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
(i.e., whether the purchase of the annuity constitutes a transfer of assets for
less than fair market value). If the expected return on the annuity is
commensurate with a reasonable estimate of the life expectancy of the
beneficiary, the annuity can be deemed actuarially sound.
To make this determination, use the following
life expectancy tables, compiled from information published by the Office of the
Actuary of the Social Security Administration. 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 transfer of assets for less than fair market
value has taken place, subjecting the individual to a penalty. The penalty is
assessed based on a transfer of assets for less than fair market value that is
considered to have occurred at the time the annuity was purchased.
