The Effect of Annuities on Long-Term Care Plans
By Shannon Laymon-Pecoraro, CELA
Annuities are great investments for people who are frightened by the stock market or need a tax-deferred investment, and they have long been used to ensure a guaranteed income in retirement. In simple terms, an annuity is a contract with an insurance company whereby the purchaser pays a certain amount of money and the insurance company sends payments in accordance with the purchase terms. The terms of the annuity will spell out whether the return is fixed at a certain percentage, or subject to the market and therefore a variable return with a minimum guarantee, and whether the payments will be immediate or deferred, and made in equal installments or contain balloon payments. While insurance producers often try to match the purchase terms to the client’s current or anticipated goals, what is often overlooked when these annuities are purchased is the effect on the purchaser when there is a long-term care need.
Annuities were often used in the financial services world by individuals that were accredited by the Department of Veterans Affairs to convert assets of the individual into an income stream, creating eligibility for the non-service connected pension benefit. Under the rules implemented by the Department of Veterans Affairs in October 2018, the purchase of an annuity within three years of an application for pension benefits will result in a penalty period. As a result, the timing of a purchase, or the annuitization of an already purchased annuity, may impact a Veterans eligibility for the pension benefit.
Even more complex is the Medicaid-compliant annuity, the purchase of which is subject to a five year lookback. Under federal law, annuities may still be purchased during a “Medicaid spenddown” by either the applicant or spouse, provided certain criteria are met. Such an annuity must be an irrevocable, non-assignable single premium immediate annuity that is actuarially sound pursuant to Medicaid’s life expectancy tables. Additionally, in most cases, the state Medicaid agency must be named as the primary benefit of the annuity in the event the annuitant dies prior to the completion of the annuity payout. While the annuity is a great way to shelter an asset, the purchase of the annuity generates a new income stream and could disrupt income eligibility in some circumstances. Consequently, an elder law attorney must dissect the terms of the annuity to analyze the effect of its purchase, or annuitization, on the overall plan.
An elder law attorney must stay up to date with the current rules and regulations surrounding purchases and annuitization of annuities with regard to both Veterans pension and Medicaid claims. A failure to satisfy the rules and regulations may create an irreversible penalty, and therefore jeopardize the long-term care plan. The use of an annuity for long-term care planning should be made in conjunction with the recommendation of an experienced elder law attorney.
Ask Kit Kat: Counting Squirrels
Hook Law Center: Kit Kat, why were the squirrels in Central Park of New York City counted in October 2018?
Kit Kat: Well, this was an interesting endeavor. It really never had been done before in Central Park in the systematic way which will be described. The study began Oct.5, 2018 and took about 2 weeks to complete. It was the brainchild of Jamie Allen who conducted a similar census in 2012 in Inman Park in Atlanta. The study will give more information about the Eastern gray squirrel (Sciurus carolinensis). The data collected from the Atlanta study yielded information with some unexpected results.
The counters, called squirrel sighters, were largely from Colin Jerolmack’s environmental studies class at NY University. The park was divided into 350 one hectare squares. A hectare is equivalent to 2.5 acres. Each sighter spent 20 minutes twice a day and recorded what was observed. Observation times occurred early in the morning and again in late afternoon. The sighter walked the perimeter of the hectare and then moved to scan the interior. They were not only looking at the number of squirrels, but also at their behaviors—running, eating, foraging, etc. They also looked at coat color which can vary among gray squirrels—gray, black, cinnamon, or white. Vocalizations were also analyzed. Scientists call the most frequent sound squirrels emit as “kuks” which have a clicking sound. “Quaas” are sort of joyful noises indicating yahoo! They even make “moans,” especially when the weather is not so great—like when it is drizzling. Creating the map of the hectares was a feat in itself. A cartographer, Nat Slaughter, took 15 months to make it.
The process may seem a bit imprecise, but the scientists have a way to compensate for this. There actually is a formula designed in 1959 by squirrel biologist, Vagn Flyger, to count squirrels, knowing that they can hide or blend in with their surroundings. AZ/VπSy2. Therefore, A (area surveyed) x Z (# of squirrels seen) is divided by V (visibility quotient of 0.6) x π x S (time observing) x y (average observation distance) squared. Stay tuned for the results. They should be released shortly. Not sure what the holdup is, but these active little creatures are fun to watch. We cats love their tantalizing tail movement! (Andy Newman, “Why Count All the Squirrels in Central Park? Why the Heck Not,” The New York Times, Oct.6, 2018)