Divestment or No Divestment?

Medicaid, also known as Medical Assistance or Title 19, is a government program that subsidizes the long-term care expenses of needy individuals who meet specific asset and income requirements. In short, individuals are expected to exhaust their own assets to pay for their long-term care expenses before government resources will be made available. In the past, potential Medicaid recipients have exhausted their resources not by paying their own expenses, but by giving their assets away to family members and other beneficiaries. These gifts, called divestments, will disqualify an individual from government benefits for a period of time. This is because these divestments made the individual artificially needy and, therefore, is viewed as an attempt to subvert the government long-term care funding system.

Individuals have been given relatively little guidance as to what constitutes a disqualifying divestment. For example, can you be disqualified because of Christmas gifts to your children? Or giving birthday gifts to your grandchildren? Or making a weekly offering at your church? The safe answer had been “yes,” which was troubling to many people who regularly make these gifts with no intention of qualifying for government aid.

The Wisconsin Department of Health Services recently set forth four exceptions to the general rule that gifts are treated as disqualifying divestments. They are as follows:

1. The individual has sufficient financial resources or long term care insurance to cover long-term care expenses for the lesser of five years or the individual’s remaining life expectancy at the time of the transfer.

2. Given the individual’s health and age at the time of the transfer, there was no expectation of long-term care services being needed for the next five years.

3. If an individual had a pattern of charitable gifting, or gifting to family members (i.e. birthdays, graduations, weddings, etc.) dating back at least five years, these transfers are not divestments as long as the total yearly gifts did not exceed 15% of the individual’s or couple’s annual gross income.

4. Resources spent on the current support of dependent relatives living with the individual are divestments, provided the individual claim the relative as a dependent for tax purposes or provide more than 50% of the costs of caring for the dependent relative.

There will certainly be situations, other than those listed above, where a gift will be made without the intent to qualify for Medicaid. Therefore, whether a gift is a disqualifying divestment will be determined on a case-by-case basis.

By: Attorney John L. Haslam

John Haslam is an attorney with Wilson Law Group, LLC, and his practice focuses on planning for individuals and families of all ages. Haslam provides educational programs for both the public and professional advisors in the areas of general estate planning, wealth transfer strategies, estate and trust administration, planning for young families and issues relating to the elderly. He is the co-author of Your Life, Your Legacy: Nursing Homes and Long Term Care (2006) and has written numerous published articles on various estate-planning topics.

Reprinted as published in the 2009/2010 issue of SENIOR RESOURCES  

Posted in: Estate Planning, Long Term Care/Medicaid Planning