Vogel Law Firm, Ltd.: estate planning law firm serving families throughout the State of Wisconsin

Thursday, August 29, 2013

IRS Formally Recognizes Same-Sex Marriage

Today, in a historic joint ruling, the U.S. Treasury and Internal Revenue Service (IRS) recognized legally-married, same-sex couples for all federal tax purposes.  Revenue Ruling 2013-17 was issued, and the ruling provides the following language:

"For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex."

Further, the ruling held as follows:

"For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages."

For Wisconsin, the ruling does not apply to couples registered as domestic partners, unless the couple was legally married in a jurisdiction that recognized same-sex marriage.

This ruling follows in the footsteps of the recent U.S. Supreme Court decisions related to the Defense of Marriage Act (DOMA).  The decisions related to DOMA mandate that the IRS recognize same-sex marriage for federal tax purposes.  Revenue Ruling 2013-17 formally implements this drastic change.

The change will affect countless tax provisions. To begin, the ruling means that same-sex couples must file annual income tax returns as “married filing jointly” or “married filing separately.”

Friday, August 23, 2013

Wisconsin's New Estate Recovery Law

Recently, Governor Scott Walker signed the 2013-2015 budget bill into law.  The new law is referred to as 2013 Wis. Act 20.  The full text of the budget bill is available at this link:  https://docs.legis.wisconsin.gov/2013/related/acts/20.pdf

This budget bill contains significant changes to Wisconsin’s ability to recover funds from the assets of deceased persons whom received medical assistance, a/k/a Medicaid.  The changes made to portions of Chapter 49 of the Wisconsin Statutes are very impactful and will affect countless Wisconsin families.  Unless modifications are made, the new law is effective on October 1, 2013.

For many years, Wisconsin has maintained a Medical Assistance Lien and Estate Recovery law.  The law is codified in Chapter 49 of the Wisconsin Statutes.  This law permitted the State of Wisconsin to recover assets from a person’s estate, if the person received medical assistance during lifetime.  Most commonly, the recovery relates to the decedent’s receipt of Medicaid benefits, but other programs are also involved.  Federal law requires that Wisconsin have this type of law on its books.  Historically, Wisconsin used two methods to recover Medical Assistance cost:  (1) placing liens against a home owned by the recipient of the Medical Assistance, and (2) filing claims against a deceased recipient’s estate.  The claim against a deceased recipient’s estate was generally handled through a probate court proceeding.  A tremendous summary of the old recovery law can be found at this link:  http://cwagwisconsin.org/wp-content/uploads/2011/03/Lien-Law-Estate-Recovery-Program-Brochure.pdf

The new law greatly enhances the ability of Wisconsin to recover funds from a recipient or from the surviving spouse of a recipient of Medical Assistance.  In addition, the new law gives Wisconsin more power to file liens against real estate, in which the recipient of Medical Assistance had an ownership interest of any kind, including a life estate interest.  See Wis. Stat. § 49.849.  Wisconsin’s Estate Recovery rights were primarily contained in section 49.496 of the Wisconsin Statutes.  Among many others, 2013 Wis. Act 20 added sections 49.4962, 49.848, and 49.849 to the Wisconsin Statutes.  Each of these new sections provides broader powers to the Department of Health and Family Services to recover monies from recipients of Medical Assistance or spouses of recipients of Medical Assistance.  The broadness of this change can only be understood by looking at an example.

Example:  Many Wisconsin parents have deeded a remainder interest in their real estate to their children or perhaps to an irrevocable trust for the benefit of their children.  When this deed is made, the parent retains a life estate interest in the real estate.  When the Quit Claim Deed is signed by the parent, the five-year look-back period under Medicaid law is triggered.  This means that if the parent does not have to apply for Medicaid to pay for nursing home costs during the subsequent five years, the real estate becomes a non-countable asset under Medicaid rules, i.e., the real estate does not have to be used to pay for the parent’s nursing home costs, and the parent will otherwise qualify for Medicaid.  Also, upon the parent’s death, the state could not make a claim against the real estate to recovery sums expended on the parent’s behalf during the parent’s lifetime.  This type of planning has literally been done by thousands of families in Wisconsin.  Unless modified by the legislature, the new law turns this planning on its head.

Under the new law, the State of Wisconsin has the right to file a claim or lien against any real estate owned by the recipient of Medical Assistance.  This is a huge change.  Previously, after the five-year look-back period expired, the real estate was off the table.  Now, the State of Wisconsin may still file a lien against the recipient’s life estate interest, any partial interest, real estate owned by a living trust created by the recipient, or any other “current ownership interest in real property.”  Wis. Stat. § 49.848(3)(a)(1)(a).  The phrase “living trust” is not defined in the new statutory sections.  Basically, the prior life estate planning, which was used by countless lawyers in Wisconsin, is no longer completely effective under 2013 Wis. Act 20.  I write “completely effective,” because there still are some advantages, but clients are interested in securing complete protection for these real estate parcels.  Under the new law, a life estate/remainder interest split will only secure a partial protection after the five-year look-back period has expired.  If five years has expired, then the value of the remainder interest would be protected and not subject to the lien, but the value of the life estate interest remains subject to the Wisconsin’s recovery rights.  The value of the life estate interest at death is determined under an actuarial table published as part of Wisconsin’s Medicaid Eligibility Handbook.  See Wis. Stat. §§ 49.848((5)(bm) and 49.849(5c)(c).  The new law gives the state power to recover from any “Property of a decedent.”  “ ‘Property of a Decedent’ means all real and personal property to which the recipient [of medical assistance] held any legal title or in which the recipient had any legal interest 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.”  Wis. Stat. § 49.849(1)(d)(1).

Further, section 49.4962 of the Wisconsin Statutes gives Wisconsin the power to void a real estate conveyance that was “made by a grantor who was receiving or who received medical assistance . . . during the time that the grantor was eligible for medical assistance.”

It cannot be emphasized too lightly how significant this law change is to elder law planning; Medicaid planning; post-death issues that families must address, if a deceased person received Medical Assistance; and many other issues.  To my knowledge, no articles have been written interpreting this new statutory language.  Furthermore, the Department of Health and Family Services must digest the statutory language and modify the Medicaid Eligibility Handbook accordingly.  Although this law is effective as of October 1, 2013, it will be several months before we have completely clear guidance on how this law will be applied to the public.