How Does Medicaid Estate Recovery Work when a Testamentary Trust is Involved?

 In Long-Term Care Planning, Probate, Wills
testamentary trust

Photo by Melinda Gimpel on Unsplash

Question:

What if an unknown Medicaid estate recovery claim pops up, and the surviving spouse is not an explicit heir, but rather beneficiary of a testamentary trust? How does delayed recovery function in Massachusetts after that spouse someday passes?

Response:

Your question raises two interesting questions. First, how does delayed Medicaid estate recovery work? Second, how is this affected by the use of a testamentary trust? The short answer is that I don’t know and while you ask about Massachusetts, where I practice, the answers could differ from state to state. But at least we can discuss the concepts.

Medicaid (MassHealth in Massachusetts) has the right to recover from the estate of a beneficiary whatever they have paid for their long-term care during life and for any health care coverage after age 55. Under the estate recovery rules, such a claim must be deferred during the life of a surviving spouse. To be honest, I’ve never been sure how this works since the surviving spouse should be free to spend whatever they have whether or not inherited from the deceased spouse. The fact is, I haven’t actually run into this situation over 35 years of practice. The reason for that I believe is that in Massachusetts the Medicaid program is only able to seek recovery from the deceased beneficiary’s probate estate. In virtually all cases, the Medicaid beneficiary either transfers whatever they own to their healthy spouse or they own everything in joint names so assets pass to the surviving spouse without going through probate and thus avoid probate.

But you raise another question. By definition, testamentary trusts are funded through probate because such trusts are created in the wills of decedents. So, for instance if spouse A owns a home in their own name, receives MassHealth benefits, and then at their death leaves the house in a testamentary trust for their surviving spouse, what happens when the surviving spouse dies. My guess is that this would be more likely to be vulnerable to MassHealth deferred estate recovery claim because it would be easier to track than property in the surviving spouse’s own name. On the other hand, whatever is in the trust will not be subject to any estate recovery claim for MassHealth benefits the surviving spouse might receive since it won’t pass through their estate. One of the main reasons to create a testamentary trust is to leave property for a surviving spouse that can be used for their benefit without either having to be spent down to achieve MassHealth eligibility or be subject to estate recovery for the surviving spouse’s MassHealth expenses. In most cases, these are created by the healthy spouses of nursing home residents.

Showing 4 comments
  • Marcy Davis
    Reply

    That is very interesting. Ignoring the testamentary trust for simplicity, surely children under 21, disabled adult children, and surviving spouses must all be left properties by former MassHealth recipients sometimes (the latter in cases of recent remarriage, ignorance of estate recovery, etc).

    It seems like estates then would have to remain open for potentially decades, with no way for a surviving spouse to use or receive property or property sale proceeds if the claim is large:

    Massachusetts General Law 118E Section 32 (j): “If the personal representative wishes to sell or transfer any real property against which the division [MassHealth] has filed a lien or caim not yet enforceable because circumstances or conditions specified in section 31 continue to exist [e.g. surviving spouse is still alive, or a child is stilll 21, or a disabled adult child is alive], the division shall release the lien or claim if the personal representative agrees to (1) either set aside sufficient assets to satisfy the lien or claim, or to give bond to the division with sufficient surety or sureties and (2) repay the division as soon as the circumstances or conditions which resulted in the lien or claim not yet being enforceable no longer exist. Notwithstanding the foregoing provision or any general or special law to the contrary, the division and the parties to the sale may by agreement enter into an alternative resolution of the division’s lien or claim.“

    Massachusetts General Law 190B Section 2-403(b): “The decedent’s surviving spouse may remain in the house of the decedent for not more than 6 months next succeeding the date of death without being chargeable for rent.”

    The Nevada Supreme Court (see Ullmer) seems to think “It is clear that Congress intended that a surviving spouse be free to utilize the estate property during the spouse’s lifetime.” Does Massachusetts agree?

    • Harry Margolis
      Reply

      Marcy,
      I don’t know Massachusetts’s stance on this because, although you are no doubt correct that these circumstances must exist, I’ve never actually seen them in my practice. I believe that Massachusetts General Law 190B, Section 2-403(b), to which you refer, applies when the surviving spouse does not inherit the property. If they do, they have the right to stay there like any other owner.
      Harry

  • Marcy Davis
    Reply

    Thanks so much. It seems no one knows how deferral works, in the case of a surviving spouse who inherits property in the former member’s name. MassHealth won’t talk to anyone until there is a claim against the estate, and the MassHealth web pages say consult a lawyer. But the rules are unclear, and no lawyer can answer the question. Can you point me to any resources where I could get an answer?

    • Harry Margolis
      Reply

      Marcy,
      You might contact the Massachusetts chapter of the National Academy of Elder Law Attorneys (NAELA). Clarence Richardson is their executive director and he might know the answer or know who does know. Here’s the contact page on their website: https://massnaela.com/contact-us/ (I hesitate to share Clarence’s direct contact information without his authorization.)
      Good luck and if you get a definitive answer please let us know.
      Harry

Leave a Reply to Marcy Davis Cancel reply

Start typing and press Enter to search