Long-term services and supports (LTSS) manual

Annuities

Revised Date: 
March 13, 2019

Purpose: To describe and clarify rules on how annuities affect eligibility.

WAC 182-516-0200 Annuities established prior to April 1, 2009

Effective March 2, 2018

  1. A revocable annuity is considered an available resource.
  2. An irrevocable annuity established prior to May 1, 2001, is not an available resource when issued by an individual, in­ surer, or other body licensed and approved to do business in the ju­risdiction in which the annuity is established.
  3. The income from an irrevocable annuity that meets the requirements of this section is income for determining eligibility and the amount of participation in the total cost of care. The annuity itself is not a re­source.
  4. Subject to subsection (5) of this section, an annuity established on or after May 1, 2001, and before April 1, 2009, is an available resource unless it:
    1. Is irrevocable;
    2. Is paid out in equal monthly amounts within the actuarial life expectancy of the annuitant;
    3. Is issued by an individual, insurer, or other body licensed and approved to do business in the jurisdiction in which the annuity is established; and
    4. Names the state of Washington as the benefi­ciary of the remaining funds up to the total of medicaid funds spent on the client during the client's lifetime. This subsection only ap­plies if the annuity is in the client's name.
  5. If an irrevocable annuity is an availa­ble resource under subsection (4) of this section because it does not pay out in equal monthly amounts, it is an unavailable resource if:
    1. The full pay out is within the actuarial life expectancy of the client; and
    2. The client:
      1. Changes the scheduled pay out into equal monthly payments within the actuarial life expectancy of the annuitant; or
      2. Requests that the medicaid agency or the agency's designee calculate and budget the payments as equal monthly payments within the actuarial life expectancy of the annuitant. The income from the annuity remains unearned income to the annuitant.
  6. An irrevocable annuity is unearned income when the annuitant is:
    1. The client;
    2. The spouse of the client;
    3. The blind or disabled child, as defined in WAC 182-512-0050 (1)(b) and (c), of the client; or
    4. A person designated to use the annuity for the sole benefit of the client, client's spouse, or a blind or disabled child, as de­ fined in WAC 182-512-0050 (1)(b) and (c), of the client.
  7. An annuity is not an available resource when there is a joint owner, co-annuitant or an irrevocable beneficiary who will not agree to allow the annuity to be cashed, unless the joint owner or irrevocable beneficiary is the community spouse. In the case of a community spouse, the value of the annuity is an available resource and counts toward the maximum community spouse resource allowance.

This is a reprint of the official rule as published by the Office of the Code Reviser. If there are previous versions of this rule, they can be found using the Legislative Search page.

WAC 182-516-0201 Annuities established on or after April 1, 2009

Effective March 2, 2018

  1. The medicaid agency or the agency's designee determines how an annui­ty, purchased by or on behalf of an annuitant and established on or after April 1, 2009, affects eligibility for medicaid.
  2. General information.
    1. Clients of noninstitutional medicaid must disclose to the agency or the agency's designee any interest that client, or the fi­nancially responsible members of that client's assistance unit, has in an annuity.
    2. Clients of institutional or home and community-based (HCB) waiver services must disclose to the agency or the agency's designee any interest that client, or that client's community spouse, has in an annuity.
    3. Subject to (d) of this subsection, this section applies when the annuitant is:
      1. The client of medicaid;
      2. That client's spouse, if that spouse is financially respon­sible for that client; or
      3. That client's community spouse.
    4. If this section does not apply because of (c) of this subsec­tion, but the client of institutional or HCB waiver services, or that client's community spouse, is the owner of the annuity, then the pur­chase of the annuity is evaluated as an asset transfer under WAC 182-513-1363.
    5. For the definition of "disabled," see WAC 182-512-0050 (1)(b) and (c).
    6. Actuarial life expectancy in this section is rounded up to the nearest whole year.
  3. Annuities as resources.
    1. Subject to (b) of this subsection, a revocable annuity is an available resource.
    2. The following annuities are not available resources, even if revocable:
      1. An annuity described under 26 U.S.C. Sec. 408(b) or (q); or
      2. An annuity purchased with proceeds from:
        1. An account or trust described under 26 U.S.C. Sec. 408(a), (c), or (p);
        2. A simplified employee pension (within the meaning of 26 U.S.C. Sec. 408(k)); or
        3. A Roth IRA described under 26 U.S.C. Sec. 408A.
    3. An annuity not described under (b) of this subsection is an available resource unless the annuity:
      1. Is issued by an entity licensed and approved to issue annui­ties in the jurisdiction in which the annuity is established;
      2. Is immediate, irrevocable, nonassignable; and
      3. Is paid out, in equal monthly amounts with no deferral and no balloon payments, over a term:
        1. Of at least five years, if the actuarial life expectancy of the annuitant is at least five years; or
        2. Not less than the actuarial life expectancy of the annuitant, if the actuarial life expectancy of the annuitant is less than five years.
    4. If an annuity fails either the immediate requirement under (c)(ii) of this subsection or the monthly payout requirement under (c)(iii) of this subsection, the annuity is not a resource if:
      1. The annuity is fully paid out within the actuarial life ex­pectancy of the annuitant; and
      2. The annuitant:
        1. Changes the scheduled payout to equal monthly payments; or
        2. Asks the agency or the agency's designee to calculate and budget the periodic payments as equal monthly payments beginning the month of eligibility. Periodic payments made before the month of eli­gibility are not included in the calculation.
      3. Nothing under (d) of this subsection affects the deferral or balloon payment requirements under (c)(iii) of this subsection, or the payment term requirements under (c)(iii)(A) or (B) of this subsec­tion.
  4. Annuities as income.
    1. If an annuity is not an available resource under subsection (3) of this section, the payments from the annuity are unearned income to the annuitant.
    2. If an annuity is an available resource under subsection (3) of this section, the payments from the annuity are not income to the annuitant.
  5. An annuity as a transfer of assets.
    1. The purchase of an annuity is an uncompensated asset trans­fer, unless the annuity designates the state of Washington as remain­der beneficiary under subsection (6) of this section.
    2. The purchase of an annuity by the client of institutional or HCB waiver services is an uncompensated asset transfer, unless the an­nuity is an annuity under subsection (3)(b)(i) or (ii) of this sec­tion, or the annuity:
      1. Is issued by an entity licensed and approved to issue annui­ties in the jurisdiction in which the annuity is established;
      2. Is immediate, irrevocable, nonassignable; and
      3. Is paid out, in equal periodic amounts with no deferral and no balloon payments, over a term that is actuarially sound (i.e., a term that is not greater than the actuarial life expectancy of that client).
  6. Beneficiary designation requirements.
    1. Subject to (b) of this subsection, to satisfy subsection (5)(a) of this section, when the client of institutional or HCB waiver services, or that client's community spouse, is the annuitant, the an­nuity must:
      1. Name the states as the remainder beneficiary, for at least the total amount of services covered under medicaid, paid on behalf of the client of institutional or HCB waiver services; and
      2. The remainder beneficiary must be listed in the annuity in the:
        1. First position;
        2. Next position, after the community spouse, and any minor or disabled children; or
        3. First position, if either the community spouse, or any minor or disabled children, or a representative for such children, named as beneficiary in the first position under (a)(ii)(B) of this subsection, transfers the right to receive payments from the annuity for less than fair market value.
    2. When the community spouse is the annuitant, the community spouse, or the community spouse's estate, cannot be named as remainder beneficiary under (a)(ii)(A) of this subsection.
    3. If a change of circumstance requires a change in beneficiary designation under (a) of this subsection, the agency or the agency's designee reevaluates the annuity's beneficiary designation.
  7. Actuarial life expectancy is determined by tables that are published by the office of the chief actuary of the Social Security Administration.

This is a reprint of the official rule as published by the Office of the Code Reviser. If there are previous versions of this rule, they can be found using the Legislative Search page.

Clarifying Information

General

In the Medicaid eligibility context, an annuity is a financial product someone purchases, with a lump sum of funds (called the “premium”), that guarantees a stream of payments for a certain period.

Because some annuities can be converted into cash (sold, assigned, or transferred), an annuity is evaluated to determine whether it is a resource or not.

Because all annuities provide a stream of payments, if an annuity is not a resource, then the stream of payments is unearned income.

Because the purchase of an annuity is an asset transfer, annuities are evaluated to determine whether there is uncompensated value for the purposes of long-term care (LTC) Medicaid penalties.

Annuities as resources

A revocable annuity is an available resource, unless it is established after April 1, 2009, and is the type of annuity described under WAC 182-516-0201(3)(b). This includes irrevocable annuities in the cooling-off period – a grace period that allows an annuitant to cancel an annuity contract within the first several days, because the premium can be returned. Additionally, this includes “assignable” annuities – those can be pledged or promised as collateral in order to obtain goods, services, cash, or other valuable consideration.

An irrevocable annuity is also an available resource if the annuity fails the tests under WAC 182-516-0200(4) and (5), or WAC 182-516-0201(3).

Annuities as income

The stream of payments from an annuity is unearned income when the annuity is not an available resource. If the annuity is an available resource, the stream of payments is not income, but a conversion of a resource into cash. 

Example: Steve is applying for COPES. On April 25th, Steve’s spouse, Joan, purchased an annuity with $100,000 (Joan is the annuitant). Joan can cancel the contract with 15 days of purchase. As of May 1st, all the couple’s other resources total $5,000. The couple’s resources as of May 1st is $105,000 because Joan can cancel the contract and get the $100,000 returned.

Example: Same example as above, except the annuity was purchased on April 5th and the annuity can be used as collateral for a loan (can be assigned). The couple’s resources as of May 1st is $105,000 because Joan can use the annuity to obtain approximately the same value of the annuity as cash.

Example: Same example as above, except the annuity was determined to not be a resource. The annuity pays out $1,200 per month. That $1,200 is unearned income for Joan.

Annuities and uncompensated transfers for LTC

The only annuities subject to LTC transfer rules are those established after April 1, 2009, under WAC 182-516-0201.

The entire purchase price of an annuity is uncompensated when the annuity:

  • Fails to name the state of Washington as remainder beneficiary, either in the first position, or second position as described under WAC 182-516-0201(6).
  • Is not an annuity described under WAC 182-516-0201(3)(b), and ANY condition below is not met. The annuity must be:
    • Issued by an entity licensed and approved to issue annuities in the jurisdiction in which the annuity is established;
    • Immediate;
    • Irrevocable;
    • Non-assignable;
    • Not deferred;
    • Paid out in equal periodic payments; and
    • Actuarially sound (the annuity must pay out within the annuitant’s life expectancy)

Note: An annuity can be both a resource and an uncompensated transfer. If a penalty will be applied, recall that it can only start once the client is otherwise eligible for LTC under WAC 182-513-1363(7)(a). An annuity counting as a resource may make an applicant resource ineligible for LTC.

Example: Same example as above, except Joan named Steve as residual beneficiary, and the annuity was purchased within 5 years of Steve’s COPES application. The entire purchase price of the annuity is an uncompensated transfer because Washington is not named as residual beneficiary in the first position.

Example: Joanna is applying for COPES. On April 25th, Joanna’s spouse, Charlie, purchased an annuity with $100,000 (Charlie is the annuitant). Charlie’s life expectancy is 7 years, and the annuity pays out over 10 years. The entire purchase price of the annuity is an uncompensated transfer because the annuity pays out beyond the annuitant’s life expectancy.

 

Worker Responsibilities

Determine if an applicant or their spouse has disclosed any interests in an annuity. If so, determine whether the annuity is an available resource or not. If not, determine the amount of unearned income to the annuitant.

For LTC applicants and their spouses, determine whether the purchase of an annuity is an uncompensated transfer or not.

Notifying the Office of Financial Recovery (OFR)

Notify Ken Washington of OFR via a Barcode tickler when any single premium immediate annuity (SPIA) that requires to name the State of Washington as beneficiary to the extent of Medicaid paid. Set up the following DMS tickler:

  • Document type for tickler: TD
  • Subject: Annuity
  • Site: 101
  • User: WAKE
  • Ready date: Default date is fine

Make sure the trust is indicated on the appropriate person's resource screen in ACES. Add in the remarks that OFR has been notified of the annuity in the ECR.