Evaluation of Annuities under Transfer Policy

Evaluate all annuities to determine if they are an available asset or a source of unearned income. In addition, certain annuitized annuities purchased by or on behalf of the person requesting MA payment of long-term care (LTC) services LTC services include skilled nursing facility (SNF) care, nursing facility care in an inpatient medical hospital or intermediate care facility (ICF, ICF/DD), or services covered by home and community-based waiver programs (CAC, CADI, DD, EW, and TBI). or the persons spouse must be evaluated to determine if an uncompensated transfer Giving away, selling, conveying ownership or otherwise disposing of income or assets without receiving adequate compensation. occurred within the lookback period A specific period for evaluating transfers prior to the date a person requests MA payment of LTC services..

There are two sets of policies for evaluating these transfers known as Method 1 and Method 2. Use Method 2 to evaluate annuities that do not include all of the elements of annuities evaluated under Method 1.  

Note:  Do not apply the policies described below to employment-based pension plans held in the form of an annuity. See Retirement Funds.

Do not apply a penalty for an uncompensated transfer occurring on or after February 8, 2006, to people who are not otherwise eligible for MA payment of LTC services. A person is not otherwise eligible for MA payment of LTC services when any of the following apply:

l  The person does not meet non-LTC MA eligibility requirements; or

l  The person has a home equity interest in excess of the home equity limit; or

l  The person and his or her spouse fails to name DHS as a preferred remainder beneficiary The person or entity required to be named as a beneficiary of a death benefit under an annuity. A preferred remainder beneficiary has preferential rights to the death benefit. of an annuity when required to do so.

Refer to Applying Transfer Penalty for more information.

Method 1 Transfer Analysis.

Determining Uncompensated Transfers of Method 1 Annuities.

Method 1 Annuity Transfers Evaluation Steps.

Method 2 Transfer Analysis.

Determining Uncompensated Transfers of Method 2 Annuities.

Method 2 Annuity Transfers Evaluation Steps.

Systems and Notice Requirements.

MAXIS.

MMIS.

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Method 1 Transfer Analysis

Evaluate an annuity transfer under Method 1 if it meets all of the following criteria:  

1. The annuity was purchased with the funds of the person requesting MA payment of LTC services; and

2. The person requesting MA payment of LTC services is a payee Someone to whom a benefit is paid. Some benefits, such as an annuity contract, may provide for two or more payees. An annuity payee is sometimes called the annuitant; however, a payee may not also be an annuitant. under the annuity contract; and

3. An annuity transaction occurred on or after February 8, 2006 and within the lookback period A specific period for evaluating transfers prior to the date a person requests MA payment of LTC services..

Do not evaluate an annuity under Method 1 in the following situations:  

1. The annuity is a deferred annuity in the accumulation phase. Evaluate an annuity in the accumulation phase as an available asset.

2. Evaluate revocable or assignable annuities as an available asset. See Annuities for information on verifying these annuities.  

3. No annuity transaction occurred on or after February 8, 2006 and within the lookback period or while receiving MA payment of LTC services.

4. The annuity is a type listed below unless any portion of the annuity to which the person requesting MA payment of LTC services and his or her spouse is entitled to receive is transferred to someone other than the person and his or her spouse. Evaluate any of the following annuities for availability as retirement funds:

n  Individual Retirement Annuity An Individual Retirement Arrangement (IRA) held in the form of an annuity. (according to § 408(b) of the Internal Revenue Code of 1986 (I.R.C.).

n  Annuity-based Deemed IRA A qualified employer plan that maintains a separate account or annuity to receive voluntary employee contributions to facilitate employee retirement savings. under a qualified employer plan (I.R.C.§ 408(q)).

n  An annuity purchased entirely with proceeds from any one or a combination of the following accounts or trusts owned by the person requesting MA payment of LTC services:

m Individual Retirement Account An Individual Retirement Arrangement (IRA) held in the form of a trust or account is commonly referred to as a Traditional IRA. (Traditional IRA) (I.R.C. § 408(a)).

m Simplified Employee Pension (SEP) IRA (I.R.C. Sec. 408(k)).

m Roth IRA An IRA designated as a Roth IRA when it is set up. Unlike a Traditional IRA, a person can make contributions to a Roth IRA after age 70½ in certain circumstances. (I.R.C. § 408A).

m Savings Incentive Match Plan for Employees (SIMPLE) IRA (I.R.C. § 408(p)).

m Trust or account provided by an employer, association of employees, or union that is treated as an Individual Retirement Account (Traditional IRA) (I.R.C. § 408(c)).

Note:  Do not evaluate annuities that meet an exception as a transfer; however, evaluate any annuity that meets an exception for availability.

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Determining Uncompensated Transfers of Method 1 Annuities

Evaluate as transfers Method 1 annuities in the payout phase See Annuitization Phase. that are not listed as exceptions to determine if there has been an uncompensated transfer Giving away, selling, conveying ownership or otherwise disposing of income or assets without receiving adequate compensation..  

l  An uncompensated transfer has not occurred if the Method 1 annuity is not in the payout phase.

l  An uncompensated transfer has occurred if the Method 1 annuity is in the payout phase unless all of the following criteria are met:

n  The annuity is a commercial annuity An annuity that is purchased and set up via an insurance company or financial institution licensed or regulated by the Minnesota Department of Commerce or a similar agency of another state., and

n  The annuity provides for payments in equal amounts during the term of the annuity with no deferral of payments and no balloon payments; and

n  The annuity is actuarially sound An annuity is actuarially sound if the cash value as of the date of annuitization is expected to pay out in full within the expected lifetime of the person requesting MA payment of LTC services or his or her spouse. using the life expectancy tables published by the Chief Actuary of the Social Security Administration (SSA). The current life expectancy table can be found on SSA's Web site. See Method 1 Annuity Transfer Evaluation Step 4 to determine if the annuity is actuarially sound.

Note:  The SSA life expectancy table used to determine actuarial soundness under Method 1 analysis is different from the life expectancy table used for the actuarial soundness test under Method 2 analysis before August 1, 2008.

See Method 1 Annuity Transfers Evaluation Step 5 to determine the value of the uncompensated transfer.

Method 1 Annuity Transfers Evaluation Steps

Step 1: Identify whether a third party (someone other than the person requesting MA payment of LTC services and his or her spouse) obtained an ownership interest in or received a portion or all of the payments from an annuity funded by the person requesting MA payment of LTC services and his or her spouse within the lookback period A specific period for evaluating transfers prior to the date a person requests MA payment of LTC services.. The ownership interest or payments could be through a gift, assignment or sale.

n  Go to Step 2 if no ownership interest in the annuity was transferred to a third party and only the person requesting MA payment of LTC services and his or her spouse receives or received payments from the annuity.

n  Go to Step 5 if a third party obtained an ownership interest in the annuity or received payments or the right to receive payments from an annuity purchased with the funds of the person requesting MA payment of LTC services or his or her spouse within the lookback period, or while the person was receiving MA payment of LTC services.

Step 2: Determine if all the following criteria apply to the annuity:

a. The annuity was purchased with the funds of the person requesting MA payment of LTC services; and

b. The person requesting MA payment of LTC services is a payee Someone to whom a benefit is paid. Some benefits, such as an annuity contract, may provide for two or more payees. An annuity payee is sometimes called the annuitant; however, a payee may not also be an annuitant. under the annuity contract; and

c. An annuity transaction occurred on or after February 8, 2006 and within the lookback period or while the person was receiving MA payment of LTC services; and

d. The annuity is not one of the types of annuities listed as an exception from evaluation under Method 1 analysis.

m If all four of the criteria above apply to the annuity, go to Step 3.

m Evaluate under Method 2 if all four criteria above are not satisfied.

Step 3: Determine if the annuity in the payout phase See Annuitization Phase. meets all of the following criteria:

a.  The annuity is a commercial annuity An annuity that is purchased and set up via an insurance company or financial institution licensed or regulated by the Minnesota Department of Commerce or a similar agency of another state.; and

b.  The annuity provides for payments in equal amounts during the term of the annuity contract; and

c.  The annuity does not include a deferral of payments provision; and

d.  The annuity does not include a provision for a balloon payment A lump-sum payment scheduled at the end of a series of smaller periodic payments that is selected as part of a payment agreement.;  

m If the annuity meets all of the criteria listed above, go to Step 4.

m If the annuity does not meet one or more of the criteria listed above, go to Step 5.

Step 4: Determine if the annuity is actuarially sound An annuity is actuarially sound if the cash value as of the date of annuitization is expected to pay out in full within the expected lifetime of the person requesting MA payment of LTC services or his or her spouse..

a. Determine the life expectancy of the person requesting MA payment of LTC services using the actuarial table found on SSA's Web site. If the person's spouse is also listed as a payee under the annuity, use whichever person's life expectancy is longest.

b. Determine how much money will be paid out to the person requesting MA payment of LTC services and his or her spouse during the applicable life expectancy. To find this amount, add all the payments the person and his or her spouse already received to the amount of additional payments they are scheduled to receive within the applicable life expectancy.

c. Determine the cash value of the annuity on the date it was annuitized. Do not include money contributed by a third party (someone other than the person requesting MA payment of LTC services and his or her spouse) used to fund the annuity. Compare this amount to the result in Step 4(b).

m The annuity is actuarially sound if the cash value of the annuity on the date it was annuitized is less than or equal to the amount calculated to be paid out to the person and his or her spouse within the applicable life expectancy. No further evaluation under transfer policies is required. This is not an uncompensated transfer.

m The annuity is not actuarially sound and the annuity is treated as an uncompensated transfer if the cash value of the annuity on the date it was annuitized is more than the amount calculated to be paid out to the person and his or her spouse within the applicable life expectancy. Go to Step 5 (c).

Step 5: Determine the value of the uncompensated transfer Giving away, selling, conveying ownership or otherwise disposing of income or assets without receiving adequate compensation..

a. For annuities in which a third party obtained an ownership interest and/or any portion or all of the annuity payments to which the person requesting MA payment of LTC services and his or her spouse was entitled to receive during the lookback period  or while the person received MA payment of LTC services, the cash value of the ownership interest transferred and/or the total value of the annuity payments transferred to the third party, after subtracting any compensation received, is treated as an uncompensated transfer. Go to Step 6.

Treat the cash value of the ownership interest transferred and the total value of the annuity payments transferred to the third party after subtracting any compensation received as an uncompensated transfer for annuities in which a third party obtained an ownership interest or any portion of the annuity payments to which the person requesting MA payment of LTC services and his or her spouse was entitled to received during the lookback period or while the person received MA payment of LTC services.

b. For annuities that do not meet the criteria described in Step 3, the value of the uncompensated transfer is the total amount of the person and his or her spouse's funds annuitized less any payments the person or his or her spouse already received. Go to Step 6.

c. For annuities that are not actuarially sound (as described in Step 4), the value of the uncompensated transfer is the total amount of the funds annuitized that will not be returned to the person and his or her spouse within the applicable life expectancy. Go to Step 6.

Step 6: Calculate an Uncompensated Transfer Penalty.

Calculate an uncompensated transfer penalty based on the value of the uncompensated transfer as determined in Step 5 above.

Note:  An uncompensated transfer penalty cannot begin unless the person is otherwise eligible for MA payment of LTC services.

Follow Systems and Notice instructions.

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Method 2 Transfer Analysis

Use Method 2 to evaluate annuities in the payout phase not evaluated under Method 1. Evaluate annuities under Method 2 when they have the following characteristics:

1. The annuity was purchased with the funds of the person and his or her spouse within the lookback period A specific period for evaluating transfers prior to the date a person requests MA payment of LTC services. or while receiving MA; and

2. The person requesting MA payment of LTC services and/or his or her spouse is:

n  an owner;

n  a payee Someone to whom a benefit is paid. Some benefits, such as an annuity contract, may provide for two or more payees. An annuity payee is sometimes called the annuitant; however, a payee may not also be an annuitant.;

n  an annuitant The person(s) upon whose life expectancy annuity payments are based. Multiple annuitants in an annuity contract are commonly referred to as joint annuitants or co-annuitants. Not all annuity payments are based upon a person’s life expectancy. See “term certain annuity.” Annuitant sometimes refers to a person who receives periodic payments from an annuity.;

n  a combination of the above; or

n  none of the above. For example, the funds of the person and his or her spouse were used to purchase an annuity to benefit someone other than the person and his or her spouse, or ownership of the annuity is held by someone other than the person and his or her spouse.

3. If the person requesting MA payment of LTC services is a payee under the annuity, no annuity transaction occurred to the annuity on or after February 8, 2006.

Do not evaluate an annuity under Method 2 in the following situations:  

1. The annuity is a deferred annuity in the accumulation phase. Evaluate annuities in the accumulation phase as an available asset.

2. An annuity transfer when revocable or assignable. See Annuities for more information.

3. The annuity was not annuitized within the lookback period or while receiving MA payment of LTC services.

Evaluate an annuity to determine if it is an available asset or if it provides unearned income if it does not need to be evaluated under Method 1 or Method 2 transfer analysis.

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Determining Uncompensated Transfers of Method 2 Annuities

Evaluate as transfers Method 2 annuities that are not listed as exceptions to Method 2.

l  An uncompensated transfer has not occurred if the Method 2 annuity is not in the payout phase See Annuitization Phase..

l  An uncompensated transfer Giving away, selling, conveying ownership or otherwise disposing of income or assets without receiving adequate compensation. has occurred unless all of the following criteria are met:

n  The annuity is a commercial annuity An annuity that is purchased and set up via an insurance company or financial institution licensed or regulated by the Minnesota Department of Commerce or a similar agency of another state.; and

n  The annuity provides for payment of principal and interest in equal monthly installments during the term of the annuity contract; and

n  Principal and interest payments from the annuity begin at the earliest possible date after annuitization The point in time when an annuity's settlement option is chosen.; and

n  The annuity is actuarially sound An annuity is actuarially sound if the cash value as of the date of annuitization is expected to pay out in full within the expected lifetime of the person requesting MA payment of LTC services or his or her spouse. using the applicable expectancy table. See Method 2 Annuity Transfers Evaluation Step 4 below.

Method 2 Annuity Transfers Evaluation Steps

Step 1: Identify whether a third party (someone other than the person requesting MA payment of LTC services and his or her spouse) obtained an ownership interest in or received a portion or all of the payments from an annuity funded by the person requesting MA payment of LTC services and his or her spouse within the lookback period. The ownership interest or payments could be through a gift, assignment or sale.

a. Go to Step 2 if no ownership interest in the annuity was transferred to a third party and only the person requesting MA payment of LTC services and his or her spouse receives or received payments from the annuity.

b. Go to Step 5 (a) if a third party obtained an ownership interest in the annuity or received payments or the right to receive payments from an annuity purchased with the funds of the person requesting MA payment of LTC services or his or her spouse within the lookback period or while the person was receiving MA payment of LTC services.

Step 2: Determine whether the annuity was annuitized during the lookback period A specific period for evaluating transfers prior to the date a person requests MA payment of LTC services. or while the person was receiving MA payment of LTC services.

a. No further evaluation of the annuity is required under Method 2 analysis if the annuity was annuitized prior to the lookback period.  This is not an uncompensated transfer.

b. If the annuity was annuitized during the lookback period or while the person received MA payment of LTC services, go to Step 3.

Step 3: Determine if the annuity is in the payout phase See Annuitization Phase. and meets all of the following criteria:

a. The annuity is a commercial annuity An annuity that is purchased and set up via an insurance company or financial institution licensed or regulated by the Minnesota Department of Commerce or a similar agency of another state.; and

b. The annuity provides for payment of principal and interest in equal monthly installments during the term of the annuity contract; and

c. The annuity begins payment of principal and interest at the earliest possible date after annuitization The point in time when an annuity's settlement option is chosen..

o If the annuity meets all of the criteria listed above, go to Step 4.

o If the annuity does not meet one or more of the criteria listed above, go to Step 5(b).

Step 4: Determine whether the annuity is actuarially sound An annuity is actuarially sound if the cash value as of the date of annuitization is expected to pay out in full within the expected lifetime of the person requesting MA payment of LTC services or his or her spouse..

a. Determine life expectancy using the applicable life expectancy table.  

For requests (including renewals) processed on or after August 1, 2008, use the actuarial life expectancy table found on SSA's Web site. Use the Annuity Life Expectancy Table for requests (including renewals) processed before August 1, 2008.

Use the life expectancy of:

m the person requesting MA payment of LTC services if that person and his or her spouse purchased the annuity and the person requesting MA payment of LTC services is the only payee Someone to whom a benefit is paid. Some benefits, such as an annuity contract, may provide for two or more payees. An annuity payee is sometimes called the annuitant; however, a payee may not also be an annuitant..

m the spouse if the person requesting MA payment of LTC services and his or her spouse purchased an annuity and the spouse is the only payee under the annuity.

m whichever spouse's life expectancy is longer if the person requesting MA payment of LTC services and his or her spouse purchased an annuity and both are payees under the annuity.

b. Determine how much will be paid out to the person requesting MA payment of LTC services and his or her spouse using the appropriate life expectancy. To find this amount, add all the annuity payments the person and his or her spouse already received to the amount of additional payments scheduled to be received by the end of the applicable life expectancy.

c. Determine the cash value of the annuity on the date it was annuitized. Do not include any money contributed by a third party used to fund the annuity. Compare this amount to the result in Step 4(b).

m The annuity is actuarially sound if the cash value of the annuity on the date annuitized is less than or equal to the amount calculated to be paid out to the person and his or her spouse within the applicable life expectancy. No further evaluation under transfer analysis is required. This is not an uncompensated transfer.

m The annuity is not actuarially sound and is treated as an uncompensated transfer if the cash value on the date annuitized is more than the amount calculated to be paid out to the person and his or her spouse within the applicable life expectancy. Go to Step 5(c).

Step 5: Determine the value of the uncompensated transfer.

a. For annuities in which a third party received any portion or all of the annuity payments to which the person requesting MA payment of LTC services or his or her spouse was entitled to receive during the lookback period or while the person received MA payment of LTC services (as described in Step 1), the total amount of money transferred to the third party after subtracting any compensation received is treated as an uncompensated transfer. Go to Step 6.

b. For annuities that do not meet the criteria in Step 3 for Method 2, the value of the uncompensated transfer is the total amount of the person and his or her spouse's funds annuitized less any payments the person or his or her spouse already received. Go to Step 6.

c. For annuities that are not actuarially sound (as described in Method 2, Step 4), the value of the uncompensated transfer is the total amount of the funds annuitized that will not be returned to the person and his or her spouse within the applicable life expectancy. Go to Step 6.

Step 6: Calculate an uncompensated transfer penalty.

Calculate an uncompensated transfer penalty based on the value of the uncompensated transfer as determined in Step 5 above.

Note:  An uncompensated transfer penalty period can only begin when the person requesting MA payment of LTC services is otherwise eligible for MA payment of LTC services.

Follow Systems and Notice instructions.  

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Systems and Notice Requirements

Treat annuity transactions resulting in an uncompensated transfer penalty like all other uncompensated transfers.

MAXIS

Follow coding instructions in TE02.14.27, Uncompensated Asset/Income Transfers for MA.

MAXIS will send a denial or ending notice for MA payment of LTC services.

For transfer penalties applied to uncompensated transfers occurring on or after February 8, 2006:

n  A transfer penalty cannot begin unless the person requesting MA payment of LTC services is otherwise eligible for MA payment of LTC services.

n  An uncompensated transfer penalty cannot begin if a person requesting MA payment of LTC services is ineligible due to either of the reasons listed below.

m Home equity interest is in excess of the home equity limit.

m The person has failed to name DHS a preferred remainder beneficiary of an annuity owned by the person requesting MA payment of LTC services and his or her spouse.

For transfer penalties applied to uncompensated transfers occurring before February 8, 2006, if in addition to one or more uncompensated transfers the person is also ineligible for MA payment of LTC services due to one or both of the reasons listed below, enter the following in the worker comment on the MAXIS generated notice.

n  Home equity interest is in excess of the home equity limit.

n  The person has failed to name DHS a preferred remainder beneficiary of an annuity owned by the person requesting MA payment of LTC services and his or her spouse.

MMIS

Refer to the MMIS User Manual for instructions regarding coding ineligibility due to uncompensated transfers.

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