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State of Wisconsin |
Release 24-02 |
IM agencies evaluate information provided about a transfer to determine if it is a divestment. If a divestment occurs, the agency determines if it is allowed or if it requires a penalty period. Note: Divestment rules do not apply to the applicants or members listed in Section 17.1.2 Excluded Applicants and Members.
The evaluation of a transfer for divestment includes:
Transfers of exempt income and assets do not count as divestments. For the purposes of divestment, exempt and disregarded have the same meaning. This chapter uses the word exempt.
Income and assets are either exempt or nonexempt following the policies in Chapter 15 Income and Chapter 16 Assets.
Any transfer of nonexempt income or nonexempt assets that occurs during the look back period (see 17.2.2.1 The Look Back Period) or while a person is eligible for long-term care services must be evaluated for divestment.
The exact date of each transfer is needed to evaluate the transfer for divestment rule applicability.
For real property, such as homestead property, the date of transfer is the date the Quit Claim Deed was signed and notarized or authenticated by an attorney. The date the county Register of Deeds recorded the transfer is not the date of transfer.
Per federal law, transfers of nonexempt income or assets that occur during the 60 months (five years) prior to the month of application must be evaluated for divestment. This 60-month period is the “look back period.”
The first month (month one) of the look back period is the more recent of either:
The application month is the first month all of these conditions are true:
| Program | Conditions |
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Institutional Medicaid |
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| Community Waivers Programs |
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| Example 1 | Kaylee was institutionalized on March 2. She submitted a signed application for Medicaid to the agency on May 5. Her look back period begins with April as month one. |
| Example 2 | Judas had options counseling with the ADRC and submitted a signed Medicaid application and request for Family Care on June 19. He was found functionally eligible on May 5 and was otherwise eligible for enrollment in FC through Waiver Medicaid. His look back period begins with May as month one. |
Transfers that occur before the 60-month (five-year) look back period are not subject to divestment rules. This includes the irrevocable assignment of an asset or purchase of an annuity that has not been changed (see 17.2.3 Transfers that are Not Divestment).
An applicant or member may be ineligible for long-term care services if the applicant or member, their spouse, or anyone acting on their behalf divests the applicant’s or member’s income or assets during the look back period. The period of long-term care ineligibility is based on the value of the divestment. Applicants must report any divestment that occurred during the look back period when they apply.
Divestments that occurred during the look back period and are reported or discovered after eligibility was established must be evaluated. A divestment reported after eligibility was established doesn’t result in an overpayment but may result in a penalty period. See 17.3 Penalty Period.
| Example 3 | Trisha is 70, institutionalized, and applies for institutional Medicaid. She reports no divestment on her application. Several years later, Trisha reports that she gave her granddaughter $10,000 four years prior to her initial institutional Medicaid application. This divestment happened during her look back period, which is now seven years ago. Because this divestment occurred during the look back period and was required to be reported in her application, the divestment must now be evaluated. |
If a community spouse applies for Long Term Care services, any divestment that occurred during their own look back period must be evaluated. This includes allowed divestments made by the community spouse that were previously evaluated for the institutionalized person. See also 17.3.8 Both Spouses Institutionalized.
| Example 4 |
Brent is an institutionalized person. Eight years after Brent was found eligible for Long Term Care services, Brent’s community spouse, Sven, applied for Long Term Care services. Sven reported a gift of $15,000 to his niece six months before he applied for Long Term Care services. Because this divestment occurred over 60 months (five years) after Brent was found eligible, the divestment was allowed and didn’t impact Brent’s eligibility. See 17.2.6.3 Divestment by the Community Spouse After Five Years. This divestment must still be evaluated for Sven’s Long Term Care eligibility because it occurred during Sven’s look back period. |
Once a transfer is determined not to be a divestment, it has no impact on eligibility.
A transfer for fair market value (FMV) is not a divestment. See 17.2.4 Determining Fair Market Value. This includes:
| Example 5 | Tally purchases a sailboat for $12,000. He verifies the value of the sailboat to be $12,500. Because this purchase was converting a cash asset into another asset (the sailboat), purchasing and keeping the sailboat isn’t a divestment. Tally’s assets now count the $12,500 sailboat instead of the $12,000 in cash used to purchase the boat. |
| Example 6 | Sterling transferred ownership of his RV to his parents. In payment, his parents signed over to Sterling the deed to their cottage. The FMV of the RV was the same as the FMV of the cottage. This transfer is not a divestment because Sterling received FMV for his transfer, and the cottage will be evaluated as a countable asset. |
Income or assets determined to be exempt (except homestead property per 17.2.7.1 Transfer for Less Than Fair Market Value) are not subject to divestment rules.
| Example 7 | Hattie is eligible for Medicaid and receiving long-term care services. She owns one car. Hattie transfers ownership of the car to her sister. Hattie buys another car, and now once again owns one car. She gives this car to her father. Because one car is an exempt asset, these transfers are not subject to divestment rules. |
Assets can be permanently or temporarily exempt (see Section 16.7 Liquid Assets). The transfer of temporarily exempt assets is not subject to divestment rules during the time they are exempt. This includes, but is not limited to, giving away funds from:
| Example 8 |
On February 15, Sri received a cost share refund of $5,000. This refund is exempt in February and remains exempt for nine months (March through November). Sri gives away the entire $5,000 to her mother and reports that gift to the IM agency.
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The act of signing a prenuptial agreement is not a divestment.
An institutionalized person paying a relative for room and board is not a divestment if the payments do not exceed fair market value, the institutionalized person is actually receiving room and board, and the institutionalized person provides a written lease that existed during the time they received room and board from the relative.
Returning the ownership or full value of a divested asset during the look back period is not divestment. This is because both the transfer and the return occurred before the request for Long Term Care services.
| Example 9: | Dan transfers ownership of his lake house (not homestead property) to his daughter, Cile, as a gift. Two years later, Dan and his daughter realize that this transfer affects his future eligibility for Medicaid, so Cile signs the lake house back over to Dan. Later that year, Dan applies for Long Term Care services. No divestment penalty period is imposed for the transfer of his lake house to his daughter because ownership was returned to him prior to his application. |
Fair market value FMV is an estimate of the price an asset has when sold on the open market. The FMV is based on the time an asset is transferred and not when the transfer is reported to or evaluated by the IM agency.
The FMV of real property can be established by:
The applicant or member has the right to file a fair hearing if they disagree with the FMV of the property determined by the IM agency.
| Example 1: | Paul applied for institutional Medicaid this month and reported transferring ownership of his house to a friend three years ago. Today, the house is worth $70,000, but three years ago, the value of the house was $54,000. The FMV is $54,000 for divestment purposes as that is the value Paul could have received if he had sold it three years ago. |
A divestment that occurred in the look back period or any time after does not affect eligibility if the person who divested can show that the divestment was not made with the intent to qualify for Medicaid.
The person must present evidence that shows the specific purpose and reason for making the transfer and establish that the resource was transferred for a purpose other than to qualify for Medicaid. Verbal assurances that they were not trying to become financially eligible for Medicaid are not sufficient. Take into consideration statements from physicians, insurance agents, insurance documents, and bank records that confirm the person's statements.
Any of the following circumstances are sufficient to establish that the institutionalized person or community spouse transferred resources without an intent to qualify for Medicaid. This list is not intended to be all-inclusive; in other situations, the person’s intent must be evaluated on a case-by-case basis to determine whether a divestment occurred.
A transfer by an institutionalized person or their spouse who, immediately after the transfer, still had sufficient financial resources (including long-term care insurance) to cover five years of long-term care is an allowed divestment and doesn’t result in a penalty period.
For the average monthly nursing home cost of care in effect at the time of the transfer, see Section 39.4.3 LTC Post-Eligibility Allowances (view history pages for prior year amounts).This cost per month multiplied by 60 months provides the amount to compare to the income, assets, and insurance held by the individual immediately after the transfer.
| Example 1: | Lucius had a money market account. Lucius gave his nephew a graduation present worth $25,000. After the gift, Lucius’ money market account still had enough funds to pay for more than five years of long-term care services. Two years later, Lucius suffered a traumatic brain injury and was institutionalized. Because the cost of specialized nursing home care is significantly greater than a regular nursing home, Lucius depletes his money market account and must apply for Institutional Medicaid after only two years. Because Lucius still had enough money to pay for five years of care at a regular nursing home after he gave the gift to his nephew, the gift is an allowed divestment and doesn’t result in a penalty period. |
| Example 2: | Pierce had an investment portfolio with assets that could pay for more than five years of long-term care services. Pierce paid for his granddaughter to take a trip to Europe. Immediately after the transfer, his investment portfolio still contained enough funds to pay for more than five years of long-term care services. Later, his investments plummeted in value due to the stock market. Before the stock market recovered, he entered a nursing home and quickly spent his remaining assets on his care. Pierce then applied for Medicaid to continue receiving his necessary long-term care services. Because Pierce still had enough assets to pay for his long-term care for five years immediately after he made the gift to his granddaughter, the gift is an allowed divestment and doesn’t result in a penalty period even though the gift was in Pierce’s look back period. |
A transfer by an institutionalized person or their spouse is an allowed divestment and doesn’t result in a penalty period if both of the following conditions are met:
For the average monthly nursing home cost of care in effect at the time of the transfer, see SECTION 39.4.6 INSTITUTIONAL COST OF CARE VALUES (view history pages for prior year amounts). This cost per month multiplied by 60 months provides the amount to compare to the income, assets, and insurance held by the individual immediately after the transfer.
An unexpected need is evaluated by considering the institutionalized person’s health and age at the time of the divestment. If the institutionalized person did not anticipate the need for long-term care services in the next five years and divested, it is an allowed divestment and doesn’t result in a penalty period.
| Example 3 | Gerard had no health issues, was gainfully employed, and was 50 years old when he gave $50,000 to his daughter. Two years later, Gerard experienced a heart attack that caused him to need long-term care services for the rest of his life. When he gave the $50,000 to his daughter, Gerard was not expected to have set aside resources for five years of long-term care. This gift is an allowed divestment and doesn’t result in a penalty period. |
If the institutionalized person or their spouse had a pattern of gifting money, such as to family members or charities, prior to the look back period, similar divestments during the look back period are allowed and don’t result in a penalty period if both of the following conditions are met:
This allowed divestment is not limited to gifts made on traditional gift-giving occasions such as birthdays, graduations, and weddings. It can include a pattern of giving to assist family members with educational or vocational goals.
The institutionalized person or their spouse’s support of dependent relatives who were living with them at the time of the transfer is an allowed divestment and doesn’t result in a penalty period when either of the following conditions are met:
A trust for a disabled individual (sometimes called a third-party trust) is an irrevocable trust established solely for the benefit of:
The beneficiary must meet the definition of disability in SECTION 5.2.1 DEFINITION OF DISABILITY.
If the beneficiary is the grantor’s disabled child, the grantor may transfer funds to the trust without penalty at any time, provided that the beneficiary continues to be disabled.
If the beneficiary is not the grantor’s disabled child, the grantor may transfer funds to the trust without penalty until the beneficiary turns age 65, provided that the beneficiary continues to be disabled. Anything added to the trust after the beneficiary turns age 65 is a divestment (see SECTION 17.2.7.18 TRUSTS FOR DISABLED INDIVIDUALS ESTABLISHED OR FUNDED AFTER THE BENEFICIARY TURNS 65).
| Note | Unlike special needs and pooled trusts, trusts for disabled individuals are not required to have any type of Medicaid "payback provision" that becomes effective upon the death of the beneficiary. |
Third-party trusts for disabled individuals in Wisconsin include, but are not limited to:
A trust for disabled individuals can also be a freestanding irrevocable trust with a private trustee, as long as it meets the conditions above.
The transfer of assets (e.g., liquid, homestead, etc.) by a community spouse more than 60 months (five years) after the institutionalized person was determined eligible is an allowed divestment and doesn’t result in a penalty period or impact eligibility for the institutionalized spouse.
| Example 5: | Chu is married and applied for Medicaid when he entered a nursing home. He was determined eligible for institutional Medicaid. Six years after Chu became eligible, Edith, Chu’s community spouse, gave $30,000 to her nephew. This divestment is allowed and doesn’t result in a penalty period. |
| Example 6: |
When Chu applied for institutional Medicaid, he and Edith owned a home together. After Chu became eligible, he transferred complete ownership of the home to Edith. When Chu had been eligible for institutional Medicaid for five years, Edith transferred the homestead property to someone else for less than fair market value. Chu's eligibility was not affected. This divestment is allowed and doesn’t result in a penalty period. Edith applies for Long Term Care services two years later. Her transfer of the homestead property is in her look back period and must be evaluated by the agency for divestment. |
The division of property as part of a divorce or separation action is an allowed divestment and doesn’t result in a penalty period.
The loss of property due to foreclosure or repossession is an allowed divestment and doesn’t result in a penalty period.
The disposal of an asset by an institutionalized person who can prove they intended to receive FMV, is an allowed divestment and doesn’t result in a penalty period.
| Example 7: | Gary sells a boat and agrees to two payments that total the FMV of the boat. He cashes a check for the first payment, but the second payment is a bad check. Gary shows proof of the bad check and that he has been unable to recover the boat or the second payment. When Gary applies for Medicaid, this is an allowed divestment and doesn’t result in a penalty period. |
Any divestment associated with an undue hardship waiver request that is approved by the IM agency per 22.4 Undue Hardship, is an allowed divestment and doesn’t result in a penalty period.
The transfer of homestead property by an institutionalized person or their spouse for less than FMV is an allowed divestment and doesn’t result in a penalty period when the transfer is to:
The transfer of any asset by an institutionalized person or their spouse for less than FMV is an allowed divestment and doesn’t result in a penalty period when the transfer is to:
Payments (or transfer of ownership of something of value) by an institutionalized person to a relative for services provided to the institutionalized person is an allowed divestment and doesn’t result in a penalty period if either:
| Example 8: | Kerry requests enrollment in Family Care on January 10. She paid her son $3,500 to remodel her bathroom the previous month. Her son installed new tile and fixtures, which directly benefited Kerry. Kerry provides verification from a local contractor who estimates he would have charged $4,000 for the same job. This amount is less than the maximum Community Spouse asset share at the time, so Kerry doesn’t need a notarized agreement. Since the bathroom remodel directly benefited Kerry and she did not pay more than reasonable compensation for the service, the payment to her son is an allowed divestment and doesn’t result in a penalty period. |
| Example 9: |
Rosemary enters a nursing home and applies for Medicaid on November 1. When asked if she has transferred any assets in the past 60 months, Rosemary indicates that she paid her daughter $30,000 in exchange for her daughter providing personal care for her over the past two years. Rosemary provides an estimate from a home care provider that a similar amount of care from one of their employees would have cost $32,000 for two years. This payment is above 10 percent of Rosemary’s Community Spouse asset share, so Rosemary must provide a notarized agreement. Rosemary provides the IM agency with an agreement that is dated and notarized at the time her daughter began providing care. Rosemary provided the required notarized agreement and did not pay more than reasonable compensation for the service her daughter provided. The payment to her daughter is an allowed divestment and doesn’t result in a penalty period. |
A payment for room and board made to relatives by an institutionalized person after they were institutionalized is an allowed divestment and doesn’t result in a penalty period if the payment is only for the month immediately preceding the month that they entered the institution, the payment was for FMV, and the agreement is verified with a lease that existed during the time the institutionalized person received room and board from the relative.
A trust established by a will is an allowed divestment and doesn’t result in a penalty period.
Money lost from participating in gambling at a casino, racetrack, or other regulated gambling is an allowed divestment and doesn’t result in a penalty period.
An irrevocable annuity purchased, created, or substantively changed during the look back period or after eligibility is established may be an allowed divestment.
“Substantively changed” means action was taken that changes the course of payments made under an annuity or the treatment of the income or principal of an annuity. See SECTION 16.7.4.5 ANNUITY DISCLOSURE REQUIREMENT FOR LONG-TERM CARE for information about what types of transactions constitute a substantive change.
To be an allowed divestment, the annuity must name the Wisconsin Department of Health Services Estate Recovery Program as a remainder beneficiary (see Section 16.7.4.6 Remainder Beneficiary Designation Requirement for Long-Term Care) and meet at least one of the following criteria:
| Note: | Annuities that provide for indefinite “lifetime payments” may not return the full principal and interest within the member’s life expectancy and are not actuarially sound. |
For irrevocable annuities that do not meet the above criteria, the divested amount is the full purchase price of the annuity.
| Example 10: | Rashon applies for HBCW. He had invested in a Roth IRA while he was working. He converted the IRA to an irrevocable annuity when he retired six months ago and named the Wisconsin Department of Health Services Estate Recovery Program as the beneficiary. Since the annuity meets the conditions in 17.2.6.14 Irrevocable Annuities, the purchase of the annuity is an allowed divestment. |
| Example 11: |
Bowen applied for institutional Medicaid on July 28. On July 18, his community spouse Yun used $126,500 of the couple’s resources to purchase an irrevocable nine-year period certain immediate annuity from the XYZ Life Insurance Company. Yun is the annuitant. Yun was 74 years old on the date the annuity was purchased and had a life expectancy of 9.75 years (117 months). The annuity will issue regular monthly checks of $1,488.75 for a set period of nine years or 108 total months. The insurance company will pay out a total of $160,785 over the period of the annuity contract. The contract date of the annuity was July 18 and the first monthly payment was issued on August 18. The annuity names the Wisconsin Department of Health Services Estate Recovery Program as the beneficiary, was purchased from a life insurance company, will issue regular monthly payments, is currently issuing payments and will provide for full return of principal and interest during the community spouse’s life expectancy. Therefore, since the annuity meets the conditions in 17.2.6.14 Irrevocable Annuities, the purchase of the annuity is an allowed divestment. |
The purchase of a promissory note, loan, land contract, or mortgage purchased during the look back period or after eligibility is established is an allowed divestment when the terms meet all of the following criteria:
| Note: | Voluntary prepayments that exceed the required regular monthly payment amount (“paying extra”) are not balloon payments. |
This section discusses unallowable divestments that result in a penalty period (17.3 Penalty Period).
This section doesn’t include all situations in which a divestment is not allowed. For situations not listed here, the member or applicant’s intent must be evaluated individually to determine whether it is an unallowable divestment.
Prior to determining whether a transfer is an allowed divestment or not, the transfer must be evaluated as a divestment based on the following:
The transfer of ownership of a nonexempt asset for less than FMV is an unallowable divestment and results in a penalty period. Some examples of unallowable divestments are:
An asset used in a way by a member or spouse that makes it unavailable and for which they don’t receive FMV in return is an unallowable divestment and results in a penalty period.
| Example 1: | Mitch allowed his non-homestead property to be used as collateral for his son’s business loan. Mitch’s non-homestead property was considered a nonexempt asset. Because using it as collateral makes it unavailable, his use of this asset is an unallowable divestment and results in a penalty period. |
Refusal to take action to claim a portion of the estate of a deceased spouse or parent despite statutory entitlement to that portion is an unallowable divestment and results in a penalty period.
This includes situations in which the will of the institutionalized person's spouse precludes any inheritance for the institutionalized person. Under Wisconsin law, a person is entitled to a portion of their spouse's estate. If the institutionalized person does not contest their spouse's will in this situation, the inaction is an unallowable divestment and results in a penalty period if both:
The action of avoiding the receipt of income or assets a member is entitled to is an unallowable divestment and results in a penalty period. This type of divestment includes:
The transfer of income or assets to a relative as payment for care or services provided to the institutionalized person is an unallowable divestment and results in a penalty period unless it meets the criteria to be an allowed divestment per 17.2.6.10 Certain Payments to Relatives for Services Provided.
| Example 2: |
Jennifer enters a nursing home on December 12 and applies for Medicaid. She reports she paid her daughter $7,000 in December for making dinner every night for two months.
Jennifer's daughter provided 61 meals. Reasonable compensation for these meals was $122. Jennifer’s payment to her daughter is an unallowable divestment and results in a penalty period. The divested amount for this payment is $6,878 ($7,000-$122). |
The payment of room and board by an institutionalized person to a relative after the person has been institutionalized is an unallowable divestment and results in a penalty period unless it meets the criteria for an exception per 17.2.3.4 Payments to a Relative while the Institutionalized Person Received Room and Board.
The transfer of assets by a community spouse is a divestment and must be evaluated if the transfer occurred within five years of the institutionalized person becoming eligible for long-term care Medicaid.
| Example 3: | Ralph, a married man, went into the nursing home and applied for and was determined eligible for institutional Medicaid. One year after Ralph became eligible, Edith, Ralph’s community spouse, gave $30,000 to a nephew. This is an unallowable divestment and results in a penalty period for Ralph because it occurred within the first five years of his eligibility. |
Income received and transferred in the month of receipt for less than FMV is an unallowable divestment and results in a penalty period.
| Example 4: | Monte resides in a nursing home. He receives a pension check of $3,000 on January 1. Monte signs the check over to his son on January 5 and doesn’t receive anything in return. This is an unallowable divestment and results in a penalty period. |
Unless there is reason to believe otherwise, assume that monthly household income was spent by the institutionalized person on normal costs of living.
Transferring the right to receive nonexempt income by an applicant or member to someone else is a divestment and results in a penalty period.
When a person has transferred income or the right to receive income, the penalty period is calculated based on the total amount of income transferred.
| Example 5: | Donald transfers his rights to his $325,000 pension, which is paid in monthly payments of $4,500, to his daughter. This is an unallowable divestment and results in a penalty period. The worker must determine the divestment amount and penalty period. The divested amount is $325,000, not the $4,500 the daughter expects to receive each month from the pension. |
The transfer of property originally owned by a life estate holder to a remainder person without receiving FMV is an unallowable divestment and results in a penalty period.
The divested amount is the FMV of the property at the time of the transfer minus the life estate value. To determine the life estate value, multiply the FMV of the property by the number from the 39.1 Life Estate and Remainder Interest table corresponding to the age of the life estate holder at the time the property was transferred.
| Example 6: |
Marion, age 83, gave her home to her son John, retaining a life estate. The FMV of the house at the time of the transfer was $87,000. Two years later, Marion applied for Long Term Care Medicaid. Since the transfer of her home occurred in the look back period, it is an unallowable divestment and results in a penalty period. The worker must determine the divestment amount and penalty period. The divestment amount is the FMV of the house at the time of transfer, minus the life estate value. To determine the life estate value, multiply $87,000 by .38642 (the number from 39.1 Life Estate and Remainder Interest table that corresponds to Marion’s age, 83, at the time of transfer). Marion is the life estate holder. John is the remainder person. The divested amount is $87,000 - $33,618.54 = $53,381.46. |
The transfer of a life estate on a property by joint owners without receiving FMV based on their share is an unallowable divestment and results in a penalty period.
To determine the life estate value, or share, for each individual, divide the property’s FMV by the number of life estate holders. Then calculate the life estate value by multiplying the individual share of the FMV by the number in 39.1 Life Estate and Remainder Interest table corresponding to the individual's age at the time of the transfer or termination of the life estate.
| Example 7: |
Marie and George transferred ownership of their home to their three sons and retained a life estate on the property. The FMV of the home at the time of the transfer was $140,000. At the time George was 82 and Marie was 68. One year later, George applied for Long Term Care Medicaid. This is an unallowable divestment and results in a penalty period. Since the transfer occurred in the look back period, the worker must determine the amount of the divestment and the penalty period. To calculate the total divestment, the worker must first determine the life estate values. $140,000 divided by 2 = $70,000 George's age at the time of the transfer was 82. Multiply 70,000 x .40295 (see 39.1 Life Estate and Remainder Interest for this value.) = 28,206.50 Marie's age at the time of transfer was 68. Multiply 70,000 X .63610 = 44,527.00 The total life estate value for both Marie and George is $72,733.50. The divested amount is the FMV minus the life estate value ($140,000 - $72,733.50 = $67,266.50). |
The termination of a life estate by its holder before their death without receiving the FMV of the life estate is an unallowable divestment and results in a penalty period.
The divested amount is the life estate value at the time of termination minus the amount received by the life estate holder. To determine the life estate value, the FMV of the property is multiplied by the number corresponding to the age of the life estate holder at the time the life estate was terminated (see Section 39.1 Life Estate and Remainder Interest).
| Example 8: | Marion, age 83, gave her home to her son John, retaining a life estate. The FMV of the house at the time of the transfer was $87,000. Two years later, Marion applied for Long Term Care Medicaid. Since the transfer of her home occurred in the look back period, it is an unallowable divestment and results in a penalty period. Marion served a divestment penalty period for this divestment. Marion is the life estate holder. John is the remainder person. John sold the home for the current FMV of $102,000, and Marion terminated the life estate. John took the proceeds from the home and bought another house. He did not pay Marion for the value of the life estate which is an unallowable divestment and results in a penalty period. The divestment amount is the life estate value at the time the life estate was terminated. To determine the life estate value, multiply $102,000 (value of the house at the time the life estate was terminated) by .33764. (The number is from the table in Section 39.1 Life Estate and Remainder Interest corresponding to Marion's age, 86, at the time the life estate was terminated.) $102,000 X .33764 = $34,439.28 The divested amount is $34,439.28 (see Section 17.3.4 Penalty Period Begin Date for Members). |
| Example 9: | When James was 75 years old, he sold his home to his son Robert. The home was worth $95,000. Robert paid James $50,000 for the home and James retained a life estate. The life estate value is $49,541.55 (95,000 X .52149) (see Section 39.1 Life Estate and Remainder Interest). Since James received both $50,000 from Robert and retained a life estate worth $49,541.55, the total value he received is more than the FMV of the home. Because the value he received is greater than the FMV of the home, it is not a divestment. |
The sale of property for FMV by a remainder person that gives the estate holder more than FMV for their life estate interest is an unallowable divestment and results in a penalty period for the remainder person.
| Example 10: | Fey is a remainder person and owns a property on which her mother holds a life estate. Fey sells the property for FMV but gives her mother $10,000 more than the amount she owes to buy out her mother’s life estate. If Fey applies for Long Term Care Medicaid in less than 5 years, this $10,000 is considered an unallowable divestment and results in a penalty period for Fey. |
The purchase of a life estate interest in another individual’s home is an unallowable divestment and results in a penalty period, unless the purchaser verifies that both:
If the 12-month residence requirement is not met at the time of the application for Long Term Care Medicaid, the full purchase price of the life estate is used to determine the divested amount.
The divestment penalty remains in effect until one of the following, whichever is earlier:
There is no pro-ration of the divestment penalty period for living in the home for part of the 12 months.
When a couple jointly holds a life estate in another person’s home, the institutionalized person must reside in the home for 12 consecutive months, or their portion of the life estate value is an unallowable divestment and results in a penalty period. See 17.2.7.11 Life Estate - Divestment by Joint Owners for instructions on calculating the spouse’s portion of the life estate value.
These four rules determine if a person has resided in the home for 12 consecutive months:
| Example 11: | Ralph purchases a life estate interest in his brother’s home on January 5 and moves into that home on the same date. He goes to Florida on January 20 and returns to the home three weeks later, on February 10. January and February count as whole months of residence because Ralph’s absence was less than 30 consecutive days. |
| Example 12: | Vicki purchases a life estate interest in her sister’s home on January 20 and moves into that home on the same date. On March 3, Vicki goes to Bermuda for a family vacation and returns on April 15. The consecutive months of residency string breaks because Vicki was absent from the home for 30 or more consecutive days because of vacation. Her 12-month residence clock is reset with April being her "new” first month of residence. |
| Example 13: |
Jim purchases a life estate interest in his cousin’s home on January 20 and moves into that home on the same date. Jim resides in the home until April 10, at which time he is hospitalized. Jim remains in the hospital until August 5 and returns home. Jim then resides in the home from August 5 until December 24. To determine months of residence, the worker considers:
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If the 12-month residence requirement is met by the time of the application for Long Term Care, the worker must also determine if the applicant paid FMV for the life estate.
The FMV of the life estate is determined using the age of the life estate holder and the property's FMV on the creation date of the life estate. Multiply the property’s FMV by the life estate multiplier on the table in 39.1 Life Estate and Remainder Interest. The result is the value of the property's life estate interest as of that date. If the applicant paid more than FMV for the life estate interest, it is an unallowable divestment and the difference (what was paid minus the fair market value) is the divested amount.
| Example 14: |
Joyce, who is 75 years old, has $200,000 in her savings account. On February 3, she gives $200,000 to her son in exchange for a life estate interest in her son’s home. The FMV of the son’s home as of this transfer was $300,000. Joyce moved into her son’s home on March 5 and resided there continuously for more than 12 consecutive months. Fifteen months after moving in, Joyce applies for Family Care, meeting the functional eligibility criteria and all other Medicaid eligibility requirements. To determine if a divestment occurred, the worker applies the following tests:
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Any payment made from a revocable trust created with an institutionalized person’s assets that is not to or for their benefit is an unallowable divestment and results in a penalty period.
| Example 15: | Ray created a revocable trust with his assets. That trust is considered an available asset to Ray. Ray goes on vacation and takes several friends, paying for their lodging. Because this payment was not for Ray’s benefit, the payment is an unallowable divestment and results in a penalty period. |
Irrevocable trusts assigned or created during or after the look back period may be unallowable divestments and result in a penalty period. Examples of this are:
| Example 16: | In 1998, Benny created a revocable trust fund of $100,000 for his daughter. There was a clause in the trust stating the trust would become irrevocable if Benny became incompetent. He was determined incompetent on February 2, 2007, and the trust changed from revocable to irrevocable. Benny entered an institution and applied for Medicaid in July 2008. The trust changing from a revocable trust to an irrevocable trust is an unallowable divestment and results in a penalty period. He divested the total amount of the trust on February 2, 2007. |
Any payment made from an irrevocable trust created with an institutionalized person’s assets that is not to or for the benefit of them during or after the look back period is an unallowable divestment and results in a penalty period, even if the trust was created prior to the look back period.
When a third party establishes or adds funds to a trust for the benefit of a disabled person (see Section 17.2.6.2 TRUSTS FOR DISABLED INDIVIDUALS), it is an unallowable divestment and results in a penalty period for the third party unless either of the following conditions are met:
The divested amount is the total amount of funds transferred to establish the trust.
Irrevocable life insurance funded burial contracts (LIFBC) must be evaluated as assets per 16.5.3.1 Irrevocable Assignment of Life Insurance-funded Burial Contracts in order to evaluate for divestment. If the calculations of cash surrender value CSV have any amount left over, that amount is the divested amount. It is an unallowable divestment and results in a penalty period.
| Example 17: |
Les has irrevocably assigned the ownership of his life insurance policy to a funeral home to fund a burial contract. The face value of the LIFBC is $3,000. The Statement of Funeral Goods and Services shows $3,000 for the pre-arrangement of the funeral, of which $1,300 is designated for a casket and $1,700 for funeral expenses (services and cash advances for such things as flowers and the obituary). The $1,700 funeral expense portion reduces the $1,500 burial fund exclusion (see 16.5.5 Burial Funds), and so $1,500 of this LIFBC is his exempt burial fund. The $1,300 casket doesn’t reduce the burial fund exclusion (see 16.5.5 Burial Funds) and is not a countable asset because it is a purchase of a burial space. Because the LIFBC was assigned irrevocably, it must be determined if Les is receiving other goods or services at FMV for the remaining $200 designated for funeral expenses. If he is not receiving goods or services at fair market value, consider the remaining $200 a divestment. |
If the face value of the LIFBC exceeds the total amount shown on the Statement of Funeral Goods and Services, the cash surrender value of the LIFBC must be determined at the time it was assigned. Any portion of an irrevocably assigned LIFBC for which no goods and services are received at FMV is the divested amount.
| Example 18: | Joey has irrevocably assigned the ownership of his life insurance policy to a funeral home to fund a burial contract. The face value and the cash value of the LIFBC is $3,200. The Statement of Funeral Goods and Services shows $3,000 for the pre-arrangement of the funeral. A divestment in the amount of $200 occurs because the cash value of the LIFBC exceeds the expenses of the pre-arrangement of the funeral. |
Money lost by making personal bets with friends, relatives, or from other unregulated gambling is an unallowable divestment and results in a penalty period.
Voluntarily signing ownership of an asset over to the financial institution holding the loan rather than trying to sell the item is an unallowable divestment and results in a penalty period. This includes situations in which someone wants an alternative to foreclosure or repossession due to defaulting on the loan.
| Example 19: | Quince cannot pay his mortgage on his lake house. He must either sell the lake house to pay the mortgage or sign the property over to the mortgage holder to avoid foreclosure. Quince feels the amount of money he would get to keep after selling the lake house is not worth the time it would take to get it ready to sell, so he signs it over to the bank. This is an unallowable divestment and results in a penalty period. |
Homestead property, usually an exempt asset, is given special consideration in the Medicaid divestment policy. A divestment of homestead property is unallowable and results in a penalty period unless it meets the criteria under 17.2.6.8 Transfer of Homestead Property.
The transfer during the look back period or anytime thereafter of an asset owned by an institutionalized person in common with another person is an unallowable divestment and results in a penalty period if either:
| Example 20: | For many years Debra held a joint account with her daughter, Julie. On October 15, Julie withdraws $13,000 from it and purchases a certificate of deposit in her name. On December 3 of that year, Debra enters a nursing home and applies for Medicaid. The $13,000 withdrawal is an unallowable divestment and results in a penalty period. |
The addition of another person’s name to the ownership of an institutionalized person’s asset is an unallowable divestment and results in a penalty period if either:
| Example 21: | John bought a piece of property with his nephew, Carl. Three months later John applied for a Community Waivers program. John explained that Carl refused to sell the property, making it unavailable and that it should not count as an asset. The purchase of the property was during the look back period and the nephew’s refusal to make it available through liquidation is a divestment. John is subject to a penalty period starting from the date he requested Long Term Care Medicaid if he was otherwise eligible. |
This page last updated in Release Number: 23-04
Release Date: 12/18/2023
Effective Date: 12/18/2023
The information concerning the Medicaid program provided in this handbook release is published in accordance with: Titles XI and XIX of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapters 46 and 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2, 10 and 101 through 109 of the Wisconsin Administrative Code.
Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.
Publication Number: P-10030