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.

 

 

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.

 

MEM 50402

 

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.

 


 

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.

 

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.

 

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.

 

Trustor, Settlor or Grantor:

 

Means an individual who creates a trust.

 

 

Beneficiary:

 

 

Means any individual or individuals designated in the trust instrument as benefiting in some way from the trust.

 

 

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.

 

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.

 

 

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.

MEM 9J 5C

 

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).

 

 

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.

 

 

 

 


·         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.

 

 

If annuity is contained within a trust, evaluate the trust first.  The annuity would be evaluated as a trust asset.

 

 

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.

 

 

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.

 

 

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

 

 


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.

 

F.       If the MQT is irrevocable:

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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

MEM 50489.1(e)(2)(E)

 

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:

 

 


·         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.

 

                        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.

 

 

                        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.

 

 

                        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.

 

 

G.      Transfer of Property/Assets Consideration

 

To 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.

 

 



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.

 

 

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.

 

 

·         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.

 

 

·         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.

 

 


                        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.

 

 

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.

 

 

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.

 

 

 


ACWDL

06-68

MEM 50489.5(e)(1)

 

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

VH

 

·         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.

 

 

·         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.

 

 

·         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.

 


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.

 

 

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.

 

 

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.

 

 

·         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.

 

 

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.

 

 


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.

 

 

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.

 

 

                                 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.

 

 

                                                        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.

 

 

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:

 

 

·         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.

 

 

                                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.

 

 

                                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. 

 

 

                                                        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.

 

 

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. 

 

 

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.

 

 

·         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.

 

 

·         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.

 

 

                                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.

 

 

                                                        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.

 

 

                                                        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.

 

 

                                                        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.

 

 

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.

 

 

·         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.

 

 

·         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 Individuals

 

Two 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

                                                                P.O. Box 997425

                                                        Sacramento, CA. 95899-7425

MEPM 9J

 



C.      California Uniform Gift to Minors Act (CUTMA)/Uniform Gift to Minors Act (UTMA) Trusts

 

                This act provides that a person may make an irrevocable gift to a child that is managed by a custodian for the benefit of the child.  The duties imposed on the custodian are similar to the trustee; to manage and prudently invest custodial property solely in the interest of a trust beneficiary.  A custodian, unlike a trustor however, does not hold legal title to the property and has no ownership interest.  The transferor, who is also the custodian of such property, may choose to restrict his/her custodial power.  In that case, none of the funds could be spent before the time of distribution except by court order "upon a showing that the expenditure is necessary for the support, maintenance or education of the minor."  If there is no indication that the transferor/custodian has restricted the custodial power, the custodian is free to use the funds for the child's benefit without a court order.

 

 

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 Language

 

1)      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 Treatment

 

If 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

 

ANNUITY EXAMPLES

 

 

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

 

ANNUITY EXAMPLES

 

 

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