(Revised 12/02 ML #2849)
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(N.D.A.C. Section 75-02-02.1-30.1)
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An annuity is a financial instrument, identified as such, that is established to provide periodic income payments over a defined period of time. An annuity can be purchased with a single lump sum payment or through periodic payments. The entire payment from an annuitized annuity is considered unearned income.
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The equity value of any annuity that can be surrendered for cash is considered an available liquid asset. This includes any annuity for which a payment option is not in force and includes any annuity that can be surrendered even though it is currently paying a benefit. Likewise, any annuity that can be assigned or in which the current payments can be transferred is considered an available asset, with a fair market value equal to its value as a contractual right to receive money payments if assignable, and with a fair market value equal to the highest available offer if the annuity is not assignable.
This presumption of availability can be rebutted when an individual provides adequate information showing that the annuity is not available.
Withdrawal penalties or fees are allowed to reduce the asset value of an annuity.
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Annuities, although usually purchased in order to provide a source of income for retirement, are occasionally used to shelter assets so that individuals purchasing them can become eligible for Medicaid. In order to avoid penalizing annuities validly purchased as part of a retirement plan, but to capture those annuities, which abusively shelter assets, a determination must be made with regard to the ultimate purpose of the annuity and whether the annuity is a disqualifying transfer of assets. For an annuity in which a payment option has already been selected, if the expected return on an annuity is commensurate with a reasonable estimate of the life expectancy of the beneficiary, and the annuity payments are comparably equal, the annuity can be considered actuarially sound. If an annuity pays comparably equal payments for a period not commensurate with the annuitants reasonable life expectancy, pays a small periodic payment, or no periodic payments, with a large lump sum payment(s) at or near the end, the annuity is not considered to be actuarially sound and may be a disqualifying transfer.
- To determine whether the expected return of an annuity is commensurate with a reasonable estimate of the beneficiaries life expectancy, use the Life Expectancy table at Appendix O. If the annuity beneficiary suffers from a condition which is likely to cause death at an earlier age, it must be verified by a medical statement which estimates the remaining duration of life. The estimated remaining duration of life must be used, in conjunction with the life expectancy table, to determine the comparable age for application of the life expectancy table.
The average number of years of expected life remaining for the individual must coincide with the life of the annuity. If the individual is not reasonably expected to live longer than the guarantee period of the annuity, the individual will not receive fair market value for the annuity based on the projected return. In this case, the annuity is not actuarially sound and a disqualifying transfer of assets has taken place.
- In determining whether an annuity that is not actuarially sound and that has a payment option in force is a disqualifying transfer, check if either a payment option was selected, or a right of assignment payment option was selected and, if the annuity is non-assignable, the right of assignment was eliminated, before the look-back period, a disqualifying transfer cannot be considered. If the annuity payment option was selected, or the right of assignment was eliminated, within the look-back period, submit the annuity to the Medicaid Eligibility Division for a determination of whether a disqualifying transfer has occurred.
- When a disqualifying transfer of an assignable annuity is considered to have been made, the effective date of the transfer is the date the payment option was selected. When a disqualifying transfer of a non-assignable annuity is considered to have been made, the effective date of the transfer is the date the right of assignment ended.
