1030.030.00 ANNUITIES

All annuity contracts, including the application page, are to be sent as an attachment with the Request for Clearance (IM-14) through the proper supervisory channels for Income Maintenance programs to FSD.IM14@dss.mo.gov . The subject line in the email must be "Policy Clearance – Annuity". Program and Policy staff will review all annuities to determine whether the annuity can be excluded as a resource and no transfer penalty imposed. Field staff do not determine how to count an annuity.

• a source of income (Income Type: UI NEARNED INCOME, Income Source: AN ANNUITIES)
• an available resource (Resource Class: LR LIQUID RESOURCE, Resource Type: AN  ANNUITY)
• a transfer of property (to be entered in FAMIS from the Select MA Transfer of Assets (FMWP) screen)
• a source of income and an available resource; or
• a source of income, an available resource, and a transfer of property.

Prior to August 28, 2005, the income stream of an annuity is an excluded asset.

NOTE: The income stream is an excluded asset but any payments made from the annuity to the participant are counted as unearned income.

Apply the provisions of Senate Bill 539 (2005) outlined in Section 1030.030.20.15 to annuities that were purchased and began making payments on or after August 28, 2005, but prior to August 28, 2007.

Apply the provisions of Senate Bill 577 (2007) outlined in Section 1030.030.20.10 to annuities that were purchased and began making payments on or after August 28, 2007.

EXCEPTION: Do not apply these provisions to annuities purchased for a community spouse or institutionalized spouse when determining eligibility for MHABD vendor or HCB benefits for annuities that were purchased or began making payments on or after April 20, 2010.

Apply the policy in Section 1030.030.10 for annuities that were purchased or began making payments on or after April 20, 2010 for a community spouse or institutionalized spouse when determining eligibility for MHABD Vendor or HCB benefits.

1030.030.05 DEFINITIONS RELATED TO ANNUITIES

Annuities involve persons or legal entities in capacities as owner, annuitant, or beneficiary. The same person can be both owner and the annuitant or the owner and the beneficiary. 

• Annuitant: Individual receiving or entitled to receive the payments from an annuity.
• Beneficiary:  An individual named in an annuity who is to receive the proceeds of the annuity on the death of the annuitant if the beneficiary is still alive at the time of the death of the annuitant.
  1. Contingent Beneficiary: The person/entity who will receive the remaining payments (a lump sum or periodic payments) after the annuity stops making payments to the primary beneficiary.  This can be because the primary beneficiary has died or the annuity's term has expired or any payment obligation to the primary beneficiary has been satisfied. The contingent beneficiary may also be called the remainder beneficiary or secondary beneficiary.
  2. Primary Beneficiary: The person/entity who will receive payments from the annuity upon the death of the annuitant. The person/entity who has first claim to the annuity assets is the primary beneficiary.
  3. Remainder Beneficiary: The person/entity who will receive payments (a lump sum or periodic payments) after the annuity stops making payments to the primary beneficiary.  This can be because the primary beneficiary has died or the annuity's term has expired or any payment obligation to the primary beneficiary has been satisfied. The remainder beneficiary may also be called the contingent or secondary beneficiary.
  4. Secondary Beneficiary: The person/entity who will receive the remaining payments (a lump sum or periodic payments) after the annuity stops making payments to the primary beneficiary. This can be because the primary beneficiary has died or the annuity's term has expired or any payment obligation to the primary beneficiary has been satisfied.  The secondary beneficiary may also be called the contingent or remainder beneficiary.
• Contract Owner: The person or entity that makes application for and purchases an annuity contract, or the person or entity to which ownership of the contract has been transferred. An owner could be an individual, couple, partnership, corporation, or trust.
• Joint Owner: An individual who co-owns an annuity contract with another person or legal entity. Both have the right to make and approve decisions relating to the contract.
• Joint Annuitant: A person named in an annuity contract in addition to the annuitant. This person's age and life expectancy are used along with those of the annuitant to calculate the amount of annuity payments.

Additional terms used in evaluating annuities:

• Annuity Contract: A legal contract in which an insurer or other financial entity agrees to make periodic payments to a designated individual/entity either for life or over a specific period of time, beginning on a set date, in exchange for that individual's/entity's payments of premiums. There are two basic types of annuities: fixed annuities, which pay a fixed income backed by fixed dollar investment such as secure bonds and mortgages; and variable annuities, which vary in payment according to the value of stock and bond investments.
• Annuitization: The process of converting an annuity contract's value into an income stream represented by periodic payments made over a specified period of time.
• Annuity Period: The length of time between income payments made under an annuity income plan; the time span may be monthly, quarterly, semi-annually, or annually.
• Stream of Income:  The amount of remaining guaranteed payments from an annuity.
• Types of Annuities:
  1. Deferred Annuity: Is an annuity in which payments do not begin immediately. This is usually to allow for completing the purchase of the annuity in installments or to allow for a later decision on how the annuity will pay out.
  2. Fixed Annuity: An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract. The insurance company guarantees both earnings and principal. Payments may last for a definite period, such as 20 years, or an indefinite period, such as the lifetime of the annuitant or the lifetime of joint annuitants.
  3. Immediate Annuity: An annuity that begins periodic payments in the immediate next period. For example, an immediate annuity with a monthly payment schedule would begin making payments the month following the month of purchase.
  4. Irrevocable Annuities: If the terms of the contract do not allow the annuity to be surrendered or cashed-in with the issuer, it is considered irrevocable.
  5. Life Annuity: Payments continue during the life of the annuitant without regard to how long the annuitant lives.
  6. Period Certain Annuity: The period over which payments are guaranteed to be made to the person/entity named in the annuity contract, provided the annuitant lives for the entire period certain. If the annuitant dies before the period certain has expired, the beneficiary may receive the payments for the remainder of the period certain or may receive a lump sum.
  7. Revocable Annuities: If the terms of the contract allow for the annuity to be surrendered or cashed-in with the issuing company, the annuity is considered revocable.
  8. Retirement Annuities: A retirement annuity is one which meets the qualification tests of the Internal Revenue Code for tax purposes.
  9. Single Premium Annuity: An annuity purchased by making one single premium payment.
  10. Variable Annuity: A contract with an insurance company, under which the insurer agrees to make periodic payments, beginning either immediately or at some future date. A variable annuity contract is purchased by making either a single purchase payment or a series of purchase payments. A variable annuity offers a range of investment options. The value of the variable annuity will vary depending on the performance of the investment.
• Non-assignable: Owner cannot transfer or sign over title, rights, or interest to a third party.
• Start Date: The date on which the designated individual/entity begins receiving payments from the annuity.

1030.030.10 Determining Eligibility for MHABD Vendor or Home and Community Waiver Services for Annuities that were Purchased  and Began Making Payments on or after April 20, 2010 When There is a Community Spouse

Annuities will not be considered as an available resource or subject to a transfer penalty for the either the community or institutionalized spouse applying for or receiving MHABD vendor or HCB benefits if the annuity meets all of the following requirements:

• Is owned by the community spouse or institutionalized spouse
• Is irrevocable and non-assignable
• Is actuarially sound as measured against the Period Life table published by the Office of the Chief Actuary of the Social Security Administration based on the life expectance of the annuitant
• Provides equal or nearly equal payments for the duration of the annuity with no deferral and no balloon payments; and
• Provides for the appropriate beneficiary options.  Beneficiary means the person that receives the funds from the annuity after the death of the annuitant.

  There are three qualifying beneficiary options:

  Option one – for annuities owned by the community spouse:

  • The annuity must provide that the institutionalized spouse is the primary beneficiary in the event of the community spouse's death; and
  • The annuity must provide that in the event of the death of the institutionalized spouse the state of Missouri is named as the secondary or contingent beneficiary for the amounts of medical assistance (can also state Medicaid or MO HealthNet) expended by the state of Missouri on the institutionalized spouse's behalf.  The annuity beneficiary designation must contain the following language to insure that the state of Missouri is repaid - "Proceeds of this annuity shall be paid to the State of Missouri for the amount of Medicaid funds expended on behalf of (name of the institutionalized spouse)."

  Option two - for annuities owned by the institutionalized spouse:

  • The annuity must provide that the State of Missouri is the primary beneficiary for at least the total amount of medical assistance (can also state Medicaid or MO HealthNet) paid on behalf of the institutionalized individual.  The annuity must contain the following language to insure that the state of Missouri is repaid - "Proceeds of this annuity shall be paid to the State of Missouri for the amount of Medicaid funds expended on behalf of (name of the institutionalized spouse)"; or

  Option three – for annuities owned by the institutionalized spouse

  • The annuity must provide that the State of Missouri is named as secondary or contingent beneficiary after the community spouse or minor or disabled child and is named as primary beneficiary if the community spouse, minor or disabled child, or a representative of such child disposes of any remainder for less than fair market value. The annuity beneficiary designation must contain the following language to insure that the state of Missouri is repaid - "Proceeds of this annuity shall be paid to the State of Missouri for the amount of Medicaid funds expended on behalf of (name of the institutionalized spouse)."

The annuity may be purchased from the institutionalized spouse's share of assets for the community spouse because there is no transfer penalty between spouses. The community spouse's annuity income stream cannot be considered an available resource in determining an institutionalized spouse's eligibility for MHABD vendor and HCB benefits.  Annuity payments are included as income to the spouse who receives the payments.

EXAMPLE: Margaret M entered a nursing facility on September 5, 2011. She is married and her spouse remains in the community. Mr. and Mrs. M had five separate certificates of deposit with a total value of $680,000. On September 1, 2011, Mr. and Mrs. M cashed in all of their certificates of deposit and purchased an irrevocable life annuity for $680,000 with Mr. M as the owner and annuitant. Mr. M is 70 years old. His life expectancy is 13.73 years. He receives monthly annuity payments of $ 4,800 per month. The annuity policy is actuarially sound (13.73 x 12 x $4,800 = $790,848). The policy provides for equal or nearly equal payments throughout the duration. Mr. M named Mrs. M as the primary beneficiary and the State of Missouri as the contingent/remainder beneficiary in an amount equal to the amount of MO HealthNet payments made on the behalf of the Mrs. M, the institutionalized spouse. Because the policy is irrevocable, it has no cash surrender value, and the income stream is not considered an available resource to the institutionalized spouse. There is no transfer of property penalty. The payments Mr. M receives would be included as his income in the allotment computation.

1030.030.10.05  VALUE OF THE INCOME STREAM FROM AN ANNUITY

If the annuity is irrevocable and has no cash surrender value, it must be evaluated to determine whether or not the income stream of the annuity is considered as an available resource. The value of the income stream of an irrevocable annuity belongs to the annuitant. The value of the income stream from the annuity is the amount of the remaining guaranteed payments verified by the policy or the company that issued the annuity, unless there is documentation that the annuity could not be sold for that amount to a third party. If the annuity cannot be sold for the amount of the guaranteed payments, its value is the amount it could be sold for. To determine the amount the annuity could be sold for, the annuitant may:

• provide documentation from the company that issued the annuity verifying the amount that they will pay for the annuity if sold to them; or
• obtain the value of the annuity on the open market if the issuing company will not buy the annuity. (Companies that buy annuities can be located through an Internet search.)

1030.030.10.10  Annuities that were purchased and began making payments on or after August 28, 2007

The income stream of an annuity from which a primary beneficiary (or annuitant) receives monthly income is EXCLUDED as an available resource, if the annuity:

1. is actuarially sound as measured against the life expectancy tables published by the Office of the Chief Actuary of the Social Security Administration. These tables may be accessed at http://www.ssa.gov/OACT/STATS/table4c6.html ,
2. provides equal or nearly equal payments for the duration of the annuity and excludes balloon-style final payments,
3. names the State of Missouri as the secondary or contingent beneficiary ensuring payment of MO HealthNet expenditures if the individual predeceases the duration of the annuity, AND
4. names and pays the MO HealthNet participant as the primary beneficiary (or annuitant).

If the above 4 conditions are not met, the income stream of the annuity is considered as an available resource to the primary beneficiary (or annuitant). The value of the income stream from the annuity is the amount of the remaining guaranteed payments, unless there is documentation that the annuity could not be sold for that amount to a third party. If the annuity cannot be sold for the amount of the remaining guaranteed payments, its value is the amount it could be sold for.

EXAMPLE: Margaret Mabry entered a nursing facility on September 5, 2007. She is married and her spouse remains in the community. The Mabry's had five separate certificates of deposit with a total value of $680,000. On September 1, 2007, the Mabry's cashed in all of their certificates of deposit and purchased an irrevocable life annuity for $680,000 with Mr. Mabry as the owner and primary beneficiary (or annuitant). Mr. Mabry is 70 years old. His life expectancy is 12.98 years. He receives monthly annuity payments of $ 4,800 per month. The annuity policy is actuarially sound (12.98 x 12 x $4,800 = $747,648). The policy provides for equal or nearly equal payments throughout the duration. Mr. Mabry named the State of Missouri as the remainder beneficiary in an amount equal to the amount of MO HealthNet payments made on the behalf of the primary beneficiary (or annuitant). Since the policy is irrevocable, it has no cash surrender value. However, the policy does not name the MO HealthNet participant (Margaret Mabry) as the primary beneficiary (or annuitant). Therefore, the income stream is considered an available resource to Mr. Mabry. When contacted, the company that issued the annuity stated the value of the income stream is $500,000. The amount of $500,000 is counted as an available resource to Mr. Mabry.

EXAMPLE: Emily Miller bought a $40,000 irrevocable annuity on September 25, 2007. Emily is the owner of the annuity and the annuitant. The annuity is actuarially sound. It provides equal payments and names the State of Missouri as contingent/remainder beneficiary. Emily applied for MO HealthNet for the Aged, Blind, and Disabled. Since the annuity is irrevocable, it has no CSV. Because the annuity meets the requirements, the income stream from the annuity is not an available resource to Emily. Budgeting of income from the annuity must be evaluated. Use policy in Section 0815.030.05 to determine whether or not income should be counted. In this situation, the income from the annuity is considered countable unearned income to Emily.

1030.030.10.15  Annuities that were purchased and began making payments on or after August 28, 2005, but prior to August 28, 2007

The income stream of an annuity from which a primary beneficiary (or annuitant) receives monthly income is EXCLUDED as an available resource, if the annuity was purchased and began making payments on or after August 28, 2005, but prior to August 28, 2007, if the annuity:

1. is actuarially sound as measured against the life expectancy tables published by the Social Security Administration based on the life of the annuitant,
2. provides equal or nearly equal payments for the duration of the annuity and excludes balloon-style final payments, AND
3. names the State of Missouri as contingent beneficiary ensuring payment of MO HealthNet expenditures if the individual predeceases the duration of the annuity.

If the above 3 conditions are not met, the income stream of the annuity is considered as an available resource to the primary beneficiary (or annuitant). The value of the income stream from the annuity is the amount of the remaining guaranteed payments, unless there is documentation that the annuity could not be sold for that amount to a third party. If the annuity cannot be sold for the amount of the remaining guaranteed payments, its value is the amount it could be sold for.

EXAMPLE: Minnie Matthews, age 82, bought a $60,000 irrevocable annuity on July 1, 2006. She is the primary beneficiary (or annuitant). The annuity pays Ms. Matthews $200 per month for 10 years, with a balloon payment of $16,000 on July 1, 2016. The remainder beneficiary is Ms. Matthews' granddaughter. Ms. Matthews applied for MO HealthNet for the Aged, Blind, and Disabled on May 1, 2007. Because this annuity is irrevocable, there is no cash surrender value. However, because the annuity has a balloon-style final payment and because the State of Missouri is not the remainder or contingent beneficiary, the income stream from the annuity must be counted as an available resource to Ms. Matthews. When contacted, the company that issued the annuity stated the value of the income stream is $38,000. Ms. Matthews is not eligible for MO HealthNet for the Aged, Blind, and Disabled based on excessive resources.

EXAMPLE: Henry Fredericks and his spouse, Mattie, purchase an irrevocable annuity on July 1, 2006, in the amount of $100,000. Mr. Fredericks is the owner of the annuity. Ms. Fredericks is the primary beneficiary (or annuitant). The annuity makes equal payments and is actuarially sound. The annuity names the State of Missouri as contingent/remainder beneficiary. Ms. Fredericks applies for MO HealthNet for the Aged, Blind, and Disabled. There is no CSV for this annuity because it is irrevocable. The income stream is an excluded asset. Budgeting of income from the annuity must be evaluated. Use policy in Section 0815.030.05 to determine whether or not income should be counted. In this situation, the income from the annuity is considered countable unearned income to Ms. Fredericks.

1030.030.20   Annuities as an Available Resource

EXCEPTION: Do not apply these provisions to annuities purchased for a community spouse or institutionalized spouse when determining eligibility for MHABD vendor or HCB benefits for annuities that were purchased or began making payments on or after April 20, 2010. See Section 1030.030.10

Revocable annuities A revocable annuity contract can be surrendered and the funds in the account withdrawn. Insurance and annuity companies frequently refer to a revocable annuity as a "deferred" annuity or as a tax-deferred annuity account.

The cash surrender value of an annuity owned by the MO HealthNet applicant/participant or spouse must be determined. The cash surrender value (CSV) minus any surrender fees or other charges, is counted as an available resource to the owner of the annuity. The cash surrender value is entered in FAMIS from the SELFRES/FMWB screen Resource Class LR LIQUID RESOURCE, Resource Type AN ANNUITY. Comments must be entered from the Liquid Resource (FMWO) screen to document the verification received and the computation of the CSV.

If the MO HealthNet applicant/participant or the spouse is not the owner of the annuity contract, then none of the annuity's CSV is a resource to the applicant/participant even when the MO HealthNet applicant/participant or the spouse is the annuitant, or the person designated to receive the payments.

If the MO HealthNet participant or spouse transferred ownership of a revocable annuity, refer to Section 1040.020.35 Annuities Resulting in a Transfer of Assets to determine if a transfer penalty should be applied.

EXAMPLE: Mrs. B applied for MO HealthNet for the Aged, Blind, and Disabled in June 2007. Mr. B bought a revocable annuity for $50,000, also in June 2007, which can be surrendered with a 7% surrender charge in the first year. Consider $46,500 ($50,000 - $3,500) as an available resource.

EXAMPLE: Herman M bought a $40,000 annuity for his daughter, Katherine. Katherine applied for MO HealthNet for the Aged, Blind, and Disabled. Because Katherine is not the owner of the annuity, do not consider any of its value as an available resource to her. Payments that she receives would be included as income.

EXAMPLE:  Michelle J purchased a $100,000 revocable annuity for herself in July 2005.  On December 14, 2005 she transferred ownership of the annuity to her son.  On June 3, 2006 Michelle applied for MO HealthNet for the Aged, Blind and Disabled Vendor benefits.  She entered the nursing facility on May 25, 2006.  Although Michelle J is not the owner of the annuity, because she transferred ownership of the annuity and it is revocable, a transfer penalty must be explored. 

Irrevocable annuities have no cash surrender value, but must be evaluated to determine if the income stream of the annuity is considered as an available resource. The value of the income stream of an irrevocable annuity belongs to the person or entity receiving the payments. The value of the income stream from the annuity is the amount of the remaining guaranteed payments verified by the policy or the company that issued the annuity. The amount of the remaining guaranteed payments is the total of the guaranteed annuity payments less any payments previously received.

The value of the remaining guaranteed payments is entered in FAMIS from the Select Financial Resource SELFRES/FMWB screen Resource Class LR LIQUID RESOURCE, Resource Type AN ANNUITY. Comments must be entered from the Liquid Resource FMWO screen to document the verification received and the determination of the value of the income stream. See the Sections 1030.030.20.10, 1030.030.20.15, and 1030.030.20.20 that follow to determine if the income stream is included as an available resource, or if the MHABD exclusion reason PP PER POLICY must be entered.

1030.030.20.10 Annuities that were Purchased and Began Making Payments on or after August 28, 2007

The income stream of an annuity from which a MHABD applicant/participant receives regular payments is EXCLUDED as an available resource, if the annuity meets all four of the following requirements:

1. is actuarially sound as measured against the Period Life table published by the Office of the Chief Actuary of the Social Security Administration based on the life expectance of the annuitant,
2. provides equal or nearly equal payments for the duration of the annuity and excludes balloon-style final payments,
3. names the State of Missouri as primary beneficiary or as secondary or contingent beneficiary after the spouse or minor or disabled child and is named as primary beneficiary if the spouse, minor or disabled child, or a representative of such child disposes of any remainder for less than fair market value to ensure payment up to the total of MO HealthNet expenditures for the individual if the individual predeceases the duration of the annuity, AND
4. names and pays the MO HealthNet applicant/participant as the annuitant.

If all four requirements are not met, the income stream of the annuity is considered as an available resource to the MO HealthNet applicant/participant.

Budgeting of income from the annuity must be evaluated. Use policy in Section 0815.030.05 to determine whether or not income should be counted.

EXAMPLE: Emily M bought a $40,000 irrevocable annuity on September 25, 2007. Emily is the owner of the annuity and the annuitant. The annuity is actuarially sound. It provides equal payments and names the State of Missouri as primary beneficiary. Emily applied for MO HealthNet for the Aged, Blind, and Disabled. Because the annuity is irrevocable, it has no CSV. Because the annuity meets the requirements listed above, the income stream from the annuity is not an available resource to Emily. In this situation, the income from the annuity is considered countable unearned income to Emily.

1030.030.20.15  Annuities that were Purchased and Began Making Payments on or after August 28, 2005, but prior to August 28, 2007

The income stream of an annuity from which an annuitant receives regular payments is EXCLUDED as an available resource, if the annuity was purchased and began making payments on or after August 28, 2005, but prior to August 28, 2007, if the annuity meets all three of the following requirements:

1. is actuarially sound as measured against the Period Life table published by the Office of the Chief Actuary of the Social Security Administration, based on the life expectance of the annuitant, 
2. provides equal or nearly equal payments for the duration of the annuity and excludes balloon-style final payments, AND
3. names the State of Missouri as primary beneficiary or as secondary or contingent beneficiary after the spouse or minor or disabled child and is named as primary beneficiary if the spouse, minor or disabled child, or a representative of such child disposes of any remainder for less than fair market value to ensure payment up to the total of MO HealthNet expenditures for the individual if the individual predeceases the duration of the annuity,

If all three requirements are not met, the income stream of the annuity is considered as an available resource to the MO HealthNet applicant/participant.

Budgeting of income from the annuity must be evaluated. Use policy in Section 0815.030.05 to determine whether or not income should be counted.

EXAMPLE: Minnie M, age 82, bought a $60,000 irrevocable annuity on July 1, 2006. She is the annuitant. The annuity pays Minnie $200 per month for 10 years, with a balloon payment of $16,000 on July 1, 2016. The beneficiary is Minnie M's granddaughter. Minnie M applied for MO HealthNet for the Aged, Blind, and Disabled on May 1, 2007. Because this annuity is irrevocable, there is no cash surrender value. However, because the annuity has a balloon-style final payment and because the State of Missouri is not the primary beneficiary, the income stream from the annuity must be counted as an available resource to Minnie M.  The value of the income stream from the annuity is the amount of the remaining guaranteed payments verified by the policy or the company that issued the annuity. The amount of the remaining guaranteed payments is the total of the guaranteed annuity payments less any payments previously received.

EXAMPLE: Henry F and his spouse, Mattie, purchase an irrevocable annuity on July 1, 2006, in the amount of $100,000. Mr. F is the owner of the annuity. Mrs. F is the annuitant and the person designated to receive payments. The annuity makes equal payments and is actuarially sound. The annuity names the State of Missouri as contingent beneficiary after her spouse. Mr. and Mrs. F apply for MO HealthNet for the Aged, Blind, and Disabled. There is no CSV for this annuity because it is irrevocable. The income stream is an excluded asset. In this situation, the income from the annuity is considered countable unearned income to Mrs. F.

1030.030.20.20 Annuities that were Purchased and Began Making Payments prior to August 28, 2005

For annuities that were purchased and began making payments prior to August 28, 2005, the income stream (the amount of remaining guaranteed payments from the annuity) is an excluded asset. If the annuity has cash surrender value the cash surrender value is considered an available resource. The cash surrender value (CSV) minus any surrender fees or other charges, is counted as an available resource to the owner of the annuity. The cash surrender value is entered in FAMIS from the Select Financial Resource (SELFRES,FMWB) screen Resource Class LR LIQUID RESOURCE, Resource Type AN ANNUITY. Comments must be entered from the Liquid Resource (FMWO) screen to document the verification received and the computation of the CSV.