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F-7310 General Treatment of Annuities and the Five Criteria Test
Revision 09-4; Effective December 1, 2009
When the annuity meets the five criteria in §358.334, Treatment of a Nonemployment-Related Annuity with a Purchase or Transaction Date before Feb. 8, 2006:
- it is not counted as a resource; and
- payments are counted as unearned income.
When an annuity does not meet the criteria:
- It is counted as a resource and the countable value is presumed to be 80% of the remaining payout.
- It is a transfer of assets only when it does not pay out the principal, plus a reasonable amount of interest within the annuitant's life expectancy.
- The date of the transfer is the date of the annuity purchase or, if applicable, the date that the annuity contract was last amended in exchange for consideration. If the annuity contract has been amended, refer to agency legal counsel to determine if amendment has affected the date of the transfer.
Use the life expectancy table to determine the amount payable during the client's life expectancy. The remaining payout is the amount of the transfer. Example: If the life expectancy is six years and the payout is eight years, the amount payable the last two years is the amount of the transfer.
To determine life expectancy, use the available online actuarial publication from the Social Security Administration's Period Life Table.
F-7320 Determining a Reasonable Amount of Interest
Revision 09-4; Effective December 1, 2009
F-7321 Treatment of Annuities That Return the Principal Within the Life Expectancy But Pay No Interest
Revision 09-4; Effective December 1, 2009
If the annuity in question is guaranteed to pay out only the principal investment within the annuitant's life expectancy, then it does not meet the requirement to return a reasonable amount of interest. If this is the case, then the annuity is a countable resource.
HHSC presumes that the fair market value of such an annuity is 80% of its total remaining payout. This presumption may be overcome only if the client provides credible evidence to the contrary. This may be done only by providing a written appraisal of the annuity's value obtained from at least two reputable companies that are in the business of purchasing annuities.
If the countable value of the annuity does not render the client resource ineligible, determine whether there is any penalty resulting from a transfer of assets. Transfer of asset policy applies because, by purchasing an annuity that pays out no interest, the purchaser does not receive fair market value on the principal investment. To determine the amount of the transfer, first determine the interest percentage that a one-year CD in the local marketplace was paying at the time of the annuity purchase. Obtain this information from a local bank or financial institution. After obtaining this information, use the following formula:
- Purchase Price
- x One-Year CD Interest Rate
- = Uncompensated Transfer
Example: If the purchase price of the annuity in question is $10,000 and the one-year CD rate is 3%, the amount of the uncompensated transfer is $300 ($10,000 x .03 = $300). The date of the transfer is the date of the annuity purchase. Follow current policy to determine if the uncompensated transfer results in any penalty.
F-7322 Treatment of Annuities That Return the Principal Within the Life Expectancy and Pay Interest
Revision 09-4; Effective December 1, 2009
If the annuity in question is guaranteed to pay out the principal investment, plus at least some interest within the annuitant's life expectancy, the following standard applies for determining whether the interest is reasonable: the interest returned is comparable to at least two similar annuities.
The client must furnish these comparisons, which the client may obtain from the person who sold the client the annuity or from any other reputable source. Each market comparison provided must be a similar product from a company licensed to sell annuities in Texas. For example, if the annuity in question is a single premium annuity with a five-year payout, the comparisons provided must be for a single premium annuity with a five-year payout based on the same principal investment as the annuity in question. Copies of the market comparisons must be filed in the case record. The annuity being reviewed must pay out interest in an amount at least equal to or greater than the furnished comparisons.
If the client does not provide comparisons or the comparisons do not meet the standard, the annuity in question does not return a reasonable amount of interest, so it is a countable resource.
HHSC presumes that the fair market value of such an annuity is 80% of its total remaining payout. This presumption may be overcome only if the client provides credible evidence to the contrary. This may be done only by providing a written appraisal of the annuity's value obtained from at least two reputable companies that are in the business of purchasing annuities.
If the countable value of the annuity does not render the client resource ineligible, determine whether there is any penalty resulting from a transfer of assets. To determine the amount of the transfer, first determine the interest percentage that a one-year CD in the local marketplace was paying at the time of the annuity purchase. Obtain this information from a local bank or financial institution. After obtaining this information, use the following formula:
- Purchase Price
- x One-Year CD Interest Rate
- = Amount Transferred
- − Actual Guaranteed Interest Payout
- = Uncompensated Transfer
Example: If the purchase price of the annuity in question is $10,000 and the one-year CD rate is 3%, the amount transferred is $300 ($10,000 x .03 = $300). If the actual guaranteed interest payout of the annuity in question is $200, the uncompensated transfer is $100 ($300 - $200 = $100). The date of the transfer is the date of the annuity purchase. Follow current policy to determine if the uncompensated transfer results in any penalty.
Note: All annuity documents must be referred to agency legal counsel. Legal counsel will provide a written opinion on terms and conditions that impact eligibility.
Use Form H1210, Subrogation (Trusts/Annuities/Court Settlements), to report to the Provider Claims area any potential paybacks to the state as the residuary beneficiary of irrevocable annuities.