Medicaid Estate Recovery and Liens
As I sometimes explain to clients, in terms of Medicaid paying for long-term care, if they don’t get you coming, they get you going. This is because, with certain limitations, Medicaid has a right to recover the cost of your care from your estate after you die. In addition, if you own a home and sell it during your life, the state Medicaid agency may be at the closing with you to recover its cost of care up until that date.
Estate Recovery Rules
Medicaid has the right to recover its costs paid out:
- after you have reached age 55, or
- for institutional (nursing home) care you received at any age
However, there are some exceptions. Medicaid may not recover as long as:
- you have a surviving spouse,
- you have a child who is under age 21, or
- you have a child who is blind or disabled
These exceptions are written in the law as a form of deferral, since at some point your widow will pass away, your young child will reach her 21st birthday, or your blind or disabled child will also pass away, perhaps many decades in the future. It’s never been clear to me how the deferral works and whether state Medicaid agencies actually try to pursue recovery or control inherited assets down the road.
Avoiding Estate Recovery
In almost all cases, these rules involve homes. This is because in order to become eligible for benefits, in most cases, beneficiaries have to spend down to $2,000. However, the Medicaid beneficiary’s home usually is not counted against this limit. (A Medicaid beneficiary also could inherit money unexpectedly—or through poor planning—or becomes the beneficiary of a personal injury claim, leading her to have money at the end of her life despite being impoverished before then. But this rarely happens.)
Whether the state will successfully recover against the Medicaid beneficiary’s estate depends on how the property is held and on the particular state’s laws. All states seek recovery against the probate estate of the deceased Medicaid beneficiary. Some also seek recovery against non-probate property in which the deceased had an interest, such as jointly-held real estate, life insurance, and trust property. With proper planning, most individuals can avoid recovery against their estates. This article explains some of the techniques for protecting the home from estate recovery.
States must waive estate recovery in the case of “hardship,” which they are free to define, and which they often define quite narrowly. Often, they require that the beneficiary continue to live in the house and be under a specific income level. The process for claiming a hardship waiver also may be very stringent. For instance, the state may require that the waiver be claimed within 30 days of the state making its claim with no flexibility allowed no matter that beneficiary’s actual hardship. So it’s imperative to contact an estate administration or elder law attorney early in the process if the state asserts a claim against a house you are inheriting.
Medicaid liens are often confused with estate recovery. While estate recovery only occurs at death, typically if the Medicaid beneficiary is permitted to keep his or her home, the state will place a lien on it to be paid back if the house is sold while the beneficiary is alive. Exceptions to the lien exist, substantially paralleling the exceptions to the transfer penalty for giving away the home. Thus, no lien may be applied if a spouse, disabled or minor child, or caretaker child is living there. (Read up on this: Transfers of Assets that Medicaid Does Not Penalize.)
Trap for the Unwary
Beware: people often confuse the exceptions to liens and transfer penalties as protecting the house from estate recovery as well. They do not. To assume they will can be a costly error. While there is a deferral of estate recovery during the life of a surviving spouse or until a minor child reaches age 21, as described above, this only delays the estate recovery, and does not protect against ultimate payment to the state.
So, for instance, if you were living with your father and providing care that kept him out of a nursing home for two years, there would be no penalty if your father transferred the house to you. But if this transfer did not occur and the house ended up in your father’s estate, the state would still have a claim for reimbursement of its Medicaid expenditures no matter how much care you provided. The transfer must occur during the Medicaid beneficiary’s life.
Transfers of Assets that Medicaid Does Not Penalize provides information about exceptions to the Medicaid transfer penalty.
2 Ways to Protect House if You Need Medicaid Coverage of Long-Term Care explains the countability rules for homes.