I’m often asked whether transferring a parent’s residence to an adult child or children will “save the house from the nursing home.” Parents have heard that their friends or other relatives have made such a transfer in order to protect the residence, or to avoid having to sell it to pay for expensive nursing home care. While such a transfer may be appropriate in some cases, many families do not realize that if the parent applies for Medical Assistance benefits within five years of making such a transfer, they will actually be ineligible for benefits for a period of time due to making a disqualifying divestment.

A divestment is the disposing of assets for less than fair market value. If an applicant for Medical Assistance has divested assets, a disqualification period results based on the value of the assets transferred. The penalty period is calculated by dividing the total divested amount by the statewide average nursing home cost of care (at the time of this article’s posting $252.95 per day) in effect at the time of the Medical Assistance application. This number is the number of days of disqualification.

There is an exception under the divestment rules, however, for transfers of a home to a caregiver child. This exception allows adult children to care for their parent at home as opposed to moving them into a nursing home or assisted living facility, while at the same time compensating the child for their caregiving in the form of a transfer of the parent’s home. The home would otherwise have to be sold and the proceeds used to pay for long-term care.

In order to qualify for the caregiver child exception, the caregiver child must live in the home with his or her parent for at least two years immediately preceding the parent’s admission to a nursing home or assisted living facility. The level of care that the child provides must be the type of care that would ordinarily have required living in assisted living or a nursing home, but for the care provided by the child. Such care may include monitoring medications, providing meals, providing assistance with activities of daily living, such as bathing, dressing, and using the bathroom, and ensuring the health and safety of the parent.

Documentation of the level of care must be provided in the form of a notarized statement indicating that the parent was able to remain in his or her home because of the care provided by the child. The statement must be either from the parent’s physician or from an individual (other than the caregiver child) who has personal knowledge of his or her living circumstances.

It is important to consult with an elder law attorney before making a transfer of the residence to discuss the tax and other ramifications, as well as to ensure that the requirements to meet the caregiver child exception are properly followed.

When an ill or older relative needs help with daily activities and personal care, selecting an at-home caregiver can be a worrisome task. Who will provide care? How will they be compensated? What if the older relative needs not just occasional, but full-time care? To alleviate these concerns, a growing number of adult children are becoming caregivers for aging parents.

Although many adult children or grandchildren feel a strong sense of duty to provide care for their loved one, being a caregiver can be extremely time consuming. Providing care to an aging parent may make it difficult for the caregiver to meet other commitments, and may even result in sacrificing employment in order to provide the necessary care.

While many individuals are willing to voluntarily care for a loved one without any promise of compensation, a growing number of families are entering into Caregiver Contracts. A Caregiver Contract is a formal agreement among family members to compensate a person providing care.

A Caregiver Contract has several advantages. In addition to providing financial resources to the family member doing the work, particularly where the caregiver has given up other employment, it assures other family members that caregiving is fairly compensated and describes the care and personal services that are expected in return for a specific amount of compensation. This can alleviate family concerns over who will provide care and how much money will change hands, as well as avoid potential misunderstandings over the loved one’s reduction in assets (and the amount of money that would otherwise be inherited upon death).

Such contracts are also a key part of Medicaid planning, helping to spend down savings so that the recipient of care might more easily be able to qualify for Medicaid benefits. More importantly, without a Caregiver Contract, payments made to a family member for providing care will be considered a “divestment” for Medicaid eligibility, resulting in an ineligibility period. While payments to unrelated third parties for caregiving and personal services are not divestments, caregiving provided by a relative is considered gratuitous absent a contract that meets certain requirements.

Under the Medicaid rules, all payments to relatives for care and services made within five years of an application for Medicaid will be considered a divestment, unless all of the following are true:

•  The services directly benefited the individual applying for benefits.

•  The payment did not exceed reasonable compensation (prevailing local market rate) for the services provided.

•  If the total payment made to the family member is greater than ten percent (10%) of Medicaid’s Community Spouse Resource Allowance, the institutionalized person must have a written, notarized agreement with the relative. (This threshold will range from $5,000 – $11,922).

•  The agreement must specify the services and the amount to be paid and exist prior to the time any services are provided.

In addition to the requirements under the Medicaid rules, a properly drafted Caregiver Contract should contain provisions regarding the type of care, location of the care, terms and frequency of compensation, length of the agreement, income tax reporting issues and provisions for modification or termination. Contracts, even with family members, are legal documents. It is important to get your attorney’s help in drafting the contract to avoid omitting important terms, to provide proper documentation, and to seek advice about qualifying for Medicaid in the future.

The Achieving a Better Life Experience (ABLE) Act, enacted by Congress in late 2014, amended Section 529 of the Internal Revenue Code, permitting states to allow tax-advantaged savings accounts to be established for qualified individuals with disabilities for certain disability-related expenses. Funds held in ABLE Accounts will generally not be considered in determining eligibility for the supplementary security (SSI) program, Medicaid, and certain other federal means-tested benefits.

Unlike a regular savings account, an ABLE Account allows individuals with a disability to save and invest money without losing certain public benefits. Income from an ABLE Account is tax free when used for qualifying expenses, as defined below. (Nonqualified withdrawals will tax gains as ordinary income plus a 10% penalty.) Contributions to the account made by any person (the account beneficiary, family and friends) are not tax deductible.

The U.S. Treasury Department issued preliminary rules in 2015. Wisconsin was one of many states passing ABLE Account legislation, doing so in the 2015-2017 state budget. On February 16, 2016, Wisconsin repealed the legislation, but subsequently extended preferential tax treatment when residents create an ABLE Account out of state with another state’s program.

Who is Eligible to Establish an ABLE Account?
Eligibility is limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. To meet the disability requirement, an individual must be entitled to Supplementary Security Income (SSI), be entitled to Social Security Disability Income (SSDI), or meet the SSI criteria regarding significant functional limitations. In addition, designated beneficiaries can certify, under penalty of perjury, that they meet the qualification standards, including their receipt of a signed physician’s diagnosis, if necessary, and that they will retain that diagnosis and provide it to the program or the IRS upon request.

ABLE Accounts Allow Individuals with Disabilities to Remain Eligible for Public Benefits.
Many individuals with disabilities and their families depend on public benefits, like SSI, FoodShare, Community Care and Medicaid for income, health care and food and housing assistance. Eligibility for these public benefits is for individuals who have less than $2,000 in cash savings, retirement funds and other assets. The ABLE Act recognizes the potential extra and significant costs of living with a disability, or raising a child with a disability for assistance, services and health care not covered by insurance, Medicaid or Medicare.

Limitations on ABLE Accounts.
Contributions by all participating individuals, including family and friends, are limited to a total of $14,000 per year. The amount will be adjusted annually for inflation. The total account maximum limit is the same as 529 college savings, currently $440,300 as of 2016 in Wisconsin. Only one ABLE account is allowed per eligible individual. In addition, if an individual with a disability is a recipient of SSI, the individual would no longer be eligible for SSI if the account exceeds $100,000. Eligibility for Medicaid would not be affected; however, estate recovery from ABLE accounts is allowed for Medicaid recipients upon the death of the beneficiary.

Qualified Disability Expenses.
A “qualified disability expense” is defined as any expense related to the beneficiary as a result of living a life with disabilities. These include education, housing, transportation, employment training and employment support, assistive technology, personal support services, health care expenses, financial management and administrative services. Distributions for certain expenses, (such as housing) may affect SSI benefits.

Opening an ABLE Account.
The U.S. Department of Treasury regulations guide the states in terms of (a) the information required to be presented to open an ABLE account; (b) the documentation needed to meet the requirements of ABLE account eligibility for a person with a disability; and (c) the definition details of “qualified disability expenses” and the documentation that will be needed for tax reporting.

Differences Between Special Needs or Pooled Trust.
While Special Needs Trusts and Pooled Trusts also allow an individual with a disability to maintain eligibility for public benefits, an ABLE Account offers a significant and viable option, in addition to, rather than instead of, a Trust. The cost of establishing an account will be less than establishing a Trust and still offers account owners control over the distribution of funds. An ABLE Account, used in conjunction with a Special Needs Trust or Pooled Income Trust, offers multiple options for an individual to maintain benefits while providing for the significant expenses of a disability to the maximum extent possible.

New Wis. Stat. s. 49.849(3)(a), provides that any property of a decedent that is transferred by a person who has possession of the property at the time of the decedent’s death is subject to the right of the DHS to recover the value of the decedent’s interest in the property. The interest in property or value equal to the same is to be transmitted to the DHS. Property of a decedent is defined as:

“all real and personal property to which the recipient had any legal interest in immediately before death, to the extent of that title or interest, including assets transferred to a survivor, heir, or assignee through joint tenancy, tenancy in common, survivorship, life estate, living trust or any other arrangement.”

There is a presumption that all property of a deceased surviving spouse was marital, and therefore, the deceased surviving spouse’s property is also subject to these requirements. The amount that the DHS can recover is based on the fair market value of the decedent’s fractional interest in the property. The burden of proof for establishing value is on the surviving owners or beneficiaries, or their representatives. Fair market value must be established through a credible methodology, which may include appraisal. For life estates, the fractional value will be based on the life estate-remainderman tables used by the DHS to value life estates. The value will be determined as of the Medicaid recipient’s date of death, as though he or she is still alive.

Although the new law provides no method for the timing of the notice, or for assuring that the alleged surviving joint tenant, remainderman or beneficiaries actually receive the notice from the DHS, failure to comply can result in a request for a court order and judgment against the tenant, remainderman or beneficiary without notice. A person who is in possession of property subject to the new law and who has received a notice from the DHS can request a fair hearing within 45 days of the notice. The right to a fair hearing, however, is limited to a determination on the value of the property and the percentage of ownership of the Medicaid recipient in the asset.

The new law applies to all of the enumerated property interests currently in existence, not just to those created after October 1, 2013. The applicable time frame will be for deaths occurring after the effective date of the new law.

If you are considering transferring your property to your children and retaining a life estate, you may want to act now to avoid the adverse effects of Wisconsin Act 20, which changed the law to allow estate recovery from certain non-probate assets, including life estates. (See Changes To Life Estates and Jointly-Held Property detailing the change in the law.) The Wisconsin Department of Health Services (DHS) has announced that it will not pursue recovery from life estates created before August 1, 2014. It will only pursue recovery from life estates created on or after that date. It is important to note that the actual law itself remains unchanged, and the DHS could change its position on recovery from life estates in the future. At this time, however, if you created a life estate in property prior to August 1, 2014 and subsequently receive Medicaid benefits, the DHS will not pursue estate recovery against the property and remainder owners for the value of your life estate interest.

A life estate is created when a property holder (life tenant) transfers ownership of the property to someone else (remainder owner) but retains the right to reside in and benefit from the real estate. Prior to the implementation of Wisconsin Act 20, the DHS could not pursue a claim against the remainder owner in the property after the death of the life tenant for Medicaid benefits paid on behalf of the life tenant while they were alive. However, Wisconsin Act 20 now provides that any property of a decedent (including life estates) that is transferred by a person who has possession of the property at the time of the decedent’s death is subject to the right of the Department of Health Services to recover the value of the decedent’s interest in the property. The interest that is subject to recovery is determined using Medicaid life expectancy tables and represents the fair market value of the decedent’s fractional interest in the property immediately prior to death.

The imposition of estate recovery against life estates is a wide expansion of the estate recovery rules. Of particular concern was the fact that the new law, as it is written, appears to apply to all life estates currently in existence, not just to those created after the effective date of the new law. In other words, life estates created prior to the enactment of the law were not exempt from its provisions.

The announcement from the DHS that it will only pursue recovery from life estates created on or after August 1, 2014 means that those who have previously created life estates remain unaffected by the new estate recovery law. It also presents an opportunity for individuals who are thinking of creating a life estate to do so before the new law will affect the property, as long as the creation takes place before August 1, 2014.