A few months ago Governor Jim Doyle presented his 2007-09 executive budget. While admittedly the entirety of Governor Doyle's budget surpasses the purpose of this blog, there are a couple of small points that directly effect estate planning and elder law in the State of Wisconsin. This post will provide a very brief overview of the two components of the budget and their effect on estate planning and elder law in Wisconsin.
The first area of note is more about what Governor Doyle's budget did not address as opposed to what it did. As many may know, the current Wisconsin Estate Tax system is set to expire at the end of 2007. This estate tax system has its roots in the early 2000s, right around the time when the federal government overhauled to federal estate tax system in 2001. Through the end of 2007, Wisconsin residents have a $675,000 estate tax exemption. That is $1,350,000 combined for a married couple. When this limit was initial put in place the state legislature used the pre-2001 federal estate tax exemption number as the guideline and they did not build in any inflationary adjustment factor. Therefore, Wisconsin has been effectively "decoupled" from the federal estate tax system for roughly seven years, since the federal exemption amount has increased from $675,000 per person in 2000 to $2,000,000 in 2007. However, starting on January 1, 2008 the Wisconsin estate tax system will sunset and disappear. That means that decedents with a date of death after January 1, 2008 will no longer have to pay a Wisconsin estate tax. As of right now the news and commentary out of Madison appears to be that Governor Doyle has every intention of letting the Wisconsin estate tax lapse, but it is anyone's guess if it will remain that way.
The second area addressed in Governor Doyle's budget is related to Medicaid and Wisconsin's implementation of the Deficit Reduction Act of 2005 ("DRA"). The DRA was signed into law by President Bush on February 7, 2006. The individual states then had nearly two years to design and implement the state specific plan to address the Medicaid changes. The Medicaid changes of note include the extension of the look-back period for divestments to individuals from 36 months to 60 months and the manner in which the penalty period is calculated for divestments within the look-back period. Under pre-DRA rules an individuals divestments (gifts) to individuals occurring within 36 months ("look-back period") of the date of his or her Medicaid application would be counted to calculate a penalty period before Medicaid benefits would begin. Also under pre-DRA rules the penalty period for divestments began immediately when the gift was made. Now under the DRA the look-back period is extended to 60 months and the penalty period for divestments does not begin until the applicant would have otherwise been eligible for Medicaid benefits. This is best explained via an example:
Pre-DRA
1/1/05 - Individual gives $15,000 to son
5/1/05 - Individual applies for Medicaid
The $15,000 gift falls within the 36-month look-back period. Using a rounded number for the state determined average cost of nursing home care (roughly $5,000), the penalty period would have been 3 months. Therefore, the penalty period would have expired on 3/31/05, making Individual eligible for Medicaid on 4/1/05, assuming that Individual meets all of the other Medicaid eligibility requirements.
Post-DRA
Assume the same facts as above except that the gifting occurred in 2007 and the application was filed in 2007.
Again the $15,000 gift falls within the 60-month look-back period. However, if we assume that Individual did not otherwise meet the Medicaid eligibility requirements until 5/1/07, then Individual's penalty period would not begin to run until 5/1/07. Therefore, Individual will not qualify for Medicaid benefits until 8/1/07 at the earliest.
This is a very basic illustration of a very small area in an extremely long and complex area of law. While I have done my best to boil it down to the basics for this illustration, it is really impossible to describe the seriousness and complexity of planning in this area without occupying hundreds of pages of space. In my opinion it is essential to seek counsel and advise in this area from a licensed and experience attorney if you are faced with elder law and/or Medicaid planning issues. Please do not rely on this brief example as a substitute for sound legal advice. The consequences of one misstep in the Medicaid arena are potentially devastating for someone in need of long-term care and the spouse still remaining in the community.
