paying an income stream on a set later date which must be prior to age 85.

This may be a terrific tool for certain retirees. Keep in mind, however, that if your spouse ever requires nursing home care and you are thinking about applying for Medicaid, a QLAC is not a “Medicaid compliant annuity” which can be excluded from consideration.

There is a strict resource limit for Medicaid eligibility. Federal and state Medicaid law treat annuities as available resources if they can be commuted, accelerated, modified or revoked. Numerous restrictions and requirements must be built into an annuity contract for it to not be treated as a resource. This was the issue in my successful case M.W. v. DMAHS and Union County Board of Social Services (January 2014) and the federal cases we relied upon.

To discuss your personal situation and develop an estate plan or a plan for Medicaid eligibility using annuities or other arrangements, call us at 732-382-6070.