Annuity Purchased Post-Initial Eligibility Determination Is Not Available Resource

Annuity Purchased Post-Initial Eligibility Determination Is Not Available Resource

Many elder law clients use annuities as a means to protect assets for a community based spouse when his or her is receiving long term care. An important decision was reached that may benefit planners and their elder law clients in achieving asset protection goals.

Reversing a district court, a U.S. court of appeals holds that an annuity is an unavailable resource even if it is purchased in addition to the community spouse resource allowance, and that there is no transfer penalty for the couple’s purchase of the annuity prior to a determination of Medicaid eligibility. Morris v. Oklahoma Dept. of Human Services (10th Cir., No. 10-6241, July 9, 2012).

When Oklahoma resident Glenda Morris applied for Medicaid benefits, she and her husband, Leroy, had assets totaling $107,812. The state determined that Mr. Morris’ community spouse resource allowance (CSRA) would be $53,906 and that the couple would have to spend down $51,906 for Mrs. Morris to become eligible for Medicaid. The Morrises purchased burial plots as well as an irrevocable annuity for $41,000 that would provide income to Mr. Morris over a three-year period.

The state denied benefits, finding that Mrs. Morris could not spend her share of the couple’s resources on an annuity payable to Mr. Morris, or in the alternative, that Mrs. Morris was subject to a transfer penalty for transferring to Mr. Morris an amount above his CSRA. After a hearing officer upheld the denial, Mrs. Morris sued the state in federal court, arguing that the Centers for Medicare and Medicaid Services’ Transmittal 64 provides that resources that are converted into income for the community spouse through the purchase of an annuity are no longer deemed available to the institutionalized spouse.

The U.S. District Court for the Western District of Oklahoma granted the state’s motion for summary judgment, finding that federal law prohibits the community spouse from purchasing, after an initial determination of eligibility, an annuity above that spouse’s CSRA. According to the court, Transmittal 64 refers only to transfers made before an eligibility determination. Mr. Morris appealed as personal representative of his wife’s estate.

The U.S. Court of Appeals for the Tenth Circuit reverses, ruling that “the purchase of a qualifying annuity renders resources unavailable to the institutionalized spouse even if the annuity is purchased in addition to the community spouse’s CSRA.” The court holds that qualifying annuities and the CSRA are “separate provisions [that] create two different mechanisms by which a Medicaid applicant can render resources unavailable. The statute does not require an applicant to pick one or the other.” Distinguishing between an “initial determination of eligibility” and “after an individual has been found to be eligible for Medicaid,” the court finds that no transfer penalty applies “to qualifying annuities purchased prior to a determination that the institutionalized spouse is eligible for benefits.” The court remands to the district court to resolve outstanding issues concerning the timing of the Morrises’ application relative to the annuity purchase.

Please contact Douglas L. Kaune at 610 933 8069 or email him at for additional information and for a review of your case.