Learn about Estate Recovery including when Medicaid can place liens on homes, exemptions, and how to navigate undue hardship waivers.
Published on November 13, 2023
Family caregivers want to protect a loved one's hard-earned assets. However, this isn't as easy as it sounds, especially when dealing with the Medicaid Estate Recovery Program. The good news? When a Medicaid beneficiary passes away, not everything in their estate has to be repaid. Exemptions allow for safeguarding certain assets from Medicaid estate recovery. Thoughtfully plan your loved one's estate, meeting any Medicaid obligations while preserving inheritance. With intelligent planning, secure the care of family members without compromising their legacy.
The Medicaid Estate Recovery Program (MERP) in the United States allows states to recover the costs of certain Medicaid benefits from the estates of individuals who have passed away. Medicaid is a joint federal and state program that provides health coverage to low-income people, and states administer it according to federal requirements.
When a person receives long-term care benefits or other specified Medicaid services, states may seek to recover the costs of those services from the individual's estate after their death. The estate typically includes assets and property that the individual owned at the time of death. However, federal rules are in place that exempt certain assets and circumstances from estate recovery, and states have some flexibility in how they implement and enforce estate recovery.
Not all Medicaid services are subject to estate recovery, and states vary in their approach to implementing MERP. States may also have different rules regarding the recovery of Medicaid costs from the estates of deceased individuals.
Medicaid can go after probate assets improperly distributed to families without addressing the Department's claim. If estate assets are distributed without satisfying the recovery claim, the Department can pursue both the estate executor and recipients of the distributions. Both may be held personally liable.
Much of the funds the estate recovery program recouped come from selling the deceased beneficiary's residence. However, not all assets are subject to estate recovery repayment. Assets generally exempt from Medicaid estate recovery include:
The probate estate includes assets solely owned by the deceased that do not have a named beneficiary. This typically consists of the residence, vehicles, bank accounts, and investments.
Joint bank accounts pass outside of probate to the surviving co-owner. Retirement accounts and life insurance policies with a named beneficiary also pass outside probate to the designated beneficiary.
Medicaid can place a lien on an individual's home as part of the Medicaid Estate Recovery Program (MERP) to recover the costs of long-term care or other Medicaid benefits provided to the individual. However, Medicaid rules include specific protections for the primary residence, and the circumstances under which Medicaid can claim the home are limited.
Here are some key points to consider:
Assets owned jointly or with a beneficiary bypass the probate process and are not subject to Medicaid estate recovery. Transferring assets to joint ownership or adding a beneficiary designation is an exempt way to preserve assets for heirs. Speaking to an attorney about estate planning can help your care recipient protect their assets for their heirs.
Medicaid has a 60-month look-back period before the applicant's eligibility determination. Asset transfers made within 60 months can result in a penalty period of Medicaid ineligibility.
However, asset transfers made before the 60-month look-back are exempt from the penalty. Funeral reserves and irrevocable burial accounts established more than 60 months before applying for Medicaid are exempt from estate recovery.
Medicaid has a minimum home equity threshold of $578,000 for 2023. Home equity below this amount is an exempt asset when determining . Homes below the equity threshold are usually exempt from estate recovery.
Undue hardship waivers are requests to exempt individuals from certain obligations or requirements due to circumstances that would cause extreme difficulty or hardship. In the case of Medicaid Estate Recovery, an undue hardship waiver may be sought to avoid or reduce the impact of specific requirements. The request typically involves demonstrating that compliance with the standard rules would result in severe and exceptional difficulties.
The criteria for obtaining an undue hardship waiver can vary depending on the specific program or context. In the case of Medicaid Estate Recovery, states may consider factors such as the financial situation of the heirs, the value and nature of the estate, and any other extenuating circumstances that may justify granting the waiver.
Some states will only pursue recovery if the ongoing living expenses of the survivors are within their income. Recovery could leave them unable to afford basic needs. Another reason a state may waive estate recovery is if the asset in the estate, like a family business, serves as the sole source of income for the survivors. Recovering that asset could deprive dependents of their livelihood.
As a caregiver, you want your loved ones to receive needed Medicaid benefits. Caregivers wish to avoid severely impacting heirs once a beneficiary dies. If estate recovery creates a genuine hardship for your family by taking away your home, business, or only income source, consult a lawyer.
An elder law attorney can advise whether your situation may qualify for an undue hardship waiver in your state. This could prevent Medicaid from depleting assets survivors need to maintain their essential well-being and financial security.
While Medicaid can claim certain assets, some exemptions protect an inheritance. Learning Medicaid's rules around probate versus non-probate assets, look-back periods, home equity thresholds, and hardship waivers gives valuable tools to caregivers.
With proper planning, caregivers can be confident that family members receive essential care while maximizing the assets to pass on to the next generation. While meeting Medicaid obligations, careful strategies allow family caregivers to honor loved ones' wishes and secure a legacy for their descendants.
