Budget eliminates estate exemption
MADISON, Wis. — Provisions buried in the new Wisconsin budget dramatically expanded the state’s ability to claim dead couples’ joint property, such as Green Bay Packers tickets or the family farm, to recoup Medicaid expenses — even if the assets are protected in trusts.
The language is designed to help the state recover Medicaid money spent on a number of long-term care programs, most notably Family Care, which helps keep disabled and elderly people out of costly nursing homes.
It’s unlikely the changes will take effect for months, but attorneys who specialize in elder law say they’re already creating concern among seniors who want to leave property to their children and other beneficiaries. The state has prioritized recovering every dollar spent on Medicaid over families’ well-being, said Carol Wessels, a Wauwatosa attorney and former chair of the state bar’s Elder Law Section Board of Directors.
“My clients are stunned,” Wessels said.
Medicaid is a state and federal partnership. Federal law requires states to recover Medicaid payouts for long-term care from a deceased recipient’s estate. The state budget language goes far beyond that, creating a presumption that marital property owned within the five years before the recipient applied for Medicaid coverage is fair game after the surviving spouse dies.
The provisions would allow DHS to claim property even if it’s not subject to probate, a legal process creditors can use to settle debt after a death, or held in a trust, a financial arrangement in which a third party, such as a bank, holds assets until they’re passed on to beneficiaries. People often use trusts to protect property from probate.
Federal rules also prohibit people from divesting or giving away property to make themselves poor enough to qualify for a long-term Medicaid program. However, the regulations allow applicants to transfer some assets, such as interest in a business, at less than market value without penalty.
The Wisconsin budget eliminates that exemption, which means a Wisconsin resident seeking Medicaid coverage for long-term care would have to sell his or her assets, such as a share of a family business or farmland, for full market value even if it was going to a child.
The language was part of Republican Gov. Scott Walker’s budget and was approved by the GOP-controlled Legislature in June.
Officials with the state Department of Health Services, which Walker’s administration controls, defended the changes in an email. Agency spokeswoman Claire Smith wrote a surviving spouse can continue to use the marital property while he or she is alive and recovery efforts won’t begin until that spouse dies and no longer needs the assets.
More people are who wealthy and financially savvy are placing assets in trusts to avoid probate and escape state recovery efforts, leaving it to taxpayers to foot their health care bills, she said.
“It is not fair to have friends and neighbors pay taxes to finance all of a person’s long-term care needs so that an inheritance can be left to others,” Smith wrote.
The divestment changes are meant to ensure only the most vulnerable can use Medicaid, she added.
It’s uncertain just how much money the state could recoup under the changes.
The Walker administration estimates DHS will collect about $10.5 million with its expanded estate recovery powers over the next two years. The divestment restrictions will save the state about $2.2 million over that period since individuals probably won’t be able to get rid of assets as quickly as before, so they’ll likely be on Medicaid for a shorter time.
Married couples can create legal agreements that divide their property, but they would have to be executed at least five years before a spouse applies for long-term Medicaid. Most people don’t think that far ahead, Wessels said.
Peter Grosskopf, an Eau Claire attorney and another former chair of the state bar’s elder law board, said couples might start considering divorce as a way to protect at least one spouse’s assets so there’s something left to pass on. Or they may choose not to get married, he said.
“In the future, I’m going to have to say there is some danger and you may want to rethink whether it’s a good idea to get married at all,” Grosskopf said.
A Wisconsin AARP spokeswoman declined comment. The Wisconsin Farm Bureau Federation’s government relations director, Paul Zimmerman, said the agency was reviewing the provisions.
It’s unclear when the provisions will take effect. Assembly Republicans quietly amended them on the day they passed the budget to prohibit DHS from implementing them without approval from the Legislature’s budget committee. The amendment gives DHS until June 30, 2015, to submit an implementation plan to the committee.
Rep. John Nygren, R-Marinette, co-chairman of the finance committee, issued a statement through his spokeswoman saying the recovery provisions will ensure fairness for taxpayers, but lawmakers decided they needed more time to review the new policies after “concerns were raised.” The statement did not elaborate and his spokeswoman didn’t immediately respond to a follow-up message.
Assembly Democrats say they hope to repeal the changes before they take effect, but that’s unlikely. Republicans control the Assembly and Senate as well as the governor’s office.