ARTICLE 9
SECTION
14
TRUSTS AND ANNUITIES
This section is intended to clarify Medi-Cal policy regarding the establishment of trusts and their effect on eligibility. This section does not address burial trusts. For regulations regarding burial trusts, refer to Section 11 of this Article. When a trust includes
the assets of another person, the trust regulations only apply to that
portion of the trust containing the assets of the individual or spouse. In determining the amount of countable
property, prorate the property held in the trust, in the month, based on the
proportion of the individual's or spouse's assets that have been transferred
to the trust. |
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Exempt assets, when
transferred into a trust, such as the exempt home, remain exempt. Placement of an exempt asset in a trust
does not change the exempt nature of the asset. Pension funds and annuities held in the
name of the applicant’s spouse, the community spouse, parent, or parent’s
spouse are exempt if the person is ineligible or does not choose to receive
Medi-Cal. |
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1.
DEFINITIONS Assets: Means all income and
property of the individual or the individual's spouse, including income or
property which the individual or spouse is entitled to, but does not receive
because of circumstances brought about by: |
ACWDL 95-75 |
A.
The
individual or the individual's spouse; or B.
Any
other individual or entity, including a court or administrative body, with
legal authority to act in place of, or on behalf of, the individual or the
individual's spouse; or C.
Any
other individual or entity, including any court or administrative body,
acting at the direction or upon the request of the individual or the
individual's spouse. Trust: Means any agreement
in which an individual or entity (trustor) transfers assets to a trustee or
trustees with the intent that the assets be held, managed or administered by
the trustee(s) for the benefit of the trustor or certain individuals
(beneficiaries). The trust must be
valid under State law. The term
"trust" also include any legal instrument or device similar to a
trust as described below. |
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Similar Legal Device
(SLD): Means any legal
instrument, device or arrangement (written or oral) that involves the
transfer of assets from an individual or entity (transferor) to another
individual or entity (transferee) with the intent that the assets be held,
managed, or administered by an individual or entity for the benefit of the
transferor or certain other individuals.
This also includes annuities purchased on or after August 11, 1993. |
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Revocable Trust: Means a trust which
can be revoked by its own terms or a trust deemed to be revocable under State
law. The trust principal is available
property to anyone who can revoke the trust and who can use the principal
thereafter, whether or not he/she actually does it. If a trust is revocable, the right to
revoke is usually reserved for the trustor.
The trust beneficiary does not generally have authority to revoke the
trust; however, if the trust itself gives the beneficiary access to the
property without trustee intervention, then the property will be considered
the trust beneficiary's property.
Occasionally, a trustee may have the authority to revoke a trust;
however, he/she might not have the legal right to use the property to meet
his/her own needs. In such cases, the
property would be considered unavailable to the trustee. |
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Irrevocable Trust: Means a trust which
cannot be revoked by its own terms or a trust deemed to be irrevocable under
State law. A trust may be irrevocable
even though it may be modified under the terms of the trust. The trust may state, for example, that the
trustor may at any time during his/her lifetime amend any of the terms of the
trust agreement by a notarized written instrument signed by the trustor and
delivered to the trustee. A revocable
trust is considered to be irrevocable whenever the trustor dies or becomes
incompetent and the trust documents have not provided that the power to
revoke the trust be passed on to the trustee or another person. The terms of a revocable trust could make
the trust irrevocable if a triggering event takes place, such as the entry
into long term care. |
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Trustor, Settlor or
Grantor: Means an individual
who creates a trust. |
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Beneficiary: |
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Means any individual
or individuals designated in the trust instrument as benefiting in some way
from the trust. |
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Trustee: Means any
individual(s), entity, trust advisory committee, or individual(s) with power
of appointment, who manages, holds or administers a trust for the trust
beneficiary or beneficiaries. |
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Principal/Corpus - The principal of
the trust refers to: ·
Original
investments of income, property or property rights placed in the trust. ·
Any
subsequent additions of income, property or property rights into the trust. ·
Any
income (such as interest and dividends) generated by the income, property or
property rights placed in the trust for which there are no provisions in the
trust documents for distribution. Annuitant: Means a person who
has the right to receive payments from an annuity. The annuity shall be annuitized based upon
the life expectancy of the annuitant. |
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Annuitized (specific
to OBRA'93) Means an annuity that
is paying in fixed, equal payments to the annuitant on a periodic basis. Payments shall be no less frequent than
monthly over a number of years equal to or less than the annuitant's life
expectancy as indicated in life expectancy tables provided by the Secretary
of the Department of Health and Human Services. The final annuity payment may be an amount
less than the previous fixed annuity payments in order to fully exhaust
benefits under the annuity. |
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An annuity will be
considered annuitized even though it may provide a reasonable cost of living
adjustment (i.e., equal to or less than 5% annual increase). |
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Annuity: Is a contract to make
periodic payments of a fixed or variable sum paid to an annuitant which are
payable unconditionally. Annuity
payments may continue for a fixed period of time or for as long as the
annuitant lives. An annuitant
purchases an annuity with his or her property or property rights. Annuities shall be established to provide
the annuitant with payments representing principal and interest which are
more than the fair market value of the property used to purchase the annuity. Annuities may be
purchased privately or commercially.
Insurance companies may sell annuities once they are certified to do
so by the Insurance Commissioner. |
MEM 9J VD |
Annuities are either
deferred or immediate: ·
Deferred
Annuities — payments are available as either a cash lump sum, or fixed
payments to begin after a period of time specified in the contract. |
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·
Immediate
Annuities — Periodic payments begin immediately after the purchase. Annuities purchased
prior to August 11, 1993, established by will, other periodic payment plans,
or annuities that are purchased with property rights belonging to someone
other than the Medi-Cal applicant/beneficiary or spouse shall continue to be
treated in accordance with Article 9, Section 6, Item 5 and Article 10. For example, a periodic payment plan
resulting from a personal injury settlement paid from municipal funds rather
than a commercial annuity contract. |
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If annuity is
contained within a trust, evaluate the trust first. The annuity would be evaluated as a trust
asset. |
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2.
GENERAL Trusts shall be
classified in three ways: A.
Medicaid
Qualifying Trusts (MQT): A trust established prior to August 11,
1993 as described in 3. below. B.
OBRA
93 Trusts: A trust established on or after August 11,
1993 as described in 4. below. C.
Other
Trusts: A trust other than MQT and OBRA 93 Trusts,
as described in 5. below. |
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A written trust shall
be verified by examining the trust documents and any other related documents. An oral trust shall
be verified by written affidavit and by any other related documents. Affidavits shall be dated and signed under
penalty and perjury, and shall specify the terms of the oral agreement. Real property cannot be held in an oral
trust. |
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3.
MEDICAID
QUALIFYING TRUST (MQT) AND SIMILAR LEGAL DEVICE (SLD) A.
Is
established with the individual or spouse's property rights, prior to August
11, 1993, other than by will, by an individual or the individual's spouse, or
by the individual's guardian, conservator, or legal representative who is
acting on the individual's behalf; and which |
MEM 9J VI |
B.
Provides
that the individual or the spouse receive all or part of the income or
principal of the trust, that is dispersed directly or to another person or
entity on behalf of that individual; and which C.
Gives
the trustee(s) discretion in distributing funds to the individual, spouse or
to another person or entity on behalf of that individual; and D.
May
be established to enable the individual or spouse to qualify for Medi-Cal;
and |
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E.
If
the MQT is revocable, the principal in it is considered available property;
and the income is available income subject to treatment in Article 10. |
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F.
If
the MQT is irrevocable: |
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1)
Any
amount distributed from the principal of the MQT to the individual, spouse or
to another person or entity on behalf of that individual or spouse shall be
available property. |
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2)
Any
amount distributed from the income of the MQT to the individual, spouse or to
another person or entity on behalf of that individual or spouse shall be
considered income. |
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3)
The
maximum amount that the trustee(s) could distribute to the individual, spouse
or to another person or entity on behalf of that individual or spouse from
the trust principal is available property.
The maximum amount is the amount the trustee(s) may distribute if the
trustee(s) were to exercise full discretion under the terms of the MQT, even
though it is not distributed. |
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4)
The
maximum amount that the trustee may distribute to the individual, spouse, or
to another person or entity on behalf of that individual or spouse, from
trust income, if the trustee were to exercise full discretion under the terms
of the MQT, but which is not distributed, is determined as below depending on
the terms of the trust: ·
If
undistributed trust income remains trust income, count as income in the first
month distribution was possible and available property the month
following. If a payment is made at a
later time, consider this a conversion of property. ·
If
undistributed trust income becomes principal, count as income in the first
month distribution was possible, and review the terms of the trust to
determine treatment of principal for following months. Then follow the procedures for counting
trust principal. |
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5)
If
the trust document does not address the distribution of trust income at all,
trust income immediately becomes trust principal. Review the terms of the trust to determine
the maximum extent of the trustee's discretion over trust principal and treat
in accordance with the procedures for evaluating trust principal. |
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6)
Any
amount of trust principal for which the trustee(s) has no discretion to
release to the individual, spouse or to another person or entity on behalf of
that individual or spouse shall be considered transferred property. The date of the transfer shall be the date
the trust was established, or the date the trust receives the property, or
the date disbursement is foreclosed, whichever is the most recent. |
ACWDL 96-68 |
7)
Any
amount of trust income that the trustee(s) has no discretion to release to
the individual, spouse or to another person or entity on behalf of that
individual or spouse shall be treated as indicated below after reviewing the
terms of the trust: |
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·
If
undistributed trust income remains trust income under the terms of the trust,
it shall be considered transferred assets.
The date of the transfer shall be the date that disbursement is
foreclosed, or the date the trust receives the income, whichever is the most
recent. ·
If
undistributed trust income is principal under the terms of the trust, review
the terms of the trust to determine how principal may be distributed and
follow the procedures for evaluating principal. |
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Example: Ann Jones is applying for Medi‑Cal on
behalf of her husband Bob who is in long‑term care. She declares that she and her husband
placed all of their property into a living trust on September 20, 1992. Ann and Bob are both trustors and are named
as trustees. The trust document has
been set up as irrevocable and provides the trustee with full discretion for
distribution of trust principal and income.
The trust contains approximately $100,000 in personal property which
produces income, as well as the principal residence, and one other piece of
no income producing real property. |
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When property or
property rights are placed into an irrevocable living trust, the trust
document must be examined to determine the maximum extent of the trustee's
discretion to make disbursements to the individual or spouse, or to another
person or entity on behalf of the individual, in order to determine the
amount that may be considered available property or income. |
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In this example, the
living trust is an MQT because it meets the following requirements: ·
The
trust was established prior to August 11, 1993; and ·
The
trust was established by the applicant and his/her spouse, the trustor; and ·
The
applicant and spouse are trust beneficiaries to all or part of the payments
from the trust; and ·
The
trustees (the applicant and spouse) have at least some discretion over the
trust principal and/or trust income. Even though the trust
is irrevocable, the applicant has discretion over the full amount of trust
principal and trust income, therefore the entire amount in the trust is
considered available property and income. |
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G. Transfer of Property/Assets ConsiderationTo calculate the
period of ineligibility for making a transfer of property, the date of
transfer and the uncompensated value must be determined. To determine whether or not a period of
ineligibility for such a transfer should be assessed, see Article 9, Section
7, Items 3 and 4. |
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1)
Date
of Transfer The date of transfer
is one of the following depending upon the situation. One or more of the following may occur in a
single trust: ·
The
date the MQT or SLD was established. ·
The
date on which the disbursement to the individual or spouse was discontinued. ·
The
date trust principal or trust income is made unavailable to the individual or
spouse by a subsequent transfer into an already existing MQT or SLD. For example, a revocable MQT may have a
triggering clause making it irrevocable and unavailable if the beneficiary
enters an institution. The date of
transfer would be the date of institutionalization since that is when the MQT
became irrevocable and the date trust disbursement was stopped. Another example would be when an income
only MQT with a clause that terminates the trustee's power to make
distributions after the date the individual or spouse enters into an
institution. |
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2)
Uncompensated
Value Determination In treating an MQT or
portions of an MQT, which cannot at any time or under any circumstances be
paid to the individual or spouse, the value of the transferred amount is the
value on the date of establishment of the trust or the date that disbursement
to the individual or spouse was stopped, or the date funds were transferred
into an already existing trust. |
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·
To
determine the value of the MQT, or the portion of MQT which cannot be paid to
the individual or spouse, do not subtract from the trust the value of any
payment made to someone else not for the benefits of the individual or spouse
after the date the MQT was established. ·
If
disbursement to the individual or spouse was stopped, then the uncompensated
value of the portion of the trust described above shall be the value of trust
property on the day disbursement was stopped. |
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·
If
funds were added to that portion of the MQT which could not be distributed to
the individual or spouse, after the date the trust was established or the
date disbursement was stopped, the transfer of those funds is considered
another transfer of property. |
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Example: Mr. Baker established a $100,000 irrevocable
income only trust in March 1993 with his own funds. The trustee is precluded by the MQT from
disbursing any of the principal to, or for the benefits of Mr. Baker but
$50,000 was distributed to Mr. Baker's brother, The trustee can disburse
income from the MQT. The $100 personal
allowance and the $500 payment for upkeep of Mr. Baker's home are distributed
from the MQT income are counted as income to Mr. Baker. Because none of the
principal can be disbursed to Mr. Baker, the entire value of the principal at
the time the MQT was created is treated as transferred property. The date of transfer is the date the QMT
was established (March 1993). The fact
that $50,000 was actually transferred out of the trust to Mr. Baker's brother
does not alter the uncompensated value, which remains $100,000. If, at some point
after the establishment of the MQT, Mr. Baker placed an additional $50,000 in
the trust and none of which could be disbursed to him, this $50,000 would be
treated as another transfer of property. |
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4.
OBRA
93 TRUSTS AND ANNUITIES A.
Trusts 1)
An
OBRA 93 trust is a trust that is established, in part or in whole with assets
of an individual or individual's spouse, on or after August 11, 1993, other
than by will; 2)
The
following provisions included in this item shall apply to OBRA 93 trusts
without regard to: a)
The
purpose for which the trust is established. b)
Whether
the trustee(s) has, or exercises, any discretion under the term of the trust. c)
Restrictions
on when, or whether, distributions may be made from the trust, or d)
Restrictions
on the use of trust assets or distributions. 3)
The
following provisions included in this item shall apply to any OBRA 93 trust
if it is established by any of the following: |
MEM 9J V |
a)
The
individual or his/her spouse; or b)
Any
other person or entity, including a court or administrative body, with legal
authority to act in place of, or on behalf of, the individual or spouse,
regardless of whether that person or entity claims to be acting in such a
capacity at the time of action; or c)
Any
other person or entity, including any court or administrative body, acting at
the direction, or upon the request of, the individual or spouse. Exception: Two types of trust for disabled
individuals, established on or after August 11, 1993, are to be treated with
Item 5. |
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4)
If
the OBRA 93 trust is revocable: a)
The
principal and income of the trust shall be considered property available to
the individual who has the right, power, and authority to revoke the trust
and use the proceeds. b)
Payments
from the trust to, or for the benefit of, the individual or spouse shall be considered
income of that individual or spouse; and c)
If
payments are made to any person or entity, other than the individual or
spouse, for any purpose other than for the benefit of the individual or
spouse, those payments shall be considered transferred assets as of the date
of payment. |
06-68 |
5)
If
the OBRA 93 trust is irrevocable: a)
If
payment can be made at any time or under any circumstance, to or for the
benefits of the individual or spouse: ·
Any
actual payment of trust income or principal made to, or for the
benefit of, the individual or spouse shall be treated as income of
that individual or spouse. |
MEPM 9J |
·
Any
portion of trust income that could be paid to or for the benefit of
the individual or spouse, but is not, shall be treated as follows: - If the terms of the trust state that undistributed trust income is principal, then follow procedures for the treatment of principal. - If the terms of the trust state that
undistributed trust income remains trust income, then treat as available
property. |
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·
Any
portion of trust principal that could be paid to, or for the
benefit of the individual or spouse, but is not shall be treated as available
property. ·
Any
portion of trust principal or income that must be paid in
the future, to or for the benefits of the individual or spouse, shall be
treated as available property regardless of when the payment is, or
can be made. |
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·
Any
actual payment of trust principal/income which is not made to
or for the benefit of the individual or spouse, shall be treated as a transferred
asset as of the date of payment. |
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Example: Mr. Baker established an irrevocable trust,
with a principal of $100,000, on March 1, 1994, entered a nursing home on
November 15, 1994, and applied for Medi‑Cal on February 15, 1995. Under the terms of the trust, the trustee
has full discretion in disbursing funds from the trust. Each month, the trustee disburses from the
trust income $100 as allowance to Mr. Baker, and $500 to a property
management firm for the upkeep of Mr. Baker's home. On June 15, 1994 the trustee gave $50,000
from the trust principal to Mr. Baker's brother. |
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The remaining $50,000
trust principal is considered available property because the trustee has
discretion to disburse the entire amount.
The $100 allowance and $500 for home upkeep are income to Mr.
Baker. The $50,000 to Mr. Baker's
brother is treated as a transferred asset because it is not to or for the
benefit of Mr. Baker. |
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b)
If
payment cannot be made to or for the benefit of the individual or spouse at
any time or under any circumstance, or provisions for payments never exist or
have been stopped: ·
When
all, or a portion, of the trust principal cannot be paid to or for the
benefit of the individual or spouse, that portion of trust principal shall be
treated as a transferred asset. ·
When
all, or a portion, of the trust income cannot be paid to or for the
benefit of the individual or spouse because provisions for distribution
never existed, treat the trust income as principal and review the
terms of the trust regarding the treatment of the trust principal. |
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·
When
all, or a portion, of the trust income cannot be paid to or for the
benefit of the individual or spouse because the provisions for
distribution have been stopped, treat as follows: - If undistributed income becomes
principal according to the terms of the trust, review the terms of the
trust regarding treatment of principal. - If undistributed trust income remains
income, treat as a transfer of asset. |
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Example: Mr. Baker established an irrevocable
trust, with a principal of $100,000, on March 1, 1994, entered a nursing
facility on November 15, 1994, and applied for Medi‑Cal on February 15,
1995. Under the terms of the trust,
the trustee has full discretion in disbursing income from the trust; however,
the trustee is precluded by the terms of the trust from disbursing any of the
principal of the trust to, or for the benefit of Mr. Baker. Each month, the trustee disburses from the
trust income $100 as an allowance to Mr. Baker, and $500 to a property
management firm for the upkeep of Mr. Baker's home. On June 15, 1994, the trustee gave $50,000
from the trust principal to Mr. Baker's brother. |
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The $100 and $500
disbursed from the trust income are counted as income to Mr. Baker. Because none of the principal can be
disbursed to Mr. Baker, the entire value of the principal at the time the
trust was created ($100,000 in March, 1994) is treated as a transferred
asset. |
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c)
Determination
of available property contained in an irrevocable trust. Refer to the trust document to determine whether payments can, under any circumstances, be made from the trust, to or for the benefit of the individual or spouse, regardless of when payments may be made. Example 1: An
irrevocable trust provides that only $1,000 of the trust principal contained
in a $20,000 trust can be paid out when the individual reaches the age of 18. If
the trust document provides for no other payments, only the $1,000 will be
treated as available property. The
remaining $19,000 (which cannot under any circumstances be paid to, or for
the benefit of that individual) would be considered as a transferred asset. |
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Example 2: An
irrevocable trust provides that $40,000 of the trust principal contained in a
$100,000 trust can be paid by the trustee only in the event that the trustor
needs a heart transplant. |
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There
is a circumstance, however remote, when a payment can be made from the trust
principal. Therefore, the full $40,000
would be considered available property to the trustor, regardless of when or
whether the payment is made. The
remaining $60,000 cannot, under any circumstances, be paid to, or for the
benefit of that individual, and is considered a transferred asset. |
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d)
Date
of Transfer The date of the
transfer is considered to be one of the following depending on the
situation. One or more of the
following may occur in a single trust: |
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·
The
date the trust was established (the date the original trust document was
dated and signed). ·
The
date on which payment to the individual or spouse stopped. ·
The
date assets were made unavailable by a transfer into an already existing
trust. ·
The
date available trust assets were transferred to someone or some entity not
for the benefit of the individual or spouse. |
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Example 1: A revocable trust has a triggering
clause making it irrevocable and the trust assets unavailable if the
beneficiary enters an institution. The
date of transfer in this case would be the date of institutionalization since
that is when the trust became irrevocable and the date trust disbursement was
stopped. |
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Example 2: An "income only trust" may
have a clause to dissolve the trustee's power to make distributions after the
date the individual or spouse enters into an institution. |
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There
may be two transfers. If the income
only trust were established with assets or property rights of the individual
or spouse then the date of the first transfer would be the date the trust was
established. The date of the second
transfer would be the date the individual entered the institution since that
is the date trust disbursement stopped. |
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In situations where
trust principal or trust income is considered transferred as a result of a
"trigger" when an individual enters a nursing facility and the
individual is later discharged, the trust principal and income may once again
be considered available. |
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e)
Uncompensated
Value Determination In treating a trust
or portions of a trust that cannot be at any time, or under any
circumstances, be distributed to the individual or spouse, the value of
the transferred amount shall be its value on the date of establishment, the
date that disbursement to the individual or spouse stopped, or the date the
assets were transferred into an already existing trust, depending upon the
situation. One or more situations may
apply to a trust. |
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·
In
determining the value of the trust or the portions of the trust that cannot,
under any circumstances, be distributed to or for the benefit of the
individual or spouse, do not subtract from the trust the value of any payment
made to someone else not for the benefit of the individual or spouse, for
whatever purpose, after the date the trust was established. |
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·
If
disbursement to the individual or spouse stopped, then the uncompensated
value shall be the value of the trust assets on the date disbursement was
stopped. ·
If
funds were added to that portion of the trust that cannot be distributed to
or for the benefit of the individual or spouse, after the date the trust was
established or disbursement was stopped, the transfer of those funds is
considered another transfer of assets. |
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Example: Mr. Maker establishes an irrevocable
trust, with a principal of $100,000 on March 1, 1994, enters a nursing
facility on November 15, 1994, and applies for Medi‑Cal on
February 15, 1995. Under the
terms of the trust, the trustee has complete discretion in disbursing income
from the trust; however, the trustee is precluded by the terms of the trust from
disbursing any of the principal of the trust to, or for the benefit of Mr.
Baker. Each month, the trustee
disburses $100 as an allowance to Mr. Baker, and $500 to a property
management firm for the upkeep of Mr. Baker's home, from the trust
income. On June 15, 1994, the trustee
gives $50,000 from the trust principal to Mr. Baker's brother. |
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The
trust is irrevocable and none of the trust principal can be distributed. Therefore, the transfer of the entire value
of the principal at the time the trust was created ($100,000 in March 1994)
is treated as a transferred asset. The
trust income can be distributed.
Therefore, the $100 and $500 disbursed from the trust income are
counted as income to Mr. Baker. |
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The
date of transfer would be the date the trust was established, March 1994, the
date the funds were transferred. The
fact that $50,000 was actually transferred out of the trust to Mr. Baker's
brother, does not alter the amount of assets transferred by Mr. Baker,
because it was not made to, or for the benefit of, Mr. Baker. The transfer amount remains $100,000, even
after the gift to Mr. Baker's brother. |
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If,
at some point after the establishment of the trust, Mr. Baker placed new
funds in the trust, none of which could be disbursed to him, or for his
benefit, the transfer of the new funds would be treated as another transfer
of assets. |
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B.
ANNUITIES 1)
Annuities
Purchased Prior to August 11, 1993, other periodic payment plans not within
the definition of annuity, or annuities acquired upon the death of the
original annuitant, established by will, or purchased with property rights
belonging to someone other than the Medi‑Cal applicant/beneficiary shall continue to be
treated in accordance with Article 9, Section 6, Item 5 and Article 10. |
MEM 9J VD |
2)
Annuities
Purchased On or After August 11, 1993 And Do Not Meet one Of The Conditions
In 1) Annuities purchased on
or after August 11, 1993, and not subject to treatment under the undue
hardship provisions (see 4C.), shall be treated as following. |
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·
Payments from the annuity
shall be considered income in accordance with Article 10. ·
If
payments are deferred at any time, the cash surrender value of the
annuity shall be considered available property. a)
Period
Certain Annuities Period Certain Annuities are annuities which provide periodic payments for a period of time specified in the contract. ·
Once
the individual or spouse receives, or takes steps to receive periodic
payments of principal and interest, the balance of the annuity shall be
considered unavailable. |
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·
Payments
must be scheduled to exhaust any balance remaining in the annuity, at or
before the end of the annuitant's life expectancy, based upon the life
expectancy tables compiled by the Actuary of the Social Security Administration
(Appendix A). To determine whether or
not the balance of the annuity will be exhausted by the end of the
annuitant's life expectancy, enter the tables with the age of the annuitant
as of the date the annuity was purchased or the date the payment plan was
established, whichever is the most recent. |
|
·
If
the years of expected life remaining for the annuitant based on the
life expectancy tables is less than the years of scheduled payments
remaining under the terms of the annuity, and if the annuity cannot be
restructured, the payments in excess of the annuitant's life expectancy shall
be considered a transfer of property. |
|
·
To
calculate the amount that was transferred for less than adequate
consideration,
determine the percentage of the original purchase price which was transferred
to fund those payments that exceed the life expectancy on the SSA's
tables. Total the payments within the
life expectancy, then total the payments beyond the life expectancy. Divide each of the two sums by the sum of
the total payments of the annuity, this will result in the percentage of the
total payments made within the life expectancy and the percentage of the
total payments made beyond the life expectancy. Multiply the original purchase price by the
percentage of payments to be made beyond the life expectancy (see
"Note" below). |
|
·
Any
predetermined specified amount or number of payments set aside for any other
individual (other than for the sole benefits of the spouse) shall be
considered a transfer of property. (See "Note.") ·
After
payments to the annuitant begin, if payments are later designated to be made
to any other individual (other than for the sole benefits of the individual
or spouse), the payments shall be considered a transfer of property. (See
"Note.") |
|
b)
Lifetime
Annuities Lifetime annuities
are annuities which provide periodic payments over the lifetime of the
annuitant. In the case of a lifetime
annuity purchased on or after August 11, 1996: |
|
(1)
If
the contract does not allow anyone to receive payments, or provides an
unspecified amount for a beneficiary, upon the death of the annuitant, and
the annuitant is receiving payments: ·
The
individual or spouse must obtain the specific life expectancy tables used by
the annuity company to establish his/her specific annuity. ·
If
the years of expected life, based on the annuity company's tables for that
individual or spouse, are equal to or less than the number of years indicated
on the life expectancy tables compiled by the Actuary of the Social Security
Administration for that individual or spouse, there is no transfer of
property for less than fair market value.
Count the payments as income and consider the balance unavailable. |
|
·
If
the years of expected life based on the annuity company's tables for the annuitant
are greater than the number of years indicated on the life expectancy tables
compiled by the Actuary of the Social Security Administration, and if the
annuity cannot be restructured, or the annuitant chooses not to restructure
the annuity, there is a transfer of property for less than fair market value
(see "Note" below). |
|
·
After
payments to the annuitant begin, if payments are later designated to any
other individual (other than for the sole benefit of the individual or
spouse), the payment shall be considered a transfer of income that may
be a disqualifying transfer in the future (see "Note"
below). |
|
(2)
If
the contract provides that a specific number of payments or a
specific amount will go to someone upon the death of the individual, then
the annuitant must restructure the annuity's payments. The restructured annuity payments must
conform with the new procedures: ·
Once
the annuitant takes steps to annuitize the annuity in accordance with these
procedures, the balance of the annuity shall be considered unavailable until
payment(s) are received. ·
Payments
must be scheduled to exhaust any balance remaining in the annuity, at or
before the end of the annuitant's life expectancy based upon the life
expectancy tables compiled by the Actuary of the Social Security
Administration. |
|
·
If
the annuity cannot be restructured to conform with these procedures, consider
the amount set aside or the specific payments for the beneficiary upon the
death of the individual or spouse, as property transferred for less than fair
market value (see Note below). |
|
·
After
payments to the annuitant begin, if payments are later designated to another
individual (other than for the sole benefit of the spouse), they shall be
considered a transfer of income that may be a disqualifying transfer
in the future (see Note below). |
|
(3)
If
the contract provides for a beneficiary upon the death of the
individual or spouse to some unspecified amount: ·
Once
the annuitant takes steps to annuitize the annuity in accordance with these
procedures the balance of the annuity shall be considered unavailable until
payment(s) are received. ·
If
the years of expected life, based upon the annuity company's tables for that
annuitant, are equal to or less than the number of years indicated on the
life expectancy tables compiled by the Social Security Administration for the
annuitant, there is no transfer for less than fair market value. To determine whether or not the balance of
the annuity will be exhausted by the end of the annuitant's life expectancy,
enter the Social Security Administration's tables with the age of the
annuitant as of the date the annuity was purchased or the date the payment
plan was established, whichever is the most recent. |
|
·
If
the years of expected life based on the annuity's company tables for that
annuitant are greater than the number of years indicated on the life
expectancy tables compiled by Social Security Administration for the
annuitant: - The county must advise the individual or
spouse that they must take steps to restructure the annuity's payment
schedule to one that is based upon a life expectancy that is equal or less
than the number of years reflected on the life expectancy tables by the
Social Security Administration, for that individual or spouse. When the individual or spouse takes steps
to restructure the annuity the balance of the annuity shall be considered
unavailable until payment(s) are received. |
|
- If steps are not taken there is a transfer
of property for less than fair market value that may be a disqualifying
transfer (see Note below). ·
After
payments to the annuitant begin, if the payments are later designated to any
other individual (other than for the sole benefit of the spouse), they shall
be considered a transfer of income that may result in a disqualifying
transfer in the future (see Note below). |
|
c)
Annuities
With Deferred Payments Payments shall be
considered deferred when annuities are paid out within the life expectancy
established by the SSA's tables but the payments are not fixed, equal (reasonable
annual cost‑of‑living increase less than or equal to 5% is
considered equal), monthly payments.
The cash surrender value is to be counted. When payments extend beyond the life
expectancy of the annuitant based upon the SSA's tables, there has been a
transfer of assets that may be a disqualifying transfer. The disqualifying transfer issue must be
address first. The worker must not
count the cash surrender value of the annuity in cases where a period of
ineligibility for a disqualifying transfer is being assessed (Refer to 2)a.
above and Appendix C for methods used to determine the amount transferred
without adequate consideration which may be a disqualifying transfer). |
MEM 9J VD3d |
To determine whether
or not the annuity has a cash surrender value, look to the policy
provisions. If the policy provisions
state that there is no cash surrender value, then there is nothing to count
in the property reserve. The payments
actually made, however, continue to be considered as income. |
|
(1)
Sample
Language With A Cash Surrender Value The
following paragraphs represent sample language of an annuity with a possible
cash surrender value. In cases where
there are penalties for surrendering a policy early, the worker shall count
only the amount the annuitant would actually receive. ·
Surrender
of Policy. Except as provided herein, at any time
prior to the Maturity Date, the owner may surrender this policy for its Cash
Value. Such surrender request shall be
in writing on a form provided by the Company and signed by the owner. This policy shall accompany the request
form and be surrendered. If this
policy shall have been previously assigned, any surrender request must be
approved in writing by the assignee. |
|
·
Surrender
Charge. The Surrender Charge on this policy shall
be an amount equal to 8% of the Accumulation Value. After the policy has been in force for five
years, the Surrender Charge shall be reduced by 2%. It will be reduced by 2% on each policy
anniversary thereafter. The Surrender
Charge shall also be reduced by any applicable Waiver of Withdrawal
Charge. After the policy has been in
force eight years, no surrender shall be subject to a Surrender Charge. |
|
·
Waiver
of Withdrawal Charge. Beginning one calendar month after the
Effective Date, up to 1% of the Premium may be withdrawn each month without a
Withdrawal Charge. The unused portion
of this Waiver of Withdrawal Charge provision is accumulative. |
|
(2)
Sample
Language Without A Cash Surrender Value The
following paragraphs represent sample language of an annuity without a cash
surrender value, In these cases there would be no amount to count. Payments actually made are continued to be
considered income. |
|
·
Payments. The Payments shown
in the Policy Schedule will begin on the Annuity Start Date. The Payments are payable to the Annuitant
in the manner described on the Policy Schedule. In no event will less than the Number of
Payments Certain be made. The Payments
will not be subject to: |
|
- Transfer, alteration, claims of creditor
before any payment is due; or - Encumbrance by creditors. Once
this Policy is issued you may not: - Change the manner in which Payments are
made; - Surrender this Policy for the value of
any remaining guaranteed Payments; or - Take any cash withdrawals or loans from
this Policy. |
|
Note: Whenever an annuity has not been properly
annuitized, the worker shall advise the individual that he/she must attempt
to have the annuity annuitized in accordance with these procedures. When it
is necessary to advise an applicant/beneficiary that he/she must annuitize
the annuity in accordance with these procedures, provide the
applicant/beneficiary with the annuitant's life expectancy by entering the
SSA's tables using the annuitant current age.
The balance of the annuity shall be considered unavailable once steps
have been taken to annuitize the annuity in accordance with these procedures
until the payment(s) are received.
Staff must also consider whether the undue hardship provisions (item
4C.) apply before taking any adverse actions.
WHEN UNDUE HARDSHIP IS CONSIDERED AND FOUND NOT TO APPLY, THE NOTICE
FOR THE ADVERSE ACTION SHALL STATE THAT "THE UNDUE HARDSHIP PROVISIONS
WERE CONSIDERED AND FOUND NOT TO APPLY." Regulations regarding
transfer of income are not currently available. |
|
C.
Undue
Hardship Eligibility cannot be
denied or discontinued without first considering whether or not undue
hardship exists. In considering the
undue hardship provisions the individual must demonstrate that the
application of the OBRA'93 trust provisions would result in undue
hardship. Undue hardship does not
exist when application of the trust provisions merely causes the individual,
parent or spouse inconvenience. |
MEM 9J VI |
1)
For
undue hardship to exist, all of the conditions in a) through d) below must be
present except that item 1)d) does not apply in the case of an annuity. a)
The
trust asset cannot, under any circumstances, be used to provide for health
care or medical needs of the Medi-Cal applicant or beneficiary, and b)
Health
Care cannot be obtained from, and medical needs cannot be met by, any source
other than Medi-Cal without depriving the individual of food, clothing,
shelter, or other necessities of life, and |
|
c)
The
individual’s parents (if the individual is under 21) or the individual’s
spouse, cannot provide for health care and medical needs, or health care
coverage for the individual without depriving themselves of food, health care
or medical needs, clothing, shelter, or other necessities of life, and |
|
d)
The
court has denied a good faith petition to release the trust assets to pay for
the required medical care. A petition
to release the trust assets shall not be considered a valid good faith
petition if the petition contains language that suggests or requests the
court do anything other than release the trust assets needed to pay for the
required medical care. The worker must
verify the petition by viewing both the petition and the court order. |
|
2)
No
person shall be made ineligible to the extent otherwise exempt income or
property is held in trust. 3)
Annuities
purchased between August 11, 1993 and March 1, 1996, which cannot be
annuitized to comply with treatment under OBRA'93, shall continue to be
treated in accordance with Article 9, Section 6, Item 5. Written verification
must be obtained from the entity that issued the annuity verifying that the
annuity cannot be restructured. |
|
If undue hardship
does apply, only the treatment of the trust under OBRA'93 is waived. The trust must then be considered and
eligibility determined under Item 5, Other Trusts. If undue hardship is
found not to apply, the applicant/beneficiary must be sent a notice of any
adverse action. This notice must
include a statement indicating that the provisions of undue hardship were
considered and found not to exist. |
|
5.
OTHER
TRUSTS THAT ARE NOT MOTS, SLDS, OR OBRA'93 AS DESCRIBED IN ITEMS 3 AND 4 ‑
REGARDLESS OF THE DATE THEY ARE ESTABLISHED Trusts or SLDs that
do not meet the characteristics for treatment in accordance with OBRA'93, and
that are not MQTs or SLDs established prior to August 11, 1993, shall be
treated in accordance with this item.
Such trusts may include, but are not limited to, those contained in
the list below. |
MEM 9J VII |
·
Trusts
or SLDs established by a will (the Medi‑Cal applicant/beneficiary is an
heir). ·
Certain
trusts established for disabled individuals on or after August 11, 1993. ·
Blocked
accounts established prior to August 11, 1993 which cannot be distributed
until a minor reaches age 18. ·
Trusts
established prior to April 7, 1986, solely for the benefit of a mentally
retarded person who resides in an intermediate care facility for the mentally
retarded. ·
Trusts
established by a grandparent with his/her own property for a grandchild's college
education, etc. ·
Trusts
established by the community for the medical and social service needs of an
individual. ·
Trust
accounts opened under the California Uniform Transfers to Minors Act for a
child with an adult named as custodian. |
|
A.
Availability
and Treatment 1)
Revocable
Trusts The entire amount of
funds held in a revocable trust shall be considered totally available to the
Medi‑Cal applicant/beneficiary, his/her spouse or members of the MFBU
as long as they have the legal right, power and authority to revoke the trust
and the right to use the funds. |
|
a)
Trust
principal is available property. b)
Trust
interest is income. If the trust
income is not distributed in the month of receipt, the trust income is
considered income in the month received and is treated as available property
in the month following receipt. c)
Trust
assets (income and principal) are not available until distributed when the
individual does not have the legal right, power, and authority to revoke the
trust and to use trust proceeds. |
|
2)
Irrevocable
Trusts The funds in an
irrevocable trust shall be considered available only if they are actually
distributed. a)
Funds
distributed from trust income shall be considered income. b)
Funds
distributed from trust principal shall be considered available property. B. Trusts Established On or After August 11, 1993 For Disabled IndividualsTwo types of trusts
established on or after August 11, 1993 specifically for disabled individuals
have been excepted from OBRA'93 provisions.
These two types of trusts, Individual Trusts and Pooled
Trusts, are established with the assets or property rights of disabled
individuals and shall be treated in accordance with the following procedures. |
|
If a trust is
established on or after August 11, 1993 for a disabled individual or disabled
spouse, with his/her assets or property rights, which meets the criteria for
an Individual Trust except that the disabled individual or
disabled spouse is age 65 or older, it shall be treated as an OBRA'93
trust. If a trust is established
on or after August 11, 1993 for a disabled individual or disabled spouse,
with his/her assets, which meets the criteria of a Pooled Trust
except that the disabled individual or disabled spouse is age 65 or older,
the transfer may be considered a disqualifying transfer of assets. The Pooled Trust shall continue to
be treated under the procedures in this Item. |
|
1)
Individual
Trusts An individual trust
must have all of the following conditions: a)
Was
established on or after August 11, 1993; and b)
Was
established for the benefit of the disabled individual or disabled spouse, by
a parent, grandparent, legal guardian or the individual, or court; and c)
The
trust, or portion of a trust, contains the assets or property rights of the
disabled individual or disabled spouse who was both: ·
Under
the age of 65 when the trust was established whether or not he/she is
currently age 65 or over, and ·
Who,
at the time the trust was established, was determined to be disabled as
verified in accordance with Article 5, Section 3, Item 3 and who is currently
determined to be disabled; and |
|
d)
Provides
that, upon the death of the disabled individual or disabled spouse, or upon
termination of the trust, the State shall receive all assets remaining in
the trust up to an amount equal to the total medical assistance paid on
behalf of that individual by Medi‑Cal. |
|
In addition, there is
no requirement in State or Federal law that the State is obligated to submit
any type of claim in order to be reimbursed, nor is the State required to
include reimbursement from this type of trust as part of its estate recovery
process. It is the trustee's
responsibility to contact the State to obtain the dollar amount of medical
assistance provided by CDHS and then submit that amount, or the amount
remaining in the trust, whichever is less, to CDHS Recovery Branch. Any trust which contains provisions
allowing reimbursement of medical assistance provided only upon submission of
a "claim" or an “Improper claim" shall not be considered an
"Other" trust and shall be treated as an OBRA'93 trust. |
|
Note: When
a disabled individual or disabled spouse has resided in more than one state,
the trust must provide that the funds remaining in the trust be distributed
to each state in which the individual received Medicaid, based on the state's
proportionate share of the total amount of Medicaid benefits paid by all of
the states on behalf of the individual. |
|
2)
Pooled
Trusts Pooled trusts must
have all of the following conditions: a)
Established
on or after August 11, 1993; and b)
Established
and managed by a non‑profit association; and c)
Contain the assets of the individual or spouse who
is determined to be currently disabled as verified in accordance with Article
5, Section 3, Item 3; and
d)
Maintain a separate account for each beneficiary of
the trust (but for purposes of investment and management of funds, the trust
pools these accounts); and
e) Provided that the State, upon the death of the disabled individual or disabled spouse, receives all amounts remaining in that individual’s account, equal to the amount of medical assistance paid on behalf of that individual to the extent that amounts remain in that individuals account and are not retained by the trust to cover the costs of that individuals remaining management and investment fees, outstanding bills that fall within the terms of the trust, and burial/funeral expenses. |
|
In addition, there is
no requirement in State or Federal law that the State is obligated to submit
any type of claim in order to be reimbursed, nor is the State required to
include reimbursement from this type of trust as part of its estate recovery
process. It is the trustee's
responsibility to contact the State to obtain the dollar amount of medical
assistance provided by CDHS and then submit that amount, or the amount
remaining in the trust, whichever is less, to CDHS Recovery Branch. Any trust which contains provisions
allowing reimbursement of medical assistance provided only upon submission of
a "claim" or a to proper claim" shall not be considered an
"Other" trust and shall be treated as an OBRA'93 trust. |
|
Note: When a disabled individual or disabled
spouse has resided in more than one state, the trust must provide that the
funds remaining in the trust be distributed to each state in which the
individual received Medicaid, based on the state's proportionate share of the
total amount of Medicaid benefits paid by all of the states on behalf of the
individual. |
|
f)
Each
account is established solely for the benefits of the disabled
individual or the disabled spouse by the disabled individual, disabled
spouse, his/her parents or grandparents, the legal guardian or that
individual, or by a court. |
|
(1)
The
account assets are to benefit no one other that the disabled individual or
disabled spouse for whose benefit the account was established, from the time
the account was established until the State's interest has been paid. If the account assets are not solely for
the benefit of the disabled individual or disabled spouse, then the trust
is to be treated as an OBRA'93 trust. A beneficiary may be
named in the trust to receive amounts remaining in the trust upon the death
of the primary beneficiary, however, the terms of the trust must be clear that
the transfer to the secondary beneficiary occurs only after CDHS has
been reimbursed for the medical assistance provided. (2)
If
funds are to be retained by the trust upon the death of the disabled
individual or disabled spouse for whose benefit the trust was established,
for any purpose other than: |
|
·
The
cost of the individuals remaining management and investment fee, or ·
Outstanding
bills for the benefit of the disabled individual or disabled spouse that fall
within the terms of the trust, or ·
Burial/funeral
expenses of the disabled individual or disabled spouse, |
|
the account will not
be considered solely for the benefit of the disabled individual or
disabled spouse and shall be treated as an OBRA'93 trust. (3)
Addition
or Augmentation of Individual or Pooled Trusts When an Individual or
Pooled trust is established for a disabled individual or disabled spouse
under the age of 65, the exception from treatment under OBRA'93 continues
after that individual or spouse becomes age 65. However, Individual or Pooled trusts cannot
be added to, or otherwise augmented with assets of the
individual or spouse, after that individual or spouse reaches age
65. Any such addition or
augmentation may be considered a disqualifying transfer of assets. Parents of a disabled son or daughter,
regardless of age, may make transfers of assets to their disabled son or
daughter directly to the son or daughter's Individual or Pooled trust. Such a transfer by a parent would not be
considered a disqualifying transfer of assets in determining the eligibility
of the parents for Medi‑Cal. |
|
(4)
Recovery
of Costs To ensure recovery of
the costs of medical care, the worker shall notify CDHS Third Party Liability
(TPL) Branch whenever either one of these two types of trusts is
discovered. The TPL Branch should also
be notified whenever the worker finds out that the disabled individual or
disabled spouse has died or the trust is being terminated. Send the beneficiary's name, Social
Security number, Medi-Cal ID number, and photocopy of the trust documents to: |
|
Department
of Health Services Third
Party Liability Branch
Recovery Section – PI
MS 4720 |
|
C.
|
|
1)
When
a child has an account of this type and is to be included in the MFBU, the
value of the account is considered available when no restrictions
have been placed on the property. 2)
When
the custodian's power has been restricted, preventing access to the
funds except by a court order, the funds shall be considered unavailable. If funds are distributed from the trust
income, they shall be considered income.
If funds are distributed from trust principal they shall be considered
property. |
|
6.
OTHER
CONSIDERATION REGARDING TRUSTS A. Special Needs Language1)
Overview A trust may contain
special needs "or supplemental needs" exculpatory language. Example: "The
trustee shall pay to apply for the benefit of John Smith for his lifetime,
such amount from the principal or income of the trust estate, up to the whole
thereof, as the trustee in its sole and absolute discretion may deem
necessary or advisable for the satisfaction of Joseph's special needs." |
MEM 9J VIII |
In addition the trust
document may state that: "No part
of the principal or income of the trust shall be used to supplant or replace
public assistance benefits of any County, State, Federal, or other
governmental entity which has a legal responsibility to serve the beneficiary
herein." |
|
2)
Treatment Trusts that contain
specific language indicating that funds shall only be used to ensure the
individuals health and safety and to supplement public benefits for services
and equipment that public programs do not provide may be referred to as a
special needs trust (SNT). There are
no provisions in Federal law that allow an exemption of trust assets based
solely on the exculpatory language. |
|
An SNT may meet the
definition of an MQT, an OBRA'93 trust, or may be included in any other
trusts. SNTs that are established by
will are not MQTs or OBRA'93 trusts.
SNTs established as a result of a personal injury settlement at the
request of the victim's attorney or parent/guardian prior to August 11, 1993
are considered to be established with the individuals property rights and if
other criteria are also met, it is considered to be an MQT and may result in
excess property. SNTs established on
or after August 11, 1993 are considered OBRA,93 trusts if all other
conditions are met, unless it is an excepted Individual or Pooled trust for a
disabled individual (see 5B.). |
|
B. Sneede TreatmentIf the MFBU is
ineligible due to excess property in a trust or annuity owned by a child,
unmarried parent, stepparent, or a non‑parent caretaker relative, the
county shall complete a Sneede property determination to evaluate if there is
eligibility for other family members. |
|
MALES
– LIFE EXPECTANCY TABLE #1 (Office of the Actuary of the Social Security
Administration)
AGE |
LIFE
EXPECTANCY |
AGE |
LIFE
EXPECTANCY |
AGE |
LIFE
EXPECTANCY |
AGE |
LIFE
EXPECTANCY |
0 |
71.80 |
30 |
44.06 |
60 |
18.42 |
90 |
3.86 |
1 |
71.53 |
31 |
43.15 |
61 |
17.70 |
91 |
3.64 |
2 |
70.58 |
32 |
42.24 |
62 |
16.99 |
92 |
3.43 |
3 |
69.62 |
33 |
41.33 |
63 |
16.30 |
93 |
3.24 |
4 |
68.65 |
34 |
40.23 |
64 |
15.62 |
94 |
3.06 |
5 |
67.67 |
35 |
39.52 |
65 |
14.96 |
95 |
2.90 |
6 |
66.69 |
36 |
38.62 |
66 |
14.32 |
96 |
2.74 |
7 |
65.71 |
37 |
37.73 |
67 |
13.70 |
97 |
2.60 |
8 |
64.73 |
38 |
36.83 |
68 |
13.09 |
98 |
2.47 |
9 |
63.74 |
39 |
35.94 |
69 |
12.50 |
99 |
2.34 |
10 |
62.75 |
40 |
35.05 |
70 |
11.92 |
100 |
2.22 |
11 |
61.76 |
41 |
34.15 |
71 |
11.35 |
101 |
2.11 |
12 |
60.78 |
42 |
33.26 |
72 |
10.80 |
102 |
1.99 |
13 |
59.79 |
43 |
32.37 |
73 |
10.27 |
103 |
1.89 |
14 |
58.82 |
44 |
31.49 |
74 |
9.27 |
104 |
1.78 |
15 |
57.85 |
45 |
30.61 |
75 |
9.24 |
105 |
1.68 |
16 |
56.91 |
46 |
29.74 |
76 |
8.76 |
106 |
1.59 |
17 |
55.97 |
47 |
28.88 |
77 |
8.29 |
107 |
1.50 |
18 |
55.05 |
48 |
28.02 |
78 |
7.83 |
108 |
1.41 |
19 |
54.13 |
49 |
27.17 |
79 |
7.40 |
109 |
1.33 |
20 |
53.21 |
50 |
26.32 |
80 |
6.98 |
110 |
1.25 |
21 |
52.29 |
51 |
25.48 |
81 |
6.59 |
111 |
1.17 |
22 |
51.38 |
52 |
24.65 |
82 |
6.21 |
112 |
1.10 |
23 |
50.46 |
53 |
23.82 |
83 |
5.85 |
113 |
1.02 |
24 |
49.55 |
54 |
23.01 |
84 |
5.51 |
114 |
0.96 |
25 |
48.63 |
55 |
22.21 |
85 |
5.19 |
115 |
0.89 |
26 |
47.72 |
56 |
21.43 |
86 |
4.89 |
116 |
0.83 |
27 |
46.80 |
57 |
20.66 |
87 |
4.61 |
117 |
0.77 |
28 |
45.88 |
58 |
19.90 |
88 |
4.34 |
118 |
0.71 |
29 |
44.97 |
59 |
19.15 |
89 |
4.09 |
119 |
0.66 |
FEMALES
– LIFE EXPECTANCY TABLE #2 (Office of the Actuary of the Social Security
Administration)
AGE |
LIFE
EXPECTANCY |
AGE |
LIFE
EXPECTANCY |
AGE |
LIFE
EXPECTANCY |
AGE |
LIFE
EXPECTANCY |
0 |
78.79 |
30 |
50.15 |
60 |
22.86 |
90 |
4.71 |
1 |
78.42 |
31 |
49.19 |
61 |
22.06 |
91 |
4.40 |
2 |
77.48 |
32 |
48.23 |
62 |
21.27 |
92 |
4.11 |
3 |
76.51 |
33 |
47.27 |
63 |
20.49 |
93 |
3.84 |
4 |
75.54 |
34 |
46.31 |
64 |
19.72 |
94 |
3.59 |
5 |
74.56 |
35 |
45.35 |
65 |
18.96 |
95 |
3.36 |
6 |
73.57 |
36 |
44.40 |
66 |
18.21 |
96 |
3.16 |
7 |
72.59 |
37 |
43.45 |
67 |
17.48 |
97 |
2.97 |
8 |
71.60 |
38 |
42.50 |
68 |
16.76 |
98 |
2.80 |
9 |
70.61 |
39 |
41.55 |
69 |
16.04 |
99 |
2.64 |
10 |
69.62 |
40 |
40.61 |
70 |
15.35 |
100 |
2.48 |
11 |
68.63 |
41 |
39.66 |
71 |
14.66 |
101 |
2.34 |
12 |
67.64 |
42 |
38.72 |
72 |
13.99 |
102 |
2.20 |
13 |
66.65 |
43 |
37.78 |
73 |
13.33 |
103 |
2.06 |
14 |
65.67 |
44 |
36.85 |
74 |
12.68 |
104 |
1.93 |
15 |
64.68 |
45 |
35.92 |
75 |
12.05 |
105 |
1.81 |
16 |
63.71 |
46 |
35.00 |
76 |
11.43 |
106 |
1.69 |
17 |
62.74 |
47 |
34.08 |
77 |
10.83 |
107 |
1.58 |
18 |
61.77 |
48 |
33.17 |
78 |
10.24 |
108 |
1.48 |
19 |
60.80 |
49 |
32.27 |
79 |
9.67 |
109 |
1.38 |
20 |
59.83 |
50 |
31.37 |
80 |
9.11 |
110 |
1.28 |
21 |
58.86 |
51 |
30.48 |
81 |
8.58 |
111 |
1.19 |
22 |
57.89 |
52 |
29.60 |
82 |
8.06 |
112 |
1.10 |
23 |
56.92 |
53 |
28.72 |
83 |
7.56 |
113 |
1.02 |
24 |
55.95 |
54 |
27.86 |
84 |
7.08 |
114 |
0.96 |
25 |
54.98 |
55 |
27.00 |
85 |
6.63 |
115 |
0.89 |
26 |
54.02 |
56 |
26.15 |
86 |
6.20 |
116 |
0.83 |
27 |
53.05 |
57 |
25.31 |
87 |
5.79 |
117 |
0.77 |
28 |
52.08 |
58 |
24.48 |
88 |
5.41 |
118 |
0.71 |
29 |
51.12 |
59 |
23.67 |
89 |
5.05 |
119 |
0.66 |
Appendix B1
Example #1: On January 30, 1996, at age 65, Mr. Baker
purchases a $20,000 period certain annuity to be paid over the course of 10
years. Fixed, equal and monthly payments begin March 1, 1996.
At age 65, Mr. Baker’s life expectancy is 14.96 years
according to the SSA’s tables. Since the payout period of the annuity (10 years)
is less than the 14.96 years on the SSA’s tables, and Mr. Baker is receiving
monthly payments, the balance of the annuity is considered unavailable and
payments shall be treated as income.
Example #2: On March 10, 1996, at age 65, Mr. Baker
purchases a $100,000 period certain annuity to be paid over the course of 20
years. Fixed, equal and monthly payments begin April 15, 1996.
The payout period of the annuity (20 years) is greater
than the life expectancy for Mr. Baker based on the SSA’s tables (14.96 years).
Mr. Baker is unable to restructure the annuity’s payment schedule. The payment
scheduled to occur beyond Mr. Baker’s life expectancy (20 payment years – 14.96
life expectancy years = 5.04 years of payments) would be considered transferred
property that may be a disqualifying transfer.
To calculate the amount that was transferred for less
than adequate consideration, total
the payments within the life expectancy, then total the payments beyond the
life expectancy. Divide each of the two sums by the sum of the total payments
of the annuity, this will result in the percentage of the total payments made
within the life expectancy and the percentage of the total payments made beyond
the life expectancy. Multiply the original purchase price by the percentage of
payments to be made beyond the life expectancy.
Appendix B2
Example #3: On June 10, 1996, Mrs. Baker purchases a
$50,000 life time annuity with 5 years worth of payments designated to go to
her daughter upon the death of Mrs. Baker. Mrs. Baker is 79 years old and her
life expectancy based on the SSA’s tables is 9.67 years.
Since the 5 years worth of payments were specified
death benefits when the annuity was purchased, the total amount of death
benefit payments designated for the daughter shall be considered transferred
property that may be considered disqualifying. Mrs. Baker’s monthly payments
are considered income and the balance of the annuity less the death benefits
are considered unavailable.
Example #4: Mrs. Baker purchases a $50,000 life time
annuity on April 15, 1996 and designates her daughter as the beneficiary upon
her death to receive a cash refund (an unspecified amount). Mrs. Baker is 79
years old and her life expectancy based on the SSA’s tables is 9.67 years. The
life expectancy established by the annuity company for Mrs. Baker is 8 years.
Since the cash refund will pay the difference between
the total amount of the payments made to Mrs. Baker during her life time and
the $50,000 purchase price, and the company’s life expectancy for Mrs. Baker is
less than the life expectancy by the SSA’s tables, the monthly payments are
considered income and the balance of the annuity is considered unavailable.
Example #5: Mrs. Baker begins receiving payments from her
properly annuitized annuity but designates her daughter as the annuitant after
receiving payments for 1 year. The daughter will receive the remaining four
years worth of payments which is not for the sole benefits of Mrs. Baker.
The four years of payments will be considered transferred
income, which may be a disqualifying transfer in the future.
This appendix contains analysis of sample annuity
payment schedules. The payment schedules represent some annuities that have
been annuitized in accordance with the guidelines of the Secretary of the
Department of Health and Human Services, as well as some that are not properly
structured.
Analysis of #1:
Properly Annuitized Period Certain Annuities
The sample payment schedules on this analysis
represent annuities that are to be considered properly annuitized. The 15-year
guaranteed period coincided with the life expectancy of the annuitant based
upon the SSA’s tables as of the date the annuity was purchased (or the date of
annuitization, whichever was the most recent). Monthly payments are fixed,
equal and monthly but may reflect reasonable, annual cost-of –living increase
(i.e., less than or equal to 5%).
Analysis of #2:
Improperly Structured Period Certain Annuities
The sample payment schedules on this analysis
represent annuities that have not been properly annuitized. They are scheduled
for 20-year period certain payments. The guaranteed period of 20 years exceed
the 15-year life expectancy of the annuitant based on the SSA’s tables. In
these cases, there may be a disqualifying transfer as of the date the annuity
was purchased.
To determine the amount that was transferred for less
than adequate consideration, determine the percentage of payments to be made
between the company’s life expectancy for the annuitant and that established by
the SSA, to the total payments. Then multiply this percentage to the original
purchase price.
(A) Level
Payment Sample
The
sum of the payments within the life expectancy is $120,363.88. The sum of the
payments beyond the life expectancy is $40,121.29. Dividing each of these two
sums by the sum of the total payments ($160,485.17). The result: 75% of the
payments will be made during the life expectancy of the annuitant; and 25% will
be made beyond the life expectancy. Multiplying the original purchase price of
$100,000 by 25% will result in $25,000, which is the amount of transfer for
less than adequate consideration.
(B) 3% Annual Increase Sample
The sum of the payments within the life expectancy is
$116,499.63. The sum of the payments beyond the life expectancy is $51,810.67.
Dividing each of the two sums by the sum of the total payments ($168,310.30).
The result: 69.2% of the payments will be made during the life expectancy of
the annuitant; 30.8% of the payments will be made beyond the life expectancy.
Multiplying the original purchase price of $100,000 by 30.8% will result in
$30,800, which is the amount of transfer for less than adequate consideration.
Analysis #3: Properly Annuitized Lifetime Annuities
The sample payment schedules on this analysis
represent lifetime annuities that have been properly annuitized. The life
expectancy of the annuitant based on the SSA’s tables coincides with the life
expectancy based on the annuity company’s tables. Payments are fixed, equal and
monthly but may reflect reasonable, annual cost-of-living (i.e., less than or
equal to 5%).
Analysis #4:
Improperly Structured Lifetime Annuities
The sample payment schedules on this analysis
represent lifetime annuities that have not been properly annuitized. The
company’s life expectancy exceeded the 15-year life expectancy of the annuitant
based on the SSA’s tables. In these cases there may be a disqualifying transfer
as of the date the annuity was purchased (or the date the payment plan was established,
whichever is the most recent).
To determine the amount that was transferred for less
than adequate consideration, determine the percentage of payments to be made
between the company’s life expectancy for the annuitant and that established by
the SSA, to the total payments. Then multiply this percentage to the original
purchase price.
The sum of the payments between the two life
expectancies (in the level payment plan) is $24,072.78. Dividing this amount by
the sum of the total payments ($144,436.68). The result: 16.7% of the payments will be made between
the two life expectancies. Multiplying the original purchase price ($100,000)
by 16.7% will result in the amount of $16,700, which is the amount transferred
for less than adequate consideration.
The same methodology shall also be used for payment
plans that include reasonable annual cost-of-living adjustments.
Analysis #5: Properly Annuitized Lifetime With Period
Certain Annuities
A lifetime with period certain annuity combines the
features of both the lifetime and the period certain annuities into one. When
considering whether a lifetime with period certain annuity has been annuitized
in accordance with the SSA’s tables, the applicant must provide the life
expectancy used by the company as of the date the annuity was purchased or the
date the payment plan was established. The company’s life expectancy for the
annuitant is then compared to that of the SSA’s tables. The guaranteed period
must also be less than or equal to the life expectancy based on the SSA’s
tables.
The sample payment schedules on this analysis
represent annuities that are to be considered properly annuitized. The payment
schedules are for lifetime with 15-year period certain annuities. The 15-year
guaranteed period AND the company’s life expectancy coincided with the life
expectancy of the annuitant based on the SSA’s tables as of the date the
annuity was purchased or the date of annuitization, whichever was the most
recent. Payments are fixed, equal and monthly but may reflect reasonable annual
cost-of-living increases (i.e., less than or equal to 5%).
Analysis #6:
Improperly Annuitized Lifetime with Period Certain Annuities
(A) Company’s Life Expectancy Exceeds SSA’s Life Expectancy -
Guaranteed Period Coincides
The payment schedules on this analysis represent lifetime
with 15-year period certain annuities that have not been properly annuitized.
Although the life expectancy for the individual based on the SSA’s tables and
the 15-year guarantee period coincide, the company’s life expectancy for the
annuitant exceeds the 15-year life expectancy of the annuitant, as determined
by the SSA’s tables. In these cases, there may be a disqualifying transfer as
of the date the annuity was purchased or the date the payment plan was established,
whichever is the most recent.
In the Level Payment Sample of this analysis, the sum of the
payments within the life expectancy based upon the SSA’s tables is $120,363.90.
The sum of the payments between the company’s life expectancy and the SSA’s is
$24,072.78. Dividing each of these two sums by the sum of the total payments
($144,436.68). Result: 83.3% of the
payments will be made during the life expectancy of the annuitant based upon
the SSA’s tables; and 16.7% of the payments will be made between the two life
expectancies. Multiplying the original purchase price ($100,000) by 16.7% will
result in $16,700, which is the transfer without adequate consideration.
The same methodology shall also be used for payment plans
that include reasonable annual cost-of-living adjustments.
(B) Life Expectancies Coincide – Guarantee Period Exceeds Life
Expectancy
The payment schedules on this analysis represent lifetime
with 20-year period certain annuities that have not been properly annuitized.
Although the life expectancy for the annuitant based on the SSA’s tables and
the life expectancy established by the company coincide, the 20-year guarantee
period exceeds the 15-year life expectancy of the annuitant according to the
SSA’s tables. This is determined as of the date the annuity was purchased or
the date the payment plan was established, whichever is the most recent. In
these cases, there may be a disqualifying transfer as of the date the annuity
was purchased or the date the payment plan was established, whichever is the
most recent.
In the Level Payment Sample, the sum of the payments within
the life expectancy based upon the SSA’s tables is $120,363.88. The sum of the
payment between the life expectancy and the end of the 20-year guarantee period
is $40,121.29. Dividing each of the two sums by the sum of the total payments
($160,485.17). Result: 75% of the payments will be made during the annuitant’s
life expectancy based upon the SSA’s tables; and 25% of the payments will be
made between the life expectancy and the end of the 20-year guarantee period.
Multiplying the original purchase price ($100,000) by 25% will result in
$25,000, which is the amount transferred without adequate consideration.
The same methodology shall also be used for payment plans
that include reasonable annual cost-of-living adjustment.
Analysis #7:
Improperly Annuitized Payment Schedule Representing Deferred Payments
The sample payment schedule on this analysis
represents an improperly annuitized annuity with 25% annual cost-of-living
increases. Unreasonable annual increases of this sort tend to push the majority
of the payments toward the back-end of the payment phase. In these cases, the
ET shall count the cash surrender value of the annuity as available property.
Analysis #8:
Small Percentage of Principal Plus Interest Each Year
The sample payment schedule on this analysis
represents an improperly annuitized annuity that pays out only interest with
.8% of the principal per year. Payment plans of this sort tend to push most of
the principal of the annuity into a single payment at the end of the guarantee
period. In these cases, the ET shall count the cash surrender value of the
annuity as available property.
Analysis #9:
Guarantee Period Extends Beyond the Life Expectancy and Unreasonable
Annual Cost-of-Living Increases
The payment schedule on this analysis represents a
period certain annuity that has not been properly annuitized. The guarantee
period of 20 years exceeds the 15-year life expectancy of the annuitant, as
determined by the SSA’s tables as of the date the annuity was purchased or the
payment plan was established, whichever is the most recent. In these cases
there may be a disqualifying transfer.
Even though the annuity also provides for an
unreasonable 12% annual cost-of-living increase, the federal law requires that
payments beyond the life expectancy of the annuitant are to be considered
potentially disqualifying transferred assets. The ET must FIRST look to the
transfer of property guidelines to determine whether or not there has been a
disqualifying transfer. If there is no disqualifying transfer, then in these
cases, the ET shall consider the cash surrender value of the annuity.
Amount Invested: $100,000
Rate of Return: 5.00%
Guarantee Period: 15 years
|
|
Level Payments |
|
3% Annual Increase |
|
5% Annual Increase |
||||
|
|
|||||||||
|
Year |
Payment |
|
Payment |
|
Payment |
|
|||
|
1 |
$9,634.23 |
$7,981.13 |
$7,000.00 |
||||||
|
2 |
$9,634.23 |
$8,220.57 |
$7,350.00 |
||||||
|
3 |
$9,634.23 |
$8,467.18 |
$7,717.50 |
||||||
|
4 |
$9,634.23 |
$8,721.20 |
$8,103.38 |
||||||
|
5 |
$9,634.23 |
$8,982.83 |
$8,508.54 |
||||||
|
6 |
$9,634.23 |
$9,252.32 |
$8,933.97 |
||||||
|
7 |
$9,634.23 |
$9,529.89 |
$9,380.67 |
||||||
|
8 |
$9,634.23 |
$9,815.79 |
$9,849.70 |
||||||
|
9 |
$9,634.23 |
$10,110.26 |
$10,342.19 |
||||||
|
10 |
$9,634.23 |
$10,413.57 |
$10,859.30 |
||||||
|
11 |
$9,634.23 |
$10,725.97 |
$11,402.26 |
||||||
|
12 |
$9,634.23 |
$11,047.75 |
$11,972.38 |
||||||
|
13 |
$9,634.23 |
$11,379.19 |
$12,570.99 |
||||||
Life |
14 |
$9,634.23 |
$11,720.56 |
$13,199.54 |
||||||
Expectancy |
15 |
$9,634.23 |
$12,072.18 |
$13,859.52 |
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
Sum: |
$144,513.43 |
$148,440.38 |
$151,049.95 |
||||||
|
|
|
|
|
||||||
|
Sum<=LE: |
$144,513.43 |
$148,440.38 |
$151,049.95 |
||||||
|
Sum>LE: |
$0.00 |
$0.00 |
$0.00 |
||||||
Amount Invested: $100,000
Rate of Return: 5.00%
Guarantee Period: 20 years
|
|
Level Payments |
|
3% Annual Increase |
|
5% Annual Increase |
|
||||||||||||
|
|
|
|||||||||||||||||
|
Year |
Payment |
|
|
Payment |
|
|
5% Increase |
|
|
|
||||||||
|
1 |
$8,024.26 |
$6,263.79 |
$5,250.00 |
|
||||||||||||||
|
2 |
$8,024.26 |
$6,451.70 |
$5,512.50 |
|
||||||||||||||
|
3 |
$8,024.26 |
$6,645.25 |
$5,788.13 |
|
||||||||||||||
|
4 |
$8,024.26 |
$6,844.61 |
$6,077.53 |
|
||||||||||||||
|
5 |
$8,024.26 |
$7,049.95 |
$6,381.41 |
|
||||||||||||||
|
6 |
$8,024.26 |
$7,261.45 |
$6,700.48 |
|
||||||||||||||
|
7 |
$8,024.26 |
$7,479.29 |
$7,035.50 |
|
||||||||||||||
|
8 |
$8,024.26 |
$7,703.67 |
$7,387.28 |
|
||||||||||||||
|
9 |
$8,024.26 |
$7,934.78 |
$7,756.64 |
|
||||||||||||||
|
10 |
$8,024.26 |
$8,172.82 |
$8,144.47 |
|
||||||||||||||
|
11 |
$8,024.26 |
$8,418.01 |
$8,551.70 |
|
||||||||||||||
|
12 |
$8,024.26 |
$8,670.55 |
$8,979.28 |
|
||||||||||||||
|
13 |
$8,024.26 |
$8,930.66 |
$9,428.25 |
|
||||||||||||||
Life |
14 |
$8,024.26 |
$9,198.58 |
$9,899.66 |
|
||||||||||||||
Expectancy |
15 |
$8,024.26 |
$9,474.54 |
$10,394.64 |
|
||||||||||||||
|
16 |
$8,024.26 |
$9,758.78 |
$10,914.37 |
|
||||||||||||||
|
17 |
$8,024.26 |
$10,051.54 |
$11,460.09 |
|
||||||||||||||
|
18 |
$8,024.26 |
$10,353.09 |