5632 Disclosure of Annuity Ownership - Individuals requesting medical assistance must disclose any interest in an annuity as part of the application for benefits. Failure to do results in ineligibility for medical assistance due to non-cooperation (see 2120).

All applicants or recipients, or their spouses, reporting an annuity shall be asked for additional information on the annuity. The ES-3167A  Annuity Information Request form  and ES-3167 Annuity Information Letter  shall be used to obtain the information from the individual. It also serves as a tool for capturing necessary information to determine if a transfer penalty is applicable per 5720.

5633 Treatment of the Annuity - Each annuity must be evaluated to determine the terms of the contract. Those terms will determine if the annuity is an available resource and the potential fair market value of the annuity.

NOTE: All annuities (except for Retirement Annuities) must also be evaluated under the Transfer of Property provisions of 5720.  Any annuity has the potential to be counted as a resource or income, including those not subject to a transfer penalty.  A determination that the purchase of an annuity is an appropriate transfer does not prevent it from being considered as a resource or income.

5633.1 Evaluation of the Contract Terms – The specific terms of the annuity contract shall determine whether the annuity is treated as a resource or as income.  

1. Retirement Annuities - Retirement Annuities (e.g., Civil Service Annuities and Railroad Retirement Annuities) are exempt as a resource, but the income received is countable unearned income.

A retirement annuity is one which meets the qualification tests of the Internal Revenue Code for tax purposes. A qualifying retirement annuity shall be one which receives favorable tax treatment and is non-transferrable. These annuities are also known as qualifying annuities.

2. 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. An annuity which is in the accumulation phase is presumed to be revocable. The fair market value of a revocable annuity is considered an available resource because the contract can be cancelled in return for a cash payment. The fair market value is the cash value.

The ES-3167A form shall be used to obtain the cash value from the issuing company. Any disbursements or withdrawals from an available revocable annuity are not countable income.

3. Irrevocable Annuities - If the terms of the contract do not allow the annuity to be surrendered or cashed-in with the issuing company, it is considered irrevocable. An annuity which is in the pay out phase is presumed to be irrevocable. The fair market value of an irrevocable annuity, including a non-assignable annuity, is considered an available resource because the annuity, or the right to the income stream from the annuity, may be sold on a secondary market.

The fair market value is determined by considering the total amount of money used to fund the annuity as well as any additional earnings, such as interest and dividends. The value is then reduced by the total amount of withdrawals from the fund. Withdrawals include payments or assignment fees.

The W-10 Annuity Evaluation Worksheet shall be used to compute that amount. The payments received from an available irrevocable annuity are not countable income.

5633.2 Assessment Process - The agency shall determine the availability and fair market value for each annuity as described above.  See Policy Memo, 2008-03-02, Re: Availability of Non-assignable Annuities 

1. Availability - All annuities (except Retirement Annuities) are presumed to be an available resource, including those reported to be non-assignable. The right to either the principal or income stream from an annuity is considered a countable resource for purposes of this provision. If the annuity can be sold, assigned, encumbered or structured so that the benefit of the annuity can be received by someone other than the designated beneficiary, the annuity is considered available and will be assigned a value.

If the individual can furnish evidence from a reliable source that the annuity or the income stream from the annuity is not able to be received by someone other than the designated beneficiary, the annuity will be reevaluated. Reliable sources concerning the availability of the annuity or income stream include banks and other financial institutions, insurance companies, brokers, and others who are involved in the purchase or sale of annuities or the income stream from an annuity as part of their business or profession.

An alternate determination of availability provided by the individual which is accepted by the agency shall replace the initial agency determination for all purposes. The agency may choose to reject the alternate determination offered if it appears there has been a lack of good faith by the individual.

Should the agency disagree with the alternative determination of availability provided by the individual; additional determinations may be solicited from the sources described above. If the agency can determine that the annuity would be able to be sold, assigned, encumbered or the benefits transferred to someone other than the designated beneficiary of the annuity, the annuity shall be considered available and subject to valuation as described below.

2. Valuation - Each annuity shall initially be assigned a fair market valuation by the agency as described above:

Revocable Annuity - The fair market value of a revocable annuity is the cash value of the annuity. The ES-3167A form shall be used to obtain the cash value from the issuing company.

Irrevocable Annuity - The fair market value of an irrevocable annuity is the amount yet to be paid out under the terms of the contract. The W-10 shall be used to calculate that amount.

If the individual can furnish evidence from a reliable source demonstrating the annuity has a lesser fair market value than that determined by the agency, the value shall be reevaluated. Reliable sources concerning valuation of the annuity include banks and other financial institutions, insurance companies, brokers and others who are involved in the purchase or sale of annuities or the income stream from an annuity as part of their business or profession.

An alternate valuation provided by the individual that is accepted by the agency shall replace the initial agency valuation for all purposes. The agency may choose to reject the alternate valuation if it is determined there has been a lack of good faith by the individual.

Should the agency disagree with the alternate valuation provided by the individual, additional valuations may be solicited by the agency from the sources described above. The highest value of those valuations shall be used to replace the initial agency valuation for all purposes.

NOTE: An annuity shall not be excluded or exempted from consideration as a resource simply because the cancellation of the annuity contract or the sale of the annuity, or the income stream from the annuity, may result in a financial hardship for the individual.

5633.3 Spousal Impoverishment - Income attributed solely to the community spouse is not considered available in determining the eligibility of the long term care spouse. An irrevocable annuity in the pay out phase which is owned by the community spouse shall be countable as a resource and not as income for purposes of spousal impoverishment. Only after the annuity has been excluded as a resource may it be considered income. See 8143(1) and 8243(1).