(414) 276-4366
Milwaukee, WI
Lifetime, Estate & Tax Planning and Elder Law Services | Attorneys Licensed in Wisconsin and Illinois
(414) 276-4366
Milwaukee, WI
Lifetime, Estate & Tax Planning and Elder Law Services | Attorneys Licensed in Wisconsin and Illinois
By Attorneys Terry L. Campbell & Jennifer M. Jedrzejewski
Published in the Wisconsin Law Journal on October 4, 2006
President Bush signed the Deficit Reduction Act of 2005 (DRA-05) into law on February 8, 2006. DRA-05 makes substantial changes to the medical assistance or Title 19 rules. Many of these changes impact the rules governing divestments. The purpose of this article is to focus on only three of the major changes.
Look-back Period. The look-back period is the amount of time which precedes the date of application for which medical assistance applicants must report divestments (gifts). Prior to DRA-05, this period was thirty-six months or sixty months if the transfers involved trusts. DRA-05 provides that the look-back period for all transfers will be sixty months. DRA-05, § 6011(a), 42 U.S.C. § 1396p(c)(1)(B)(i).
Penalty Period Start Date. Pre-DRA-05 law provided that the penalty period started in the month of the transfer. Each transfer created a period of ineligibility based upon the amount of the transfer. An individual could make a gift, wait out the penalty period, and then apply for medical assistance (assuming the individual then met the other medical assistance requirements). Under DRA-05, the start date for the penalty period will be the date on which the individual is otherwise eligible for assistance but for the penalty period. DRA-05, § 6011(b); 42 U.S.C. § 1396p(c)(1)(D).
Example: Assume a single person makes a gift of $50,000 on September 3, 2006. In October 2007 this person has only $1,900 in assets.
Pre-DRA-05: The gift created a period of ineligibility of nine months and the ineligibility period started running September 2006. Thus, in June 2007 the penalty period will have expired. When the individual applies for medical assistance in October 2007, he or she will be eligible.
Post-DRA-05: When the individual applies for medical assistance in October 2007 he or she will be ineligible. The ineligibility period will start running October 2007 and the individual will remain ineligible for approximately 9.3 months.
Annuities. Annuities have often been used as a medical assistance planning technique. Wisconsin has historically treated annuities that could be surrendered as available assets. Immediate annuities that were paying out were not considered available assets because it was assumed they could not be converted to cash.
This treatment was changed on March 1, 2004. All annuities purchased on or after March 1, 2004 are treated as available assets, subject to certain limitations. The treatment again depends on if you are dealing with annuities that can be surrendered versus those that cannot be surrendered.
If the annuity’s cash value is available for withdrawal (minus any penalty) the annuity can be “surrendered.” The following formula is used to determine the value of these annuities:
If the annuity’s cash value is not available for withdrawal, it cannot be “surrendered.” The value of these annuities (for example, immediate annuities in a pay-out phase) is determined as follows:
Applicants/recipients who own annuities that cannot be surrendered will have an opportunity to prove the annuity is unavailable. This opportunity does not apply to annuities that can be surrendered. The annuity will be considered to be an unavailable asset only if three companies active in the market state their unwillingness to purchase the annuity. Payments from an annuity that is considered to be unavailable must be counted as income.
The applicant/recipient may prove that the annuity has a fair market value lower than the initial value determined by the worker by providing documented offers from at least three companies active in the market. The fair market value of the annuity will be established as the highest of the documented offers. An offer from someone not active in the market will be considered legitimate only if it meets or exceeds all offers from three companies active in the market.
DRA-05 still permits the use of annuities, but it provides extensive changes to the law regarding their use. DRA-05 requires medical assistance applicants to disclose any annuities in which the applicant or the community spouse has an interest, both upon applying for medical assistance and at every periodic recertification of eligibility. This will allow the State to notify the issuers of the annuities of the State’s position as a preferred beneficiary.
Beginning with the date of enactment of DRA-05, the purchase of an annuity will be treated as a divestment unless the State is named as primary beneficiary for at least the total amount of medical assistance paid on behalf of the annuitant or is named as secondary beneficiary after the community spouse or minor or disabled child and is named as primary beneficiary if such spouse or representative of such child disposes of any remainder for less than fair market value. DRA-05 § 6012(b), 42 U.S.C. § 1396p(c)(1)(F).
Additionally, under DRA-05, an annuity is treated as an asset of an annuitant who has applied for medical assistance unless a) it is an individual retirement annuity or purchased with the proceeds from certain retirement assets, or b) the annuity is irrevocable and nonassignable, is actuarially sound, and provides for equal payments with no deferral or balloon payments. DRA-05 § 6012(c), 42 U.S.C. § 1396p(c)(1)(G).
Effective Date. There is considerable confusion regarding the effective date of the new rules under DRA-05. DRA-05 specifically states that certain provisions, such as the new look-back period and new penalty period start date, are effective as of the date of passage of DRA-05 (February 8, 2006). However, another provision of DRA-05 would seem to give Wisconsin until January 1, 2008 to implement these changes. Any new state statute or regulation may be effective retroactive to the date of passage of DRA-05. Other states which have enacted DRA-05 into their statutes have been inconsistent. Some have gone retroactive and some have not. The best advice for attorneys counseling clients regarding medical assistance is to take a worst-case approach and assume that the effective date will be retroactive to February 8, 2006.
Conclusion. DRA-05 contains other important changes to the Title 19 rules. The purpose of this article was to draw attention to three of these major changes. The rules are confusing and seem to be ever-changing. Plan with caution.