A federal district court rules that five-year annuities purchased by Medicaid applicants are not transfers for less than fair market value, but transfers to 18-, 14-, and 12- month annuities are subject to a penalty period. The court also declines to enforce a state law making it a crime to counsel clients in the disposal of assets. Zahner v. Mackereth (U.S. Dist. Ct., W.D. Penn., No. 11-306 Erie, Jan. 16, 2014).
In three separate cases, Pennsylvania denied Medicaid applications on the grounds that annuities were unlawful transfers. Anable Zahner's husband purchased a five-year annuity and applied for Medicaid benefits on her behalf. Mr. Zahner also loaned his son $80,000 in a promissory note. After the $80,000 was found to be an available resource, the son returned the money and Mr. Zahner purchased an 18-month annuity for his wife. Donna Claypoole's husband transferred money to their children and purchased a five-year annuity and a 14-month annuity before applying for Medicaid on Mrs. Claypoole's behalf. Medicaid applicant Connie Sanner also transferred money and purchased a 12-month annuity.
The three applicants filed a case in federal court, arguing the annuities met the requirements of federal Medicaid law and should not have been considered transfers. The state argued the attorneys who assisted the applicants are guilty under a state law that makes it a crime to counsel a client in the disposal of assets. All parties asked for summary judgment.
The U.S. District Court for the Western District of Pennsylvania grants the plaintiffs summary judgment with regard to the five-year annuities, but denies summary judgment with regard to the shorter annuities. The court declines to enforce the statute making it a crime to counsel clients because it violates free speech. According to the court, the five-year annuities are non-assignable and the court recognizes "the intention of Congress to provide an opportunity to purchase annuities that would be sheltered from consideration as part of assets or resources to the purchaser." On the other hand, the court finds that the shorter annuities are not valid because to be valid "an annuity must be actuarially sound and the term of the annuity should bear a reasonable relatedness to the beneficiary's life-expectancy (but within the life expectancy of the applicant) to avoid penalty." The court also notes that "a transfer of assets or a purchase of an annuity after the date in which a spouse is institutionalized will not per se be considered a transfer for less than fair market value and prohibited by Federal Law."
The Medicaid applicants were represented by Pennsylvania elder law attorney Kemp C. Scales of Elder Law Office of Kemp Scales and New York elder law attorney Rene H. Reixach, Jr. of Woods Oviatt Gilman
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