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. The subject line in the email must be "Policy Clearance – Annuity". Designated staff in each region will review annuities to determine whether the annuity can be excluded as a resource and no transfer penalty imposed. If designated staff have questions, the IM-14 and annuity will be sent to Program and Policy for review.
For definitions of terms related to annuities, refer to Section 1030.030.05.
Annuities are considered a form of a trust and are subject to a sixty month look back period. For transfers occurring on or after February 8, 2006, the beginning date for the period of ineligibility is the first day of the month in which the transfer occurred or the date the individual would have been eligible for institutionalized level of care (were it not for the penalty period), whichever is later.
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 will always have a cash surrender value (CSV). If the MO HealthNet participant or spouse transferred ownership of a revocable annuity to someone other than their spouse without receiving fair and valuable consideration, the full CSV less any consideration received is the amount of the transfer. 'Fair and Valuable Consideration' means money, real or personal property, or services received from the person(s) to whom the property was transferred is equal to the CSV at the time of transfer.
Irrevocable annuities have no cash surrender value. The value of the annuity's income stream may be an available resource to the MO HealthNet participant or their spouse. 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. If the value of the income stream is less than the purchase price, it must be evaluated to determine whether or not a transfer of property occurred.
NOTE: If the income stream of an annuity from which the MO HealthNet participant or their spouse receives monthly income is excluded as an available resource, transfer of property provisions do not apply. Refer to Section 1030.030.10.10 and Section 1030.030.10.15 for guidance on determining if the income stream of the annuity is excluded as an available resource.
If the MO HealthNet participant or their spouse is the owner, but neither of them is the annuitant and neither of them is the beneficiary, then the entire amount of the premium should be considered a transfer of property.
EXAMPLE: Herman M bought a $40,000 annuity for his daughter, Katherine. If his wife, Agnes, applies for MO HealthNet benefits, examine the annuity to see if Herman can recover any of the premium payment. If not, then the policy is considered irrevocable and the $40,000 counts as a transfer of property, effective the date he bought the policy. The full amount of the transfer would count against Mrs. M.
If the current value of an annuity plus the amount of monthly payments the participant or their spouse has already received do not equal the amount of the premiums paid to purchase the annuity, a transfer of property has occurred.
EXAMPLE: Darlene M, age 80, purchased a single premium, irrevocable annuity for $15,000 in May 2006. Ms. M is the owner and receives the annuity payments. The annuity makes small quarterly payments of $25 for 5 years and then a final balloon-style payment. Ms. M named her niece as beneficiary. Ms. M entered a skilled nursing facility in June 2007 and applied for MO HealthNet for the Aged, Blind, and Disabled in July 2007. The State of Missouri is not named as contingent/remainder beneficiary, the annuity does not pay out in equal or nearly equal payments, and it does not exclude balloon-style final payments. Therefore, the income stream of the annuity is considered an available resource. Ms. M furnished documentation that she cannot sell the annuity for the amount of the remaining guaranteed payments. Instead, she can sell it for $300. The $300 is an available resource to Ms. M. However, since Ms. M can sell the annuity for only $300, a transfer of property occurred. The amount transferred is the amount paid for the annuity ($15,000) minus the value of the annuity ($300) and the amount of payments already received ($100). The eligibility specialist determines that Ms. M transferred $14,600.
To be considered actuarially sound, the expected payments from the annuity are equal to or greater than the purchase price and will be returned to the annuitant during the annuitant's expected lifetime. Transfer penalties may apply if the policy is to be paid out over a time greater than the life expectancy of the annuitant or if regular payments from the annuity are small with the intent of leaving a substantial value for the beneficiary at the end of the policy's term.
Based on the amount, frequency and duration of payments, calculate the total dollar amount of the payments that are expected to be received. If the annuity is for life, the expected number of payments is the number of payments per year times the annuitant's life expectancy at the time the payments start. Refer to the Period Life table published by the Office of the Chief Actuary of the Social Security Administration to determine the life expectancy of the annuitant.
EXAMPLE: Mrs. K, age 65, purchased a single premium life annuity for $25,000. She will receive monthly payments of $125. Her life expectancy is 19.2 years. The total anticipated payout is $28,800. ($125 per payment x 12 payments per year x 19.2 years = $28,800) Mrs. K's policy is actuarially sound because it is constructed to return at least the value of the premium to her during her lifetime.
NOTE: Do not use the Social Security Administration tables for determining life estate values; continue using the Carlisle Table for life estates, as described in Appendix A.
If the annuity is period certain, the expected number of payments is simply the number of payments per year times the years of period certain; some annuities will express the period certain in expected number of payments.
EXAMPLE: Mr. C, age 67, purchased an annuity for $20,000 to be paid over a 10 year period certain with monthly payments of $200. The total payout is $24,000 (10 years x 12 payments per year x $200 per payment). Mr. C's life expectancy is 14.95 years. Mr. C's policy is actuarially sound because it is constructed to return at least the value of the premium to him during his lifetime.
For irrevocable, period certain annuities (in which claimant or spouse is the owner and one of them is the annuitant and receiving the payments), there is no transfer penalty if:
For annuities on which the annuitant began receiving periodic monthly payments prior to August 28, 2005, a transfer of property penalty would only be imposed if the annuity:
EXAMPLE: In June 2005, Mr. M bought an annuity for $30,000 over a 10 year period certain. It pays him $290 per month. He was age 62 when he bought the annuity. The total payout will be 120 X $290 = $34,800. His life expectancy at the time of purchase is 18.5 years, which is greater than 10 years. Therefore, there is no transfer penalty, since he is expected to receive full value from the policy.
If the regular payments from the annuity will exhaust the annuity at the end of the period certain, but the annuitant's life expectancy when payments begin is less than the period certain, then there is a partial transfer of the premium. Determine the amount of the transfer based on the following formula:
EXAMPLE: In July 2005, Mr. C purchased an immediate annuity of $30,000 for a 10 year period certain. His age at the time of purchase was 95. His life expectancy is 2.59 years, which is less than 10 years. Therefore, a portion of the premium will be considered a transfer of property. The transferred amount is: (10 - 2.59) X 30,000 / 10 = 7.41 X 30,000 / 10 = $22,230.
For irrevocable, life annuities (in which the claimant or spouse is the owner and one of them is annuitant and receiving the payments), there is no transfer penalty if:
For annuities on which the annuitant began receiving periodic monthly payments prior to August 28, 2005, a transfer of property penalty would only be imposed if the annuity:
EXAMPLE: Mr. P, age 75, bought an immediate life annuity in October 2004 for $35,000, with monthly payments of $350. His life expectancy at the time of purchase was 9.99 years. The expected total payout is 9.99 years X 12 payments per year X $350 per payment = $41,958. His policy is actuarially sound, provides for equal or nearly equal payments for the duration of the annuity, and excludes balloon-style final payments, so there is no transfer penalty.
If the annuity is paid over the life of the annuitant but the regular payments from the annuity will not exhaust the annuity over the annuitant's life expectancy, then there is a partial transfer of the premium. Determine the amount of the transfer according to the following formula:
Transfer amount equals the premium minus total payout.
EXAMPLE: Mr. C, age 82, bought an immediate life annuity in December 2004 for $70,000 which will pay $400 monthly. His life expectancy at the time of purchase was 6.52 years. The expected total payout is $31,296. (6.52 years X 12 payments per year X $400 per month), which is less than the premium. The transfer is $70,000 - $31,296 = $38,704.
The following is applicable to Annuities resulting in a Transfer of Property 1040.020.35, Irrevocable, Period Certain Annuities 1040.020.35.10, and Irrevocable, Life Annuities 1040.020.35.15
Irrevocable life annuities (in which the MHABD vendor or HCB applicant or participant or their spouse is the owner, and the applicant or participant is the annuitant) purchased on or after February 8, 2006 are not considered as a transfer of property (disposal of assets for less than fair market value) when:
The annuity contract meets the requirement pertaining to the naming of the State as a remainder beneficiary (see Section 1030.030.10 for beneficiary options), and
OR
To determine that an annuity is established under any of the provisions of the Internal Revenue Code that are referenced above, rely on verification from the financial institution, employer, or employer association that issued the annuity. The burden of proof is on the institutionalized individual or his or her representative to produce this documentation. Absent such documentation, the purchase of the annuity will be considered a transfer for less than fair market value which is subject to a penalty.