[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:
- 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.
- 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.)
- 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.