Wisconsin is facing a shortage of primary care doctors, particularly in rural areas. According to a report by the Wisconsin Council on Medical Education and Workforce, there is expected to be a shortfall of 745 primary care doctors by 2035, in large part due to upcoming retirements. While the medical field may seem separate and distinct from the legal field, this looming shortage is already impacting certain laws.

The Wisconsin legislature enacted 2019 Wisconsin Act 90 on February 5, 2020. The Act expands the provider types that can determine whether a person is incapacitated for purposes of activating a power of attorney for health care, declare that a patient has a terminal illness or is in a persistent vegetative state for purposes of invoking a living will.

Under prior law, an incapacity determination could only be made by two physicians, or by one physician and one licensed psychologist. Under the new law, an incapacity determination may be made by two physicians, or by one physician and one of the following individuals: i) a licensed psychologist; ii) a registered nurse who is currently certified as a nurse practitioner by a national certifying body approved by the Board of Nursing; or iii) a licensed physician assistant (PA) who a physician responsible for overseeing the PA’s practice affirms is competent to conduct evaluations of the capacity of patients to manage health care decisions. The new law does not affect the other applicable criteria for determining that a person is incapacitated, including that the providers must still personally examine the patient and cannot be a relative or have a claim to a portion of the person’s estate.

According to State Representative Patrick Snyder, who helped introduce the legislation, several communities in Wisconsin depend solely on advanced practice clinicians, like PAs and registered nurses, for their care because the closest physicians are many miles away and, for these communities, and others that rely heavily on advanced practice clinicians, the Act will allow for a continuity of care that was prohibited under prior law.

If you previously signed a power of attorney for health care or living will under the prior law, you may consider having your document reviewed and potentially updated if you wish to take advantage of this recent law change.

 

Many people have established a life estate in their residence to protect it if they require Medicaid benefits to pay for their long-term care.  A person establishes a life estate in their residence by signing a deed which transfers ownership to their desired recipients, but also reserves them the legal right to use and benefit from the residence for their lifetime.  Under current Medicaid rules, a life estate is considered an unavailable asset and the underlying residence is not counted in determining the life estate holder’s eligibility for the program if more than five years have passed since its creation.  Life estates created prior to August 1, 2014 are also protected from the Estate Recovery program, which is designed to recover amounts paid for Medicaid benefits from recipients’ estates following their deaths.

A common question arises if the life estate holder no longer occupies the underlying residence: can the residence now be sold?  After all, there are many expenses associated with maintaining a residence, including property taxes, insurance, utilities and maintenance.  If the life estate holder left the residence to enter a long-term care facility, then the cost of such care often means there is little income available to pay for such expenses.

Once a life estate has been established, the underlying residence can only be sold if the life estate holder and all other owners agree to the sale.  However, prior to any sale, it is important to understand the ramifications for the life estate holder’s Medicaid eligibility.  While the life estate itself is considered an unavailable asset for Medicaid purposes, the proceeds from its sale are not.  Accordingly, if a life estate holder is receiving Medicaid benefits and sells his or her life estate, the resulting sale proceeds could cause him or her to have too many assets to continue to qualify for the program.  Alternatively, if the life estate holder does not receive his or her share of the sale proceeds, then under Medicaid rules he or she will be considered to have divested them and this may also disqualify him or her from the program for a period of time.

In light of these Medicaid eligibility issues, it is often beneficial to avoid selling the residence until after the death of the life estate holder.  The owners may consider renting the residence to help cover the costs of maintaining it during such time.  However, many people do not wish to become landlords and decide to sell the residence anyway while relying on other planning options to deal with the sale proceeds, such as using them to purchase assets that do not count for Medicaid eligibility or contributing the proceeds to a Wispact special needs trust.  If the underlying residence is sold and the life estate holder is concerned about his or her eligibility for the Medicaid program, it is important to correctly value the life estate for Medicaid purposes to ensure the life estate holder receives the correct share of the proceeds.

The Medicaid program uses a standard table to value life estates based on the life estate holder’s age at the time of sale.  The value of a life estate decreases as the life estate holder ages since statistically he or she has a shorter life expectancy during which to use the underlying residence.  Accordingly, the older the life estate holder, the less valuable his or her life estate.  For example, for Medicaid purposes, the life estate of a 70 year old is worth approximately 60% of the value of the underlying residence, while an 85 year old’s life estate is only worth approximately 35%.  In the event of a sale, the life estate holder should receive a percentage of the sale proceeds that corresponds to the value of his or her life estate.  If the life estate was established more than five years prior to such sale, then the remaining sale proceeds can be divided by the other owners without penalty.

Prior to selling a residence with an outstanding life estate, it is important to understand the Medicaid ramifications of such sale.  It is also important to discuss any potential income tax ramifications.  Taking the time to consult with a knowledgeable attorney and accountant prior to the sale can help you avoid many of these potential pitfalls.

 

Many have heard the quote often attributed to Benjamin Franklin, “In this world nothing can be said to be certain, except death and taxes.”  The sentiment behind this quote remains as relevant today as it did then, particularly in the context of modern retirement planning and tax-qualified retirement accounts.  According to the Social Security Administration, tax-qualified retirement accounts are the predominant retirement plan among workers in the early 21st century.  Common examples of tax-qualified retirement accounts include Individual Retirement Accounts (IRAs), 401(k) Plans, 403(b) Plans, etc.  The prevalence and value of these accounts have risen dramatically in the past 20 years.

Given this increased wealth accumulation, tax-qualified retirement accounts are beginning to play a larger role in estate planning.  For many, a trust often serves as the cornerstone of their estate plan.  Trusts offer many advantages including the ability to avoid probate while still (i) managing assets for the benefit of young beneficiaries, (ii) protecting inherited assets from a beneficiary’s creditors or ex-spouse, or (iii) preserving a beneficiary’s eligibility for important public benefits.  Given these advantages, it is often desirable to name a trust as the beneficiary of a tax-qualified retirement account.  However, it is important to understand that these accounts remain subject to a complex set of income tax regulations that can often pose a trap for the unwary, particularly in the context of trust planning.

The major attraction of a tax-qualified retirement account is the ability to accumulate funds inside the account on a tax-deferred basis (or tax-free, in the case of a “Roth” account).  However, IRS regulations dictate when this tax-sheltered accumulation must end.  At a certain point, the account owner and/or beneficiary must begin to withdraw required minimum distributions (“RMDs”) from the account and pay income tax on the funds that are withdrawn. Generally, the best income tax planning strategy with respect to RMDs is to withdraw them over the longest period of time possible.  This offers the advantage of delaying the income tax associated with the withdrawals and allows the funds to grow within the account on a tax-deferred basis as long as possible.  This income tax deferral can have a significant investment and long-term savings impact on the account in question.

When an account owner dies and has named an individual directly as the beneficiary of his or her tax-qualified retirement account, the beneficiary can often easily establish an inherited account that allows him or her to withdraw RMDs over the course of his or her remaining life expectancy.  This is usually the longest distribution period permitted under IRS regulation.  A spousal beneficiary will also have the option of rolling the account over directly into his or her name.

However, when a trust is named as beneficiary, the trust document itself plays a crucial role in determining how quickly RMDs must be withdrawn from the account.  If a trust meets specific requirements and is considered a “see-through trust,” the life expectancy of the oldest trust beneficiary may be used as the measuring life for determining how quickly RMDs must be withdrawn from the account.  Otherwise, if such requirements are not met, the funds must be completely withdrawn from the account over either the remaining life expectancy of the account holder or within a five year period, depending upon the age of the account owner at the time of his or her death.  This often accelerates the timeline for withdrawing the funds from the account, as well as the associated income tax.

For a trust to be considered a “see-through trust,” it must meet the following requirements:

1. Valid.  The trust must be valid under state law.
2. Irrevocable.  The trust must either become irrevocable upon the death of the owner or be irrevocable on the date that it is signed.
3. Identifiable.  The beneficiaries of the trust must be identifiable from the trust instrument.  This is required so that the oldest trust beneficiary can be identified to determine how quickly RMDs must be withdrawn from the account.
4. Documentation.  Certain documentation must be provided to the plan administrator.  This may often be satisfied by supplying a copy of the trust document.
5. Individuals.  All beneficiaries of the trust must be individuals.  Estates, charities, non-qualified trusts and other entities do not qualify as individual beneficiaries.

While some of the above requirements are fairly straight forward, it remains easy to run afoul with others in the average trust document.  For example, the simple act of including a charity as a contingent beneficiary may prevent a trust from being considered a see-through trust.  Accordingly, if you plan on naming a trust as the beneficiary of a tax-qualified retirement account, you should speak with your attorney to make sure your trust qualifies as a see-through trust.  In some estate plans, it might even make sense to create a standalone see-through trust depending on the size of the tax-qualified retirement accounts and the account owner’s estate planning goals and family situation.