Decoding Medicaid Estate Recovery: Protecting Your Family Legacy

Medicaid Estate Recovery can be a daunting topic for families trying to figure out the best way to pay for long-term care for a loved one. Medicaid itself is already pretty complex. Now you add in the whole concept of the government taking your stuff after you die. It can leave you feeling anxious and overwhelmed.

But it doesn’t need to be that way. In this post, you’ll learn what Medicaid Estate Recovery is, how it works, and what steps you can take to plan ahead. With a better understanding of Medicaid Estate Recovery, you’ll be able to make informed choices and protect your family’s future. You’ll discover how this program impacts your home, your loved one’s belongings, and how to navigate it all without going crazy.

What is Medicaid Estate Recovery?

Simply put, Medicaid Estate Recovery (MERP) is a way for states to recover the cost of certain Medicaid benefits they paid for someone 55 years of age or older. The federal government requires states to implement MERP so, no matter what state you’re in, some type of estate recovery will take place when a Medicaid beneficiary dies. Now, every state handles MERP a bit differently but the principle remains the same.

Remember how I mentioned Medicaid is like a loan? After someone passes away, MERP kicks in, attempting to recover the money Medicaid spent on that individual’s care. But MERP can’t recover funds from your loved one’s estate until after they die.

What does MERP Cover?

The state usually seeks reimbursement for:

Nursing Facility Services – Long-term care in a nursing facility.
Home and Community-Based Services (HCBS) – Assistance that helps people remain in their homes, such as personal care, home health aides, or adult day care.
Hospital and Prescription Drug Costs – Only expenses related to the individual’s long-term care are recoverable, not expenses unrelated to this.

You’re probably thinking, “Whoa. That’s a lot of money. Will I be left with anything to give to my children?”. This is where understanding how MERP really works and getting familiar with state laws makes all the difference. And, there are often exemptions to MERP you can use to shield some of your assets.

Understanding Probate vs. Non-Probate Assets

Figuring out which assets are subject to Medicaid Estate Recovery isn’t always easy because MERP deals with probate assets. But it can also impact non-probate assets if a state has an “expanded recovery” law. Non-probate assets skip that court-supervised probate process, passing directly to a designated beneficiary. They aren’t governed by a will and don’t belong to your estate.

Let’s break it down:

Probate Assets

These assets are often subject to MERP because they go through probate:

Assets only in the deceased person’s name (sole ownership). These could be things like a bank account in their name, or a house owned solely by them.
“Tenants in Common” assets where ownership is shared by more than one person but without automatic inheritance rights. Imagine owning property with a friend where your share goes through probate upon your passing because you named a different beneficiary for it in your will, instead of the property automatically transferring to your friend.

Non-Probate Assets

These assets pass directly to a named beneficiary outside the will so usually are exempt from MERP:

Jointly-held Assets with Survivorship Rights: If you co-own something, such as a bank account, with a “right of survivorship”, upon your passing the co-owner automatically inherits your share, bypassing probate.
Payable-on-Death (POD) accounts: With these accounts (like checking or savings accounts), upon death, the funds automatically go to the beneficiary you listed.
Life Insurance Policies with a named beneficiary: The death benefit skips probate, directly transferring to the person you chose. It’s usually a loved one.
Living Trusts: With a living trust, assets you’ve placed in the trust avoid probate after your death, going to your specified beneficiaries.

Medicaid Estate Recovery and Your Home: Will You Lose It?

Your family home. The place that holds so many memories, holidays, and laughter. A safe haven. You worked your entire life to build a better future for your children. And you may have already put steps in place to ensure this for them when you die.

But now you’re thinking, “Hold on a minute, Medicaid might come after my home?” Understandably so.

Fortunately, MERP has some exemptions you may be able to utilize to help you keep the family home:

Surviving Spouse Exemption: Most states exclude your home from MERP if your spouse is still living in it. When your spouse passes away though, some states will attempt to collect but only on assets they received from you.
Child Under 21 Exemption: No state will take your home for reimbursement if your child who is younger than 21 years of age is living there.
Blind or Disabled Child Exemption: If you have a disabled or blind child, no matter how old they are, as long as they reside in the home, it will remain exempt.
Sibling Equity Interest Exemption: In some states, you can shield your home by transferring it to a sibling, if the sibling has been living in your home for at least a year prior to you moving into a nursing facility and that sibling also has equity interest in the home. That means the home’s ownership would need to be partially in that sibling’s name before you need nursing home care. So if the sibling only moved in within a year before your long-term care began, that doesn’t apply.
Caregiver Child Exemption: A number of states exempt your home if an adult child provided you with caregiving in the home that helped you stay there for at least two years before you went into long-term care.

Home Liens and MERP

It gets a little trickier if your state files a lien on your home. You see, Medicaid can place a lien on the home to guarantee they’ll eventually be repaid. Think of it as their way of securing their right to reimbursement if other exemptions no longer apply. But most states, including Arkansas, lift this lien as soon as the individual comes home from the nursing facility.

If the recipient remains in a nursing facility though, and they die there, and no exemptions apply, the state could initiate a claim to collect money they are owed, typically from the proceeds when the house is sold.

Here’s the thing. It doesn’t mean you can’t sell your home to downsize. If you sell the home, however, your eligibility for Medicaid could be impacted, at least temporarily, depending on how much you received in cash from the sale. It’s a good idea to speak with an elder care attorney to learn more about the options you have with the sale of your home.

Planning Ahead

“How do I even begin to protect myself or a loved one from MERP?”. There are things you can do to prepare. Seeking professional advice from an advisor experienced in Medicaid planning can help make things less stressful for your family later on. Here are some proactive measures you can take:

Medicaid Asset Protection Trust: Establishing an irrevocable Medicaid trust may shield your assets, like your home and investments, from MERP and potentially make it easier for you to qualify for Medicaid.
Transfer on Death Deed: Depending on your state, consider adding a beneficiary to your property deed using a “transfer-on-death deed”. The named beneficiary receives your home immediately upon your death without the delay of probate.
Gifting Limits: The Medicaid Lookback period is 5 years so, if you give gifts that exceed the annual gifting limit within this period before applying for Medicaid, it could trigger a penalty period and delay Medicaid eligibility. There is no limit to the value of gifts that can be given over five years prior to applying for Medicaid. A Medicaid planner or elder care attorney can advise you on allowable gift strategies and how they work in your state.
Undue Hardship Waiver: After death, a family can apply to the state Medicaid office for an “undue hardship waiver” to have MERP waived on an asset. If you need to sell a family farm to make ends meet or would end up on public assistance if Medicaid reclaims the house, it may qualify you for a waiver. This Arkansas Department of Human Services webpage gives more details on Arkansas’ Medicaid Estate Recovery program.

Important Note About Estate Planning: Medicaid Estate Recovery Isn't Everything.

Remember, estate planning goes beyond Medicaid Estate Recovery. A lot of seniors are more concerned about things like taxes and probate than about what Medicaid might or might not collect on later. The costs and process involved with probate can quickly eat into an estate’s value. A solid estate plan considers how to distribute assets efficiently after death. You may decide you don’t want to subject your home to probate at all, instead placing it in a living trust. If the state in which you live only seeks MERP reimbursement through probate assets, placing your house in a trust might make sense.

Consult with a knowledgeable advisor who specializes in asset protection, Medicaid planning, and trust laws to understand your situation in your specific state.

FAQs About Medicaid Estate Recovery

Which assets are subject to Medicaid estate recovery?

Typically, estate recovery targets assets that are part of the deceased’s estate, including real property (like homes), bank accounts, and personal property. The state cannot recover from assets held in a spouse’s name or jointly owned assets that pass directly to a surviving joint owner. Assets placed in certain types of trusts may also be protected from recovery.

Are there any exemptions to Medicaid estate recovery?

Yes, there are exemptions. Assets typically exempt from recovery include:

The deceased’s home if a surviving spouse or a dependent relative continues to live there.
Certain types of life insurance and burial funds.
Assets held in irrevocable trusts established for the benefit of the Medicaid recipient or their dependents.
Property transferred to a child under 21, a blind or disabled child, or a sibling with an equity interest who lived in the home for at least one year before the recipient’s death.

How can individuals plan to protect their estate from recovery?

Individuals can protect their estate from Medicaid recovery through various planning strategies, including:

Transfer of assets: Transferring assets to a spouse or other family members may help avoid recovery, though transfers made for less than fair market value may be scrutinized and result in penalties.
Estate planning: Setting up trusts, such as irrevocable trusts, can help protect assets. It’s essential to work with an estate planning attorney to ensure compliance with Medicaid rules.
Consultation: Regularly consulting with a legal or financial advisor who specializes in Medicaid planning can help navigate complex rules and find the best strategies to protect assets.

When does Medicaid estate recovery begin?

Medicaid estate recovery typically begins after the death of the Medicaid recipient. The state will pursue recovery from the estate during probate, which is the legal process of settling the deceased’s affairs. The estate administrator or executor is responsible for handling claims against the estate, including Medicaid recovery claims.

Which states have Medicaid estate recovery?

Every single state is required to have an estate recovery program under federal law. However, each state sets its own policies regarding which assets it pursues and what exemptions apply. For example, some states, such as California, limit Medicaid Estate Recovery claims to the “probate” estate. What this means is they only make a claim against assets owned solely in the beneficiary’s name or jointly-held assets classified as “tenants-in-common” that go through the probate process upon death.

What assets are exempt from Medicaid in Nebraska?

In Nebraska, if a deceased recipient has a spouse, child under 21, or a disabled child (any age), who lives in the family home, it is exempt. A burial plot, headstone, and up to $10,000 held in a prepaid burial contract are also exempt. Personal effects, motor vehicles used by the disabled recipient, and income-producing property such as a family business or farm, are protected if needed by surviving family for support.

Does Michigan have Medicaid recovery?

The state exempts the portion of home equity valued at less than half the county’s average home price from claims. A portion of an income-producing asset can also be excluded if the surviving spouse and family use it for support. Claims may be waived if recovery forces survivors onto public assistance or if a home is of “modest” value.

Conclusion

Medicaid Estate Recovery can be intimidating, especially when you’re juggling long-term care for a loved one. Remember, proactive planning can give you more peace of mind and make this journey a little smoother. For more specific guidance, individuals should consult with a Medicaid planner or financial advisor specializing in estate planning to understand how these rules apply to their circumstances.