For purposes of this section a trust shall be defined as any legal instrument or device that is similar to a trust. An annuity is a contract or device which conveys a right to receive a fixed, periodic source of income for a specified period of time.
Each trust and annuity must be reviewed to determine the terms and conditions of the instrument. A full copy of each reported trust/annuity must be obtained from the applicant/recipient. Any pertinent information supporting either the establishment, funding mechanism or current value must also be obtained.
The material and a completed B-6.1, Annuity Clearance Request Form and/or B-6.2, Trust Clearance Request Form, is submitted to KDHE-DHCF Policy for a review and a decision regarding the status of the trust or annuity will be communicated to eligibility staff.
Reserved
A revocable or irrevocable trust shall be regarded as an available asset and/or income if the following conditions are met.
For purposes of subsections (1) and (2) above, a client shall be considered to have established a trust if assets of the client were used to form all or part of the trust and if established, other than by will, by the individual, the client's spouse, or any other person or entity, including a court or administrative body, with the legal authority to act for or on behalf of the client or spouse or acting at the direction or upon request of such person. In addition, the provisions of this subsection apply without regard to the purposes for which the trust was established, whether the trustees have or exercise any discretion under the trust, any restrictions on when or whether distributions may be made from the trust, or any restrictions on the use of distributions from the trust.
If the trust includes assets of any other person or persons, these provisions shall apply only to the portion of the trust attributable to the assets of the individual.
The amount from the trust that shall be considered as an available resource is the amount that could be distributed but was not within a base period (e.g., within a month for AM purposes or over a 6-month base period for Medically Needy cases). Any amount actually distributed shall be regarded as income. Any portion of the trust which is unavailable to the individual or which is not used for the benefit of the individual shall be considered a transfer of property for less than fair market value under the provisions of 5720.
NOTE: This provision shall not be applicable to trusts established prior to April 7, 1986 if the applicant/recipient is an individual with intellectual disabilities who is residing in an intermediate care facility for individuals with intellectual disabilities and the trust is solely for the benefit of the individual.
Mandatory periodic payments received from a trust by the client are considered an available resource equal to the present value of the anticipated string of payments unless there is a valid spendthrift clause or other language in the trust which specifically prohibits anticipation of payments. Where a valid spendthrift clause or other restrictive language exists, the periodic payments are considered countable unearned income.
For trusts established after August 10, 1993, the following shall not be considered available as a resource for purposes of determining eligibility.
In addition, trusts established on or after 12-13-2016 by a disabled individual meeting the requirements of this provision shall not be considered an available resource. A trust established by the disabled individual’s spouse is not exempt.
Payments made from such trusts shall also be exempt unless made available directly to the individual or to the individual’s representative, including, but not limited to, a guardian, a conservator, representative payee, or person holding a power of attorney.
In the above instances, the trust must have a provision whereby any funds that remain in the trust upon the death of the client be provided to the State in an amount up to the amount of medical assistance paid out on that person's behalf. Otherwise, the trust must be considered.
In the above instances, there are no exemptions applicable to trusts established on or prior to August 10, 1993 or to trusts established with assets other than the individual's.
For irrevocable trusts established after August 10, 1993 and which are not exempted, if consideration of the trust results in ineligibility for the individual, the provisions of 5620 shall be waived if such action is necessary to avoid undue hardship. In order to grant hardship, the individual must verify that he or she has exhausted all legal remedies for gaining complete access to the principal as well as income of the trust and that all other nonexempt assets have been expended to meet living and medical expenses, including those amounts protected under the allowable resource levels. (See 5130.)
There is no hardship provision for trusts established on or before August 10, 1993.
An annuity is a contract or device which conveys a right to receive a fixed, periodic source of income for a specified period of time. The person who receives the payments is commonly known as the annuitant. The commercial entity distributing the payment is called the carrier.
There are two phases to an annuity. The first is the accumulation phase, where the annuity is building value. Annuities accumulate value through a lump sum payment or multiple payments. Once the annuity has matured, it is annuitized. This is the pay out phase where regular payments are made from the annuity.
Two settlement options are most common. An immediate annuity is generally annuitized within a year of purchase and is generally purchased with a lump sum. A deferred annuity starts payments at some future age of the annuity. These are generally funded through periodic deposits.
NOTE: All annuities must be evaluated to determine if a transfer of property penalty is applicable, as per 5720.
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.
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.
The specific terms of the annuity contract shall determine whether the annuity is treated as a resource or as 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.
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.
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.
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,
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.
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, Annuity Evaluation Worksheet, 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.
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).