Question:

Are assets in a “third-party,” non-special needs trust, non-probate assets and therefore not subject to Medicaid estate recovery? If the answer is yes, would a self-settled (“first-party”) non-special needs revocable living trust also be a non-probate asset, not subject to Medicaid estate recovery?

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Answer:

As you appear to know, the estates of deceased Medicaid beneficiaries must repay the state for their Medicaid benefits paid out after age 55. This is known as “estate recovery.” (Here’s a more detailed explanation of Medicaid estate recovery.) But the question is what is meant by “estate.”

The answer to your first question is no. Trusts created and funded by a third party for the benefit of someone who received Medicaid are not subject to claim at the beneficiary’s death because they are not in the beneficiary’s estate.

The answer to your second question is a bit more complicated. A trust that an individual creates for herself may or may not be subject to estate recovery depending on the state. Trust assets pass at the death of the beneficiary under the terms of the trust and do not go through probate. Some states only seek estate recovery against probate assets owned by the deceased and others have expanded estate recovery against all assets in which the deceased Medicaid beneficiary had an interest.

However, this is probably just academic reasoning, since anyone who owns assets in a revocable trust is unlikely to receive Medicaid benefits in the first place. The exception may be individuals who receive assets after having been a Medicaid beneficiary in the past, perhaps through an inheritance or through the recovery of a personal injury claim. Then they may become ineligible for Medicaid, but their estates may still be subject to estate recovery at death. For their heirs, it could be very important to determine whether in their state a revocable living trust would protect such assets from estate recovery.

 

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