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

Four Things Families Can Do Now to Prepare for the New Medicaid Estate Recovery Laws

Daily OrganizerNow that the new Medicaid laws are in effect, what can be done? I’m going to talk about that over the course of the next several weeks. This post will deal with the estate recovery part of the new law.

It remains to be seen what, if any, policies will be put into place by the Department of Health Services (DHS). So, I don’t think anyone has a complete set of answers on what families should do, yet. However, some things can and should be done now. Here are four of those things:

1) Marital Property Agreement: If you are married and one spouse is already on Medicaid, execute a Marital Property Agreement. The proper Marital Property Agreement will minimize the amount of interest retained by the Medicaid spouse.

Why do this? The new laws have presumptions that the property of a non-Medicaid spouse is completely recoverable if she or he dies after the Medicaid spouse. However, presumptions can be rebutted. That is why they are “presumptions” and not “conclusions.” Setting up clear agreements as to the nature of the property owned by the non-Medicaid spouse will help minimize the amount of recoverable property.

2) Consider whether to update your living trust: If you have a revocable living trust, consult with an attorney about amending the trust to address possible options for the trustee to take action to terminate the trust if estate recovery becomes a threat, or to change the governing law of the trust.

Why do this? Revocable trusts used to have some benefit with respect to estate recovery. However, that benefit may now be lost in some cases. Therefore, it makes sense to give your trustee the tools to make a decision whether property should pass through the trust or through traditional probate in Medicaid cases.

3) Know your options in a second marriage: If you are in a marriage where either spouse has children from another relationship, consult with an elder law attorney before long term care becomes imminent. If you are an older couple considering remarriage, meet with an elder law attorney to see how this decision would affect your ability to provide for your children if one of you needs Medicaid. You can execute a pre-nuptial agreement that will clarify each spouse’s interest in the property that comes into the marriage and the property that may be acquired during the course of the marriage. While this does not provide an advantage at the time a person is applying for Medicaid, it could help prevent estate recovery from the assets intended for the well spouse’s children.

Why do this? Because of the presumption that all property of a surviving non-Medicaid spouse is recoverable, it is important to preserve documentation as to the nature of the couples’ property to minimize the effect this might have on existing plans to provide for a spouse’s children from a prior relationship. In some cases, it will be best for couples not to marry.

4) Be savvy about claims liability: If you are the heir of a deceased person who received Medicaid or whose spouse received Medicaid, think twice before paying for funeral services or other medical bills. Relatives are not required to make these payments (unless they signed something agreeing to do so) but many do so out of a sense of responsibility. This is not a good idea in Medicaid estate recovery situations. The new estate recovery law allows the state to claim all assets owned by an individual up to the amount of Medicaid that is owed.  It then provides that anyone who has a claim on the person’s property for priority expenses (such as funeral or costs of last illness) must submit a claim to the Department of Health Services Estate Recovery Unit within one year. The department must pay higher priority claims to the extent that it receives the decedent’s assets.

This process leaves quite a bit of power in the government’s hands to decide if a bill you submit is a higher priority. Therefore, instead of paying first and hoping to get reimbursed for funeral expenses you pay, or miscellaneous medical expenses of the decedent, such as the person’s co-pay to the nursing home, or for prescriptions, it is better to submit the bills to the Department for payment, because a funeral bill or medical expense of the person’s last illness is a higher priority claim than the Medicaid payment. Not all bills have priority over the Medicaid claim, but some do. If you do pay these bills, submit them along with the proof of payment, to the Department for reimbursement.

While the Department may at some point create new addresses or contact information for filing these claims, until then, the address where you could mail the unpaid bill or your request for reimbursement of a bill you paid (I suggest you send it certified mail) is: Estate Recovery, 313 Blettner Blvd, Madison WI 53714-2405. Be aware that if the state’s estate recovery personnel are not cooperative, and your out of pocket costs are significant, you might need to start a probate case to get a court order for  your claims to be paid. That is why it is better not to get into that position in the first place.

Why do this? Where estate recovery is imminent, if you submit these priority bills to the state instead of paying them, or better yet, simply direct the creditors to send them in, it puts you, the heir, out of the middle and reduces the chance that you are stuck with the bills. The state does not get to have its cake and eat it too.  In other words, where the state exercises its newfound very broad authority to take all of a Medicaid recipient’s funds, it also assumes responsibility to pay the claims with higher priority to that same extent, and heirs should not make it easier by doing this for the state when it is not necessary.

What else? In addition to these practical steps, there are more complex planning options that make sense now. The key to benefiting from these options is to exercise them early!

The attorneys at Nelson Irvings & Wessels SC are able to provide guidance on these issues. While nobody has all the answers at this point, we can help you understand how these laws may affect you, and what your options are. If you would like to consult with us, please feel free to call us at 414-777-0220 to make an appointment.

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

Wisconsin Legislative Committee Makes Even More of a Medicaid Mess

Office Worker with Mountain of Paperwork[IMPORTANT UPDATE TO THIS ARTICLE - PLEASE TAKE A LOOK AT THE POST HERE TO READ ABOUT SOME NEW DEVELOPMENTS THAT MAY AFFECT ISSUES I WROTE ABOUT IN THE ARTICLE BELOW!]

On Wed., September 18th, 2013, the Joint Committee on Finance (JCF), a part of the legislature of Wisconsin, took action on Wisconsin’s expanded estate recovery law. What happened today can be considered a partial victory for those stakeholders were concerned about the overreaching aspects of the law. However, because JCF left considerable portions of the law untouched, and gave the department the go-ahead to enforce those parts of the law, there is a much bigger mess on our hands then there was prior to today’s events.

Wait, we thought these new laws were being delayed. Why was a committee acting today? Here’s what happened: As I have explained before, when this new, expansive recovery law was passed, a “delay” was written into the law that required the JCF to review and approve a plan for implementation that was to be submitted by the Department of Health Services (DHS). Despite assurances to work with stakeholders in the development of this plan, on September 4, 2013, DHS sprung a surprise on all involved, when it wrote a letter to JCF requesting complete implementation of the new laws before having developed any sort of plan. A hearing was held on this request today.

Advocates asked for repeal: In the short period of time between the DHS letter was filed and the hearing today, concerned stakeholders, including elder law attorneys in the Elder Law Section of the State Bar of Wisconsin and the Wisconsin Chapter of the National Academy of Elder Law Attorneys, did our best to explain to the legislators on the committee the concerns over the collateral damage and overreaching in this law. While we tried to consider the feasibility of a delay or partial solution (such as what was reached today) we ultimately came to the conclusion that a complete repeal was the only way to solve these issues as well as address a procedural problem raised by DHS as justification for its steamrolling forward to implement the new law. We urged committee members to deny the DHS request and couple that denial with the introduction of legislation to repeal these changes completely. That did not happen today.

Instead, a partial “fix” was implemented: Instead of a complete repeal, today in the Joint Finance Committee, Sen. Darling and Rep. Nygren, both Republicans, made a motion to grant the Department permission to proceed on the estate recovery expansion. However, the permission was limited and the Department was also denied authority to proceed on certain specific things. The items which the Committee refused to grant DHS permission to enforce are:

  1. The part of the new law that prevented the transfer of exempt resources, such as business assets, and the part of the law that made it a divestment to enter into a promissory note / loan agreement with a “presumptive heir” such as a child. The effect of this prohibition by JCF is that the Department cannot impose a divestment penalty against an individual who does either of these things, even though the law prevents them because it remains on the books. As long as the law is on the books, nothing stops the DHS from coming back to JCF at a later date and asking permission to enforce this again.
  2. The provisions related to the Department’s ability to void real estate transfers, and to require notices related to real estate (I wrote about these notice requirements  in the July 9, 2013 entry on this blog – prior editions of the blog can be found by ckicking on the link, scrolling down, or by using the menu on the right hand side of this page.)
  3. Finally, the JCF also prevented DHS from moving forward on those parts of the law that affected living trusts,special needs trusts, and pooled trusts, which I wrote about in the September 4, 2013 edition of this blog.

This partial “fix” only prevents DHS from acting on some of the laws, but it does not repeal the laws. Even though the DHS is prohibited from enforcing these parts of the law for now, they are all still on the books. This creates a very sticky situation. An example of the mess concerns the requirements imposed on trustees of living trusts. Now, because of the committee’s action, the DHS cannot enforce the recovery of assets from a living trust. However, trustees are still required to make detailed reports to DHS within 30 days when an individual who received Medicaid is the grantor of a trust, and that individual dies. These reporting requirements are not delayed or affected in any way by the committee’s action today. Representatives of the banking industry estimate that the cost of complying with these reporting requirements will be higher than the amount the state predicts it will recover as a result of this entire new law.

To give another example of the mixed-up state of affairs, as of October 1, it will still be considered a divestment for a business owner to transfer any portion of a family business, or farm, to a child or other individual. This means that the concerns I raised in the July 18, 2013 edition of this blog (about family farms going out of business) are still valid concerns. However, if an individual does make this transfer, and then applies for Medicaid, the department cannot penalize the individual for that transfer. At least not for now.

Everything related to recovering funds from the non-Medicaid “community spouse” has been authorized by JCF and will be enforced: JCF gave the green light to the Department to enforce a highly controversial and large part of the new law: Expanded recovery at the death of the “community spouse.” This is the part of the law that will lead to “Medicaid divorces” and lead older couples not to get married (I wrote about this issue in the July 28, 2013 edition of this blog.) JCF also gave the go-ahead to all other parts of the law, including the expansion of the types of assets that can be recovered, such as life insurance, etc., the penalty for failing to return every penny of any money that an applicant may have given away in the five years before applying, and the provision allowing the Department to use an affidavit instead of the probate process to attempt to recover money. (I am going to write about that affidavit issue, and what an estate must do about it, in an upcoming blog.)

In the committee’s debate, the Republican legislators frequently made the point that Medicaid is intended as a program of last resort only to be used by impoverished individuals. What these legislators fail to grasp is the fact that when it comes to married couples, the Medicaid program is set up specifically to prevent impoverishment. Their poverty theory is flawed when it comes to married couples. Spouses who remain in the community when the other spouse needs nursing home care are allowed to keep more assets that in a traditional Medicaid situation involving single individual, and this higher asset level is designed to prevent impoverishment. Nonetheless, the asset level is still modest and significantly less than what financial advisors would recommend for a secure retirement.

Historically, when the nursing home spouse qualified for Medicaid after the couple had spent down a considerable amount of their assets, the community spouse was left free of government interference to live out the rest of her (or his) life. Now, because the joint finance committee took no action to prevent the state from enforcing the government expansion of its ability to reach into the assets of the community spouse, that spouse will live the rest of her life with the shadow of government overreach hanging over her head. She will not be able to remarry without fear of the government seizing the assets of the new spouse at some point in the future. She will not be free to do what she chooses with the property she is allowed to keep, for a significant period of time after her spouse begins to receive Medicaid. If she does not carefully take steps to delineate what assets belong to her Medicaid spouse when that spouse dies, she faces the prospect of government reaching into take everything she owns when she dies, without her estate’s ability to counteract the government’s claim. Any couple and “community spouse” who do not seek the advice of an elder law attorney before, during and after the application process will undoubtedly end up giving more money to the state than if they had sought out legal advice. And these changes will begin on October 1.

The Department’s misstatement: was it intentional or merely uninformed? A curious thing happened at the hearing. With respect to the expanded estate recovery, a senator asked the DHS representative whether there was still the ability to request an “undue hardship” waiver of these recovery provisions. The DHS representative replied that this waiver ability existed in administrative regulations, and would protect situations where the asset in question was subject to recovery was a family farm or business. I believe the Department may not even know what is in the law it must now administer! Alternatively, DHS intentionally misrepresented the situation. Here is the NEW LAW:

(6m) Waiver due to hardship. The department shall promulgate rules establishing standards for determining whether the application of this section would work an undue hardship in individual cases. If the department determines that the application of this section would work an undue hardship in a particular case, the department shall waive application of this section in that case. This subsection does not apply with respect to claims against the estates of nonrecipient surviving spouses.

Clearly, this waiver process does not apply where the farm or business is in the community spouse’s estate. The new law is plain as day.

Dear Joint Finance Committee: This expansion has nothing to do with Millionaires. The other concern repeated at the hearing by Republican legislators on the Committee was the fear that “millionaires” could “shelter assets” and get on Medicaid.

Here is the plain truth: THEY CAN!

Nothing in the Medicaid expansion changes that and nothing that the state can do will change that. This would require a change in Federal law. So for all you millionaires, rest easy, you can still shelter your assets and get on Medicaid. And if you want to do that, come see me. It would be a refreshing change, because the real truth is I don’t see millionaires for Medicaid planning, they are too busy using tax shelters and taking advantage of all of the benefits of lenient tax law to save money. The clients I see are hardworking, middle class individuals who have managed to save a small nest egg and pay off their house. People like most of you reading this blog, and like your neighbors, and parents and grandparents. People who never were, are not now, and never will be millionaires.  And these are the people who are harmed by this government Medicaid overreaching!  Ironically, as one Democratic senator pointed out, Republicans are usually crying “foul” at any prospect of government overreaching, and here they were endorsing it! (Although two Republican committee members did vote against the approval.)

Millionaires will still be sheltering assets even with this new law in effect. But it won’t be to get on Medicaid. Millionaires will be saving money by finding loopholes to avoid paying income tax, by avoiding capital gains tax with clever accounting, and by sheltering assets to avoid estate tax. All of these things will continue to be done by millionaires to avoid paying tax dollars into our system. Because the government allows them to do this. Apparently, the government concern to protect taxpayers’ dollars applies only to those individuals who were not rich enough to avoid paying them in the first place. I will submit that many more tax dollars are lost due to millionaires taking advantage of generous tax loopholes, than by millionaires obtaining Medicaid coverage.

So, dear Republicans, please stop talking about millionaires when you talk about Medicaid. You don’t make sense.

The expanded recovery will lead to more people on Medicaid:It is certainly an ineffective way to try and stop these fictitious millionaires from going on Medicaid, that the government would take the small amounts remaining in a community spouse’s estate, that she may have managed to save after her Medicaid-receiving husband passed away. This creates a disincentive to save money. Because we have taken away the incentive for the community spouse to save, since she knows the state will just take it, in the long run we will end up with more spouses of Medicaid recipients ending up on Medicaid, and less money to recover.

Get thee to a lawyer, soon! To close this article, I want to point out that elder law attorneys around the state are working diligently to seek a repeal of this law, and to take all appropriate steps to challenge the illegal provisions of the law. We are doing this for our clients’ best interests, even though quite frankly, the confusion created by this new law means guaranteed income for us. If you are:

  • an individual who is a farmer or business owner,
  • any married couple facing the prospect of one individual potentially needing Medicaid,
  • a surviving spouse whose Medicaid-recipient spouse has passed away,
  • any older couple who are considering the prospect of marriage or remarriage,
  • an individual or couple seeking to establish a living trust,
  • people seeking to provide for a disabled relative,
  • a trustee of a special needs trust,

then you must obtain qualified legal advice from an elder law attorney in order to understand the effects of this new law and how to best plan for it. Not consulting with an attorney will invariably lead to you or your heirs giving up more to the state than it may be entitled to.mess

Posted in Uncategorized | Tagged , , , ,

Wisconsin’s Biggest Use Tax is Hidden in Governor Walker’s Budget.

tax guy[IMPORTANT UPDATE TO THIS ARTICLE - PLEASE TAKE A LOOK AT THE POST HERE TO READ ABOUT SOME NEW DEVELOPMENTS THAT MAY AFFECT ISSUES I WROTE ABOUT IN THE ARTICLE BELOW!]

Did you know that the Governor’s budget for 2013-2015 contained a secret tax estimated to produce 10 million dollars over the next two years?  Would it surprise you to learn that the tax rate on this “use” tax was not 5% or .5% or even 6%, but instead was 100%? That’s right, it is a dollar for dollar use tax. For every dollar someone uses in Medicaid when they are in a nursing home, they will have to pay it back when they die, or when their spouse dies. Act 20, which is the 2013 Biennial Budget for the State of Wisconsin, substantially expands estate recovery for the Medicaid program. This is the tax I am talking about. It is in the most classic sense a “use” tax on people who get Medicaid.

The irony of this “use” tax is that the people who are being forced to pay it – primarily senior citizens – have worked hard all their lives and are now facing long term care due to dementia, stroke or other illness. During their long working lives, these people have paid their tax dollars in income tax, property tax and sales tax.  They have already paid for the long term care services they are receiving.  But they are being forced to pay out a second time because they had the audacity to actually use the services their tax dollars have funded. So really, it is a double tax. Where did those tax dollars go that they paid the first time around?

Well, it’s not called a tax. Is it a tax?

A tax is defined generally as a monetary burden imposed upon individuals or property owners to support the government. It is a payment exacted by legislative authority, not a voluntary payment or donation, but an enforced contribution. See Black’s Law Dictionary. “Excise taxes” or “use taxes”  are taxes paid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges. People who receive nursing home Medicaid, and certain other services, are now required to pay for having received this service. Payment is directly based on the service that was received, and therefore is based on use.

A tax doesn’t have to be called a tax to be a tax. We were reminded of this lesson very recently. It was noted on Page 33 of National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., a decision of the United States Supreme Court regarding the Affordable Care Act, which is more commonly known as the “Obamacare” decision (an annotated copy of which can be found here ,) an “essential feature of any tax is that it produces some revenue for the Government.” The Obamacare decision also went on to note that “exactions not labeled as taxes” can still be considered taxes if they meet the essential criteria of a tax. So does the Medicaid recovery fit in? Nobody in the Governor’s office would concede that this is a tax. Read on….

If it walks like a duck and quacks like a duck…..walks like a duck

“Projected Revenue.” That is what the Governor calls the funds that are scheduled to come in to the state treasury as a result of the estate recovery changes in the 2013 Biennial Budget. Governor Walker predicted that the estate recovery changes would raise over $10 million in projected revenue. The State intends to spend almost $2 million dollars in the next two years to ramp up staff to enforce this “Medicaid use tax” by adding 8.5 government positions to collect this revenue – basically they are tax collectors.( Source: Legislative Fiscal Bureau paper #324.) Their job will be to collect that $10 million dollars from the estates of people who received Medicaid.  The estate recovery expansion definitely meets the essential feature of generating revenue that the Supreme Court talked about in the Obamacare decision. It is projected to raise $10 million over the next two years.

Seems to me, it acts like a tax, raises revenue like a tax, and it is a tax. A whopping tax that is a hundred percent of whatever you have left when you die, until every penny of your Medicaid nursing home care is paid back. We have a variety of use taxes in Wisconsin, but none of them are at a 100% rate like estate recovery. This is by far the biggest one of all.

Some estate recovery is mandated by federal law, and we have had this in place in Wisconsin for years. But the expansions in this new law are all optional. They are not required by the federal government. They are the product of a deliberate choice by Governor Walker to increase the tax burden on senior citizens.

An interesting way to look at “use tax”

Recently, in a letter urging Joint Finance, the legislative committee responsible for approving the state’s plan to execute the estate recovery expansion, to rush into implementation of these new estate recovery provisions before any procedures have even been put into place, Department of Health Services (DHS) Secretary Kitty Rhoades stated: “It is not fair to have friends and neighbors pay taxes to finance a person’s long term care needs so that an inheritance can be left to others.” Sept. 4, 2013 letter from DHS Secretary Kitty Rhoades to Joint Finance Committee.

Well, that’s an interesting perspective. Evidently, according to the DHS secretary, friends and neighbors should not have to pay for another person’s government services. Let’s just set aside that point I made earlier – that the seniors in nursing homes have paid into the tax system for many many years, including funding for the Medicaid program, so this is something they already paid for themselves  – and let’s see how the Department’s philosophy might play out if it were applied fairly across the board.

  • My neighbor has three children. I just have one. But yet, we pay the same amount proportionately in school taxes. Shouldn’t my neighbor pay more? Is it fair that I should be forced to finance my neighbor’s kids’ education? Should I see a cut in my property taxes while my neighbor’s should go up? Or, maybe to follow Ms. Rhoade’s logic, we should hand each 12th grader a bill for their education. Heck those little ones have a whole lot more earning potential than we do. It’s not fair that friends and neighbors should have to pay for them.
  • Last year, there was a large residential fire in a nearby city, and fire trucks came from neighboring communities, including mine.  My tax dollars paid for that fire truck. Is it fair that the person whose house was burning gets to use the services I paid for? Perhaps they need to get the bill.
  • On my way to work yesterday, I watched as police kept traffic at a safe distance following an accident. Who got the bill for that?
  • The budget for the Governor’s Executive Residence is in the hundreds of thousands of dollars. But, I don’t get to live there, and neither do most of you. Is it fair that we should have to pay for his housing expenses? To follow the DHS’ thinking, we need to give the governor a bill when he moves out. It’s not fair to have friends and neighbors pay for his housing either.
  • Oh and hey, there are numerous individuals who die without ever using Medicaid. Isn’t it unfair to make them pay for what others have received? Shouldn’t their estates get a refund of the Medicaid share of the taxes they have paid all these years?

Every day, in many ways, each of us pays taxes to fund things we will never, ever benefit from personally or individually. We pay taxes that support government actions we do not agree with. And taxes to fund things we use every day. With very few exceptions, such as those aggravating toll roads, we do not have a “pay as you go society” when it comes to government services.  We pay as a collective taxed unit for the things our representatives have deemed important to the functioning of our society. Like Medicaid. And Fire Trucks. And Schools.

So why single out the most frail and vulnerable individuals in our communities, who never chose to be in need of long term care, to hit up with a 100% tax on what they received, when they die? And when they already paid for it during their productive lives?

Seems to me if that is how we are going to operate from here on out, we’d be a whole lot better taking it from those 12th graders… Sorry, Kids.

crying child

Posted in Elder Law, Uncategorized | Tagged , , , , , , ,

New Wisconsin Estate Recovery Laws Create High Hurdles for Trustees

hurdle[IMPORTANT UPDATE TO THIS ARTICLE - PLEASE TAKE A LOOK AT THE POST HERE TO READ ABOUT SOME NEW DEVELOPMENTS THAT MAY AFFECT ISSUES I WROTE ABOUT IN THE ARTICLE BELOW! ]

There is a section of Wisconsin’s new Estate Recovery law that is not found in the statutes dealing with Medicaid (Chapter 49). Instead, it is in the statutes that deal with trusts. Section 701.06(5) of the Wisconsin Statutes dictates requirements that must be followed by trustees of certain types of trusts. Specifically, it places deadlines and payment obligations on trustees of three different types of trusts: “living” trusts, Special Needs Trusts, and Pooled Trusts.

Here are some terms you will need to understand:

  • A “Settlor” is a person who creates a trust.
  • A “Living Trust” is a trust that is created during the life of the “Settlor.” A Living Trust can be either revocable (where the Settlor can change or revoke it entirely during life) or irrevocable (where it cannot be revoked once it is established.) Frequently, these types of trusts are used to eliminate the need for probate, to provide privacy, to create tax advantages, to facilitate management of a person’s funds in the case of disability, and to protect funds where a beneficiary is young, disabled, or a spendthrift.
  • A “Special Needs Trust” for purposes of this law, is a trust that meets specific requirements of federal law (42 USC 1396p(d)(4)(a)). It is funded with assets belonging to a disabled individual. It must provide that upon the death of the disabled individual, the state will be repaid any Medicaid benefits that the individual received. These types of trusts are beneficial to disabled individuals since they do not count as resources for Medicaid or Supplemental Security Income (SSI). These types of trusts are used to preserve a person’s eligibility for benefits. They are used when an individual on Medicaid or SSI receives an inheritance, or an award in a personal injury case (such as nursing home abuse or neglect, or in an accident case that caused the individual’s disability to begin with,) or some other influx of funds that would otherwise cause the person to become ineligible for benefits.
  • A “Pooled trust” is another special type of trust that must meet specific requirements of federal law (42 USC 1396p(d)(4)(c)). It is established by a not-for-profit organization and holds funds of disabled individuals, which are pooled together for investment purposes. When a disabled individual with funds in the pooled trust dies, the pooled trust will either retain funds for the benefit of other disabled individuals, or repay Medicaid that the individual received. This type of trust is used for the same purposes as the Special Needs trust described above, it is another way of making sure the receipt of funds through inheritance, personal injury case, or other source, do not cause the individual to lose benefits.

For purposes of this article, the types of “special needs” and “pooled trusts” I refer to, that are subject to this new law,  are trusts that are created using the assets that belong to the individual. These are called “first party trusts.” Trusts where a parent or grandparent, or some other person,  puts funds in a trust for the disabled individual’s benefit are called “third party trusts.”  However, as if this weren’t confusing enough,  the part of the new estate recovery law regarding “living trusts” could also include funds that a person such as a parent or grandparent put in trust for a disabled child or grandchild, if the parent or grandparent (or other person creating the trust) needs Medicaid.

Elder and disability law attorneys like myself help people set up these types of trusts on a regular basis. Using these trusts, we can make sure that a person does not lose eligibility for any benefits they might receive. Often we work hand in hand with personal injury attorneys who are representing a client, to make sure that receiving a settlement for an injury or malpractice is protected and does not end up causing a problem with benefits. We also work with trustees to help them understand what the funds can and cannot be used for, and what the repayment requirements are.

How the New Law Affects Living Trusts:

Where an individual who is the settlor of a “living trust” receives Medicaid or similar long term care benefits, or where that settlor’s spouse who died first received Medicaid, the new law creates a procedure that the Trustee must follow when the Settlor dies.

First, the trustee must notify the state’s estate recovery unit within 30 days of the settlor’s death. Notice must be in writing, by registered or certified mail. The trustee must provide information about the settlor, and must also provide details about the value of the trust. Given the amount of time it could take to obtain a death certificate, and obtain verification of the assets in the trust, particularly if the trustee was not managing the trust prior to the settlor’s death, it will be a big responsibility to get this information together within 30 days.  Because there is no provision for an extension, the trustee will have to apply to the court if more time is needed. This will increase the costs of trust administration substantially. Also, it is very likely a trustee may not be aware of this new requirement, and may fail to follow it at all.

Second, if the state files a claim with the trust within 4 months after receiving the notice from the trustee, the trustee must turn over all trust property needed to pay the claim within 90 days of the claim. Again, there is no provision for an extension, and no provision to dispute the claim or pay other claims ahead of the state, such as the costs of a funeral.

These requirements put the trustee in a precarious position of choosing whether to comply with this law, or follow the terms of the trust if they are different. Trustees may need to apply to court for guidance. Trustees may also choose to resign or decline the job.

This new law may also mean that where a parent has put funds in a “living trust” for a disabled person, and that parent ends up receiving Medicaid, the funds set aside for the disabled person can be subject to recovery because they are in a “living trust.” If these same funds were bequeathed to the disabled person in a trust that is created in the probate process (called a “testamentary trust”), there is a law that prevents the state from taking the funds. So this part of the new law actually makes it less favorable for a parent or grandparent of a disabled person to use a trust to provide for their disabled child if that parent or grandparent needs Medicaid. People who have carefully planned for the needs of their disabled children or relatives by setting aside funds in a living trust may have those funds snatched by the state if the person who set them aside, or the person’s spouse, needs Medicaid.

I recommend that living trusts being created after this law contain a provision allowing the trustee to terminate the trust if it appears estate recovery will become an issue. Existing trusts could be amended to allow for this. This allows the entire matter to be handled through probate, which has deadlines that are more manageable, and court oversight as to priority of claims. Ironically, this is the very thing most trusts try to avoid. Handling the entire issue through probate will be more costly, and will ultimately result in the state receiving less through estate recovery, but will prevent the trustee from being subjected to difficult requirements and will allow the assets to be distributed under an objective court’s watchful eye instead of having this dictated by the state. Also, the probate process can be used to create a testamentary trust for a disabled individual and protect the funds intended for that person. Some types of trusts may allow for distribution to beneficiaries upon termination.

Requirements for Special Needs and Pooled Trusts:

Trustees of  first-party pooled trusts and special needs trusts must also provide the state with the 30 day notice of death I describe above. If the state files a claim, the trustee must also make payment within 90 days as described above. However, this section of the law does not have the four month deadline for the state to file claims. I do not know if this omission is intentional or an oversight. But its effect is that the state could delay filing a claim for months, yet still the trustee must respond if the claim gets filed, whenever that is.

Disturbingly, if the trustee fails to comply with these requirements, the trustee is personally liable for any costs the department incurs in attempting to recover the amounts from individuals who received any trust property, and for the difference between the recoverable amount of the claim and what the department can actually recover from those individuals. For example, under a broad reading of this new law, if the trustee fails to follow the proper procedures, even inadvertently, and there was $10,000 in the trust that was distributed to beneficiaries, if the state’s claim is $100,000, it could hold the trustee liable for the other $90,000. Under a more narrow reading of the new law, if the trust distributed $10,000 to beneficiaries and the trustee failed to comply with the notice and payment requirements above, then the trustee must pay whatever the state cannot recover of that $10,000. (Joe beneficiary blew his $2000 share at the casino, so the state can only get $8000 from the remaining beneficiaries. The Trustee is liable to the state for $2000.) I believe trustees will have to seek court guidance and approval more often than previously.

Also, the new law limits the amount that pooled trusts can retain for the benefit of other disabled beneficiaries. The federal law has no such limitation. “Retained” funds are used by pooled trusts to benefit disabled individuals who may not have enough money in their own account but have a critical need for assistance, and for other purposes that benefit disabled individuals.

These onerous requirements on trustees mean that being a trustee for someone who receives nursing home Medicaid, or long term care or other recoverable services, just became much more complicated. Some people may refuse to take on the  role of trustee. Professional Trustees will be very particular about these cases, and may need to charge more due to the increased liability exposure.

I am not sure why the Legislature felt the need to create additional hurdles for special needs and pooled trusts, since by law these trusts already have repayment obligations. These new rules serve only to increase costs of trust administration and reduce the number of qualified trustees who would be willing to serve for disabled beneficiaries. I am puzzled why the Legislature would want to impose personal liability on trustees of special needs and pooled trusts. Is there widespread abuse by the two pooled trusts that are operating in Wisconsin? Are trustees of special needs trusts absconding with funds? Like many other elder law attorneys in Wisconsin, I work closely with individuals involved in these pooled and special needs trusts. I am not aware of any issues of trustee misappropriation or abuse of the payback requirement for these trusts. This is simply mean-spirited punishment of people who have the foresight to create these types of trust arrangements to protect benefits, by making it more difficult and expensive to find qualified trustees.

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Wisconsin’s New Estate Recovery Laws for Community-based Care Discriminate Against People Who Only Need a Little Care, and Will Force People into Nursing Homes Sooner.

house tax recovery

One of the hidden changes in Wisconsin’s Estate Recovery law has to do with the formula for how the State will recover the costs of care for people who are able to receive long term care in the community. The new estate recovery law says that if you received Family Care during your life, the state will recover the “capitated rate” when you die. It does not matter what the Family Care program actually paid out to provide care for you. Because of this new formula, people who only need a few services in order to remain at home will end up paying back more than they actually got in care. Here is a short explanation of how it works.

FAMILY CARE and CAPITATED RATES: Family Care is the program in Wisconsin that pays for care that people need in the community, such as their homes or in assisted living facilities. The purpose of the program is to keep people out of nursing homes. It is a “managed care” program. This means that the state contracts with private companies to run the program and arrange for the care. The state pays these companies a fixed rate for each person based on the person’s level of care. For example, the chart here here shows that one company receives $3244 per month per patient who is at the higher level of care, and $572 for patients at a lower rate of care. (This is a bit of a fiction, since most patients on Family Care are screened and meet the higher level of care even if they are in their homes.)  Then from these funds, the private agency turns around and pays for your care. Like all managed care programs, the “capitated rate” provides an incentive for these private contractors to make sure the care you receive under the program is less than the rate they are getting (otherwise, why be in business?) However, in some cases the person actually receives care that costs more than this rate. The program is supposed to balance itself with lower cost and higher cost people averaging out.

NEW ESTATE RECOVERY LAW: Under the new estate recovery law, it does not matter what care you actually got in Family Care. The state recovers that capitated amount (for example, the $3244 per month) when you die.

HOW THIS IMPACTS PEOPLE WHO RECEIVE ONLY A FEW SERVICES THROUGH FAMILY CARE: Some people only need a few services, such as homemaking and bathing assistance once a week, because they have family members who help. But those few services are what makes the difference between having to move out of their homes, and being able to stay put. So they enroll in Family Care to get those services. For example, let’s say Bob is living at home, and needs some services to stay there. His daughter comes in four times a week and helps him with things, but she is not able to help him get in and out of the shower and is not able to be there every day due to her work. Bob enrolls in Family Care for help with bathing and homemaking. If the services actually cost $300 per week, we are looking at monthly costs to the program of about $1200. Now, when Bob dies, his estate will be forced to pay the state $3244 (or the applicable rate) for every month he received care. It would have been cheaper for him to pay for it himself!

On the other hand, if Bob’s care needs are high, or if he goes into a nursing home and stays on Family Care, the state may actually recover less than the cost of his care when he dies.

One consequence I see of this policy decision by the state, is that savvy family caregivers will stop providing free care. A fundamental assumption on which Family Care is built is that family members will provide some level of care for free, which reduces costs. This assumption is consistent with findings of the Alzheimer’s Association about the staggering value of uncompensated care provided by family to dementia patients. Please take a look at the report here. An excerpt from the report states:

In 2012, 15.4 million family and friends provided 17.5 billion hours of unpaid care to those with Alzheimer’s and other dementias — care valued at $216.4 billion, which is more than eight times the total sales of McDonald’s in 2011. Eighty percent of care provided in the community is provided by unpaid caregivers.

The private companies that run Family Care build this assumption into the care plan for recipients. However, as families learn that their loved one is going to pay for care through estate recovery, they will stop doing this. Frankly, good consumers want their full value and if Dad is paying $3200 per month through estate recovery, the family will want that care. Instead of daughter agreeing to come in four days a week for free, which impacts her ability to work and take care of her own family,  she will insist on paid caregivers. This leaves daughter free to spend her “dad” time doing things they both enjoy. In some cases, the family member providing free care will insist that Family Care pay them like any other caregiver. This is allowed in the program.

If the state simply kept its previous estate recovery law for Family Care, then each person’s estate would be liable for what that person actually received. That alone already makes some people decide not to enroll in the program. But under the new law, even more people, particularly people with fewer needs, might choose not to enroll in Family Care due to the estate recovery law.  Which, I anticipate, means that those people will deteriorate sooner because they do not have the care they need to stay out of a long term care facility. So what is the end result? The state’s new law will result in MORE people needing nursing home care, which is exactly the opposite of why the Family Care program was created to begin with.

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