Important Facts About Medicaid: Estate Recovery and Liens
Under Medicaid law, following the death of the Medicaid recipient a state must attempt to recover from his or her estate whatever benefits it paid for the recipient’s care. However, no recovery can take place until the death of the recipient’s spouse, or as long as there is a child of the deceased who is under 21 or who is blind or disabled.
While states must attempt to recover funds from the Medicaid recipient’s probate estate, meaning property that is held in the beneficiary’s name only, they have the option of seeking recovery against property in which the recipient had an interest but which passes outside of probate. This includes jointly held assets, assets in a living trust, or life estates. Given the rules for Medicaid eligibility, the only probate property of substantial value that a Medicaid recipient is likely to own at death is his or her home. However, states that have not opted to broaden their estate recovery to include non-probate assets may not make a claim against the Medicaid recipient’s home if it is not in his or her probate estate.
In addition to the right to recover from the estate of the Medicaid beneficiary, state Medicaid agencies must place a lien on real estate owned by a Medicaid beneficiary during her life unless certain dependent relatives are living in the property. If the property is sold while the Medicaid beneficiary is living, not only will she cease to be eligible for Medicaid due to the cash she would net from the sale, but she would have to satisfy the lien by paying back the state for its coverage of her care to date. The exceptions to this rule are cases where a spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house is living there.
Whether or not a lien is placed on the house, the lien’s purpose should only be for recovery of Medicaid expenses if the house is sold during the beneficiary’s life. The lien should be removed upon the beneficiary’s death. However, check with an elder law specialist in your state to see how your local agency applies this federal rule. However, the state Medicaid agency may look only at transfers made during the 36 months preceding an application for Medicaid (or 60 months if the transfer was made to certain trusts). This is called the “look-back period.” Effectively, then, there is now a 36-month limit on periods of ineligi-bility resulting from transfers. This means that people who make large transfers must be careful not to apply for Medicaid before the 36-month look-back period passes.
Example: To use the above example of the $400,000 transfer, if the individual made the transfer on January 1, 1999, and waited until February 1, 2002, to apply for Medicaid — 37 months later — the transfer would not affect his or her Medicaid eligibility. However, if the individual applied for benefits in December 2001, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits.