Timing is everything…

Gold_Chaika_Pocket_Watch_made_in_the_USSRIn understanding the ins and outs of Medicaid and divestment, timing is everything.

Divestment is the concept that if you give away your assets with the intention of becoming eligible for Medicaid, the gift will cause you to be ineligible for Medicaid for a period of time. This is pretty easy to grasp, why would any government poverty program allow you to give away a million dollars today, and apply and qualify tomorrow? (Well, some government programs do allow you to give away a million dollars and qualify immediately  - such as Veterans’ Aid and Attendance Pension – and even Medicaid allows you to do that in a limited situation such as when the gift is for the benefit of a disabled child –  but that is not what we are here to talk about today. In my experience, most millionaires want to keep their money.)

Even though the Medicaid rules are intended to penalize intentional divestment, as a practical matter, if an individual has given away any substantial sum of money while his or her health has been declining, it is going to be viewed as a divestment by a Medicaid caseworker. There are cases where we have successfully argued that a particular gift was not for the purpose of becoming eligible for Medicaid, but that does not happen without a bit of a struggle.

So, the basic timing in divestment cases goes like this:

Timing issue number one: FIVE YEAR LOOKBACK. If you give something away, and at any time within five years after that gift you need to apply for Medicaid in a nursing home, or for Family Care to provide home care or assisted living benefits, you will be required to disclose the gift on your application.  That five years is called the “look back period.”

Because of the “look back period,” people who divest and apply too soon could be hit with a large penalty, and people who wait five years will have no penalty. This is why, in doing planning such as transferring assets to an irrevocable trust, it becomes irresponsible to do something like that if the person does not have enough money outside of the trust to be secure for five years. That is also why, if the plan is to wait out the lookback period, it is critically important to time the application so that it is not done too early.

A gift within the lookback period is likely to create a “penalty period,” which leads us to timing issue number two: THE PENALTY PERIOD. This is also referred to as the “period of ineligibility.” The penalty period is a calculation that uses the amount gifted, and divides it by a figure that is updated “sort of” annually  (it does not always get changed.) For example, a gift of $20,000 that is made within the lookback period will create a penalty period of 82 days.

If you are newly applying for Medicaid that penalty period is imposed beginning when you:

1) are in the nursing home, (or when you apply for Family Care in the community);

2) have spent your assets down to the level at which you qualify for Medicaid ($2000 for an individual, and usually somewhere between $50,000 – $119,240 for married couples in most cases); and

3) apply for Medicaid.

The penalty period will mean that even though you qualify for the Medicaid program, you still need to pay privately for the duration of the penalty period. For people already on Medicaid who divest money, the timing is even more complicated and I won’t go into it here.

“Well, how am I supposed to do that if I only have $2000?”  

Good question! The answer is: You can’t! Particularly if you are single. Unless…..You have planned carefully. 

Careful planning is the reason that in some cases, where a person has gifted money, it makes sense to take steps to further reduce that person’s assets immediately so that an application for benefits can be made and a penalty period served out. (Which, I realize, is exactly the opposite of waiting out the five year lookback period, and so this has to be carefully considered.) One such case would be where a person is in assisted living but anticipated to move to a nursing home setting. In that case, instead of waiting to gradually spend down all the person’s money, and apply for Medicaid in a nursing home, and then get hit with a divestment penalty, it would make sense to have that application completed while the person is in assisted living, even if the assisted living facility does not take Family Care benefits! That way, the penalty period will be over before the high cost of nursing home care sets in.

In other cases, where a person has gifted money and then finds him or herself in need of nursing home care, we advise the family that instead of gradually spending down money, and then again ending up applying for Medicaid and facing a penalty period, the family should immediately reduce assets by using a vehicle such as an annuity or loan, whose payout is carefully timed so that the income will cover the cost of the penalty period.

These techniques are not “gaming” the system. These people are “paying the penalty” for having divested money. The difference is that when clients understand how the timing works, there are steps they can take instead of simply waiting and being hit with a penalty when neither the client nor his or her family can afford it.

And I won’t beat around the bush – timing is everything in one more respect: getting in to see a qualified elder law attorney sooner rather than later. This is because people who have good advice will minimize the impact of a divestment. People who don’t will end up simply spending down all of their funds and will be hit with an unworkable penalty.

Posted in Elder Law, Medicaid | Tagged ,

10 important points about irrevocable Medicaid trusts

trust imageWith the State’s drastic changes to estate recovery, there has been  a corresponding  increase in the number of clients for whom an irrevocable trust becomes an attractive option for Medicaid planning. At the same time, over the course of my work with clients in 20+ years as an elder law attorney, I have seen many cases where clients had at some point in the past created an irrevocable trust, and ended up with serious problems because the trust was drafted improperly, or because they simply did not understand how the trust worked. I want to set out some of the points I use to educate my clients when we talk about irrevocable trusts. This isn’t meant to be a complete analysis of all the legal issues regarding this type of trusts, rather a set of highlights. How any of these applies to a particular case depends very much on individual circumstances.

There are a number of different kinds of irrevocable trusts, set up for different reasons including not only Medicaid planning, but also to benefit disabled children or relatives, for estate tax planning, and charitable gifting. Here I am talking about Medicaid irrevocable trusts.  Readers should always consult with an Elder Law Attorney for advice on their specific situation.

1. An irrevocable trust can protect assets for Medicaid eligibility purposes, but means those assets are not available for your own use if you are the one setting up the trust and funding it with your assets.

When a trust is set up to protect assets for Medicaid purposes, the key feature is to structure the trust so that assets are not considered to belong to the “grantors” (the people setting up the trust and funding it with their assets) if the grantors need to apply for Medicaid. In order for this to work, the grantors cannot have access to any of the “principal” of the trust – in plain language, this means if you put $100,000 into the trust, you cannot get it back out.  AND what’s more, that $100,000 cannot be used for your expenses, such as your care, your needs, vacations, your bills, any repair to your home, etc. You cannot take the money for your needs. Period.

While loaning the funds back to you may be a possibility, it is not a certainty.

Which brings me to an important point. The concept of “protecting assets” for Medicaid purposes is a bit of a misnomer. This is because often, in order to avoid using assets to pay for nursing home care, frequently you must transfer them out of your control and possession. Which really means that you are not “protecting” them at all as far as your own needs. You are “protecting” them in the sense of passing them on to your chosen beneficiaries. That may NOT be what is best for you in terms of your own needs, and possibly may not be what you are inclined to do.

When I make this point with clients, I am very strong about it. Clients should not engage in this type of Medicaid planning if they need to use the funds for their own care and expenses. On the other hand, some clients are in a position to do this type of planning. This is a very fact-specific analysis and should not be made on the basis of some “package” deal or “group” presentation that many clients fall victim to. Insist on individual advice by a qualified attorney.

Because you cannot have access to the principal of a Medicaid qualifying trust, it is important to plan on having enough assets outside of the trust to meet your needs.

EXAMPLE: I had a client whose family came to me for advice after he had set up and funded an irrevocable trust. He put his home into the trust, and ALL of his liquid assets. At the time he created the trust, he was already in the early stages of Dementia. Shortly after funding the trust, he needed to move from his home into assisted living. He did not have enough funds to pay for his care. His family did not understand how this trust was supposed to work, and did not understand that the assets in the trust could not be used to pay for his care.

We solved the problem, but it was complicated.

2. You can opt to have access to income from a Medicaid irrevocable trust, but if you do so, it will count when you apply for Medicaid.

A Medicaid Qualifying trust could allow you to get income from the assets in the trust. In other words, if that $100,000 in the trust is earning 1% interest per year, you could receive $1000 per year. But that is it. You cannot get the principal.

If you set the trust up so that you can get income, then that income will be counted as your income when you apply for Medicaid. This is true even if you choose not to take the income in a given year.

If you want to be able to get income from the trust, it must be set up carefully so that only the income counts, and not principal. Improperly drafted trusts will result in the entire amount being counted as an asset.

3. Transferring assets to a Medicaid Qualifying Trust creates a penalty period that will affect you for FIVE YEARS after you transfer assets to the trust.

When you create a Medicaid irrevocable trust, the transfer of your assets into the trust (called “funding” the trust) creates a “divestment” penalty based on the amount you put into the trust.  (Note: If you are creating a special kind of irrevocable trust for the benefits of a disabled individual, or creating an account in a “pooled trust” such as WisPACT or Life Navigators for yourself, there most likely would not be a divestment penalty. Those are different types of trusts that I am not talking about here.)

If you or a spouse needs to apply for Medicaid, you will need to disclose all assets you have transferred into this trust for the last five years. Because the transfer of assets to the trust creates a divestment, this is NOT the type of trust you want to keep putting money into without understanding the negative consequences.

EXAMPLE: If you transfer $100,000 to an irrevocable trust on July 1, 2014, you will need to disclose that transfer if you apply for Medicaid any time through July 1, 2019. The penalty will be calculated based on what you gave away, For example, using today’s rates, a $100,000 divestment would cause a penalty of  410 days where you would be ineligible for Medicaid.

For this reason, it is important to keep your “operating accounts” such as basic checking where your Social Security and Pension income is deposited, outside of the trust.

4. If you transfer your home or real estate into the trust, you cannot use your own money for major repairs without creating a penalty.

The biggest problem I see involving individuals or couples  that have already created one of these trusts, involves clients who have put their home, or other real estate, into the irrevocable trust. They have transferred their home into the trust without understanding that this means when it comes to Medicaid,  they no longer own it. They are often shocked when I explain this. I blame this on a failure by whoever created the trust for them in the first place. It was not properly explained to them.

This is complicated, because the tax treatment of property in the trust could be different than the Medicaid treatment. But what it boils down to, is that if you want to continue to live in a home that has been transferred to the irrevocable trust, you should be careful about detailing the financial arrangements regarding the occupancy of the home.  For example, you may be able to continue to pay some costs of the home such as taxes, utilities, etc as a cost of occupancy. But if the home needs a new roof, the trust must pay for it. If you pay for it yourself (because you see this property as “your” home) you may run into a divestment penalty since you paid for a major repair on a home that was not yours.

There are ways to handle this problem, such as transferring a fund of money at the same time you transfer the real estate.  The fund would be there to cover major repairs or pay the taxes if you can no longer afford to do so because you are in a nursing home. Also, the occupancy arrangements regarding your home should be worked out at the time you set up the trust, so that everyone is on the same page and things go smoothly.

This also means that if the home is sold, you do not get to keep the money, since the home belongs to the trust. The proceeds from the sale will go into the trust.

5.  You can reserve the right to decide who gets the trust assets after you die, even after the trust is set up and funded.

One of the nice things about a Medicaid irrevocable trust, is that even though you cannot get the assets back for yourself, you can reserve the right to decide who gets them when you die, AND you can change your mind about it.  This power is called a “reserved power of appointment” and becomes useful to clients who want to have the freedom to choose who benefits from their assets.

This is also one of the main things that makes an irrevocable trust BETTER than simply gifting assets to family members as part of a Medicaid planning strategy. When you gift money, it is done. You don’t get to change your mind about who you give it to. But with an irrevocable trust, you can keep this right as long as you are able to make those decisions.

The only caveat to this is that for tax purposes, you cannot reserve the right to appoint yourself or your estate as the beneficiary of the assets.

6. Assets in an irrevocable trust will not be taken by the state through estate recovery.

Under current law, if your assets are in an irrevocable trust, they will not be subject to estate recovery. This means that if you receive Medicaid in a nursing home, the assets you put in the trust will not be taken to pay back the benefits you received.

7. You can retain control of an irrevocable trust by selecting yourself as a trustee.

While you must give up the right to use the assets you put in an irrevocable trust, you can still be in charge of managing the assets as trustee. For example, if you were the trustee of an irrevocable trust that contained your house, you would decide when if ever the house should be sold.

If liquid assets are in the trust and you are the trustee, you can make decisions about investing the assets, and about whether or not anything should be distributed for the benefit of your beneficiaries (but NOT yourself or your spouse).

You can also name successor trustees to manage the trust if you cannot.

8.  You can retain certain tax benefits by setting your trust up correctly.

Certain provisions can be put in an irrevocable trust that will allow the assets to be treated as your assets for tax purposes, which minimizes capital gains taxes when the assets are sold after you die. These provisions are designed to make the trust an “intentionally defective grantor trust” for tax purposes. This can be particularly important if you are transferring appreciated assets or real estate into the trust.

Retaining the right to income is one of these provisions. Reserving the right to change beneficiaries is another one of these provisions. There are others. Talk to your lawyer about whether it makes sense to include these provisions in your trust.

9. Irrevocable trusts are not right for everyone

In fact, my position is that for most of the people I see, an irrevocable trust is too risky. This type of trust is probably not right for you if you have modest assets and are in declining health.  Most of my clients are in this position already.

If you want to consider this type of trust, it is something you may want to thing about when you are just entering your retirement age and can afford to set things aside while still healthy. It can also be appropriate for couples who have a secure retirement nest egg or who have long term care insurance.

10. A problem trust may be repairable, even when it is irrevocable.

If you are a person who has an irrevocable trust and has learned that there is a problem, either because you did not understand how it works or because it was improperly drafted and now the Medicaid agency says it is available to you, it may be possible to fix things. I have represented clients in getting the problems with their trusts corrected. Sometimes it involves court involvement.  Sometimes it can be done outside of court. So if you have a problem with your irrevocable trust, do not assume it is a lost cause. Talk to a lawyer to see if it can be fixed.

Posted in Elder Law, Estate Planning, Irrevocable Trusts, Medicaid | Tagged , ,

Medicaid Member Update Clarifies How Wisconsin Will Implement New Estate Recovery Rules, Leaves Members in the Dark on Community Spouse Divestment.

A “Member Update” publication dated June 13, 2014 arrived in the mailboxes of Medicaid recipients last week. We received copies in my office on behalf of some clients. You can read a copy here. 

This update clarifies that Wisconsin’s new and draconian estate recovery provisions will not be applied against beneficiaries until August 1, 2014. It also states that life estates and revocable trusts created prior to August 1, 2014 will not be subject to estate recovery. This resolves a large degree of uncertainty as to whether life estates created many years ago, would now be subject to recovery on the death of the life estate holder. They will not.

It also clarifies that recovery from non-probate assets such as Payable on Death accounts and joint accounts will begin for recipients who die on or after August 1, 2014.

Interestingly, while the state had the opportunity to educate recipients about another critical change in its policies, specifically the rule  that prevents the spouse (“community spouse”) of a person in a nursing home or on Family Care (“institutionalized spouse”), from transferring the community spouse’s assets to anyone else until the institutionalized spouse has been on Medicaid for five years,  and while including this information in an update that went out to all recipients would have been simple, the state chose not to include this. I have already been contacted by community spouses inadvertently caught in this trap. Unlike estate recovery which the state is implementing going forward, the state has chosen to apply the new divestment penalty going back to the effective date of the Joint Finance Committee’s approval of the law, and to do so without warning. When I contacted a DHS employee about this concern a couple months ago, I was told the reason not to provide this information was the cost of sending it to all affected recipients. Well, given that the June Member Update went to everyone, that does not appear to be a valid concern.  It is disappointing that the state chooses to keep couples in the dark about this rule.


Posted in Elder Law

Do Spousal Impoverishment Protections Apply to Same-sex Married Couples?

gay marriageUpdated! On October 6, 2014, the United States Supreme Court refused to review the lower court decision finding Wisconsin’s same-sex marriage prohibition unconstitutional. In plain language this means that the decision stands, and same-sex marriage is legal in Wisconsin!


In a decision dated June 6, 2014, Judge Barbara Crabb has struck down Wisconsin’s constitutional amendment prohibiting same-sex marriage in Wisconsin. You can read her full decision here. As a result, many same-sex couples are happily marrying in Wisconsin. Nonetheless, the legal decision is being appealed, and the future is somewhat uncertain at this time.

So how will these newlyweds be affected if one of them needs long term care in a nursing home? Under the federal policy guidance issued by the Center for Medicare and Medicaid Services shortly after the decision of the United States Supreme Court in U.S. v. Windsor, same-sex couples whose marriage is legally recognized in in the state where the Medicaid application is made, will be treated exactly like heterosexual married couples.

This means that for those couples who now marry legally in Wisconsin, spousal impoverishment protections  will apply if one of them needs long term care Medicaid. I have written about these protections here. Also, spouses can transfer assets to each other without a divestment penalty. There is still some concern whether the marriages taking place in Wisconsin now will ultimately be recognized as legal if Judge Crabb’s decision is overturned. That concern should be resolved in due course.

As I advise all couples, from the perspective of Medicaid issues, marriage can be a double – edged sword. On the one hand, the couple has a more generous asset level than a single person. On the other hand, all of the assets belonging to either spouse are counted (with some exceptions) and subject to a maximum. On the one hand, couples can transfer assets to each other without penalty. On the other hand,  there will be estate recovery from the surviving spouse’s estate. Couples considering marriage  need to weigh the advantages and disadvantages from the Medicaid perspective if that is a concern.  I am happy to help address those questions. and am looking forward to working with same-sex spouses on these issues.

In the broader context, Attorney Ruth J. Irvings, my former partner at Nelson Irvings & Wessels, who is now at the Law Offices of Ruth J. Irvings, has considerable experience and expertise in same-sex couple counseling and estate planning. Couples may want to consider seeking legal advice from Ruth in making this decision.



Posted in Elder Law, Medicaid | Tagged , ,

Medicaid Myths Part Three: Estate Recovery

house tax recoveryMyth: “I heard I have to turn over my home to the state in order to get Medicaid.”

This fear, or something similar that involves worry that the state will swoop in and take property, furnishings, car, or home out from under a person who needs Medicaid, is common among clients who come in to see me. It is a myth, based on a misinterpretation of Wisconsin’s Medicaid recoupment law.

The truth is that you never have to give up your house to qualify for Medicaid. In most cases, the home will be a resource that does not count in the Medicaid eligibility process. It’s often unfortunate that people have been given bad advice to sell their homes and use the proceeds  to pay for nursing home care before applying for Medicaid, when they may have been able to qualify while still owning the home.

Truth: You never have to give property to the state as a condition of Medicaid eligibility. Period.

That being said, if you receive Medicaid in a nursing home, or hospital where you have been there for more than 30 days, AND you own a home, AND there is no reasonable likelihood that  you will ever return home, the state may be able to place a lien on your home.  This does not apply in all cases however. For example, if a spouse lives in the home, the state may not obtain a lien. There are other exceptions as well.

If the state is allowed to place a lien on your home, then the lien could be enforced if, for example, the house is sold in a probate of your estate.

The lien cannot be enforced if certain people are living in the house, such as a child who lived with and  took care of you for two years prior to the time you went into the nursing home, and who continues to live in the home.

Allowing a lien to be placed on the home is not the worst thing in the world. This is because the lien is for the cost of nursing home care at the Medicaid rate.  Compare the following:

Joe’s house is worth $200,000 free and clear. 

If Joe sells his house and uses the proceeds to pay for nursing home care at the private pay rate of $9000 per month, he will exhaust the proceeds in about 22 months.  There will be nothing left. 

However, if he keeps the home and it is considered exempt because he intends to return home (even if that intent is not reasonable) then he can qualify for Medicaid without selling the home. At some point a lien will be placed on the home. 22 months of care at the Medicaid rate of about $5500 is $121,000. The lien would be based on the Medicaid rate.  After the same amount of time has elapsed, if Joe chooses Medicaid even with the lien,  he still has $79,000 worth of equity in his home.  This increases the chance that if he dies, there will still be equity in the home to leave to his heirs. 

The takeaway is this:

1) If worry about the state taking your house is preventing you from considering Medicaid,  that worry may be based on a myth.

2) If a caseworker or nursing home social worker tells you that you have to sell the house to pay the nursing home, get a second opinion. Selling the house will lead to you paying the nursing home at a higher rate than if you kept the house.

You can learn the truth by talking with an elder law attorney.





Posted in Elder Law, Medicaid | Tagged ,

Medicaid Myths Part Two: Divestment and Millionaires

This article will delve into the second major area of misunderstanding in Medicaid: Divestment. Divestment is the term for the broad concept that if a person gives away money or other assets for the purpose of becoming eligible, a penalty will be imposed that prevents that person from receiving Medicaid benefits for a period of time. Federal  law regarding divestment is at 42 USC 1396p(c); Wisconsin State law is at Wis. Stat.§ 49.453.

Divestment Myth #1 – Annual Gift Tax Exclusion and Medicaid: The most common misinformation refrain here is, “I heard you could give away $14,000 a year and still get Medicaid.” I wish I had $14,000 for every time a client brings this one up.  This is based on a misapplication of IRS tax rules. When I am asked this question, it is time for a frequently-echoed refrain. It goes like this: “It’s true that Medicaid and tax law are both federal laws. And one would think that since they are both federal laws, Congress might be consistent in the way they work. However, that is not the case. So while it is true you can give away up to $14,000 per recipient per year for tax purposes, it does not work the same way for Medicaid. They have different rules.”

There is no fixed amount that is “safe” in Medicaid. There are a few general rules. Because these rules can change, and are somewhat subjective, I recommend consulting with an experienced elder law attorney before trying them. For example, a pattern of gifting in the past, which is continued during the look back period and is less than 15% of the applicant’s annual income, may be allowable.  A payment to a relative for care services, which is less than a specified limited amount established by the Medicaid agency, may be allowable. (Anything greater than the specified amount would require a written agreement that meets certain standards.) If you violate the divestment rules and give away $14,000 a year for three years, then need to apply for Medicaid the next year, your penalty period would be 172 days (using 2014 numbers).

Divestment Myth #2 – Monthly Gifts: “If I just give away a little bit of money every month, there will not be a penalty.” This misconception is based on what used to be the law. This is frequently brought up by someone who says, “my uncle gave away $3000 per month for two years and got on Medicaid right away.” That is simply not the way it works anymore. Now, everything you give away five years before you apply gets added together to create a penalty. The penalty starts when you are in the nursing home, at the correct asset level to qualify, and you apply for Medicaid. The penalty then goes forward from there. So the days of giving away a little bit every month are gone.

Divestment Myth #3 – Millionaires Getting on Medicaid: “If we expand the divestment laws, we will make it harder for millionaires to get Medicaid.”  This refrain is what we hear from Wisconsin legislators when they pass restrictive laws that affect Wisconsin’s seniors.  The most recent set of restrictions prevents community spouses from giving away any resources for the first five years after their spouse in the nursing home qualifies for Medicaid. There were other restrictions that I have written about in past articles, that were then rescinded. The refrain in passing the restrictions was some concern that millionaires are abusing the Medicaid system. (In order to buy into the argument that the new divestment restrictions were intended to target millionaires you would have to ignore the plain fact that the community spouse divestment restrictions target couples whose assets are well under $150,000, because you generally need less than that to qualify in the first place.) The concept that Wisconsin’s efforts will prevent millionaires from getting Medicaid is ludicrous for two reasons:

#1) most millionaires are not looking to get Medicaid if they need long term care. Millionaires are staying in their homes with private duty nurses. Millionaires who are not at home are spending their money in high end private pay facilities that do not take Medicaid.  The only “millionaires” who often need to apply for Medicaid are those people who own a highly appreciated piece of real estate that has been in the family for 50 or more years. Like a farm.

#2)  If a real millionaire wanted to apply for Medicaid, Wisconsin’s newly restrictive laws don’t make it any harder. Under federal law, the millionaire simply needs to divest assets and wait for five years. And being a millionaire, he or she can do that.Million-bucks-Become-a-Millionaire

Posted in Elder Law, Medicaid | Tagged , , ,

Medicaid Misinformation – Clearing up eligibility myths.

confused guyA fair amount of my work with clients and even other professionals involves clearing up misconceptions they have about how Medicaid works. It is a simple thing for me to do, and the misinformation usually revolves around a few common themes. Even though it does not take much to clear up these misconceptions, I would rather spend my clients’ time working on plans that will help them. So the next few editions of this blog will clear up some of the biggest myths.

Medicaid has three main areas that cause confusion. (Well, there are a lot more than three confusing areas about Medicaid. I am just trying to simplify.) These are:

  1. Financial Eligibility Requirements: Federal Medicaid eligibility law is at 42 USC 1396; State Medicaid eligibility law is at Wis. Stat.§ 49.43-473. The most common question is “If I go in the nursing home can they make me sell my home in order to get on Medicaid?”

  2. Divestment: Divestment is the concept of giving away assets in order to qualify for Medicaid. Federal law regarding divestment is 42 USC 1396p(c); State law is Wis. Stat.§ 49.453. The common misinformation refrain here is “I heard you could give away $14,000 a year and still get Medicaid”

  3. Estate Recovery: Estate recovery is the concept that when you have been receiving certain types of Medicaid benefits,  the state can recoup the costs it paid out after you die. The federal law on estate recovery is at 42 USC 1396p(b), and state law is Wis. Stat. §§ 49.496, 49.849. The most common estate recovery myth clients tell me is “I heard the state will come and get my house and all the furniture if I apply for Medicaid.” This sounds a lot like the misinformation in #1, but it actually has a different focus: the fear that the state will take things away as soon as a person gets Medicaid.

In this blog, I will cover the misinformation in #1, financial eligibility. I will write about the others in posts to come.

Medicaid Financial Eligibility:

Sadly, the worst culprits as far as people who are spreading misinformation about financial eligibility are nursing home social workers / financial staff, and county Medicaid caseworkers. I wish I had five bucks for every time a social worker gave incorrect information to a client of mine.(Ok, I guess I DO have five bucks for every time a social worker gave misinformation to a client of mine, since those people had the good sense to come and see me for a second opinion before acting, or at least before too much damage had been done. And usually, what they pay me for advice is significantly less than what they would have needlessly spent or lost if they had followed the social worker’s advice.)  I do not think these most of these nursing home staff or county workers are deliberately trying to mislead my clients. They just don’t know all of the laws.

As far as basic eligibility rules, I have covered these in other posts. I will skip those here and go right to the issues.

Eligibility Myth #1: “You are going to have to sell your house before you can go on Medicaid.”

Truth: In most cases, the home does not count as an asset as long as the person who needs Medicaid intends to return home. This exclusion also applies if the person’s spouse or dependent relative lives in the house. If the person cannot express his or her intent, an agent or guardian can do that for him/her. The concept of intent is subjective, which means that – for eligibility purposes- it does not have to be realistically possible for the person to return home. As long as the person has the intent, the test is met. “Home is where the heart is.”

Most people, if asked, would like to be in their homes, Therefore, it is truly rare that the house would be a countable asset, as long as people correctly state their intent to return home.  Most often, they can keep their home and get Medicaid. Sadly, if they follow the social worker’s advice and sell the home, they have just converted their exempt resource into a sum of cash from the sale, and this cash must now be spent.

Some practical considerations can arise after the person is on Medicaid, because only a very limited amount is allowed to maintain the home, pay taxes, insurance, etc. And for the purpose of any home maintenance allowance, it must be objectively reasonable that the person will return home.  So, it may be that the Medicaid recipient cannot afford to maintain the property for any length of time. There are ways to take care of this problem.

Eligibility Myth #2: “You are going to have to pay the nursing home with all those extra assets that you have.”

Truth: You do NOT have to spend all of your excess assets paying for your care. You may purchase other things that don’t count for Medicaid eligibility, such as prepaying for your funeral expenses. The way to “spend down” is something that depends on individual circumstances. But rest assured that, while paying the nursing home is a good way to spend your excess resources, it is not the only way.

Eligibility Myth #3: “Married couples have to spend down to $50,000 before one spouse can get Medicaid.”

Truth: Well, to be honest this is a myth quite a bit of the time, but sometimes it is true. The problem is, many couples are uniformly told to spend down to $50,000 because this is what the social worker tells everyone, not because it is a conclusion based on the specific situation. For Married couples, the standard eligibility range is somewhere between $50,000 and $115,920. The spouse in the nursing home can also keep $2000. Where a couple falls in this range depends on how much they had when the nursing spouse first became institutionalized. In some cases the couple can keep even more than the standard range. I have handled cases where we have successfully obtained an asset allowance of more than $200,000. In most of these cases, clients were given the standard “You will have to spend down to $50,000″ information by nursing home staff or county caseworkers. Most often, it is well worth the investment to consult with an elder law attorney about what asset level would apply in your case.

Well there you have it, a set of Medicaid eligibility myths debunked. These are not the only tall tales that I’ve heard from clients, but they are the most popular ones.

One final tip on financial eligibility. I frequently hear from clients that the county intake worker they called to begin with told them not to apply for benefits because they were not eligible. This should never happen. By law, any individual who shows an interest in applying must be given an opportunity to do so.  If the intake workers were right all the time, this would not be so much of an issue. But given that caseworkers often come to an initial conclusion that is incorrect, telling someone not to apply can mean an unnecessary loss of benefits. If you are told not to apply, get a second opinion from an elder law attorney.

The next misconceptions I will tackle are the ones involving divestment.

Posted in Elder Law

Breaking news! Legislation repeals some of the worst of Governor Walker’s Medicaid recovery expansion.

On Thursday, November 14, 2013, the legislature passed an update to the Wisconsin Trust Code. This update has been in the works for well over a year now. However, at the last minute, the bill that had been crafted as an adoption of the Uniform Trust Code, was changed so that it also included provisions repealing some of the worst aspects of the Medicaid Estate Recovery and Divestment changes that were passed in Act 20, and that I have written about at length in this blog. This is good news! At the same time, some of the Act 20 changes were left intact.

This new bill was signed by Governor Walker on Dec. 13, 2013 as Wis. Act 92. The majority of the bill’s trust provisions will not be effective until 7/1/14, however, the Medicaid provisions I am going to talk about below are effective as of the date that the original provisions were effective, and thus, it is as though they never happened.

Here is a summary of the Medicaid changes, including what was repealed by this newly-signed law, and what parts of the prior Budget Act changes are still on the books. I am not going into the many changes that affect trust law and that were the main focus of the act.

WHAT WAS REPEALED. Act 92 repeals:

  • The prohibition on transfer of excluded resources that I wrote about here.  What this repeal means, is that the threat to family farms and businesses is off the table. It also means that other exempt resources, such as burial plots and cars, would not cause a penalty period if transferred.
  • The prohibition on loans between family members that I mentioned here. This means that now, the simple fact that funds were loaned to a son or daughter will not create a divestment penalty. The loan does, however, have to meet all of the existing requirements of state law: it must be payable over the Medicaid applicant’s life expectancy, it must provide for fixed regular payments such as monthly, quarterly, or annually, and it must include interest at the applicable federal rate.
  • It eliminated the cumbersome property notice requirements that I wrote about here.
  • It eliminated the state’s ability to “void” certain property transfers.
  • It repealed the statute that defined property available for estate recovery as “all real and personal property in which the nonrecipient surviving spouse had an ownership interest at the recipient’s death and in which the recipient had a marital property interest with that nonrecipient surviving spouse at any time within 5 years before the recipient applied for medical assistance or during the time that the recipient was eligible for medical assistance.” This means that the state cannot recover property by using a time frame that goes all the way back to five years prior to the application. The time frame is narrowed to that property that the Medicaid recipient has an ownership interest in at the time of death.
  • It eliminated the cumbersome reporting requirements for trustees of living trusts that I wrote about here.
  • It added a restriction that prohibits the state from recovering funds from irrevocable trusts.

The objectionable parts of the Budget Act that still remain are:

  • The provision stating that if the community spouse transfers any resources within five years after the nursing home spouse becomes eligible for Medicaid, the community spouse’s transfer will create a divestment penalty for the nursing home spouse. This will still leave many couples in situations where the actions of the community spouse could create negative consequences for the nursing home spouse.
  • The provision that requires any divested funds to be returned in full before a divestment penalty will be reduced or cancelled.
  • Expansion of estate recovery to include many non-probate assets, such as life estates and living trusts. I wrote about this here and will write more about it at a later date.
  • Expansion of estate recovery to allow recovery of assets at the time of the community spouse’s death, if he or she dies after the nursing home spouse. However, Act 92 does make some positive changes to this process. I wrote about the law in its original state  here.There is a presumption that all of the assets owned by the community spouse at the time of his or her death also belonged to the institutionalized spouse and therefore can be recovered. However, this presumption can be rebutted. The positive changes to the process of spousal estate recovery are as follows:
    • First, it includes the requirement that the presumption that all of the assets owned by the community spouse at the time of his or her death also belonged to the institutionalized spouse must be consistent with Ch. 766.31 and therefore incorporates marital property law into the determination.
    • Also, it changes the proof needed to rebut the presumption by removing the “clear and convincing” standard.
    • Finally, it reinstates the undue hardship waiver provision that was removed.

    Therefore it will be extremely important to carefully document assets at the time of the first death. This is not something that many couples give much thought to, since most assets are owned jointly. In plain words, if you carefully document what assets belonged to the institutionalized spouse, such as bank account, etc., and continue to keep those assets separate from the community spouse’s assets even after death, you have a way to rebut the presumption that everything is recoverable. An elder law attorney can help you with this.

  • The provision in prohibiting “spousal refusal” by stating that the department “may” deny eligibility if the institutionalized spouse and the community spouse do not provide the total value of their assets and information on income and resources to the extent required under federal Medicaid law, or do not sign the application for Medical Assistance. I wrote about the effect of this here.
  • Expansion of estate recovery for Family Care Services, to include the full capitated rate instead of that actual cost of services the participant received. I wrote about this here.

Many advocates worked tirelessly to pursue the repeal of the terrible government overreaching that was included in Act 20, the biennial budget. This bill shows that the hard work paid off, at least in large part. Wisconsin Residents still have reason to be concerned, and to be careful. That being said, there are still many opportunities to plan well to preserve assets to the fullest extent possible.

Posted in Elder Law, Medicaid | Tagged , , ,

Is the End of “Spousal Refusal” Really Anything to be Upset About?

money signThe Wisconsin Legislature has changed the way Medicaid works for married people. And one of the changes was intended to attack a Medicaid Planning method used successfully by many elder law attorneys, including myself (although, I have to say I never had reason to use it much.) The thing is, the “attack” only changes the way these cases should be approached, not the end result of being able to obtain Medicaid eligibility for an institutionalized spouse even where the couple’s resources exceed the standard Medicaid limits.

For non-lawyers following this blog, I will explain the history as non-legally as I can. But my analysis of the outcome requires a look at Federal law. So buckle up.

Until the recent change in the law, Wisconsin had a policy that where an institutionalized spouse (please click here for my explanation of basic spousal impoverishment rules and terms) applies for Medicaid and the community spouse refuses to sign the application, the institutionalized spouse is treated as a single person. This meant that as long as the institutionalized spouse’s assets were at or below $2000, he or she would be found eligible for Medicaid. The traditional spousal impoverishment rules did not apply. (Keep in mind, these rules are much more generous than $2000, but not unlimited. This year, the limit for the community spouse is just over $115,000.) This policy was in the administrative materials of the Department of Health Services, in the Medicaid Eligibility Handbook. It was not in the law.

When used appropriately, “spousal refusal” would result in eligibility in cases where the couple’s total resources were more than the allowable amount under spousal impoverishment, or where one spouse could not be located. Where a spouse had children from prior relationships and a prenuptial agreement separating assets, this technique would be a way to preserve that intent. Couples would apply and the community spouse would refuse to disclose assets or sign the application (or in the case of the absent spouse, that information would simply be absent.) The institutionalized spouse would be found eligible if the assets in his or her name were lower than $2000.

Wisconsin’s new law meant to impose dire consequences if the spouse refuses to sign the application or disclose assets. Section 49.455(5)(e) now states:

(e) The department may deny to the institutionalized spouse eligibility for Medical Assistance if, when requested by the department, the institutionalized spouse and the community spouse do not provide the total value of their assets and information on income and resources to the extent required under federal Medicaid law or sign the application for Medical Assistance.

I would hope that by using the word “may,” there is still room for an application to be granted, which would be significant in cases where the spouse is absent or there are other reasons that it is unfair to hold the nursing home spouse responsible for the situation.

In any event, there is still a way to obtain eligibility in this type of situation. Wisconsin law also states, at Section 49.455(5)(c):

(c) The amount of resources determined under par. (b) to be available for the cost of care does not cause an institutionalized spouse to be ineligible for medical assistance, if any of the following applies: 

1. The institutionalized spouse has assigned to the state any rights to support from the community spouse.

2. The institutionalized spouse lacks the ability to execute an assignment under subd. 1. due to a physical or mental impairment but the state has the right to bring a support proceeding against the community spouse without an assignment.

3.The department determines that denial of eligibility would work an undue hardship.

This part of the law has been in place for many years. It is written consistently with the federal spousal impoverishment law at 42 U.S.C. section 1396r-5. Federal law states:

(3) Assignment of support rights The institutionalized spouse shall not be ineligible by reason of resources determined under paragraph (2) to be available for the cost of care where – A) the institutionalized spouse has assigned to the State any rights to support from the community spouse; B) the institutionalized spouse lacks the ability to execute an assignment due to physical or mental impairment but the State has the right to bring a support proceeding against a community spouse without such assignment; or C) the State determines that denial of eligibility would work an undue hardship.

What does this all mean? It means that the idea that the community spouse has to refuse to sign the Medicaid application or to disclose assets is really irrelevant. The federal law, and the consistent state law still in effect, prohibit the institutionalized spouse from being found ineligible due to excess resources as long as he or she assigns support rights to the state.

This is the situation that was raised in the first case addressing the issue of the application of this exception to the spousal impoverishment rules. The case was called Morenz v. Wilson-Coker and it arose out of Connecticut. This case said that the language of the law is plain. Where the institutionalized spouse assigns the right of support to the state, (s)he cannot be found ineligible due to excess resources. In Connecticut, the applicable law provided that the institutionalized spouse could be found eligible where the community spouse was unable to or refused to declare his or her assets (essentially, the way it used to be in WI). The Morenz petitioners fully disclosed their assets and assigned the husband’s rights of support to the State of Connecticut.  The state Medicaid department found that because the couple had fully disclosed their assets, they could not avail themselves of this rule. The couple sued the state in federal court. The federal district court found that the plain application of the law required a finding of eligibility, and the Second Circuit affirmed. Thus, the very first case ever dealing with this issue was based on not refusing to disclose assets!

I have no reason to believe that the courts in Wisconsin would not be similarly able to apply the plain language of the law. This means that now, couples should fully disclose their assets and assign support rights. Of course, it is not quite  as simple as that, and planning should be done ahead of time with the assistance of an attorney who knows the proper procedure to follow. It also means the community spouse could find him or herself subject to a support action, although other caselaw in Wisconsin could impact the success of that.

So, while I think that the Governor and the legislature thought they were closing a loophole in eliminating “spousal refusal,” they really did nothing at all. Federal law controls this issue, and the law is plain.

A good example of a case where this would be a proper technique to use, is one where the husband is in the nursing home, and the wife is at home. Wife has been diagnosed with dementia and is receiving home care services. It is inevitable she will decline. The couple’s assets are $250,000 in a CD that the wife owns, $50,000 in an IRA owned by the wife, and $1000 in the nursing home account for the husband. Their assets exceed the standard limit. His income is $1800 per month, and hers is $1000. In this case, they could choose to spend down to the applicable asset limit under traditional spousal impoverishment, or they could apply, fully disclosing their assets and assigning support rights from the husband to the State of Wisconsin. I would like to see Wisconsin try to sue a wife with dementia for support, and I would like to the government try to find a judge that would ignore the wife’s needs to order her to support her husband when he could get Medicaid. In this case, I would advise the couple to pursue the assignment of support method and apply.

On a related note, a recent memo from the Wisconsin Department of Health Services indicates how it will be handling cases where an individual was found eligible in the past due to “spousal refusal.” It will be re-examining those cases at the individual’s next annual recertification period. It will be treating the individual as a married couple and applying the traditional spousal impoverishment standards. This is illegal.  Federal law says (at 42 U.S.C. 1396r-5(c)(4)):

(4) Separate treatment of resources after eligibility for benefits established During the continuous period in which an institutionalized spouse is in an institution and after the month in which an institutionalized spouse is determined to be eligible for benefits under this subchapter, no resources of the community spouse shall be deemed available to the institutionalized spouse.

I don’t know how much clearer it gets. This would be another situation where it is essential to have the help of a lawyer to challenge this policy.

Posted in Elder Law

A well-kept secret may allow couples to keep more assets and still qualify for Medicaid.

top secretThis article will explain a little-used technique that allows a married couple who have income below a certain amount to be able to keep more assets than are typically allowable for married couples in Medicaid cases. Using this process, our office has handled cases where, with our involvement,  couples were allowed to keep over $100,000 more than what Medicaid normally allows. It is not something you will typically hear about from nursing home social workers or most Medicaid caseworkers. It is one of the best kept secrets in the Medicaid eligibility process.

First, an explanation of basic Medicaid “spousal impoverishment” rules. (If you are familiar with these, you can skip down to the part that explains the process to keep additional assets.) When a couple is married, and one spouse needs nursing home care, Medicaid will provide coverage of the cost of care if the couple meets financial eligibility rules. These rules are commonly referred to as “spousal impoverishment” rules but actually, that is a misnomer. The current set of rules regarding eligibility for married couples is based on federal law that was put into place by Congress to prevent spouses from becoming impoverished if only one needed nursing home care. Therefore, they really aren’t “spousal impoverishment” rules, they are “spousal anti-impoverishment” rules. These rules also apply where there is a married couple and the spouse needing care is applying for Family Care benefits — not in the nursing home. Technically, the spouse applying for benefits is called the “institutionalized spouse” – either in a nursing home or applying for Family Care – and the spouse who is not applying, and lives in the community – is called the “community spouse.” The “institutionalized spouse” could also be referred to as the “nursing home spouse.”

Assets: Under these rules, the allowable amount of assets that the couple can have to qualify for Medicaid is between $50,000 and $115,920, plus $2000 for the nursing home spouse.  The house is not counted in this total as long as it is worth less than $750,000. A few other things are not counted also, such as retirement funds that belong to the spouse who remains in the community (called the “community spouse”). Even with some exclusions, these totals are significantly less than what is estimated that a couple should save for a comfortable retirement.

Income: There are also rules related to income. These rules say that once the nursing home spouse is eligible (based on meeting the asset test described above), he or she may in some cases be able to transfer a certain amount of income every month to the community spouse.  This transfer is allowable only in cases where the community spouse has less than $2585-2898 in his or her own income per month. In those cases, the nursing home spouse can transfer income, but only enough to bring the community spouse’s total income to that level. The exact amount within this range is based on the amount of expenses for “shelter” that the community spouse incurs. So you take the appropriate income allocation amount, and subtract the community spouse’s income, and the difference is what the institutionalized spouse can transfer.

As you can see, it is fair to say that there is some calculating involved, both in determining the right asset level that a couple might have, and in determining the amount of income, if any, that the nursing home spouse can transfer to the community spouse. An experienced elder law attorney can help couples figure out these numbers to the greatest advantage of the couple. This is not something that nursing home social workers or county Medicaid workers are known for doing well. I have seen far too many couples who spent much more than they had to, because a social worker did not bother to analyze the situation carefully and use appropriate deductions and calculations.

Here is a basic example of how things work:

Bob and Joy are a married couple living in Grafton, Wisconsin. Bob has a stroke and is hospitalized, then transferred to a skilled nursing home. Unfortunately, it appears that this will be a long term and possibly permanent situation for Bob.  At the time Bob is hospitalized, the couple owns the following assets: a home with a home equity line of credit that has $20,000 outstanding, with monthly payments of $500. The home is valued at $250,000. The value of the home does not count for Medicaid purposes. They have two CD’s totaling $150,000 and a checking account valued at $10,000. Their total countable assets for Medicaid purposes are $160,000. Under traditional spousal impoverishment rules, Bob will qualify for Medicaid to pay for the nursing home, once their countable assets are reduced to $82,000 ($80,000 to go to Joy as the community spouse, and $2000 for Bob.)

After this asset level is reached, and Bob is eligible for Medicaid, then a calculation is made as to whether any of Bob’s income can go to Joy. First, Bob gets to keep a monthly allowance of $45. Then, other things can be subtracted which we won’t go into here. Then we can figure out how much of the leftover funds Bob can transfer to Joy. Let’s assume that the income allowance for Joy is the maximum, $2898. If Bob’s income from Social Security is $2000, and Joy’s income from Social Security is $600, then Bob would be allowed to transfer all of his monthly income to Joy if he chose to do so, because her income plus his income is less than the maximum ($600 + $2000 = $2600) However, if Joy’s income is $1500 per month, then Bob can only transfer $1398 to her, because $2898 (the maximum) – $1500 (Joy’s income) is $1398. If he keeps his $45 personal allowance he would actually transfer even less.

In any event, all this background is leading up to telling you about an exception to these general rules.

The little-used way to keep additional assets: The exception has been around for many years, but the way it works has been changed by the Medicaid changes in the most recent Wisconsin budget act.  The general principle of the exception is that in some cases, a couple can be allowed to keep more assets by showing it is necessary to generate income for the community spouse. The exception comes into play in those cases where the community spouse’s income, even with the funds that have been transferred from the institutionalized spouse, is less than the $2585-2898 range I have listed above.

The law says that where a couple’s combined income is below that spousal income level, then the couple can ask to be allowed to increase the amount of assets they can keep. The purpose of the increase is to generate additional income.

Under new Medicaid rules, the amount of additional assets the couples can keep is based on the amount of funds that could be used to purchase an immediate lifetime annuity. So, using the example where Bob has $2000 in income and Joy has $600, and the applicable allowance is $2898, then we need to figure out how much the monthly income should be. This is because Bob and Joy’s combined income is less than $2898. When Bob takes out his $45 personal allowance, he only has $1955 to transfer to Joy, bringing her total income up to $2555, which is $253 less than the maximum allowance. Bob and Joy are both 75. We will look at an immediate annuity for Joy, with monthly payments of $253 per month. You can check and may get a variety of answers depending on which company you choose. One company will give an estimate of $34,769. This means that instead of having an asset limit of $82,000, Bob and Joy would have an asset limit of $116,769. After receiving an increased asset level based on that annuity amount, Bob and Joy are not actually required to purchase an annuity (although they certainly could choose to do so.) They could simply keep the funds in savings.piggy bank 1

This increase can only be obtained by using the state fair hearing process. The hearing process can also be used to increase the monthly income a community spouse may keep, but it involves different facts and analysis. In many cases it is well worth the extra effort to go through this process.

Alternatively, families may choose to purchase the annuity which reduces the countable assets before the application is completed. This saves the costs of a fair hearing, but limits the use of funds which previously may have been in an unrestricted account such as a money market.

A reliable source for Medicaid annuity estimates is Krause Financial Services.

Experienced elder law attorneys can help you understand what options would work best for you, and can help you maximize the results.

Posted in Elder Law