Irrevocable annuities, promissory notes and similar transfers.

In this subsection, “transaction” means any action taken by an individual that changes the course of payments to be made under an annuity or the treatment of the income or principal of an annuity, including all of the following: 1. An addition of principal. 2. An elective withdrawal. 3. A request to change the distribution of the annuity. 4. An election to annuitize the contract. 5. A change in ownership.

For the purposes of sub. (2), whenever a covered individual or his or her spouse, or another person acting on behalf of the covered individual or his or her spouse, transfers assets to an irrevocable annuity, or transfers assets by promissory note or similar instrument, in an amount that exceeds the expected value of the benefit, the covered individual or his or her spouse transfers assets for less than fair market value. A transfer to an annuity, or a transfer by promissory note or similar instrument, is not in excess of the expected value only if all of the following are true: 1. The periodic payments back to the transferor include principal and interest that, at the time that the transfer is made, is at least at one of the following: a. For an annuity, promissory note or similar instrument that is not specified under subd. 1. b. or par. (am), the applicable federal rate required under section 1274 (d) of the Internal Revenue Code, as defined in s. 71.01 (6). b. For an annuity with a guaranteed life payment, the appropriate average of the applicable federal rates based on the expected length of the annuity minus 1.5 percent. 2. The terms of the instrument provide for a payment schedule that includes equal periodic payments, except that payments may be unequal if the interest payments are tied to an interest rate and the inequality is caused exclusively by fluctuations in that rate.

The amount of assets that is transferred for less than fair market value under par. (ag) is the amount by which the transferred amount exceeds the expected value of the benefit.

The department shall promulgate rules specifying the method to be used in calculating the expected value of the benefit, based on 26 CFR 1.72-1 to 1.72-18, and specifying the criteria for adjusting the expected value of the benefit based on a medical condition diagnosed by a physician before the assets were transferred to the annuity, or transferred by promissory note or similar instrument. In calculating the amount of the divestment when a transfer to an annuity, or a transfer by promissory note or similar instrument, is made, payments made to the transferor in any year subsequent to the year in which the transfer was made shall be discounted to the year in which the transfer was made by the applicable federal rate specified under par. (ag) on the date of the transfer.

Paragraphs (ag) to (c) apply to annuities purchased before February 8, 2006, for which no transaction has occurred on or after February 8, 2006.

For purposes of sub. (2), the purchase of an annuity by an institutionalized individual or his or her community spouse, or anyone acting on their behalf, shall be treated as a transfer of assets for less than fair market value unless any of the following applies: 1. The state is designated as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the institutionalized individual. 2. The state is named as a beneficiary in the 2nd position after the community spouse or a minor or disabled child and is named in the first position if the community spouse or a representative of the minor or disabled child disposes of any remainder for less than fair market value. 3. The annuity satisfies the requirements under par. (e) 1. or 2.

For purposes of sub. (2), the purchase of an annuity by or on behalf of an annuitant who has applied for medical assistance for nursing facility services or other long-term care services described in sub. (2) is a transfer of assets for less than fair market value unless either of the following applies: 1. The annuity is either an annuity described in section 408 (b) or (q) of the Internal Revenue Code of 1986 or purchased with proceeds from any of the following: a. An account or trust described in section 408 (a), (c), or (p) of the Internal Revenue Code of 1986. b. A simplified employee pension, within the meaning of section 408 (k) of the Internal Revenue Code of 1986. c. A Roth IRA described in section 408A of the Internal Revenue Code of 1986. 2. All of the following apply with respect to the annuity: a. The annuity is irrevocable and nonassignable. b. The annuity is actuarily sound, as determined in accordance with actuarial publications of the office of the chief actuary of the social security administration. c. The annuity provides for payments in equal amounts during the term of the annuity, with no deferral and no balloon payments made.

Paragraphs (d) and (e) apply to all of the following: 1. Annuities purchased on or after February 8, 2006. 2. Annuities purchased before February 8, 2006, for which a transaction has occurred on or after February 8, 2006.