Earlier in this column it was reported that Michigan no longer approves of the use of the “Solely for the Benefit Of” trust for the protection of assets for a spouse. The meant that one of the best remaining techniques for preservation of assets while one spouse is in a nursing home and the other is not is a certain type of Medicaid planning annuity. All excess assets can be put into the annuity and the spouse in the nursing home will qualify for Medicaid.
However, the unfortunate part of using the annuity was the fact that the State of Michigan required that the annuity list the State as the first remainder beneficiary, which meant that the State could get paid back if the spouse at home (“Community Spouse”) died before the annuity had fully paid out.
Good news has come regarding the use of the Medicaid planning annuity. In the case of Hughes v. McCarthy the 6th Circuit Court of appeals decided that the requirement of putting the state on as a remainder beneficiary is no longer necessary. It opined that under certain conditions the state could not compel payback. Those conditions are: a) the annuity must be “actuarially sound” (which means that it must pay out during the Medicaid life expectancy of the community spouse); b) the annuity has to be “solely for the benefit” of the community spouse.
Hughes v. McCarthy provided an in-depth analysis of the interplay between the requirements. However, it was ultimately found that 42 U.S. C. section 1396(C)(2)(B)(i) is an exception to transfer penalties stated under paragraph (1):
An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that– (B) the assets—(i) were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse.
42 U.S. C. section 1396(C)(2)(B)(i) also imposes the requirement to designate a state Medicaid agency as a beneficiary of an annuity in order for it to be treated as an exempt transfer. The Court in Hughes v. McCarthy agreed that the Hugheses correctly argued that an annuity satisfying the sole-benefit rule need not follow the beneficiary requirement rule. The decision applies to cases in Michigan, Kentucky, Ohio, and Tennessee.
As a result of the ruling in Hughes v. McCarthy the State of Michigan has released Policy Bulletin 2015-007, which states:
An annuity purchased for the sole benefit of the applicant’s spouse is not a transfer for less than fair market value and is not required to name the State of Michigan as a remainder beneficiary if the annuity is actuarially sound and payments are made only to the applicant’s spouse during the spouse’s lifetime. An annuity purchased or amended for the sole benefit of the applicant’s spouse, on or after February 8, 2006, that does not meet these requirements and does not name the state as a remainder beneficiary is a divestment of the total purchase price.
The bulletin indicates it will be effective May 1, 2015. What this means for spousal cases using an annuity from that time on, no State beneficiary requirement will be mandated. For those cases prior to May 1, 2015, it remains to be seen whether the State will insist on the State beneficiary or will permit retroactive enforcement of the new law.
At Heritage Elder Law and Planning will review spousal situations to give the full benefit of asset preservation (with up to 100% preservation of assets), including that made possible under the new law. Please see us for a free consultation.