Opinion ID: 2833604
Heading Depth: 3
Heading Rank: 2

Heading: are the annuities trusts or

Text: TRUST-LIKE?17 To the extent that an annuity is “trust-like,” Transmittal 64 disallows the annuity from protection in the safe harbor and the annuity’s value can be treated as resources that can disqualify an applicant for Medicaid assistance. See Transmittal 64, § 3258.9(B). DHS argues that these annuities should be treated as resources of the plaintiffs under this provision. Transmittal 64, § 3258.9(B) states, in relevant part: [i]n order to avoid penalizing annuities validly purchased as part of a retirement plan but to capture those annuities which abusively shelter assets, a determination must be made with regard to the ultimate purpose of the annuity (i.e., whether the purchase of the annuity constitutes a transfer of assets for less than fair market value). If the expected return on the annuity is commensurate with a reasonable estimate of the life expectancy of the beneficiary, the annuity can be deemed actuarially sound. . . . If the individual is not reasonably expected to live longer than the guarantee period of the annuity, the individual will not receive fair market value for the annuity based on the projected return. 17 Although we will conclude that the annuities are not trusts or trust-like, it is not clear that this is essential to our holding since we have already concluded that the annuities are in the safe harbor that Congress has defined. The DRA directs that annuities “shall be treated as the disposal of an asset for less than fair-market value unless” the annuity meets the requirements, as we have concluded they do here. 42 U.S.C. § 1396p(c)(1)(F) (emphasis added); see also Fidelity & Guaranty Life Ins. Co. Br. at 14 (noting that Transmittal 64 cannot supplant Congress’s express definition of the test for compliant annuities because “42 U.S.C. § 1396p(c)(1)(G)(ii) is the statutory test for determining whether any annuity is an abusive asset shelter.” (emphasis in original)). 22 Id. However, DHS’s argument is circular because we have already explained why these annuities are actuarially sound and not a transfer of assets for less than fair market value. There are, however, other reasons to reject DHS’s attempt to define these annuities as trust-like. Congress provided that “[t]he term ‘trust’ includes any legal instrument or device that is similar to a trust but includes an annuity only to such extent and in such manner as the [HHS] Secretary specifies.” 42 U.S.C. § 1396p(d)(6) (emphasis added). We agree with the plaintiffs that, “because the Secretary to date has not so specified, it follows that [the plaintiffs’] annuities cannot be treated as trusts.” Appellants Br. at 11. In a brief that the HHS filed in the Court of Appeals for the Second Circuit, the HHS explicitly stated that “the Secretary has not so specified.” Brief for the Amicus Curiae U.S. Dep’t of Health & Human Servs., Lopes v. Dep’t of Social Servs., 10-3741-cv, at , n.5 (2d Cir. 2011) (emphasis added). This rejection was made in 2011, after the DRA and Transmittal 64 were in existence. See also Geston v. Anderson, 729 F.3d 1077, 1085 (8th Cir. 2013) (“[T]he Secretary has not so specified[.]” (quotation marks omitted)). Although DHS acknowledges that Transmittal 64 predates the Medicaid Act, it asserts that Transmittal 64 is still the Secretary’s reply to the statutory invitation to define when annuities are “trusts.” Appellee Br. at 38-39; see Transmittal 64, § 3258.9(B) (“Section 1917(d)(6) [42 U.S.C. 1396p(d)(6)] provides that the term ‘trust’ includes an annuity to the extent and in such manner as the Secretary specifies. This subsection describes how annuities are treated under the trust/transfer provisions.”). Transmittal 64 does not present any support for treating these annuities as trust-like devices. As noted, it merely points back to the requirement that annuities must not be longer than an individual’s reasonable life expectancy, by adding a new requirement that the annuity cannot constitute “a transfer of assets for less than fair market value.” Id. Transmittal 64 defines an annuity with a fair market value in the same way it defines actuarial soundness. Given the text of the DRA and the language in Transmittal 64, these 23 annuities are actuarially sound for the reasons we have explained, just as the District Court found. Moreover, these annuities cannot be equated with trusts because there is nothing akin to a fiduciary relationship between the annuitants and ELCO. Id., § 3259.1(A)(l) (defining a trust as “any arrangement in which a grantor transfers property to a trustee or trustees with the intention that it be held, managed, or administered by the trustee(s) for the benefit of the grantor or certain designated individuals (beneficiaries)[]”); see also id., § 3259.1(A)(2) (requiring “a grantor who transfers property to an individual or entity with fiduciary obligations”). ELCO is not under any fiduciary obligation to wisely invest plaintiffs’ funds or even to preserve them as long as ELCO fulfills its contractual obligation to make regular monthly payments in the agreed amount for the term of the annuity. See generally Appellants Br. at 12-13; Fidelity & Guaranty Life Ins. Co. Br. at 4-5. ELCO’s duty to annuitants is purely contractual, it is not fiduciary. Accordingly, we readily reject DHS’s attempt to have us view these annuities as some form of trust.