Wisconsin Estate Planning and Tax Law Blog

Long-term Care Insurance Partnership Program

I wanted to briefly mention the adoption and implementation of the LTCI partnership program in Wisconsin.  This program is based on the concept that people who purchase qualifying policies and deplete their insurance benefits may then retain a specific amount of assets and still qualify for Medicaid, provided they meet all other Medicaid eligibility criteria except for the asset test.  For example, if a single person purchases long-term care insurance with $100,000 of benefits and then uses those insurance benefits to pay for long-term care, he or she would be permitted to retain $102,000 of assets and still qualify for Medicaid.  Contrast the $102,000 of assets with the otherwise applicable asset level for a single person of $2,000 and the impact is significant.

At this time, the Wisconsin legislature is working on the details of the LTCI partnership program with a target date for implementation of January 1, 2009.  As we progress towards the implementation date, more details will become available.  For now, it is important to keep in mind and prepare for the planning opportunities that some form of the LTCI partnership program in Wisconsin will present

Who will pay for mom or dad's long-term care?

This question is often not considered until mom or dad is already in a long-term care facility or will be in need of such a facility in the very near future.  At that point options are very limited.  I often hear people talk about nursing homes and their experience with long-term care facilities of that kind when we sit down to prepare their estate plans.  A majority of the time I hear the same or similar comments from people:  "I don't want the nursing home to take my house away" or "I don't want them (the nursing home) to take all my money."  The next comment relates to who told them or how they came to understand that the nursing home would "take their house."  This idea either came from neighbors, friends, etc. or they believed they experienced it when their own parents required nursing home care.  Now I am not sure what actually happened in some of those cases, since I was not personally involved, but I'm pretty sure that the nursing home did not literally take the person's house away.  The nursing home likely required payment for the long-term care services it was providing, so in many cases that may have led to the sale of someone's home in order to pay the bills. 

The reality is that long-term care is expensive, people are living longer, and the need for long-term care services will continue to increase.  So the question of who will pay for long-term care should be a more immediate concern for everyone.  The Elder Law Prof Blog had a post last month titled, Congressmen ask SSA to tell people Medicare does not cover long term care, that discussed one major area of misinformation on this topic.  As the title indicates, Medicare generally does not cover long-term care.  Professor Kim Dayton from William Mitchell College of Law mentioned the following from CQ HealthBeat in her post:

The statement currently says that Medicare provides some coverage for "nursing care," which the lawmakers wrote "creates an unnecessary risk that individuals will assume Medicare covers an extended stay in a nursing home, when in fact it does not." While Medicare covers care delivered in skilled nursing facilities for beneficiaries who require longer-term medical treatment, it does not pay for custodial care, such as assistance with eating, bathing and other daily living activities. A December 2006 AARP survey found that 59% of adults ages 45 and older overestimated Medicare coverage for long-term care (CQ HealthBeat, 8/9).

The time to ask this question is not in five or ten years or five minutes after you realize that mom or dad needs long-term care.  The time to ask the question is now, while more options are available including long-term care insurance or long-term care specific planning.  There is not a faster way to wipe out one's retirement assets or life savings than an extended stay in a long-term care facility without proper planning and without long-term care insurance. 

Intersection of the Gift Tax and Medicaid

After answering a number of questions over the past week related to Medicaid and Wisconsin's implementation of the Deficit Reduction Act of 2005 (DRA), I thought it would be a good time to explore the often misinterpreted rules involved in this area.  To start it is important to have an understanding of the terms involved in the areas of Medicaid and Gift Tax respectively.  In the Medicaid or Medical Assistance area the term I would like to focus on is Divestment.  In the Gift Tax area I would like to focus on the terms Gift and Annual Exclusion Gifts.  These terms are defined as follows:

Divestment:  The transfer of income   Income is anything you receive in cash or in kind that you can use to meet your needs for food, clothing, and shel, non-exempt assets, and homestead property, which belong to an institutionalized person or his/her spouse or both, for less than the fair market value of the income or asset.  It is also divestment if a person takes an action to avoid receiving income or assets s/he is entitled to.  Wisconsin Medicaid Eligibility Handbook Section 4.7.2.1 Divestment.

Gift:    The transfer of any property or the right to income from any property without the expectation of receiving something of equal of at least equal value in return. 

Annual Exclusion Gifts:  In 2007 each person is allowed to gift up to $12,000 to as many different people as they so choose without paying any gift tax on the transfer.  For married couples this amounts to $24,000 that they may transfer as a couple to children, grandchildren, or whoever they want to gift it to.

You may notice in the above definitions that gifts and divestments are relatively close.  Basically they each mean you have given something away but you did not receive equal value in return.  However as this post will show, the similarities between Medicaid and the Gift Tax pretty much end there.

As I mentioned above this post was prompted after a few clients asked recently about Medicaid and long-term care planning.  They each said something along of the lines of this, "Well I can give away up to $12,000 a year, per person to anyone that I want, right?"  Technically the answer to this question is yes, but that is only from a Gift Tax perspective.  A person could certainly give away up to $12,000 a year, per person and they would not pay any Gift Tax.  However, those same $12,000 Annual Exclusion Gifts would be considered Divestments from a Medicaid / Medical Assistance perspective.  Under the DRA 2005 any Divestment in the 60 months preceding the submission of an Application for Medical Assistance will result in a period of ineligibility or a penalty period where Medicaid will not provide benefits.

The intersection between the two different systems is that a gift and a divestment both involve the transfer of property for less than fair market value.  However the consequences and the details in each area are very different.  As I have mentioned before it is very worthwhile to consult with an attorney knowledgeable in Elder Law before venturing too far into the Medicaid world.  The old adage, "An ounce of prevention is worth a pound of cure," is certainly appropriate in these situations.   

The Sun is Setting on the Wisconsin Estate Tax and Rising on New Medicaid Rules

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.