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Medicaid Estate Recovery

When applying for Medicaid benefits, you will become educated on the various exempt assets you are allowed to own, while still qualifying for Medicaid. Typically, your most valuable exempt asset is your primary residence/home. As of January 1, 2019, a Medicaid applicant/recipient can own a primary residence with an equity value up to $878,000, and still be eligible to receive Medicaid benefits. While there are various other exempt assets, this article focuses on the home.

Often overlooked is the fact that the home, although an exempt asset, may be subject to a Medicaid lien during your lifetime (although they cannot foreclose on the lien while you are alive) and/or estate recovery upon your death. Yes, it’s true – the Local Department of Social Services (LDSS) may seek to recover the Medicaid benefits that were paid on your behalf from the sale of your home after your death.

Before we discuss estate recovery, it is worthwhile noting that even while you are alive and receiving Medicaid benefits, there are situations when the LDSS can place a lien on your home, despite it being an exempt asset. So long as the Medicaid recipient lives in their home receiving community based Medicaid, or has a spouse, minor, blind or permanently and totally disabled child residing in the home, the LDSS cannot place a lien on the home. However, if the recipient enters a nursing home or is absent from their home for more than six months (i.e., extended acute care stay in the hospital), that person is presumed to be in “permanent absence status,” meaning that the individual is not expected to return home. A presumption of permanent absence is grounds for the LDSS to file an action to place a lien on the home, but such lien cannot be foreclosed upon until the recipient’s death.

When entering a nursing home, the Medicaid applicant/recipient should execute a subjective intent to return home, which essentially states that he or she has the intent to return home regardless of how feasible that may actually be. Such subjective intent can delay a lien being placed on the home of a nursing home resident for at least six months. If a Medicaid lien is eventually placed on one’s home during their lifetime, it can be removed by the Medicaid recipient returning and living at home.

Notwithstanding the issues of a Medicaid lien, even if you are able to avoid having a lien placed on your home, the home may still be subject to Medicaid estate recovery upon your death.

Under Federal Law, New York State is required to seek recovery of benefits paid on behalf of the Medicaid recipient (over the age of 55 years or who has been permanently institutionalized) from his or her estate. Currently, New York defines “estate” as the assets passing by will or intestacy – commonly referred to as the probate estate. Notably, assets that pass to a surviving spouse, minor, blind, permanently and totally disabled child, or pass outside of the probate estate are not subject to estate recovery.

To assist in asset protection, and thereby allow your home to pass to your descendants after your death, elder law attorneys are adept in preparing and implementing various asset protection plans that suit your individual needs.
The home can be transferred to a spouse, child under 21 years of age, certified blind or permanently and totally disabled child of any age, sibling with an equity interest in the home who has resided in the home for at least one year immediately prior to the applicant’s most recent institutionalization, or to a caregiver child who resided in the home for at least two years immediately prior to the most recent institutionalization and who provided care to the applicant which permitted her or him to reside at home rather than in a nursing home.

If you are engaging in advanced or proactive Medicaid planning, in that you do not intend to apply for nursing home Medicaid for at least five years, you may consider placing your home into an Irrevocable Asset Protection Trust, while retaining the right to use and occupy the residence. When applying for nursing home Medicaid, LDSS looks at transfers, including those made to irrevocable trusts within the past five years, and will impose a penalty period during which you will be required to private pay for your medical care. However, if such transfers are made more than five years before applying for Medicaid, they will not incur a penalty period. As such, the use of an irrevocable asset protection trust is often used in proactive Medicaid planning to protect one’s home.

People often hold the misconception that placing the home into a revocable trust will protect it from Medicaid. This is not necessarily true. If the necessary criteria is met LDSS may still seek to place a lien on your home despite it being held in a revocable trust. In light of this, the use of revocable trusts is generally used for purposes of avoiding probate or continuing the management of assets if you become incapacitated. However, placing an exempt asset such as your home into a revocable trust to avoid probate may limit Medicaid estate recovery. This is because currently New York limits Medicaid estate recovery to the probate estate assets, and assets held in a revocable trust pass outside of the probate estate.
This article is in no way all-inclusive of the various planning options, the detailed intricacies, tax ramifications, or the pros and cons of the planning techniques discussed above. There are many nuances to making exempt transfers using irrevocable trusts and/or revocable trusts for asset protection planning. Even if your home is considered an exempt asset for Medicaid purposes, it may still be subject to a lien and/or estate recovery and, thus, it is advisable that you discuss your situation with an experienced elder law attorney.