Annuitant’s Ability to Revoke or Liquidate Annuity Key to Determination of Irrevocability

C.L. v. Division of Medical Assistance and Health Services and Bergen County Board of Social Services, 473 N.J. Super. 591 (App. Div. 2022)

C.L. appealed from the denial of her request for Medicaid benefits by the Division of Medical Assistance and Health Services (“DMAHS”).  C.L. had previously purchased an annuity contract with the Croatian Fraternal Union of America (“CFUA”) as part of a spend-down plan to qualify for Medicaid.  Under the contract, C.L. had ten days to rescind the annuity, and thereafter, the contract became irrevocable, could not be transferred or assigned or surrendered, and had no cash or loan value.  However, the contract also stated that the national president, secretary, or treasurer of CFUA “may, in writing, change the contract or waive any of its requirements”.

C.L. applied for Medicaid through the Bergen County Board of Social Services (“BCBSS”) and was denied on the basis that her resources exceeded the maximum limit, because of the inclusion of the CFUA annuity.  C.L. then filed for a fair hearing with DMAHS.  To be eligible for Medicaid benefits, an individual must not have more than $2,000 in countable assets.  Annuities are not considered countable assets if they meet certain criteria, such as irrevocability.  See 42 U.S.C. § 1396p(c)(1)(G)(ii).

At the hearing before an administrative law judge, DMAHS presented evidence from a ruling in a similar case also involving a CFUA annuity contract.  In that case, the administrative law judge concluded the CFUA annuity was revocable after CFUA amended the terms of the contract due to a miscalculation of benefits.  The administrative law judge affirmed the denial of C.L.’s application based on the prior case.

On appeal, C.L. argued that after the 10-day rescission period, the annuity became irrevocable because she lost the unilateral right to revoke or liquidate the annuity and therefore BCBSS erred in treating the annuity as revocable and therefore a resource.

The Appellate Division agreed with C.L. and reversed.  In its analysis, the court found that the annuity contract provisions clearly and unambiguously stated that it was irrevocable.  The court further noted that the amendment clause of the annuity was a general provision while the irrevocability language was specific and explicit.  The amendment clause contained permissive language, which stated the president “may” make changes, and it did not authorize the annuitant to revoke the contract.  The court found that the mandatory language of the irrevocability provisions controlled over the general and permissive provisions of the amendment clause. The court determined that relying on a prior amendment of another annuity contract (which was amended to correct a calculation error) would ignore the plain irrevocability language.