MICON Financial Services
Worcester | Westborough

Voice: (508) 793-0780
Fax: (508) 793-8280
web: www.miconfs.com

FOCUS ON: Medicaid: Estate Recovery

Did you know that transferring assets to achieve Medicaid eligibility is a crime? To be sure, for a brief period it was, and it is possible that it could be in the future. In 1993, The Omnibus Budget Reconciliation Act (OBRA) was passed and required states to recover all property and assets that pass from a deceased person to his or her heirs under state probate law, which includes property passed by Will and property of persons who die intestate (without a Will). In 1996, the United States Congress passed the Kennedy-Katzenbaum health care bill, named after Senators Ted Kennedy (MA) and Nancy Katzenbaum (KS). The bill made it a crime to transfer assets in order to become eligible for Medicaid assistance. As a point of reference:

A young couple sought advice about the wife’s elderly father. He was sick and they wanted to know what could be done if he had to enter a nursing home. It was suggested that they contact an elder law attorney and to consider putting the father’s assets in an annuity. The father didn’t wish to do either. He didn’t own a home; and he only had $20,000 to his name, so he began to write checks to his grandchildren as gifts. Then, the father had to be admitted into a nursing home, and the nightmare began.

Before the state would approve Medicaid coverage for the father, it wanted to know what he did with his assets. The state reviewed his expenses and income for the past three years. Since he had written checks to his grandchildren, the state wanted that money returned. In fact, they wanted the money for any checks not written to pay a bill. The daughter told the state they didn’t have the money, but the state was not interested. In fact, she was told that she and her brothers should be ashamed that they wanted the state to pay their father’s nursing home expenses. Again, she insisted they didn’t have the money.

In the eyes of the state, the family wasn’t cooperating, and the father deliberately gave away his money so he could have Medicaid pay his bills. The state fined the father $42,000 ($7,000 times 6 months). You see, under the Kennedy-Katzenbaum Bill, the father committed a crime because it was assumed that he “knowingly and willfully” disposed of assets in order to become eligible for medical assistance.

The story above is true. It happened in the State of New Jersey. The young couple contacted an elder law attorney, and they were able to preserve some of the father’s assets.

In 1997, Congress repealed the law, but made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid. In 1998, Attorney General Janet Reno determined that the law was unconstitutional, and told Congress that the Justice Department would not enforce the law. However, the states are permitted to recover Medicaid costs, and can expand the definition of an estate beyond that which is subject to probate.

Estate recovery may include liens and naming the state as the beneficiary on Medicaid annuities. Regarding liens, states have the right to place a lien on property retained during Medicaid eligibility, but the lien may not be enforced until the death of the surviving spouse. It may not be easy for states to pursue estate recovery through liens, because the state must first be notified of the death of the Medicaid recipient. It is also important to know that there are some exceptions from enforcing a lien upon a residence. As for naming the state as the beneficiary of a Medicaid annuity, this would be addressed at the time of the Medicaid application.

In Massachusetts, under the old rules for expanded estate recovery, the state could recover Medicaid benefits through the individual’s probate (by Will) and non-probate (joint tenancy, tenancy by the entirety, life estate, Trust, right of survivorship, beneficiary designation, etc.) estates upon the death of a Medicaid recipient. Under the new rule (1994), the State will remain limited to the probate estate for estate recovery. The state will exempt the home from estate recovery if the Medicaid recipient has a long-term insurance policy with a minimum daily benefit of $125, and a minimum two-year benefit period. If you live outside of Massachusetts, it would be prudent to find out what changes your state enacted.

Under estate recovery, Medicaid becomes a debt to repay. It means, for those who have the liquidity to pay for long term care on their own, this would be a viable option. It means, for those who don’t have the liquidity to pay for long term care on their own, a long-term care insurance becomes a necessity, to avoid state recovery of Medicaid benefits paid. It means, whether you can afford long-term care insurance or not, there is still a need for planning to protect your assets. It means, if you have an existing plan, speak with your Elder Law attorney to determine if your current plan complies with the new rules and continues to provide asset protection.