Community Spouse's Purchase of Annuity Before Medicaid Determination Is Not Improper Transfer

In a case argued by Ohio ElderLawAnswers member attorney William Browning, the U.S. Court of Appeals for the Sixth Circuit rules that an annuity purchased by a community spouse before a Medicaid eligibility determination is not an improper transfer and that the annuity does not need to name the state as a remainder beneficiary. Hughes v. McCarthy (6th Cir., No. 12-3765, Oct. 25, 2013).

Carol Hughes entered a nursing home in Ohio. Mrs. Hughes' husband used $175,000 in resources from his IRA to purchase an annuity for himself. The annuity named Mrs. Hughes, not the state, as the first contingent beneficiary. Mrs. Hughes applied for Medicaid, and the state assessed a penalty period after determining the transfer to the annuity was an improper transfer because it exceeded the community spouse resource allowance (CSRA).  

Mrs. Hughes sued Ohio in federal court, arguing that the state was violating federal law because community spouses are allowed to purchase annuities. The district court granted summary judgment to the state, holding that a transfer to a community spouse in excess of the spouse's CSRA is an improper transfer and that the rules regarding annuities apply only to the institutionalized spouse. Mrs. Hughes appealed.

The U.S. Court of Appeals for the Sixth Circuit, reverses, holding that the transfer to the annuity was not an improper transfer. The court rules that unlimited transfers are allowed between spouses before a Medicaid eligibility determination is made. The court also rules that an annuity purchased by a community spouse does not have to name the state as a remainder beneficiary.

The plaintiffs were represented by William J. Browning of the ElderLawAnswers member firm of Browning, Meyer & Ball Co., LPA, in Worthington, Ohio.

For the full text of the decision, go to: http://www.ca6.uscourts.gov/opinions.pdf/13a0308p-06.pdf

For a discussion of the decision by Pennsylvania ElderLawAnswers member attorney Jeffrey Marshall, click here.