Ronald Fatoullah & Associates - Elder Law

Medicaid Planning...Treatment of IRAs and Annuities


When a nursing home resident applies for Medicaid, the applicant's assets must total less than $13,800. However, pursuant to the Medicaid Resource Guide, if the asset is a retirement account, and the applicant is in receipt of or applies for periodic payments, the retirement account is not an available asset.

When an individual turns 70 1/2 he/she is required to begins receiving Required Minimum Distributions from a traditional IRA. From that point on, the qualified retirement account is an exempt resource for Medicaid purposes. Individuals under 70 1/2 must elect to receive distributions early in order for the IRA to be exempt. A seminal fair hearing on the issue, known as Matter of Arnold S., was decided in 2002. This fair hearing decision reiterated the aforementioned treatment of retirement funds found in GIS MA 024.

It is important to note that retirement funds are not exempt once an individual has merely applied for periodic payments. Hence, residents under the age of 70 1/2 should be advised to elect such payments as soon as possible before making application for Medicaid benefits.

A Suffolk County fair hearing was held on 10/15/09 to determine if the life expectancy tables attached to 06 OMM/ADM5 must be used to calculate the distributions of an IRA. The life expectancy tables in the ADM provide for substantially shorter life spans and therefore higher annual and monthly distributions. The holding was that the "Required Minimum Distributions" (RMD) of IRAs should be based on the IRS tables." The decision also stated that if there is a nonapplying spouse, the age of the spouse with the longer life expectancy may be used.

While New York City has allowed the use of the more liberal IRS tables to determine life expectancy, as far as we know, Nassau County DSS' current policy is to utilize the 06 OMM/ADM 5 tables for a nonmarried applicant. For a married applicant Nassau is using IRS tables, based upon the decision in Matter of Kern, a fair hearing that our firm brought to the attention of the Agency.

Another less known eligibility requirement results from the amendment of Social Services Law section 366-a. The statute was amended to require that the State must be named a remainder beneficiary (in second position if there is a spouse) of an annuity purchased by an applicant or community spouse on or after February 8, 2006. If the State is not named the beneficiary, the purchase of the annuity will be considered a transfer of assets for less than fair market value. Exempted from this treatment are retirement annuities (e.g. IRAs) that fall within Section 408 of the IRS Code and are cited in GIS 98 MA/024.

In addition, if the applicant purchases an annuity it will be treated as a transfer of assets for less than fair market value unless the annuity is irrevocable and non-assignable, actuarially sound (as determined by the Social Security Administration actuarial charts) and provides for payments in equal amounts with no balloon payments.

It is important to be aware of the foregoing rules governing IRAs and annuities prior to making an application for Medicaid benefits. The application will result in a denial if an IRA (in excess of the allowable resource level) is not in payout status or an annuity purchased after February 8, 2006 does not name NYS the remainder beneficiary (after the spouse).

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