Wisconsin Nursing Home Planning: Gift of Residence With Reserved Life Estate

A growing concern is how to protect assets from long term care costs. As most people are aware, the cost of receiving long term care in assisting living has skyrocketed.  Title XIX (Title 19) assistance may be available, but the rules are complex. An experienced Wisconsin elder law attorney should be consulted to help guide you through the process and protect assets if possible.

Title XIX – General Information

Medical Assistance, or Title XIX, is an economic assistance program which pays for custodial (nursing home) care for individuals who own limited resources as determined by eligibility guidelines.  A nursing home must be willing to accept Title XIX patients.  Title XIX may also be available for home care.

Eligibility and other guidelines under the Title XIX program have, in the past, been subject to frequent change.  Planning can only be done based on the rules currently in effect, realizing that future changes may retroactively affect your planning.

Medical assistance applications are processed through the Wisconsin Department of Social Services (DSS) in the county where the nursing home is located and are judged on the rules in effect at the time of presentation.

Divestment (Gifting) – 5 Year Look Back Period

Divestment or gifting is a common technique used in Title XIX planning.  However, any gift of property (transfer for less than full consideration or market value) is prohibited under Title XIX and can render a person ineligible for medical assistance for a period of time depending on the size of the gifts and an individual’s other assets.

There is a five (5) year (60 months) look back period.  In other words, divestments can affect eligibility for 5 years from the later of the date of the gift, or the date the individual would be eligible for medical assistance or would otherwise be receiving institutional level care based on an approved application.  This means that the person must have enough income and/or assets to pay for five (5) years of institutional care before making divestments.

What would be sufficient funds is difficult to determine, but based on the high potential costs of nursing home care, you should be cautious in the decision of whether to gift your property. For example, if assisted living would cost $10,000.00 per month, this would equal $120,000.00 per year, and $600,000.00 for 5 years.  If divestment laws change, this period of time could be increased.

While there may be planning options available for people who wish to make gifts in order to hasten their ability to receive medical assistance, but an attorney should be consulted because careful planning is critical.  In every situation, individuals divesting should have cash funds or income available to pay for care for five (5) years of institutional care from the date the person is eligible for medical assistance.   The law may be changed in the future and the interpretation of the law may also change in the future.

In sum, keep in mind that making gifts will reduce your estate and you must be able to support yourself on the balance of funds remaining after the gifts are made.  Children have no legal obligation to return money or property that has been gifted from parents.

Long Term Care Policies

Long term nursing care insurance policies should be considered as potential asset protection devices but policy provisions should be reviewed carefully prior to purchase.

Gifting of Residence to Children

One of the more common Title XIX techniques is gifting of a residence to children subject to retention of a life estate.

There are advantages and disadvantages to gifting your property to your children.  While it is ultimately your decision whether to do so, the decision to gift your property to your children should be made with extreme caution for multiple reasons.

  1. Unforeseen Circumstances

If you gift your residence to your children, your residence could be affected by unforeseen circumstances, such as the death of one of your children, divorce, their disability, or a judgment against one of them.

For example, any interest transferred to a child is subject to that child’s creditors.  If one of your children should have a judgment entered against them, the creditor could come after the house to satisfy the judgment.  Some situations where a child’s creditors could become a problem include if a child files for bankruptcy, if your child fails to pay bills (such as taxes or credit cards), personal injury claims against one of your children, or divorce of one of your children.

If one of your children predeceases you, his or her assets will pass to his or her heirs.  Consequently, your residence could end up in the control of a son-in-law, daughter-in-law, grandchild, etc.

If one of your children goes through a divorce, your child’s interest in the house may become an asset in dispute in the divorce.

  1. Tax/Financial Considerations

Another potential drawback of gifting your property to your children during your lifetime rather than at your death is income taxes. With a transfer on death, your children receive a step up in basis upon your death. With a lifetime gift, there is no step up in basis, and your basis is transferred to your children.

If the property is sold while you are alive, you lose the sale of residence exemption.

In addition, once the transfer is made, you would not be eligible to obtain a reverse mortgage if you needed one.

If you gift property, you would be required to file a gift tax return.  However, no gift tax will be payable.  You would need to alert your accountant that you are making this gift.

  1. Retention of Life Estate

If you do decide to gift your property to your children, we would recommend that you reserve a Life Estate to protect your ability to reside at the property for your lifetime.

If you gift your residence and retain a lease or otherwise continue to live there, the State of Wisconsin may seek to recover the amounts it pays for medical assistance from assets in which a person once had an ownership interest under the theory that you have a “disguised life estate”.  As you would continue to live in the residence after you gift it to your children, the State could seek to recover on this gift based on a “disguised life estate”.

Accordingly, since the State of Wisconsin would likely seek to recover, if you decide to gift the property to your children, we generally recommend retaining a Life Estate if property is transferred to children.  Retention of a Life Estate would protect your interest in your ability to continue to live on the property, as it would give you the legal right to use the property during your life.  You would be obligated to continue to pay real estate taxes and maintain the property.  The downside of retention of a Life Estate is that the State may seek recovery of the value of the Life Estate; however, the State would not be able to seek recovery against the entire value of the property.


Because this is an irrevocable act the Settlor should carefully weigh the benefits and costs of pursuing this type of planning. If you need assistance, please consult with one of our Estate Planning attorneys by contacting our office at [email protected] or 262-334-3471.

Originally published: July 13, 2023.


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Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. -Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action.  If you need legal guidance, please contact us at 262-334-3471 or [email protected].