In many cases the Medicaid Estate Recovery payback can be avoided, legally. We recommend that you do not undertake any of these planning strategies without first contacting our office to discuss them and make sure they are right for your situation. Here’s a list of items to discuss with your elder law attorney:
- Life insurance Policies. Do your life insurance policies designate beneficiaries? Recipients of Medical Assistance (Medicaid) long-term care benefits can die with term life insurance policies, employer-provided group life insurance policies, and small whole life policies. If the life insurance policy designates the deceased Medicaid recipient’s probate estate or fails to designate any beneficiary at all, then upon death the life insurance proceeds are subject to the payback of the Medicaid estate recovery program. However, if the policy names beneficiaries, then the life insurance proceeds are generally not subject to the estate recovery payback. See 55 Pa. Code §258.3(c).
- Joint Bank Accounts. Joint bank accounts are not usually subject to estate recovery. However, if a recipient of Medical Assistance (Medicaid) long-term care benefits dies with a bank account in his or her individual name, it can be subject to the Medicaid payback of the estate recovery program. We go into greater detail about how joint bank accounts and Medicaid work in our article about how PA treats joint accounts. Under applicable law, property held by a decedent and another at the time of death as joint tenants with rights of survivorship, or as tenants by the entities, is not subject to the estate recovery claim. There are pros and cons to joint ownership of a bank account, but one positive aspect of joint bank accounts is that they are not subject to estate recovery in Pennsylvania in most cases. Learn more about See 55 Pa. Code §258.3(b).
- Assets in Trust. Certain assets held in trust can avoid estate recovery. This is a tricky area, since there are many kinds of trusts. Transferring some assets to an irrevocable trust can create ineligibility for benefits, and transferring certain assets to a revocable trust, such as a primary residence, can convert an otherwise exempt asset to non-exempt status. Assets such as a bank account, can sometimes be placed in a trust created by a lawyer, or can sometimes be titled “In Trust for” or “Payable on Death” at the bank in a manner that avoids estate recovery. See 55 Pa. Code §258.3(d).
- Reparations Payments to Special Populations. Certain reparations, such as German reparation payments to survivors of the Holocaust and restitution payments to Japanese Americans who were interned during World War II are not subject to estate recovery. See 55 Pa. Code §258.3(g)(2). It is a best practice to isolate these payments in their own bank account, so they are maintained as “separate and identifiable.”
- Work with an Elder Law Attorney to Make Exempt Transfers During Lifetime. Certain asset transfers are exempt from the Medicaid transfer penalties, but only if accomplished during the Medicaid recipient’s lifetime. After the Medicaid recipient dies, then it may be too late to protect the asset from estate recovery. For example, lifetime asset transfers to a disabled child are completely exempt from the Medicaid transfer penalties if accomplished either outright or to a trust for the sole benefit of a disabled beneficiary. Although the estate recovery program will postpone estate recovery in certain cases where there is a disabled child, there can be an eventual payback that could have been avoided if the very same transfer had been accomplished during the Medicaid recipient’s lifetime. Any asset transfers must be completed properly, and promptly disclosed to the Pennsylvania Department of Human Services, so you should definitely work with an elder law attorney if any asset transfers are contemplated.
- Caregiver Exception Can Avoid Recovery Against House. One of the best ways to avoid estate recovery is where a caregiver resides in the Medicaid recipient’s home and provides care or support either 1) for two years while the person received home- and community-based services, or 2) for the two years immediately prior to nursing home placement. The best way to gain access to this exception and avoid Medicaid estate recovery is to plan ahead and gather the necessary documentation before the recipient dies. The caregiver will need documentation that they resided in the home (tax returns, and driver’s license, for example) and a doctor’s note that verifies the requisite caregiving. Our office has helped many families with this exception. Having the proper documentation in order is key. Without the necessary documentation the request for the exception will likely be denied. See 55 Pa.Code §258.10(b)(1-3).
- Estate Recovery and Home- and Community-Based Services, Be Careful! If you have qualified for Medicaid-funded home- and community-based services, but feel you are receiving very little help from the program, you may wish to voluntarily disenroll in the program. In certain situations, the benefits received are tremendous, and well-worth the Medicaid payback, but in some cases the in-home help is modest, and just not worth the payback. The Commonwealth of Pennsylvania pays an insurance company (Managed Care Organization) to provide managed care. The estate recovery claim will claim reimbursement for the amount of money paid by Pennsylvania to the insurance company, often $6,500 + per month. This sum is added to the Department’s statement of claim for reimbursement whether or not your loved one has taken advantage of all the benefits available, and whether or not you feel that you’ve received that amount of value for monthly in-home care – especially if the program was accessed in order to pay family caregiver. If you do not need the care, consult with an elder law attorney and consider having the lawyer submit your request to “voluntarily disenroll in the Medical Assistance (Medicaid) program.” Doing so can prevent an unnecessarily high estate recovery claim. Do not assume that by merely telling the care providers to stop showing up that the estate recovery bill will stop accruing. In order to prevent the Commonwealth from continuing to pay the insurance company, you will need to “disenroll” from the program. It is rare that this occurs because normally the benefits are necessary and of great value. When disenrolling, we send it in writing and send the disenrollment request to the right place via email, certified mail, or both.
- Undue Hardship. There are enumerated cases of undue hardship under Pennsylvania’s estate recovery regulations. The Department of Human Services suggest that a letter be sent explaining the situation and compelling reasons why the state should not recover against the decedent’s home or property. The stakes are high, so we recommend that you not write this letter, but instead work with a law firm to draft the letter and provide supporting documentation. The caregiver exception is one, if the caregiver has no alternate residence, and another situation of undue hardship exists where there is income-producing property, such as a working farm, that provides the primary source of income for a spouse, child, parent, sibling, or grandchild of the decedent. Other situations involving undue hardship arise, and these are reviewed by the estate recovery program on a case-by-case basis, pursuant to 55 Pa.Code §258.10(h).
- Very Small Estates. The estate recovery program does not seek estate recovery where the probate assets have a gross value of $2,400 or less. Some recipients of Medicaid long-term care benefits have a resource limit of $8,000, and incorrectly believe this is exempt from estate recovery. This amount is exempt during lifetime when determining ongoing eligibility for benefits, but upon the death of the Medicaid recipient there is estate recovery if the estate has a gross value of $2,401 or more. For example, if the deceased recipient’s only asset is a checking account worth $5,000, and $4,000 of that is used to pay administration and funeral expenses, then the remaining $1,000 is subject to estate recovery. In this example, keeping the Medicaid recipient’s bank account at $2,400 or less would avoid estate recovery.
- Legal Authority is Required. Medicaid recipients who are of sound mind can consider legal advice and make decisions themselves to gift or re-title assets in order to avoid estate recovery. Sometimes, however, the Medicaid recipient is of diminished mental capacity and dependent upon an agent under power of attorney to make decisions. Even with legal authority in a power of attorney document, an agent under power of attorney needs to consider the principal’s best interests before making any gifts or re-titling assets and should seek to maintain the principal’s estate plan to the extent possible. Not every financial power of attorney includes gifting authority, the power to create or change beneficiary designations, or the authority to create or sever forms of joint ownership. Court approval is not required when using a power of attorney, but all transfers can be subject to future review by the Court, so caution is advised. Court-appointed guardians can only engage in estate planning with court approval. This is more expensive, but it can be done in certain situations, depending on the facts. Moving assets at the last minute may not avoid estate recovery, especially if the person who moved the asset did not have legal authority to do so.
Please give our office a call at (215) 885-6785 to schedule an appointment and we can discuss your options with respect to Medicaid estate recovery matters.
Disclaimer: We recommend that you have ongoing legal advice from an elder law attorney before attempting to navigate the Medicaid application process. If you have questions or wish to secure our services, please contact Gerhard & Gerhard, P.C.