Many families have probably never heard about Medicaid Estate Recovery. They don’t know that all states are required by law to try and collect reimbursement for the long-term care they paid for through Medicaid. This includes payments for services and supports provided in assisted living facilities or memory care units, as well as payments for nursing homes and in-home care. If seniors and their families have heard about their state’s Medicaid Estate Recovery Program (MERP), chances are good they don’t fully understand how it works, and how could they? Estate recovery rules and limitations are complicated and nuanced, and they vary greatly by state.

So, the family might be surprised when the home they expected to inherit has a lien placed on it by the state’s MERP. They may be devastated to learn that lien means the state could force the sale of the home to cover Medicaid long-term care expenses it paid for. And surprise could become shock for the family who lives in a state that will try to collect reimbursement through the Medicaid beneficiary’s spouse’s estate, even if that spouse was never on Medicaid.

There are strategies to protect assets from estate recovery, which are discussed below. Some of them can only be used if they are started years in advance, so the sooner seniors and their families understand Medicaid Estate Recovery the better. That being said, it’s never too late to act.

This article is designed to provide an overview of Medicaid Estate Recovery for families to prepare them for what is to come. For an in-depth consultation about how Medicaid Estate Recovery might impact a family, contact our team at Eldercare Resource Planning.

Medicaid Estate Recovery Process

Before explaining their process, it bears repeating that Medicaid Estate Recovery Programs, rules and limitations can change dramatically depending on the state. Almost all of Medicaid’s rules and programs vary by state, but none more than estate recovery.

That being said, the estate recovery process usually begins with the family of the deceased beneficiary receiving a letter from the state’s Medicaid Estate Recovery Program (MERP) declaring its intention to seek reimbursement. However, in some states the family or another representative of the beneficiary is responsible for alerting the state of the beneficiary’s death.

The rest of the process depends on if the state is “probate-only” or “expanded recovery.” Currently, 26 states and Washington, D.C. are probate-only, which means they only attempt recovery from the deceased beneficiary’s probate assets. These are assets held in name only by the deceased beneficiary and that would be passed on to inheritors via a Last Will and Testament and the state’s standard probate process. Probate assets do not include joint holdings like joint bank accounts, retirement accounts or life insurance policies that have been legally designated as TOD (transfer on death), POD (pay on death) or something similar.

The probate-only states are: Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, West Virginia and Washington, D.C. In these states, the estate recovery process ends when probate ends.

The other 24 states practice expanded recovery. This means their state laws allow them to try and collect reimbursement from assets outside of probate. Essentially, these states may attempt recovery from assets that the beneficiary left to to their spouse, or joint assets held by the beneficiary and their spouse, after the spouse’s death. These states may also attempt recovery from assets the beneficiary left to an heir other than their spouse after that heir’s death, but that is far less common.

The current expanded recovery states are: Arkansas, Connecticut, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Minnesota, Montana, Nevada, New Hampshire, New Jersey, North Dakota, Ohio, Oregon, Utah, Virginia and Washington. Among these states, Georgia and Minnesota are the most aggressive in attempting recovery. Arkansas, on the other hand, has a very limited expanded recovery scope.

Most states will only try to collect reimbursement for the long-term care Medicaid covered in assisted living facilities, nursing homes and other settings, but some states may attempt recovery for Medicaid expenses that were not for long-term care, like emergency room visits or short hospital stays. States may try to collect the full amount they paid for Medicaid care, but they can not collect more than that. The process of estate recovery can sometimes be referred to as “Medicaid clawback.”

Spousal Protections from Medicaid Estate Recovery

Surviving spouses of Medicaid recipients are completely protected from estate recovery. States are not allowed to attempt any type of recovery while there is a surviving spouse. This means that in probate states, as long as the spouse survives the probate process, there will be no estate recovery.

Medicaid is also prohibited from putting a lien on the home of a Medicaid beneficiary, or forcing the sale of that home, if a surviving spouse lives there. How Medicaid Estate Recovery affects the home is explained in more detail in the next section.

Protecting a Home from Medicaid Estate Recovery

For Medicaid recipients who are home owners, the home is usually the most valuable asset in their estate after their death, which means it is often targeted by Medicaid Estate Recovery Programs. Some states will place a lien on a Medicaid recipient’s home as soon as that recipient starts receiving benefits to prevent the sale of the home. Other states wait until after the beneficiary passes away to place a lien on a home, but the purpose is the same – stopping the home from being sold without the state’s knowledge and without the state collecting reimbursement through the home, if needed.

However, there are ways to protect homes from Medicaid Estate Recovery and save them as a family inheritance.

Even if the state has placed a lien on a Medicaid recipient’s home, that home is protected from Medicaid Estate Recovery if any of the following people live there:
• The Medicaid recipient’s spouse
• The Medicaid recipient’s minor child (under age 21)
• The Medicaid recipient’s child of any age who is blind or disabled

A home can also be protected from estate recovery by utilizing the following tools:
• Child Caregiver Exemptions
• Sibling Exemptions
• Medicaid Asset Protection Trusts
• Lady Bird Deeds

The Child Caregiver Exemption allows a Medicaid beneficiary to transfer their home to a qualified adult child and prevents estate recovery via that home. The adult child (biological or adopted only) is qualified if they have lived in the home for at least two years prior to the Medicaid beneficiary moving to an assisted living facility, memory care unit, nursing home or some other setting, and during that two years the adult child provided care that prevented their parent from needing to move into a healthcare facility. Transferring ownership of a home would usually violate Medicaid’s Look-Back Period, but transfer is allowed using the Child Caregiver Exemption, so it can be used as a Medicaid planning strategy to reduce assets and gain eligibility.

The Sibling Exemption can also protect a home from Medicaid Estate Recovery and the asset limit for eligibility. Using it, a Medicaid beneficiary can transfer their home to a qualified sibling. The sibling (biological or adopted only) is qualified if they have been living in the home for at least one year prior to the Medicaid beneficiary moving to an assisted living facility, nursing home or other setting, and the sibling must have an equity interest in the home along with the Medicaid beneficiary. The home can be a single-family house, a multi-unit, a condominium, a mobile home (with or without the lot) or even a house boat, but it must be the Medicaid beneficiary’s primary home, not a second or vacation home. This definition of home also applies to the Child Caregiver Exemption.

Any asset placed in a Medicaid Asset Protection Trust, including a home, is protected from Medicaid Estate Recovery and the asset limit for eligibility. However, creating a MAPT violates the Look-Back Period, so they need to be created well ahead of time (five years in most states) to be viable for either purpose. In order to be Medicaid compliant, these trusts must follow multiple guidelines about who can be the trustee, the trust’s beneficiary, what the trust’s funds can be used for and if the trust can be canceled or changed in any way (it can’t).

Using a Lady Bird Deed for a home will also protect it Medicaid Estate Recovery. The home will, essentially, be co-owned by the Medicaid recipient and whoever they name as the Lady Bird Deed beneficiary, and then full ownership will transfer to that person upon the death of the Medicaid recipient. These deeds do not protect a home from the asset limit for eligibility and they currently can only be used in five states: Florida, Texas, Michigan, Vermont and West Virginia.

Medicaid Estate Recovery Limitations

In addition to the spousal and home protections discussed above, there are other circumstances that will prevent or limit Medicaid Estate Recovery. Some states put a time limit on estate recovery, like Florida, which only allows for estate recovery for one year after the death of the Medicaid beneficiary regardless of the length of the probate process. Some states put a monetary limit on estate recovery, like Texas, which will not attempt recovery if the Medicaid expenses the state paid for were less than $3,000 or if the deceased beneficiary’s estate is worth less than $10,000.

States can also forego estate recovery by granting an Undue Hardship Waiver to the deceased Medicaid beneficiary’s heir or heirs. The reasons for granting these waivers can vary by state, but there are federal guidelines that recommend states provide Undue Hardship Waivers for the following reasons:

• If losing the estate to recovery would cause the heir to need state-funded assistance
• If inheriting the estate would mean the heir no longer needed state-funded assistance
• If the estate is the sole income-producing asset of the heir (like a family farm, for example)
• If the estate is a home worth 50% or less of the average price of a home in the county
• If there are other compelling reasons

Many states also will not attempt recovery from estates of Native Americans or Native Alaskans, or via Native American or Native Alaskan lands and resources.

How a Certified Medicaid Planner Can Help with Medicaid Estate Recovery

Even if a senior and their family know about their state’s Medicaid Estate Recovery Program (MERP), they could still benefit from the assistance of a Certified Medicaid Planner (CMP) when it comes to protecting their assets from the MERP. Estate recovery laws, like the probate laws they are closely related to, can be complicated and difficult to understand for anyone not acquainted with reading and comprehending legalese. Plus, to fully comprehend estate recovery laws and their implications, one needs to understand them within the context of Medicaid rules and strategies, which are complex in their own right.

The CMPs at Eldercare Resource Planning have studied and navigated through MERP rules and tendencies across the country. They can read between the lines of legalese and boil everything down to the most important points for your senior clients and their families. And our CMPs definitely understand how those estate recovery rules operate within the context of the state’s Medicaid rules, which means they can plan accordingly and make sure your clients are protected as possible from estate recovery.

We can help determine if the Child Caregiver or Sibling Exemption is right for a family, and what kind of records they need to keep to make sure they have the right documentation for those exemptions. If a Medicaid Asset Protection Trust or a Lady Bird Deed makes sense, we partner with Elder Law Attorneys who can draw up the documents while our team advises your client on how to use them.