It is generally a divestment if a life estate holder is not paid fair market value when the property is sold. In this case, the petitioner and her family sold her property through a real estate lawyer, who calculated the value of her life estate based on Section 7520 of the Internal Revenue Code. Although this was $23,849 less than the fair market value required by the MEH, ALJ Brian Schneider concluded the divestment was not a barrier to eligibility because the petitioner clearly intended to dispose of the asset at fair market value.
This decision was published with support from the Elder Law & Special Needs Section of the State Bar of Wisconsin, the Wisconsin chapter of the National Academy of Elder Law Attorneys, and Krause Financial. Thanks also to Attorney Andy Falkowski, who donated this decision from his file.
Preliminary Recitals
Pursuant to a petition filed September 23, 2011, under Wis. Stat. § 49.45(5), to review a decision by the Fond du Lac County Dept. of Social Services to deny Family Care/Medical Assistance, a hearing was held on November 8, 2011, by telephone.
The issue for determination is whether petitioner divested a portion of her life estate.
PARTIES IN INTEREST:
Petitioner:
—
Respondent:
Department of Health Services
1 West Wilson Street, Room 651
Madison, Wisconsin 53703
By: Deb Gohlke
Fond du Lac County Dept. of Social Services
87 Vincent Street
Fond du Lac, WI 54935-4595
ADMINISTRATIVE LAW JUDGE:
Brian C. Schneider
Division of Hearings and Appeals
Findings of Fact
- Petitioner (CARES # —) is a resident of Fond du Lac County.
- Petitioner applied for the Family Care Program (FCP) on August 22, 2011. The FCP, like institutional Medical Assistance, has an ineligibility penalty for divestment of assets.
- In 1996, petitioner conveyed her home to her children, keeping a life estate. On April 1, 2010, the family sold the home to an unrelated buyer for $120,000. The proceeds were paid out to petitioner’s children and to petitioner, with petitioner receiving $20,120.
- The sale of the home was handled by an attorney with a real estate law practice. The attorney calculated petitioner’s life estate remainder interest pursuant to his reading of the Section 7520 of the Internal Revenue Code. See September 23, 2011 letter from Atty. Ronald L. Petak.
- Using the MA Handbook, Appendix 17.10.0 and the table at Appendix 39.1, the county determined that petitioner’s value of the life estate at the time of the sale was $43,970, and thus when she received just $20,120, the result was a divestment of $23,849, meaning that she would have a 110 day divestment penalty period. The county notified petitioner of the denial of her application by a notice dated September 15, 2011.
Discussion
When an individual, the individual’s spouse, or a person acting on behalf of the individual or his spouse, transfers assets at less than fair market value, the individual is ineligible for MA coverage of nursing facility services and MA community waiver services including FCP. 42 U.S.C. 1396p(c)(1)(A); Wis. Stat. §49.453(2)(a); Wis. Adm. Code §DHS 103.065(4)(a); MA Handbook, Appendix 17.2.1. Divestment does not impact on eligibility for standard medical services such as physician care, medications, and medical equipment (all of which are known as “MA card services” in the parlance). The penalty period is the number of days determined by dividing the value of property divested by the average daily nursing home cost to a private pay patient ($215.48 in 2011). MA Handbook, App. 17.5. 2.2.
There are exceptions to the divestment rule at Wis. Adm. Code, §DHS 103.065(4)(d). Specifically, subsection (4)(d)2 provides that a person can be eligible for MA despite a divestment if the person intended to dispose of the asset at fair market value.
I conclude that petitioner intended to dispose of her life estate at fair market value. She and her children sold the home with the assistance of a real estate attorney. He determined the value of the life estate using federal tax laws, and thus all parties to the transaction believed, at the time of the sale, that petitioner was receiving the fair market value of the life estate. Therefore I conclude that the divestment is not a barrier to eligibility for FCP.
Conclusions of Law
Because petitioner intended to receive fair market value for her life estate, as determined by an attorney using federal tax law principles, any divestment that occurred due to her receiving less than the life estate value as calculated according to the Department’s formula is not a barrier to MA/FCP eligibility.
THEREFORE, it is
Ordered
That the matter be remanded to the county with instructions to determine petitioner’s FCP eligibility, disregarding any divestment penalty following the sale of her life estate. The county shall do so within 10 days of this decision.
[Request for a rehearing and appeal to court instructions omitted.]
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