There is no doubt that the hot topic in elder law currently is the idea of assets protection and/or divestment. With the State’s drastic changes to estate recovery, there has been a corresponding increase in the number of clients for whom an irrevocable trust becomes an attractive option for Medicaid planning. There are number of different kinds of irrevocable trusts, this discussion will center on Medicaid planning. Readers should always consult with an elder law attorney for advice on their specific situation and should not assume that this is blanket legal advice. This is solely meant for educational purposes and not for legal advice.
My idea is to draft a set of frequently asked questions and then answer those questions to give everyone better understanding about the changes in Wisconsin Law.
- What is all the talk about a 5 year period?
To ensure the legitimacy for people divesting their asset, the State has a 5 year period which must pass before you will be eligible for Medical Assistance. When you create an irrevocable trust and actually “fund” the trust, you must wait 5 years before you apply for Medical Assistance otherwise you will have to wait a penalty period. If you apply for Medical Assistance within the 5 year period from when you funded the irrevocable trust, you will have to wait a penalty period based on your age and based on the value of the asset. Again, this only applies once you apply for Medical Assistance. If you do not apply for Medical Assistance, this is not a concern to you.
Many speculate that the time period will go up to 7 years but at this point it is a 5 year look back.
- If I go into the Nursing home and I am married and I apply for Medical Assistance, will my spouse be forced to leave the house?
No. If you married and one spouse goes into the Nursing home and applies for Medical Assistance, there are a set of provisions in the Medical Assistance Laws known as Spousal Impoverishment Provisions. These provisions guide us through the process of what happens when only one spouse goes to the Nursing home and applies for Medical Assistance and one spouse is at home. It states that the one spouse at home has the right to keep your residence, most vehicles, and a set dollar amount which is scaled due to proration which right now is about $117,000. If you have over $117,000 you will have to spend down before your spouse will be eligible for Medical Assistance.
The spouse in the Nursing home is allowed to have $2,000 worth of assets per month. If you have your assets protected by an irrevocable trust however, you may protect those assets and you will not count the things that are funded in the irrevocable trust if a 5 year period of time goes by. A problem usually occurs with spousal impoverishment when the second spouse goes into the Nursing home either after the passing of the first spouse or at the same time as the first spouse. Now because there is not a spouse living at home, the spousal impoverishment provisions do not apply and both spouses would only be allowed $2,000 or so worth of assets.
- If I apply for Medical Assistance within the 5 year “look back” period, will I lose my home?
No. The common conception of people is that the State actually takes assets, liquidates them, and forces you to take the money out of them. The idea of assets at hand and what you may have at hand comes into your eligibility for Medical Assistance. Therefore, if you apply for Medical Assistance within the 5 year “look back” period, you will not be eligible for Medical Assistance until you wait a penalty period as described in FAQ #1. If you have more assets as the Spousal Impoverishment FAQ #2 spoke about, you will not be eligible for Medical Assistance. This does not mean that you will have your house taken away. It simply means that you will have to pay out of pocket for Nursing home if you are not eligible for Medical Assistance until a set period of time.
- Is an irrevocable trust the only way we can avoid including assets in the 5 year “look back” period?
This answer is tricky. Until Act 20 the answer to that question was no. There were life estate deeds that could be completed whereas the parents/parent would give the property to some and reserve the right to reside in that residence for their lifetime. If the 5 years ran from the time you gifted it but reserved a life estate you were fine as if you did an irrevocable trust. However, Act 20 stated that no matter how long of a time period you wait, the State will attach a lien to the remainder interest of your beneficiaries. This means in layman’s terms that if you have a life estate deed after August 1st, 2014, and you apply for Medical Assistance, even after the 5 year “look back” period, the State will attach a lien for the percentage of the uncompleted gift. Even simpler terms a life estate deed is not an effective way to avoid Medical Assistance. However, if you did do a life estate deed that does not mean, as described in the FAQ #3, that you will lose your home, it just simply means the State will attach a lien to the property which must be satisfied before you can sell.
Another way of avoiding estate or Medical Assistance issues besides the irrevocable trust is to do a straight up gift. To gift your real estate or other items to someone without reserving any right of ownership for yourself. You’ll still have to wait the 5 year period, but once that 5 years runs because you are not reserving any interest, you will be able to get Medical Assistance without a penalty. The problem with a completed gift, in my opinion, is that creditors can attach to the interest of the person you gifted it to, the person you gifted it to can remove you from the residence at any time because you have no right to be there and you are not a tenant of any kind and it may be confusing who is responsible for insurance, taxes, and other obligations when you are essentially a guest at the residence.
- Do I have to put in all of my real estate and/or other items into the trust?
No. Often times if we are putting real estate into an irrevocable trust to fund it, I will advise my client to leave a portion out. The number one fear with clients in the permanency of the divestment procedure. An irrevocable trust is in fact irrevocable. You cannot change things in the irrevocable trust once the irrevocable trust is established. Therefore, you can sell real estate within an irrevocable trust but you must refund that money into some sort of an interest baring account to ensure that you did not ruin your divestment chances. Therefore, it may be a good idea to keep a chuck of land out in case you need to sell it to have some money. However, because you are not funding that real estate into the irrevocable trust, it would be eligible for Medical Assistance in the “look back” period and again they may attach a lien to that property.