MICON Financial Services
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:
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In 1997, Congress repealed the law, but made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid.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.