Alabamba Thwarts Common Medicaid Planning Strategies

It is Alabama's policy to value life estates at zero and to presume that annuities are saleable in determining the transfer penalty, even under the Deficit Reduction Act of 2005 (DRA), according to a recent letter by an Alabama Medicaid official.

In a letter dated, April 26, 2007, Bill Butler, General Counsel of the Alabama Medicaid Agency, responded to questions posed by Alabama Elder Law attorney Gregory Watt, regarding the state's treatment of life estates and annuities, among other topics.

Butler stated that Alabama’s policy is to treat life estates as having zero value. As such, if an individual transfers property and retains a life estate, the transfer penalty is calculated on the entire value of the property minus any compensation received by the individual.

With regard to annuities, Butler said that Alabama’s Medicaid policy assumes that annuities are saleable and thus countable resources "unless the applicant conclusively establishes otherwise." Butler wrote: “The Deficit Reduction Act requirement that annuities be irrevocable, actuarially sound and name Medicaid as the beneficiary is merely to avoid a transfer penalty. DRA does not state that an annuity is not a saleable resource. . . . It is the position of Medicaid that actuarially sound lump sum annuities can be sold, even if for a lesser value than the initial contribution amount."