What the New Budget Bill Does to Elderly and Disabled Families
By Attorney Carol Wessels
Nelson Irvings & Wessels SC
2675 N Mayfair Rd #420
Wauwatosa WI 53226
[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 Sunday, June 30th, 2013, Governor Walker signed Wisconsin’s 2013-2014 Budget into law. The New Budget Bill has changes to the Medicaid program that create severe consequences for the elderly and disabled, and for family businesses and farms. A last-minute amendment creates a delay in the enforcement of these provisions, until a proposal has been submitted by the Department of Health Services and approved by the Joint Finance Committee of the Wisconsin Legislature. However, it is critical for families to be aware of what the law says, because the changes are now officially the law of this state. Here is what the new law does:
- Prevents families from transferring family business or the family farm, if original owner needs Medicaid. Example: Joe Smith starts Joe’s Garage, builds the business and eventually trains his sons. The family plans for sons to take over business when Joe cannot operate it or when Joe dies. Joe has a stroke and is no longer able to work. The new budget bill prevents Joe from transferring the business to his sons unless they pay fair market value. Most adult children working in a family business (or on a family farm) do not have sufficient financial resources to simply buy the business at full value. If he transfers it for nothing, or for less than fair market value, he will be penalized and disqualified from receiving Medicaid for a period of time for up to five years following the transfer. If the business stays in Joe’s name, when he dies the state will be able to recover up to the amount paid out in Medicaid, as a lien on the business or from the proceeds of the sale. Elder Law Attorneys believe this provision is contrary to federal law.
- 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. If the community spouse transfers assets in the first five years after an institutionalized spouse is receiving Medicaid, then the institutionalized spouse will be penalized.
- Provides that any property that was marital property within five years before the time that a spouse applied for nursing home Medicaid or Family Care, can be subjected to estate recovery.Where the state pursues estate recovery from the surviving spouse, there is no “hardship waiver”. Hardship waiver is the process where a person can request that estate recovery provisions not be enforced due to circumstances that would cause a hardship. This provision is required by federal law but yet, Wisconsin’s new budget eliminates it in certain cases.
- Prevents a community spouse from transferring assets free and clear upon death of the community spouse. These assets will be subject to estate recovery first.
- Puts very restrictive requirements on trustees of living trusts, where a grantor received Medicaid benefits. The trustee must provide specific notice prior to distributing any trust property, and must distribute assets to estate recovery within specific deadlines if a claim is made.
- Makes trustees of “Special Needs Trusts” personally liable if they fail to follow the proper procedures for estate recovery.
- Allows estate recovery from living trusts, life insurance, POD accounts of either the Medicaid recipient or the surviving spouse.
- Penalizes families who have loaned (not gifted) funds to other family members.
- Prevents a return of funds that have been gifted by maintaining all divestment penalties unless the full gifted amount is returned, which in many cases is not possible.
- Creates very complicated procedures regarding transfers of real estate where a Medicaid recipient is involved. Allows the state to go so far as to void a transfer under certain circumstances. These changes will make it very complex for people on Medicaid to transfer real estate, give clear title, etc.
WHAT THIS MEANS:
- Some of the provisions are illegal and contrary to federal law. Elder law attorneys hope that eventually, they will be challenged in court and overturned.
- It will be extremely important for couples to plan well ahead of the need for care, if the ability to leave anything to their families – or to maintain adequate financial resources for the spouse in the community – is important to them.
- Couples may unfortunately consider getting divorced to protect the ability to transfer anything, even modest amounts, to the next generation. This may also be necessary in order to enable the community spouse to keep a sufficient amount of funds for him or herself, particularly for younger couples.
- Older couples considering marriage may decide against it and should absolutely get legal counseling before getting married, particularly if either one has children from prior relationships.
- Couples that planned carefully to avoid probate, may find it necessary to pursue probate to have clear direction as to which assets are subject to estate recovery.
- Family businesses and farms will have to be sold instead of transferred to the next generation or, if transferred, will create ineligibility for Medicaid for a period of time that the family must plan for.
- Parents who may have gifted funds to a child for a downpayment on a house, may be penalized if the child is not able to return every penny that was gifted.
- Trustees of living trusts will need legal advice and guidance regarding the requirements upon the death of a grantor when Medicaid is involved.
- We may see extreme difficulty with title insurance for elderly people who want to sell their homes, if a spouse or the individual was on Medicaid.
I believe it is extremely unfortunate that these provisions penalize entire families when one individual needs long term care. Particularly with respect to the provisions creating restrictions on the transfer of family farms or businesses, these are short-sighted and mean-spirited.Families will have to sell the business or farm in certain situations, just because one person needs long term care.
The new estate recovery provisions will simply cause people to end marriages or choose not to marry. Families in some cases will be able to protect more by divorcing than staying married.
Families where one parent needs long term care, and savings were not enough to cover the cost, will stand to lose essentially everything that might have been handed down from one generation to the next.
I personally do not know any clients or their families, who chose to be in need of long term care services. Families in this situation face great anguish and difficulty. This new budget bill makes the situation even worse by sacrificing the family’s future due to the needs of one individual. Most families do not have significant resources to begin with.
In Medicaid rules, if you are part of a married couple and your spouse has to receive nursing home care, you as the “well” spouse will be allowed to keep somewhere between $50,000- $115,000 as a maximum. This is significantly less than most recommendations as far as the amount that needs to be maintained for an adequate retirement. Now the state will make sure to keep control of that as well, and may take whatever is left of it (if any) when you die. I have never been the kind of lawyer to use “scare tactics” with my clients to cause them to do anything, I think that is a bad approach. But this new law is truly scary for elderly and disabled people, their spouses and families.
With the growing number of individuals needing long term care ( see the Alzheimer’s Facts and Figures report showing the projected growth of Alzheimer’s and individuals needing long term care at: http://www.alz.org/alzheimers_disease_facts_and_figures.asp) it is simply the wrong approach to take the costs out on those who have been affected.
If you have any questions, please call for an appointment. We will be able to talk these things over as far as how they affect your family. We can talk about whether any planning should be done, and whether planning that was previously appropriate should be re-evaluated.
NELSON, IRVINGS & WESSELS SC
2675 N MAYFAIR RD. #420
WAUWATOSA, WI 53226