Annuities

This section provides policy on:

l  Counting annuities as income.

l  Counting annuities as assets.

l  Evaluating annuities in asset assessments.

l  Verifying annuities.

For information on annuity transfers for clients requesting long-term care (LTC) services see Annuity Disclosures, Naming DHS a Preferred Remainder Beneficiary, and Evaluation of Annuities under Transfer Policy.

For information on annuity-funded burials, see Types of Burial Assets and Life Insurance.

 

Overview of Annuities.

Classification of Annuities.

Free Look Period.

Cash Surrender Value.

Commuted Cash Value.

Counting Annuities as Income.

Counting Annuities as Assets.

Annuities in Asset Assessments.

Annuity Verification.

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Overview of Annuities

An annuity is a purchased contract in which one party (annuity issuer) agrees to pay the purchaser, or the person the purchaser designates (the payee or payees), a return on money deposited with the annuity issuer (either in the form of a single lump sum or several payments deposited over several months or years) according to the terms of the annuity contract.

An annuity owner can name a person, trust or entity to receive death benefits from an annuity. This recipient is called the death beneficiary. The annuity provides a series of payments made at set times for a specific period or for a time based on the life expectancy of the annuity owner or the annuitant.

Classification of Annuities

Annuities can be classified in a number of ways, including:  

1. The time at which annuity payments begin.

m Immediate Annuity.  

m Deferred Annuity.

2. The nature of the periodic payments.

m Fixed Annuity.

m Variable Annuity.   

Note:  Variable annuities do not provide equal payments as required under evaluation of annuities under transfer policy because payments are based on the performance of the market.  

3. The period over which annuity payments will be made.

m Term Certain Annuity.  

m Life Annuity.

4. The type of annuity issuer:

m Commercial Annuity.

m Private Annuity.

Note:  These types of annuities may be an uncompensated transfer. See Evaluation of Annuities under Transfer Policy.

Free Look Period

Under Minnesota law, the purchaser of an annuity has the right to cancel an annuity contract within ten days following the date of receiving a copy of the annuity contract.

This cancellation period is often referred to as the ”free look period.” Some annuity contracts allow a free look period longer than ten days. The purchaser cannot waive the right to cancel an annuity contract. The purchaser of the annuity always has this right, even if he or she agrees to give up this right or the right is not stated on the annuity documents.

The purchaser is entitled to a refund of the annuity's entire purchase value when the annuity is cancelled within a free look period.

Exception:  The refund the annuity purchaser is entitled to receive when a variable annuity is cancelled within a free look period is based upon several factors. As a result, the refund could be more or less than the annuity's purchase value.

Cash Value

The cash value, also known as the cash surrender value (CSV), of an annuity, or the amount that can be surrendered, is the amount the client can withdraw from the annuity.

It is most common for an annuity to have cash value during the accumulation phase. Typically, at annuitization there is no longer a cash value to count because the funds are no longer available as a lump sum.

Consider it to be a conversion of assets and follow policy for the assets to which the cash value was converted if the client does withdraw the cash value.

To calculate cash value:

1. Total all deposits made to the annuity + any earnings on those deposits not previously paid out.

2. Subtract any earlier withdrawals and any surrender costs charged for withdrawal.

Note:  There may be tax penalties for early withdrawal. However, do not allow income tax withheld or tax penalties for early withdraw as deductions from cash value.

Commuted Cash Value

A commuted cash value allows the owner to cash in the contract even after annuitization.

n  This allows the owner to cash in the policy for the present value of all future payments.

n  Commuted cash value would be a provision in the contract.

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Counting Annuities as Income

For all health care programs, treat annuity payments to a client as unearned income. Generally, payments from an annuity occur in the annuitization phase. However, there are times when the owner of the annuity is required to make mandatory minimum withdrawals during the accumulation phase. The mandatory withdrawals are age dependent. At a certain age, usually 59 and a half or 70 and a half, the owner of the annuity has to make a withdrawal of cash.

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Counting Annuities as Assets

For all health care programs, evaluate annuities where the client is the annuity owner as follows:

l  Accumulation Phase. Count the following toward the asset limit:

n  The cash value of the annuity toward the client’s asset total, if the client is able to withdraw it from the annuity.

n  The value of an annuity in a free look period.

l  Annuitization Phase. Count the following toward the asset limit:

n  Any available cash value of the annuity toward the client’s asset total.

n  The value of an annuity in a free look period.

n  The commuted cash value.

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Annuities in Asset Assessments

Count the cash value of an annuity owned by either spouse toward the asset total if the annuity meets any of the following:

l  Is in the accumulation phase (not annuitized).

l  Is in a free look period.

l  Has a commuted cash value.

Count annuities converted to income between the time of asset assessment and application as available when determining the spousal asset allowance at the time of MA application.

Exception:  Do not count the annuity if it is funded by a pension or retirement fund held by an employer or union and the client cannot gain access to the funds.

Count the dollar amount available to the client, if the retirement fund contains a special provision that allows the individual to access a portion of the fund or the entire fund under certain circumstances such as a medical emergency.

See the Asset Assessment section of the manual for more information regarding asset assessments.

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Annuity Verification

Clients requesting LTC services must provide verification of the full current cash value as of the date of the request for MA payment of LTC services if the annuity is revocable.

Clients must provide verification of the annuity’s market value if the annuity is assignable.

A copy of the annuity contract and account statements can verify most items needed. In some situations, it may be necessary to get a signed release from the client and contact the annuity issuer or insurance company to obtain verification. Request verification of all of the following:

l  Whether the annuity is a commercial or private annuity.

l  Under what circumstances, if any, the annuity can be sold, cashed in, or assigned to someone else.

l  Cash value of the annuity on the day of annuitization.

l  If anyone other than the client and his or her spouse is an owner of the annuity.

l  If anyone other than the client is named as an annuitant.

l  If anyone is named as beneficiaries.

l  The settlement option chosen, including;

n  How often payments are made.

n  The value of each payment.

n  Date the payments began or will begin.

n  How long payments will be made.

Request verification if it is unclear if the annuity:

l  Is in a free look period.

l  Has a cash value.

l  Has a commuted cash value.

l  Payment received is due to annuitization or a mandatory withdrawal due to age.

Note:  MinnesotaCare does not require verification of assets. However, accept copies of an annuity contract and account statements to verify income from an annuity or to assist a client in determining the asset value of an annuity.

For more information see Verification of Assets.

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