How can Medicaid planning address ‘estate recovery’?

by | Mar 7, 2019 | Firm News, Medicaid Planning And Asset Protection |

Under federal and New Jersey law, once a Medicaid beneficiary dies, the government recovers funds from the deceased’s estate for any services the deceased received after age 55 that were paid for using Medicaid benefits. This is known as “estate recovery.”

For estate recovery purposes, a person’s estate can include assets, such as their house, bank accounts, trusts, stocks and any other pieces of real or personal property. If the asset is to pass on to the deceased’s survivors, it is still part of the deceased’s estate.

If the deceased does not have a surviving spouse or a surviving child under age 21 who is not blind or permanently and totally disabled, estate recovery will take place immediately upon the deceased’s passing. If there is a surviving spouse or eligible surviving child, the recovery will take place once the surviving spouse passes away or the eligible child either passes away or reaches age 21.

In addition, estate recovery will not immediately occur if: it is not cost-effective; if the assets in the estate are the sole source of income for the deceased’s survivors and these individuals would likely have to receive government benefits if estate recovery were to occur; or if a family member of the deceased, prior to the deceased’s passing, continuously resided in the deceased’s home at the time of the deceased’s death and the deceased’s home is the primary residence of that family member. In this last scenario, a lien will be placed against the deceased’s home that will become enforceable when the family member passes away, sells the home or vacates the home.

Can anything be done to prevent estate recovery? Well, a person could gift their home to another person or transfer it into an irrevocable trust. Both these methods will mean the deed to the home is no longer in the name of the Medicaid beneficiary. However, it could also mean the Medicaid beneficiary will incur a penalty with regard to their application for benefits. Alternatively, the beneficiary’s house could be sold on a promissory note. However, there are limits as to what these loans could pay for, and for how long. There may be other ways to avoid estate recovery as well.

Ultimately, this post cannot guarantee any specific results regarding estate recovery. Elder law attorneys can provide more information on this topic to those who are interested in Medicaid planning and asset protection.