Annuities in Connecticut Estate Planning
Post-Publication Updates
Version 3: October, 2012
Copyright 2012 by Joseph A. Cipparone
This document contains post-publication updates to Annuities in Connecticut Estate
Planning by Joseph A. Cipparone, Esq., which was published June 23, 2011, by LawFirst
Publishing, a division of the Connecticut Bar Association. To buy the book, visit
www.eldersolutionscenter.com , call the CBA Members Services Center (860-223-4400),
or visit the CBA Online Store (https://www.ctbar.org/OnlineStore/).
A “♫” indicates a section with new material.
Contents
♫ INTRODUCTION
CHAPTER 1
1.1
TYPES OF ANNUITIES
COMMERCIAL ANNUITIES
♫ 1.2 CHARITABLE GIFT ANNUITIES
1.3
PRIVATE ANNUITIES
1.4
EMPLOYER ANNUITIES
1.5
STRUCTURED SETTLEMENT ANNUITIES
1.6
TRUSTS THAT PAY ANNUITIES
CHAPTER 2
TAXATION OF ANNUITIES
2.1
INCOME TAXATION
♫2.2
GIFT TAXATION
♫2.3
ESTATE TAXATION
1
CHAPTER 3
ANNUITIES IN THE MEDICAID SYSTEM
♫3.1
AN OVERVIEW OF MEDICAID LAW
♫3.2
MEDICAID ANALYSIS OF ANNUITIES IN CONNECTICUT
♫3.3
THE SUITABILITY OF ANNUITIES FOR CONNECTICUT SENIORS
CHAPTER 4
ANNUITIES AND TRUSTS
4.1
AN OVERVIEW OF TRUSTS
4.2
THE INTERSECTION OF TRUSTS AND ANNUITIES
4.3
DECIDING WHETHER TO NAME A TRUST AS OWNER OR
BENEFICIARY OF AN ANNUITY
4.4
INCOME TAX CONSEQUENCES OF NAMING A TRUST AS
OWNER OR BENEFICIARY OF AN ANNUITY
4.5
GIFT AND ESTATE TAX CONSEQUENCES OF NAMING A TRUST
AS OWNER OR BENEFICIARY OF AN ANNUITY
4.6
MEDICAID CONSEQUENCES OF TRANSFERRING AN ANNUITY
TO A TRUST
4.7
TREAD THOUGHTFULLY IN USING TRUSTS
CHAPTER 5
OTHER LEGAL CONSIDERATIONS
5.1
CREDITOR CLAIMS
5.2
ANNUITY POWERS IN A DURABLE POWER OF ATTORNEY
5.3
ANNUITIES IN CONNECTICUT PROBATE COURT
5.4
PROTECTION AGAINST INSURANCE COMPANY DEFAULT
2
♫5.5
REGULATION OF ANNUITY COMPANIES AND THEIR SALES
AGENTS
3
INTRODUCTION
Delete the last two paragraphs of the Introduction and substitute the following:
The world of annuities, retirement planning, special needs planning and estate
planning constantly changes. Whether a life insurance company introduces a new annuity
product, the federal estate tax law changes, or the Department of Social Services issues
new annuity regulations, a book can only take a snapshot of the planning landscape at the
time it is written. As you read through the book, if you find inaccuracies in the treatment
of a topic discussed in this book or you know of updates or changes to the world of
annuities or estate planning that this book fails to cover, I hope you will share your
insights with me. This book is meant to deepen the understanding of annuities; it does not
assume that its first edition will definitively answer every question or circumstance.
Given the complex nature of this subject, you may have questions along the way.
Visit my web site at www.eldersolutionscenter.com or send me an e-mail at
jac@261law.com .Your questions will help improve the book for future editions.
CHAPTER 1
1.2
TYPES OF ANNUITIES
CHARITABLE GIFT ANNUITIES
1.2.1
How Charitable Gift Annuities are Determined
Delete the first paragraph and substitute the following:
Most charities base the annuity payout on annuity rates recommended by the American
Council on Gift Annuities. See the American Council on Gift Annuities web site
(www.acga-web.org) for the latest charitable gift annuity rates. Appendix A attached to
this Post-Publication Update shows the charitable gift annuity rates for one and two lives
as of January 1, 2012. The rates assume that the charity will receive approximately 50%
of the original amount contributed by the donor upon the annuitant’s death. See, 800
Tax Mgmt. (BNA) ¶IX.E.3.f. (Gift Annuities). Of course, if the donor lives beyond his or
her life expectancy, the charity will not receive approximately 50% of the original
amount. If the annuitant dies before reaching his or her life expectancy, the charity may
receive more than 50% of the original amount.
CHAPTER 2
2.1
TAXATION OF ANNUITIES
INCOME TAXATION
No updates at this time.
4
2.2
GIFT TAXATION
2.2.4
The Connecticut Gift Tax
Governor Dannel P. Malloy signed Connecticut Senate Bill 1239 on May 4, 2011,
changing the Connecticut gift tax retroactively to January 1, 2011. The Bill became
Public Act 11-6. Section 87 of Public Act 11-6 states:
Subsection (a) of section 12-642 of the general statutes is repealed and the
following is substituted in lieu thereof (Effective from passage and applicable to gifts
made during calendar years commencing on or after January 1, 2011):
(5)
With respect to Connecticut taxable gifts, as defined in section 12-643, made by a
donor during a calendar year commencing on or after January 1, 2011, including the
aggregate amount of all Connecticut taxable gifts made by the donor during all calendar
years commencing on or after January 1, 2005, the tax imposed by section 12-640 for the
calendar year shall be at the rate set forth in the following schedule, with a credit allowed
against such tax for any tax previously paid to this state pursuant to this subdivision or
pursuant to subdivision (3) or (4) of this subsection, provided such credit shall not exceed
the amount of tax imposed by this section:
Amount of Taxable Gifts
Rate of Tax
Not over $2,000,000
None
Over $2,000,000 but not over
$3,600,000
7.2% of the excess over $2,000,000
Over $3,600,000 but not over
$4,100,000
$115,200 plus 7.8% of the excess over
$3,600,000
Over $4,100,000 but not over
$5,100,000
$154,200 plus 8.4% of the excess over
$4,100,000
Over $5,100,000 but not over
$6,100,000
$238,200 plus 9.0% of the excess over
$5,100,000
Over $6,100,000 but not over
$7,100,000
$328,200 plus 9.6% of the excess over
$6,100,000
Over $7,100,000 but not over
$8,100,000
$424,200 plus 10.2% of the excess over
$7,100,000
5
Over $8,100,000 but not over
$9,100,000
$526,200 plus 10.8% of the excess over
$8,100,000
Over $9,100,000 but not over
$10,100,000
$634,200 plus 11.4% of the excess over
$9,100,000
Over $10,100,000
$748,200 plus 12% of the excess over
$10,100,000
Thus, the Connecticut lifetime gift tax exemption is $2,000,000 as of January 1, 2011,
down from $3,500,000 in 2010.
2.3
ESTATE TAXATION
2.3.2
The Connecticut Estate Tax
Governor Dannel P. Malloy signed Connecticut Senate Bill 1239 on May 4, 2011,
changing the Connecticut estate tax retroactively to January 1, 2011. The Bill became
Public Act 11-6 and is effective January 1, 2011. Section 84 of Public Act 11-6 states:
Subsection (g) of section 12-391 of the general statutes is repealed and the
following is substituted in lieu thereof (Effective from passage and applicable to estates
of decedents dying on or after January 1, 2011):
(3) With respect to the estates of decedents dying on or after January 1, 2011, the tax
based on the Connecticut taxable estate shall be as provided in the following schedule:
Amount of
Connecticut Taxable Estate
Rate of Tax
Not over $2,000,000
None
Over $2,000,000 but not over
$3,600,000
7.2% of the excess over $2,000,000
Over $3,600,000 but not over
$4,100,000
$115,200 plus 7.8% of the excess over
$3,600,000
Over $4,100,000 but not over
$5,100,000
$154,200 plus 8.4% of the excess over
$4,100,000
6
Over $5,100,000 but not over
$6,100,000
$238,200 plus 9.0% of the excess over
$5,100,000
Over $6,100,000 but not over
$7,100,000
$328,200 plus 9.6% of the excess over
$6,100,000
Over $7,100,000 but not over
$8,100,000
$424,200 plus 10.2% of the excess over
$7,100,000
Over $8,100,000 but not over
$9,100,000
$526,200 plus 10.8% of the excess over
$8,100,000
Over $9,100,000 but not over
$10,100,000
$634,200 plus 11.4% of the excess over
$9,100,000
Over $10,100,000
$748,200 plus 12% of the excess
over $10,100,000
Thus, the Connecticut lifetime estate tax exemption is $2,000,000 as of January 1, 2011,
down from $3,500,000 in 2010.
CHAPTER 3
3.1
ANNUITIES IN THE MEDICAID SYSTEM
AN OVERVIEW OF MEDICAID LAW
3.1.2
Medicaid Asset Limits
On June 13, 2011, Governor Dannel P. Malloy signed Senate Bill 1240. The Bill
became Public Act 11-44. Section 178 of the Act repeals C.G.S.. §17b-261k (originally
known as Public Act 10-73). Thus, the maximum federal community spouse resource
allowance was no longer the Community Spouse Protected Amount (CSPA) in
Connecticut. Connecticut returned to its CSPA of one-half (1/2) of the spousal assets as
of the date of institutionalization up to the maximum federal community spouse resource
allowance. The repeal was effective July 1, 2011. The Malloy Administration projected
savings of $30 million per year from the repeal of C.G.S. §17b-261k. See, Arielle Levin
Becker, Advocates for the Elderly Oppose Malloy Move on Assets, The Connecticut
Mirror, April 20, 2011, at http://www.ctmirror.org/story/12312/medicaid-nursing-homeasset-limit.
C.G. S. 17b-261k was signed into law on May 27, 2010, and enjoyed
overwhelming bipartisan support in the Connecticut General Assembly. Under C.G.S.
7
17b-261k, when one spouse applied for Medicaid to pay for nursing home or home care,
the community spouse could keep the home residence, a car and all of the couple’s assets,
up to a maximum of $109,560.00. Because the maximum federal community spouse
resource allowance did not change on January 1, 2011, the CSPA was $109,560 for the
period of May1, 2010 to July, 1, 2011.
As of July 1, 2011, DSS calculates the CSPA based on one-half (1/2) of the
spousal assets as the date of institutionalization up to the maximum of $109,560 but not
less than $21,912. E-mail from Allen Mallory to DSS Caseworkers dated 6/17/11
entitled “Changes to the Community Spouse Protected Amount; New CSA Standards;
New Average Cost of LTC” (hereinafter “Mallory E-mail”). On January 1, 2012, the
maximum increased to $113,641 and the minimum increased to $22,728.
The Mallory E-mail included two examples of how eligibility calculations for
spouses will change after July 1, 2011:
For example, say you receive an application in July that requests retroactive long
term care coverage for June. The spousal assets in June were $100,000. Since the
community spouse is entitled to the maximum CSPA in June, the institutionalized
spouse is eligible in June. We would not deem any assets in July, despite the
change in the law.
If, on the other hand, the couple had $120,000 as of the date of institutionalization
and at the time of the application in July, there would not be any eligibility for
June (the $120,000 exceeded the maximum CSPA, which we would use for June).
The new law applies, and the couple must reduce the $120,000 to $61,600 (the
$60,000 CSPA under the new law and $1,600 for the applicant) to qualify for
Medicaid.
To summarize the fluctuating CSPA from 2010 to 2012, see the table below.
Time Period
Before 5/1/2010
5/1/2010 to 6/30/2011
7/1/2011 to 12/31/2011
1/1/2012 to 12/31/2012
Community Spouse Protected Amount
Lesser of ½ of spousal assets as of the date of
institutionalization to a maximum of $109,560 with a
minimum of $21,912
$109,560 maximum; $21,912 minimum
Lesser of ½ of spousal assets as of the date of
institutionalization to a maximum of $109,560 with a
minimum of $21,912
Lesser of ½ of spousal assets as of the date of
institutionalization to a maximum of $113,461with a
minimum of $22,728
8
3.1.3
Medicaid Income Limits
In 2012, the SSI benefit amount rose to $698 per month so the income limit for
the Connecticut Home Care Program for Elders rose to $2,094 per month.
Delete the example at the bottom of page 55 regarding the Community Spouse Allowance
and substitute the following example:
Example: Community Spouse Allowance.
Geoff and Sasha live in Middletown,
Connecticut. Geoff went to Big Brook Nursing Home due to a heart condition on
January 15, 2012. He applies for Medicaid on February 1, 2012. He has $2,750 of
monthly income and Sasha has $250 of monthly income. Sasha gathers their bills.
They have a monthly mortgage payment of $500, monthly real estate taxes of $500, and
monthly homeowners insurance of $200. The calculation of Sasha’s Community
Spouse Allowance is shown in the following table.
AMOUNT
Total Monthly Shelter Costs (mortgage/rent/condo dues/property
taxes/homeowners insurance)
Standard Utility Allowance (as of 10/1/11)
LESS Standard Shelter Allowance (as of 7/1/11)
Additional expenses from exceptional circumstances resulting in
financial duress that are established at a Medicaid Fair Hearing
Minimum Monthly Maintenance Needs Allowance (as of
7/1/11)
Tentative Monthly Maintenance Needs Allowance
LESS the amount in excess of Maximum Monthly Maintenance
Needs Allowance ($2,841 as of 1/1/12)
Monthly Maintenance Needs Allowance
LESS Community Spouse’s Income
Community Spouse Allowance (CSA)
$1,200
683
-551
0
1,838
$3,170
-329
$2,841
-250
$2,591
Because Geoff has income of $2,750 and Sasha’s Community Spouse Allowance is
$2,591, Sasha will receive $2,591 of Geoff’s income. That leaves $159 for Geoff. Geoff
receives his personal needs allowance ($60 as of 7/1/11) and the remaining amount ($99)
is applied to outstanding bills for Geoff’s medical care and his nursing home costs.
9
3.2
MEDICAID ANALYSIS OF ANNUITIES
Delete all of Section 3.2.2 and substitute the following:
3.2.2
Eligibility Considerations
Under Connecticut law, an asset is available to the applicant if it is actually
available to the individual or the applicant has the legal right, authority or power to obtain
the asset or apply the asset for the applicant’s general or medical support. CGS §17b261(c); Conn. UPM §4000.01. A deferred annuity is always an available asset because
the applicant can liquidate it and obtain the annuity balance. Conn. UPM §4030.47
(“The assistance unit’s equity in an annuity is a counted asset to the extent that the
assistance unit can sell or otherwise obtain the entire amount of equity in the
investment.”) (see Appendix O); See, Conn. DRA Regs Memo at 23 (Appendix N).
Deferred annuities by definition begin payments to the owner after at least one year from
the purchase if the annuity owner elects to annuitize the contract. Thus, deferred annuities
start out as an investment and can, upon annuitization, turn into a stream of income.
An immediate annuity or a deferred annuity that has been annuitized, however, is
an available asset only if it can be sold. Conn. UPM §4030.47 (See Appendix O).
Immediate annuities by definition begin payments to the owner within one year of
purchase. The insurance company that issued the immediate annuity or an annuitized
deferred annuity will not liquidate the annuity. According to DSS, however, a stream of
income can constitute an available asset just like a liquid asset constitutes an available
asset if it can be sold. Conn. UPM §4030.47 (See Appendix O).
An immediate annuity in a qualified retirement plan is not assignable. Section
206(d) of the Employment Retirement Income Security Act (ERISA)(29 USC
§1056(d)(1))[“Each pension plan shall provide that benefits provided under the plan may
not be assigned or alienated”]; IRC §401(a)(13)[ “A trust shall not constitute a qualified
trust under this section unless the plan of which such trust is a part provides that benefits
provided under the plan may not be assigned or alienated.”]. IRAs in Connecticut are also
not assignable by law. CGS §52-321a(a)[IRAs and retirement plans are “conclusively
presumed to be a restriction on the transfer of a beneficial interest of the debtor in a trust
that is enforceable under the laws of this state”]. J.G. Wentworth and other annuity
settlement companies will not purchase annuities in a retirement plan because of the antialienation laws under ERISA and IRC §408. See, e.g., John Zepeda of J.G. Wentworth,
Rethinking Your Client’s Access to Medicaid, January 1, 2008, at
www.jgwentworth.com under the Medicaid heading. Because an annuity in a qualified
retirement plan cannot be sold, immediate annuities or annuitized deferred annuities are
not available assets if held inside an IRA or qualified retirement plan. See,Conn. DRA
Regs Memo at 24 (Appendix N).
Note that an IRA that is invested in deferred annuities, stock, bonds, mutual
funds, etc., as opposed to an immediate annuity is a countable asset in the Connecticut
10
Medicaid program despite the anti-alienation provisions of IRC §401(a)(13) and the
adverse income tax consequences of liquidating an IRA. Apparently, an IRA is a
countable asset in Connecticut because it is actually available to the individual and the
individual has the legal right, authority or power to obtain the IRA balance for his or her
general or medical support. See, Conn. UPM §4000.01. Yet, the author could find no
provision in the Uniform Policy Manual that explicitly requires the treatment of IRAs as
countable assets. The favorable treatment of immediate annuities held in IRAs as
opposed to other investments held in IRAs (including deferred annuities) makes little
sense. It argues strongly for annuitizing deferred annuities in an IRA and/or selling
stocks, mutual funds, bonds, etc. held in IRAs and buying immediate annuities with the
sale proceeds.
DSS considers an immediate annuity that is not in a retirement plan (“a nonqualified annuity”) as saleable and consequently, is an asset unless the applicant can
prove there is no market for the annuity. See, Conn. DRA Regs Memo at 24 (Appendix
N). Even if an immediate non-qualified annuity is irrevocable and non-assignable, DSS
considers it a countable asset if either the annuity or the stream of income from the
annuity can be sold. Conn. UPM §4030.47 (See Appendix O).
DSS has published no procedural regulations describing what a Medicaid
applicant must do to prove that an annuity can or cannot be sold. See, Conn. DRA Regs
Memo at 24. An applicant must verify that an otherwise counted asset is inaccessible if
the applicant claims it cannot convert the asset to cash. Conn. §4099.15; Conn. DRA
Regs Memo at 23. If the applicant is unable to verify that the asset is inaccessible, the
asset is considered a counted asset. Conn. §4099.15. To verify an annuity contract, the
applicant must show the value of the annuity; how much income, if any, the annuity is
producing; whether the annuity is accessible. Conn. §P-4099.30. Anecdotal evidence
from practitioners indicates that DSS requires the applicant to seek bids for the purchase
of the annuity from annuity settlement companies. For a list of annuity settlement
companies including contact information, see Appendix R (DSS has not provided an
approved list). A letter from the annuity company who issued the annuity contract that
declines an invitation to purchase the annuity may not suffice. If none of the solicited
companies will purchase the annuity, then DSS concedes that there is no market for the
annuity and it is deemed an unavailable asset. Conn. DRA Regs. Memo at 24 (See
Appendix N).
If at least one of the solicited companies will purchase the annuity, DSS will
include the annuity as a countable asset at the value offered by the highest bidder. If the
value of the annuity causes the applicant’s countable assets to exceed the amount
required for eligibility, the annuity owner will need to sell the annuity to the highest
bidder and spend down the excess amount. Anecdotal evidence from practitioners also
indicates that if a family member wants to purchase the annuity for the highest offer
made by an annuity settlement company, DSS will accept his or her payment for the
annuity as a bona fide sale of the annuity.
11
For purposes of determining whether an annuity is an asset, does it matter if a
community spouse owns a non-qualified annuity instead of the applicant? Connecticut
makes no distinction between annuities owned by the community spouse and annuities
owned by the applicant. Conn. UPM §4030.47 (See Appendix O).
On October 2, 2012, the U.S. Court of Appeals in the Second Circuit ruled that
the payment stream from a community spouse’s non-assignable annuity is not a resource
for purposes of determining Medicaid eligibility. Lopes v. Department of Social Services,
___ F3d ___, 2012 WL 4495500, Case No. 10-3741-cv (Oct. 2, 2012)(“Lopes v. DSS”).
John Lopes, age 85, lived in the Riverside Manor Health Care Center in East Hartford,
Connecticut. Lopes v. Starkowski, 2010 WL 3210793, Civil Action No.
3:10CV307(JCH)(D. Conn. 2010)[Ruling Re: Plaintiff’s Motion for Summary Judgment
and Defendant’s Cross-Motion for Summary Judgment](hereinafter “Lopes District
Court Decision”) at 1[cites are to WestLaw version, not to the original opinion]. John’s
wife, Amelia Lopes, lived in their home in East Hartford, Connecticut. As of February 5,
2010, the couple had assets in excess of $340,000. Lopes District Court Decision at 1.
John had a Connecticut partnership long-term care policy which paid $71,175 for his care
through February, 2010. Id. Amelia had to spend down her assets to $180,735 for her
husband to qualify for Medicaid. Id. This amount was the sum of the Community Spouse
Protected Amount (CSPA) in 2010 ($109,560) plus Connecticut partnership policy
payments ($71,175). On February 18, 2010, John filed a Medicaid application with the
Connecticut Department of Social Services. Lopes v. DSS at 4. Amelia purchased an
immediate single premium annuity with a 6-year term for $166,878.99 from The
Hartford, a life insurance company. Lopes v. DSS at 3.
The Assignment Limitation Rider to The Hartford annuity contract states:
This contract is not transferable. The rights, title and interest in the
contract may not be transferred; nor may such rights, title and interest be
assigned, sold, anticipated, alienated, commuted, surrendered, cashed in or
pledged as security for a loan. Any attempt to transfer, assign, sell,
anticipate, alienate, commute, surrender, cash in or pledge this contract
shall be void of any legal effect and shall be unenforceable against us [The
Hartford].
Lopes v. DSS at 4. See the annuity contract which is Exhibit B attached to the Complaint
dated March 1, 2010, in the Lopes District Court Decision. The Complaint is Document
#4 of Lopes v. Starkowski under Pacer at the US District Court, District of Connecticut
web site http://www.ctd.uscourts.gov/pacer.html .
The Hartford confirmed by letter dated March 9, 2010, that “neither the annuity
contract nor any periodic payments due thereunder can be cashed in, sold, assigned, or
otherwise transferred, pledged or hypothecated [due to the Assignment Limitation
Rider].” Lopes v. DSS at 4. Dan Butler, principal attorney for DSS, identified Peachtree
Financial Services (“Peachtree”) as a potential buyer for the income stream from Amelia.
Lopes District Court Decision at 1. In a letter dated April 16, 2010, Butler directed
12
Amelia to sell the income stream, attaching information from Peachtree. Id. Although
Peachtree appears to have been willing to purchase the annuity for approximately
$99,000, Amelia maintained that the annuity contract was a fixed income stream, not an
asset she was required to liquidate. Lopes v. DSS at 4. On May 18, 2010, DSS denied
her husband’s Medicaid application on the grounds that Amelia failed to cooperate in
liquidating a potentially available asset. Lopes v. DSS at 4; Lopes District Court Decision
at 2.
John Lopes filed suit claiming that the Connecticut UPM §4030.47 was more
restrictive than SSI regulations. Lopes v. DSS at 4. Federal statute 42 USC
§1396a(a)(10)(C)(i)(III) prohibits states from using a methodology that is more restrictive
than that used by the SSI program. Lopes argued that Conn. UPM §4030.47 defines the
term “asset” more broadly than the SSI program does. Lopes relied on the SSI Program
Operations Manual System (“POMS”), which clarifies that an asset is only a resource if
the applicant has the legal right, authority or power to liquidate it. Lopes v. DSS at 4
citing POMS §SI 01110.115 (effective Jan. 15, 2008).
The federal district court ruled in favor of Lopes. The Court held that treating the
income stream as an asset was more restrictive (admits less applicants) than would be
applied to a similarly situated individual under the methodology utilized by SSI. Lopes
District Court Decision at 4. John Lopes also claimed that the Connecticut UPM
§4030.47 violates 42 USC §1396r-5(b)(1) because it counts the community spouse’s
income from the annuity as an available asset in determining eligibility for Medicaid.
The federal statute 42 USC §1396r-5(b)(1) states:
During any month in which an institutionalized spouse is in the institution,
except as provided in paragraph (2), no income of the community spouse
shall be deemed available to the institutionalized spouse.
This is “the MCCA rule.” MCCA is an abbreviation for the Medicaid Catastrophic
Coverage Act of 1988. See Appendix L. The provisions of paragraph (2) referred to in
the MCCA rule (i.e. - §1396r-5(b)(2)) are the income attribution rules summarized in
Section 3.1.3 of this book. The Court stated that it would be incongruent with the
principles of MCCA to permit a state to characterize even an assignable income stream as
an asset. Lopes District Court Decision at 10. Allowing DSS to treat an income stream
from an annuity as an asset “would open the door to states recharacterizing other income
sources as assets, such as “payments tied to a fixed income account, social security, or
even a regular paycheck.” Id., citing James v. Richman, 547 F.3d 214, 219 (3rd Cir.
2008).
The Second Circuit Court noted that the Assignment Limitation Rider strips
Lopes of both (i) the right to assign her payments under the annuity by providing that the
rights, title and interest in the contract may not be transferred, and (ii) the power to assign
her payments by providing that any attempt to transfer, assign or cash in the contract shall
be void of any legal effect. Lopes v. DSS at 6. The Court pointed to POMS §SI
01110.115 as entitled to substantial deference:
13
Assets of any kind are not resources if the individual does not have:

any ownership interest; or

the legal right, authority, or power to liquidate them (provided they
are not already in cash); or

the legal right to use the assets for his/her support and maintenance.
Lopes v. DSS at 9. DSS contended that SSI regulation 20 CFR §416.1201(a)(1) controls
over the POMS guidelines. That regulation states:
If the individual has the right, authority or power to liquidate the property or
his or her share of the property, it is considered a resource. If a property right
cannot be liquidated, the property will not be considered a resource of the
individual (or spouse).
20 CFR §416.1201(a)(1). DSS argued 20 CFR §416.1201(a)(1) only requires the
applicant be able to liquidate the property; it does not require the applicant to be able to
liquidate the property without incurring legal liability. Id. at 9. The Court agreed with
the Third Circuit under a theory permitting an annuitant to sell the income stream
regardless of the legal consequences, there is no clear limit on the hypothetical
transaction proceeds that could be treated as assets, whether based on the sale of a future
stream of payments tied to a fixed income retirement account, social security, or even a
regular paycheck. Id. at 10 citing James v. Richman, 547 F.3d 214, 219 (3rd 2008).
The Court also found it reasonable for the POMS guidelines to specify that
liquidation of property must not only be physically possible, but also otherwise permitted
by law, in order to qualify the asset as a resource under MCCA. Without such a
clarification, a Medicaid applicant could be required to liquidate such assets as her right
to pension payments or property of which she was the trustee. Id. at 9.
DSS contended that the owner of a non-assignable annuity has the right, power
and authority to liquidate the property as long as there is a prospective purchaser (like
Peachtree) for the payment stream. Id. at 7. The Court noted, however, that 20 CFR
§416.1121 classifies payments from annuities, private pensions, social security benefits,
disability benefits, veterans benefits, worker’s compensation, railroad retirement
annuities and unemployment insurance benefits as “unearned income” without regard to
the existence of a prospective purchaser. Id. at 7. The Court held that these income
sources are analogous to Lopes’ annuity in both their payment structure and their nonassignability. Id. at 7. Consequently, non-assignable annuities should also be treated as
income.
DSS pointed to additional SSI regulations that say if an individual liquidates a
resource before applying for benefits, the proceeds are still a resource. Id. at 7. For
example, 20 C.F.R. § 416.1207(e) provides: “If an individual sells, exchanges or replaces
a resource, the receipts are not income. They are still considered to be a resource.” 20
C.F.R. § 416.1207(e). In particular, DSS contended that Lopes’s annuity qualifies as a
14
resource under these regulations because Lopes converted her excess resources into a
non-assignable annuity shortly before she sought benefits. Id. at 8.
The Court dismissed these additional SSI regulations saying they only stand for
the proposition that if you convert a resource to cash it remains a resource. The
regulations do not establish that an annuity is a resource because it was in the form of
cash shortly before applying for Medicaid. Id. at 8. Indeed, how recently assets were
purchased does not matter in determining whether they should be excluded from the
relevant pool of resources. Id. at 8. Accordingly, that Lopes converted cash to an
annuity shortly before applying for Medicaid was irrelevant to whether the annuity, in its
current form, qualified as a resource under the applicable SSI regulations. Id. at 8.
DSS also argued that the payment stream from the annuity contract qualifies as a
resource because Lopes could sell it without assigning her rights by simply signing a
separate contract promising to pass each payment along to a third party. The Court was
not persuaded. A Medicaid applicant could make a similar agreement regarding any
source of income: pension checks, railroad retirement annuities, or even the applicant’s
weekly income from a current job. Id. at 10. The Court agreed with the Third Circuit that
“under a theory permitting an annuitant to sell the income stream, there is no clear limit
on the hypothetical transaction proceeds that could be treated as assets, whether based on
the sale of a future stream of payments tied to a fixed income retirement account, social
security, or even a regular paycheck.” Id. at 10 citing James v. Richman, 547 F.3d 214,
219 (3rd Cir. 2008).
The Second Circuit also gave special weight to the views of the U.S. Department
of Health & Human Services (“HSS”). The Court requested that HHS file an amicus
curiae brief in the case. HHS maintained in its brief that: (1) the “natural reading of . . .
[§] 416.1201, as clarified in POMS § SI 01110.115, is that [the Social Security
Administration] will not require an applicant to renegotiate or, possibly, breach a contract
in order to recover the value of a resource, such as a non-assignable annuity, in order to
qualify for Medicaid”; and (2) Lopes’ retention of the annuity payment stream is not
inconsistent with the primary purposes of the Medicaid statutes as modified by the
Deficit Reduction Act of 2005 (“DRA”), which are to provide health care for the indigent
and protect community spouses from impoverishment while preventing financially
secure couples from obtaining Medicaid assistance. Lopes v. DSS at 5 – 6. The DRA
contains disclosure requirements and requires that State be named as a beneficiary. Id. at
12. That the DRA has disclosure requirements for irrevocable annuities but does not
categorically classify them as resources or designate their purchase as an impermissible
transfer of assets, supports HHS’s view that Congress has not demonstrated an intent to
exclude all annuity payment streams from being treated as income. Id. at 12 citing James
v. Richman, supra, at 219.
Of note, in the Second Circuit, DSS abandoned its claim that the DRA allowed
the states to treat immediate annuities purchased by a community spouse as an asset for
eligibility purposes. Lopes v. DSS at 5. A majority of courts have found that an
15
unassignable annuity is not subject to treatment as an asset even after the passage of
DRA. Lopes District Court Decision at 11.
At the end of its decision, the Second Circuit noted that in finding that the
payment stream from a non-assignable annuity is not a resource for purposes of
determining Medicaid eligibility, the Court has joined its sister circuits that have
addressed this issue. It cited James v. Richman, supra (3d Cir.2008), Morris v. Oklahoma
Dept. of Human Services, 685 F3d 925(10th Cir 2012), and Hutcherson v. Arizona Health
Care Cost Containment System Administration, 667 F3d 1066 (9th Cir. 2012) as support
for its decision.
This Second Circuit opinion will directly affect Medicaid planning. It confirms
that a community spouse can purchase an irrevocable, nonassignable, immediate annuity
to lower the couple’s countable assets. Below is a summary of how to purchase an
annuity based on this case law.
1.
Have the Community Spouse (CS) buy the annuity after the date of institutionalization and after
the exhaustion of a Connecticut partnership long-term care insurance policy but before applying
for Medicaid.
2.
Buy an immediate annuity, not a deferred annuity.
3.
Pick a term for the annuity that does not exceed CS’s life expectancy based on the Social
Security Tables in the POMs (the Period Life Table at
www.ssa.gov/OACT/STATS/table4c6.html. (Appendix M).
4.
Confirm the amount invested in the annuity does not exceed the (i) the value of the couple’s
countable assets minus (ii) the Community Spouse Protected Amount (CSPA) plus any longterm care insurance payments made under a Connecticut partnership policy.
5.
Insist on a rider to the annuity contract that states the annuity and all payment under it are
irrevocable and non-assignable. Use the language from Lopes case.
6.
Confirm the annuity has equal installments and no balloon payments.
7.
Make sure the annuity is actuarially sound . To be actuarially sound, the entire principal plus
interest must be distributed within the life expectancy of the CS.
8.
Name the State as a beneficiary to the extent of medical assistance paid.
9.
Disclose the annuity on the Medicaid application.
10.
Get a letter from the life insurance company confirming that it cannot be sold. Use the letter in
the Lopes case as a template.
11.
Refuse a request by DSS to sell the annuity to an annuity settlement company.
Figure 3.1
How to Purchase an Annuity to reduce Countable Assets for
Medicaid Eligibility
16
Practitioners should consider several factors when deciding whether to use this
strategy:
(i)
Whether the community spouse has sufficient income. Can illiquid assets
be converted to an annuity?
(ii)
The age and health of the community spouse. An immediate annuity is
uneconomic if the spouse will not live to the end of the term.
(iii)
Does the couple have other exempt assets in which they can invest their
funds such as a home or a car or a wheel-chair van.
(iv)
Are there significant imminent cash needs that an immediate annuity will
thwart?
(v)
Does the community spouse have a large retirement account available for
purchasing an immediate annuity instead of purchasing a nonqualified
immediate annuity with countable assets?
Only a careful, thorough review of a couple’s finances and needs will ensure that this
newly confirmed strategy will prove useful and beneficial to a couple.
3.3
THE SUITABILITY OF ANNUITIES FOR CONNECTICUT’S
SENIORS
Add as the final paragraph of this section:
Because of the repeal of C.G.S. §17b-261k by Public Act 11-44, more couples
may want to consider the purchase of a spousal immediate annuities as a way to preserve
income for the community spouse. Under C.G.S. §17b-261k, a couple could keep up to
the Community Spouse Protected Amount ($109,560 in 2010 and 2011). Commencing
July 1, 2011, a community spouse can only keep the lesser of one-half (1/2) of the
couple’s assets on the date the institutionalized spouse begins receiving care in a nursing
home or hospital or the maximum CSPA ($109,560 in 2011; $113,461 in 2012).
Consequently, the community spouse may want to purchase an immediate annuity as part
of a spend down plan if other routine spend down methods have already been fully
utilized.
17
CHAPTER 4
ANNUITIES AND TRUSTS
No updates at this time.
CHAPTER 5
5.5
OTHER LEGAL CONSIDERATIONS
REGULATION OF ANNUITY COMPANIES AND THEIR SALES
AGENTS
The Connecticut Insurance Department issued final regulations entitled
“Suitability in Annuity Transactions.” The new regulations amend Sections 38a-432a-1
to 38a-432a-7 of the Connecticut Regulations and are effective February 18, 2012. See
the new regulations under Resources at www.eldersolutionscenter.com or on the
Connecticut Insurance Department web site (www.ct.gov/cid) under Laws &
Regulations.
The new regulations give greater specificity to the duties of insurers and their
sales agents (called “producers” under the regulations). Section 38a-432a-5(a) through
(e) require the producer to have reasonable grounds to believe that a consumer has been
reasonably informed of the various features of the annuity including surrender charges,
potential tax penalties if the consumer sells, exchanges, surrenders or annuitizes the
annuity, mortality and expenses fees, investment advisory fees, charges for riders,
limitations on investment returns, and market risks. The producer must reasonably
believe that the consumer would benefit from the features of the annuity and that the
annuity transaction is suitable for the consumer. Conn. Reg. §38a-432a-5(a).
Insurers cannot issue an annuity unless there is a reasonable basis to believe the
annuity is suitable based on the consumer's suitability information. Conn. Reg. § 38a432a-5(c). Suitability information includes age, income, financial experience and
objectives, use of the annuity, financial time horizon, existing assets, liquidity needs, risk
tolerance and tax status. Conn. Reg. §38a-432a-4(12). Producers and insurers have no
obligation, however, if no recommendation is made, the consumer provides materially
inaccurate information as to suitability, the consumer refuses to provide relevant
suitability information or the consumer decides to enter into a transaction not based on
the recommendation of the insurer or producer. Conn. Reg. §38a-432a-5(d).
In Section 38a-432a-5(f), there is a new enhanced responsibility on insurers to
establish a supervision system consisting of reasonable procedures to inform producers of
the requirements of the regulation, establish standards for producer compliance training,
provide product-specific training, maintain procedures to review recommendations prior
to issuance and to detect recommendations that are not suitable. Insurers must annually
provide a report to senior management detailing a review of the effectiveness of the
supervision system. Insurers may contract for establishment of a suitability supervision
system, but are not relieved of responsibility for compliance if they contract those
functions.
18
In Section 38a-432a-5(h), the regulations clarify that sales made in compliance
with FINRA requirements pertaining to suitability satisfy this regulation if the suitability
supervision is similar.
Section 38a-432a-6 make insurers responsible for violations of their agents, but
reinforces that the Commissioner has the authority to reduce a penalty if the violation was
not part of a pattern or practice. The new regulations do not create or imply a private
cause of action for violations of the regulations. Conn. Reg. §38a-432a-1(b).
The regulations require training of producers. Conn. Reg. §38a-432a-8.
Producers may not solicit the sale of an annuity unless the producer has adequate
knowledge of the product to recommend the producer and the producer is in compliance
with the insurer's training standards. Producers must complete a one-time four credit
training program from a registered continuing education provider. Licensed producers
have six months after the effective date of the regulations (i.e. – February 18, 2012) to
obtain the training. Topics to be included in such training include the types of annuities,
identification of parties to an annuity, how the provisions of fixed, variable and indexed
annuities affect consumers, income taxation of qualified and non-qualified annuities, the
primary uses of annuities and appropriate sales practices, replacement and disclosure
requirements.
Update#3.101912.docx
19
APPENDIX A
Charitable Gift Annuity Rates Effective January 1, 2012
New Suggested Maximum Rate Schedules Effective January 1, 2012
The American Council on Gift Annuities (ACGA) board of directors held its semi-annual
meeting on November 7, 2011. As part of a continual monitoring process, the board
reviewed the current assumptions that underlie the rates schedules. Given the significant
changes in the economic environment, the board approved a new schedule of suggested
maximum gift annuity rates which will become effective January 1, 2012. At ages older
than 60, when the majority of gift annuities are issued, one-life rates will decline by 0.5%
to 0.8%.
Assumptions Underlying Suggested Gift Annuity Rates
Following is a summary of the major assumptions on which the suggested January 1,
2012 rates are based.
Target Residuum. Historically, the ACGA has targeted a residuum (the amount
realized by the charity upon termination of an annuity) of 50% of the original
contribution for the gift annuity. The new rate schedules retain the 50% target residuum,
and continue the requirement first applied for the July 2011 rate schedules that the
present value (PV) of the residuum be at least 20% of the original contribution for the
annuity.
The 20% minimum PV requirement has the effect of reducing rates for annuitants age 57
and under. It is designed to help charities realize a minimum value from gifts whose
residua will not be realized for many years. Rates for younger annuitants (ages 5 to 49)
were reduced as necessary to comply with the 10% minimum charitable deduction
required under IRC Sec. 514(c)(5)(A) using the 1.4% CFMR for November 2011.
Particularly in low interest rate environments, charities should perform their own
deduction calculations and lower their annuity rates if necessary to meet the 10%
minimum deduction requirement.
Mortality Assumption. In calculating suggested rates, all annuitants are assumed to be
female and one year younger than their actual ages. The suggested rates use the Annuity
2000 Mortality Tables. The rates also incorporate projections for increasing life
expectancies (improvements in mortality) using a scale supplied by our actuary.
Expense Assumption. Annual expenses for investment and administration are 1.0% of
the fair market value of gift annuity reserves. The annual expense assumption is
unchanged.
Investment Return Assumption. The gross annual expected return on immediate gift
annuity reserves is 4.25%. This is a decrease from the 5.0% total return assumption used
20
in calculating the July 2011 rates. The gross expected return for deferred annuity reserves
is also 4.25%. Both immediate and deferred payment annuity calculations use a net
compounding rate of 3.25%.
Payment Assumption. Annual payments are made in quarterly installments at the end of
each period. This assumption is unchanged from the 2011 rate calculations.
The rates for the oldest ages are somewhat lower than the rates that would follow from
the above assumptions. Rates are capped at age 90 and above, and rates for annuitants
between ages 81 and 89 are graduated downward from the rate cap.
Additional Assumption for Deferred Gift Annuities
The annual compound interest rate credited during the deferral period for deferred
payment gift annuities is 3.25% (the same investment return assumption as for current
gift annuities after subtracting the 1.0% expense assumption). In other words, each dollar
contributed for a deferred gift annuity is presumed to grow at an annual compound
interest rate of 3.25% between the date of contribution and the annuity starting date.
If payments will be made at the end of the period, which is usually the case, the annuity
starting date would be at the beginning of the first period for which a payment is made.
For example, if payments will be made quarterly, and the first payment will be made on
September 30, 2014, the annuity starting date would be July 1, 2014. If payments will be
made semi-annually, the annuity starting date in this case would be April 1, 2014.
Assuming that the annuitant would be nearest age 65 on the annuity starting date, and that
the period between the contribution date and the annuity starting date is 10.25 years, the
compound interest factor would be 1.032510.25 or 1.387948. To determine the deferred
gift annuity rate, this factor is multiplied by the immediate gift annuity rate, now in
effect, for the nearest age of the annuitant at the time payments begin. In this example,
the deferred gift annuity rate would be 1.387948 times 4.7%, or 6.5% (rounded to the
nearest tenth of a percent).
The compounding rate during the deferral period is simply the assumed net return (total
assumed return of 4.25% less 1.0% for expenses). The compounding rate applies to the
entire compounding period, whatever its length. At times in the past, the compounding
rate for periods in excess of 20 years was less than the compounding rate for the first 20
years of the deferral period.
In two states, New York and New Jersey, it is sometimes necessary to apply a slightly
lower compounding rate when the deferral period is relatively long in order not to exceed
those states’ maximum allowable deferred gift annuity rates. Please see the note below to
charities issuing deferred gift annuities in New York and New Jersey.
21
Single Life
Age
5-10
11-15
16-19
20-23
24-26
27-29
30-32
33-34
35-36
37-38
39-40
41-42
43
44-45
46
47
48-49
Rate
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
Age
50
51-52
53-54
55
56-57
58
59
60-61
62-63
64
65
66-67
68
69
70
71
72
Rate
3.7
3.8
3.9
4.0
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5.0
5.1
5.3
5.4
Age
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90+
Rate
5.5
5.7
5.8
6.0
6.2
6.4
6.6
6.8
7.0
7.2
7.4
7.6
7.8
8.0
8.2
8.4
8.7
9.0
NOTES:
1. The rates are for ages at the nearest birthday.
2. For immediate gift annuities, these rates will result in a charitable deduction of at
least 10% if the CMFR is 1.4% or higher and a quarterly payment frequency is
used. If the CMFR is less than 1.4%, the deduction will be less than 10% when
annuitants are below certain ages.
3. For deferred gift annuities with longer deferral periods, the rates may not pass the
10% test when the CMFR is low.
4. To avoid adverse tax consequences, the charity should reduce the gift annuity rate
to whatever level is necessary to generate a charitable deduction in excess of 10%.
22
Two Lives - Joint and Survivor
Younger
Age
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Older
Age
5-95+
6-95+
7-95+
8-95+
9-95+
10-95+
11-95+
12-95+
13-95+
14-95+
15-95+
16-95+
17-95+
18-95+
19-95+
20-95+
21-95+
22-95+
23-95+
24-95+
25-95+
26-95+
27-95+
28-95+
29-95+
30-95+
31-95+
32-95+
33-95+
34-95+
35-95+
36-95+
37-95+
38-95+
39-95+
40-95+
41-95+
Rate
1.8
1.8
1.8
1.8
1.8
1.8
1.9
1.9
1.9
1.9
1.9
2.0
2.0
2.0
2.0
2.1
2.1
2.1
2.1
2.1
2.2
2.2
2.2
2.2
2.3
2.3
2.3
2.3
2.4
2.4
2.4
2.5
2.5
2.5
2.6
2.6
2.7
Younger
Age
42
43
44
45
46
47
47
48
48
49
49
50
50
50
51
51
51
52
52
53
53
53
54
54
54
55
55
55
55
56
56
56
56
57
57
57
58
Older
Age
42-95+
43-95+
44-95+
45-95+
46-95+
47-50
51-95+
48
49-95+
49-51
52-95+
50
51-53
54-95+
51-52
53-55
56-95+
52-54
55-95+
53-55
56-58
59-95+
54
55-57
58-95+
55
56-58
59-61
62-95+
56-57
58-59
60-62
63-95+
57-58
59-63
64-95+
58-61
Rate Younger
Age
2.7
58
2.8
58
2.8
59
2.9
59
2.9
59
3.0
59
3.1
60
3.0
60
3.1
60
3.1
60
3.2
61
3.1
61
3.2
61
3.3
61
3.2
62
3.3
62
3.4
62
3.3
62
3.4
63
3.4
63
3.5
63
3.6
64
3.4
64
3.5
64
3.6
65
3.5
65
3.6
65
3.7
65
3.8
66
3.6
66
3.7
66
3.8
66
3.9
67
3.7
67
3.8
67
3.9
68
3.8
68
Older
Age
62-65
66-95+
59-60
61-63
64-68
69-95+
60-62
63-66
67-70
71-95+
61
62-64
65-68
69-95+
62-63
64-66
67-69
70-95+
63-64
65-67
68-95+
64-66
67-70
71-95+
65
66-68
69-72
73-95+
66-67
68-71
72-75
76-95+
67-69
70-73
74-95+
68
69-71
Rate
3.9
4.0
3.8
3.9
4
4.1
3.9
4
4.1
4.2
3.9
4
4.1
4.2
4
4.1
4.2
4.3
4.1
4.2
4.3
4.2
4.3
4.4
4.2
4.3
4.4
4.5
4.3
4.4
4.5
4.6
4.4
4.5
4.6
4.4
4.5
23
Younger
Age
68
68
69
69
69
69
70
70
70
70
71
71
71
71
71
72
72
72
72
72
72
73
73
73
73
73
73
74
74
74
74
74
74
74
75
75
75
75
75
75
75
76
Older
Age
72-75
76-95+
69-70
71-73
74-76
77-95+
70-71
72-74
75-78
79-95+
71-73
74-75
76-79
80-82
83-95+
72
73-74
75-76
77-79
80-83
84-95+
73
74-75
76-77
78-80
81-83
84-95+
74
75-76
77-78
79-80
81-83
84-87
88-95+
75
76-77
78
79-81
82-83
84-86
87-95+
76-77
Rate
4.6
4.7
4.5
4.6
4.7
4.8
4.6
4.7
4.8
4.9
4.7
4.8
4.9
5
5.1
4.7
4.8
4.9
5
5.1
5.2
4.8
4.9
5
5.1
5.2
5.3
4.9
5
5.1
5.2
5.3
5.4
5.5
5
5.1
5.2
5.3
5.4
5.5
5.6
5.2
Younger
Age
76
76
76
76
76
76
77
77
77
77
77
77
77
77
78
78
78
78
78
78
78
78
78
79
79
79
79
79
79
79
79
79
80
80
80
80
80
80
80
80
80
80
Older
Age
78-79
80-81
82-83
84-85
86-88
89-95+
77-78
79
80-81
82-83
84-85
86-87
88-91
92-95+
78
79
80-81
82-83
84
85-86
87-89
90-92
93-95+
79-80
81
82
83-84
85-86
87-88
89-90
91-93
94-95+
80
81
82
83-84
85
86-87
88-89
90-91
92-93
94-95+
Rate
5.3
5.4
5.5
5.6
5.7
5.8
5.3
5.4
5.5
5.6
5.7
5.8
5.9
6
5.4
5.5
5.6
5.7
5.8
5.9
6
6.1
6.2
5.6
5.7
5.8
5.9
6
6.1
6.2
6.3
6.4
5.7
5.8
5.9
6
6.1
6.2
6.3
6.4
6.5
6.6
Younger
Age
81
81
81
81
81
81
81
81
81
81
82
82
82
82
82
82
82
82
82
82
83
83
83
83
83
83
83
83
83
83
84
84
84
84
84
84
84
84
84
84
85
85
Older
Age
81
82
83
84-85
86
87-88
89
90-91
92-94
95+
82
83
84
85-86
87
88
89-90
91
92-93
94-95+
83
84
85
86
87
88-89
90
91
92-93
94-95+
84
85
86
87
88
89
90
91
92-93
94-95+
85
86
Rate
5.9
6
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7
7.1
7.2
6.5
6.6
6.7
6.8
6.9
7
7.1
7.2
7.3
7.4
6.7
6.9
24
Younger
Age
85
85
85
85
85
85
85
86
86
86
86
86
86
86
86
87
87
87
87
87
87
87
Older
Age
87
88
89
90
91
92
93-95+
86
87
88
89
90
91
92
93-95+
87
88
89
90
91
92
93-95+
Rate
7
7.1
7.2
7.3
7.4
7.5
7.6
7
7.1
7.3
7.4
7.5
7.6
7.7
7.8
7.3
7.4
7.5
7.7
7.8
7.9
8
Younger
Age
88
88
88
88
88
88
89
89
89
89
89
90
90
90
90
90
91
91
91
92
93
94
Older
Age
88
89
90
91
92
93-95+
89
90
91
92
93-95+
90
91
92
93
94-95+
91
92
93-95+
92-95+
93-95+
94-95+
Rate Younger
Age
7.6
95+
7.7
7.9
8
8.1
8.2
7.9
8
8.2
8.3
8.5
8.2
8.4
8.5
8.7
8.8
8.6
8.7
8.8
8.8
8.8
8.8
Older
Age
95+
Rate
8.8
Procedure for Calculating Suggested Deferred Gift Annuity Rates
1. Determine the annuity starting date, which is:
One year before the first payment, if payments are made annually.
Six months before the first payment, if payments are made semi-annually.
Three months before the first payment, if payments are made quarterly.
One month before the first payment, if payments are made monthly.
2. Determine the number of whole and fractional years from the date of the
contribution to the annuity starting date (the deferral period). Express the
fractional year as a decimal of four numbers.
3. For a deferral period of any length, use the following formula to determine the
compound interest factor:
F = 1.0325 d, where
F is the compound interest factor and
d is the deferral period
Example: If the period between the contribution date and the annuity starting date
is 14.5760 years, the compound interest factor would be 1.032514.576 = 1.593902
25
4. Multiply the compound interest factor (F) by the immediate gift annuity rate for
the nearest age or ages of a person or persons at the annuity starting date.
Example: If the sole annuitant will be nearest age 65 on the annuity starting date
and the compound interest factor is 1.593902 , the deferred gift annuity rate
would be 1.593902 times 4.7% , or 7.5% (rounded to the nearest tenth of a
percent).
From the home page of the American Council on Gift Annuities ( http://www.acgaweb.org ) on 2/1/12.
26