An Illinois appeals court rules that the purchase of a single premium life insurance policy by a Medicaid applicant was a non-allowable transfer of assets for less than fair market value and subject to a penalty period. Mahannah v. State (Ill. Ct. App., 4th Dist., No. 4–15–0838, Nov. 3, 2016).

Nursing home resident Edith Mahannah bought a single-premium whole life insurance policy for approximately $164,000 that named her son as the death beneficiary. Two weeks later, she applied for Medicaid. The state determined the purchase of the life insurance policy was a transfer for less than market value and imposed a penalty period.

Ms. Mahannah’s son appealed the state’s decision on her behalf, arguing that because the purchase of the life insurance policy was on the open market and an arms-length transaction, it was acquired for fair market value. The state and a trial court affirmed the penalty period, and Ms. Mahannah’s son appealed.

The Illinois Appellate Court affirms, holding that the purchase of the life insurance policy was a non-allowable transfer of assets and subject to a penalty period. According to the court, because Ms. Mahannah did not receive any “compensation for her expenditure” when she bought the life insurance policy, the “transaction was properly deemed one for less than fair market value.”

For the full text of this decision, click here.