The use of irrevocable single-premium, immediate payout annuities by New Jersey Medicaid applicants can be an effective estate planning strategy in many cases. Recently, however, the State has been pushing back against the use of these annuities for a variety of reasons.
Notably, Federal regulations provide that a purchased annuity is not considered an asset if it is irrevocable, nonassignable, actuarially sound, and provides payments in equal amounts during the term without deferral or balloon payment options. Conversely, if the annuity can be revoked, the funds are arguably available to the owner.
In 2019 the New Jersey Division of Medical Assistance and Health Services (“DMHS”) decided that they would no longer accept annuities issued by the Croatian Fraternal Union of America due to a general provision in the irrevocable annuity contract allowing Croatian’s President and other select officers to make or change a contract or waive any of the rights or requirements. As a result of this provision, the State began counting Croatian irrevocable annuities as an asset of the owner-applicant, causing them to be ineligible for benefits. As the annuity is irrevocable, this creates a deeply troubling situation for the term of the annuity.
Notably, the Croatian contract makes clear that the annuity is irrevocable and immediate, may not be transferred, assigned, surrendered, or commuted; and has no cash or loan value. Further, the annuitant may not be changed.
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Fortunately, there is some good news for Medicaid applicants concerned with asset protection and preservation. On March 25, 2020, the United States District Court for the District of New Jersey issued an opinion in Cushing v. Jacobs, No. 20-cv130 (D.N.J. 2020), finding that such a determination by the DMHS runs contrary to New Jersey’s rules of contract construction. Further, nothing in the contract required Croatian to make a modification to the contract upon request, instead, the language was seemingly intended to identify those personnel with authority to contract on behalf of the company.
Ultimately, the Court entered Judgment enjoining the DMHS and its employees from enforcing a policy that a Croatian annuity be counted as an available resource due to the presence of the general amendment provision contained in the contract.
This case addresses only one stance the State has taken in a recent effort to restrict the usage and effectiveness of this type of estate planning. Due to the severity and potential impact of the changing estate planning landscape, we urge all would-be planners to proceed with caution and only after they have all information necessary to make a truly informed decision.