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."