You've met with your elder law attorney, you've come up with a plan of action, time has gone by, and your parent has entered the nursing home, with Medicaid paying the full cost. Your family members have managed to preserve virtually all of their assets through careful planning, so you feel that the lawyer's fee was well worth it!
A number of years go by and your parent has now passed on to a better place, but before you've finished grieving you get a letter from the state Medicaid Recovery Unit requesting repayment of every dime they paid out on your parent's behalf! You're depressed, angry, confused. You stare at the paper and can't believe it. "I thought we were all set, that once Mom was on Medicaid we didn't have to worry about that any more....Can this be correct?" you ask your siblings.
Unfortunately, the answer is "Yes." What you have just been confronted with is something called Medicaid "estate recovery." Essentially, it requires repayment of the entire amount of Medicaid benefits that were made during your family member's stay in the nursing home.
Prior to 1993, such estate recovery was optional---a state could implement it or not. However, in that year a new federal law was passed (known as OBRA '93) that mandated that every state must seek estate recovery from its Medicaid-receiving residents, following their deaths.
In essence, while you thought you had qualified your family member for a government handout, all you've really received is an interest-free loan! And upon your family's member's death, the state wants its loan paid back.
Now if you're sharp, you may be thinking "Wait a minute...if someone qualifies for Medicaid, they have to be essentially broke. So where exactly is this money coming from to repay the state?" That's a good question, and the good news is that if your family member died owning nothing, then indeed the state is out of luck. It can't go after the kids' money. There must be some assets that the nursing home resident had a legal interest in, at the time of death, in order for the state to be repaid.
In many states, the only "legal interest" of a deceased Medicaid recipient that is taken into consideration is the individual's so-called "probate estate"; that's an asset that was titled in the sole name of the individual, or as a "tenant in common" if jointly owned. It's the assets that will pass under a person's will. For example, something like a joint bank account, stock owned in "TOD" (transfer on death) form, a bank account with a "POD" (pay on death) beneficiary, an annuity interest, and real estate that's titled as "JTWROS" or "joint tenants with right of survivorship," are all non-probate assets and therefore protected against the state's claim for reimbursement.
A number of other states, however, have passed laws that permit recovery against an "expanded definition of estate." The federal Medicaid laws permit this. Under such an expanded definition "estate" could now include joint property, life estates, living trusts, and any other asset in which the deceased nursing home resident had any legal interest at the time of death. Boy, that makes it tough! This even goes against hundreds of years of common law, but it is legal, and there have been a number of court cases that have backed this up.
Now if you live in one of the "probate estate only" states, you should feel lucky, but remember that at any time your state can revise its laws and go with the broader definition. And your family member will not be "grandfathered in" if he or she received Medicaid benefits before the change in law in your state; there have been court cases that have ruled on this, stating that it's the law in effect as of the date of death of the Medicaid recipient that counts.
Well, what should you do to plan for this, assuming you can do anything at all? And are there exceptions to this harsh rule? See my other articles, including Medicaid Estate Recovery Planning, on this topic.
K. Gabriel Heiser is an attorney with over 25 years experience in elder law and estate planning. Heiser is the author of “How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets,” an annually updated practical guide for the layperson. For more information about this book, visit Medicaid Secrets.
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