Avoiding Pay Back: Medicaid Planning and Estate Recovery

Use these links to jump to different sections:

• What Are Medicaid Estate Recovery Rules?
• Medicaid Planning Strategies and Exemptions Can Avoid Estate Recovery
• Three Common Mistakes in the Medicaid Planning Process
• Seeking Qualified Legal Help
• Find an Experienced Elder Law Attorney

Medicaid is a health insurance program partially funded and administered by the states in accordance with standards set by the federal government. Medicaid helps eligible individuals pay the costs of long-term care services, including:

• Nursing facility services;
• In-home and community-based services;
• Prescription drug services; and
• Hospital healthcare costs.

When a Medicaid beneficiary passes away, the state can try to reimburse its costs from the person’s estate through its Medicaid Estate Recovery Program (MERP). Following the passage of the 1993 Omnibus Budget Reconciliation Act, every state is required by federal law to have an estate recovery process.

If you or a loved one currently receives Medicaid benefits or you are seeking Medicaid services, it’s essential to understand your state’s Medicaid estate recovery rules in the long-term care and estate planning process.

What Are Medicaid Estate Recovery Rules?

“Generally speaking, if a Medicaid recipient passes away and they’re over the age of 55, the state Medicaid program can ask for a reimbursement up to what they have spent on a Medicaid recipient’s behalf,” explains Jason Neufeld, an elder law and estate planning attorney at Elder Needs Law in Aventura, Florida.

How does the state go about seeking reimbursement? Neufeld, who has written a book on Medicaid planning and frequently educates the public as well as other attorneys on Medicaid law, says that, generally, when probate is opened following a person’s death, Medicaid will submit a claim just like any creditor who is entitled to submit a claim on the probate estate.

Since the states manage Medicaid, Neufeld emphasizes that rules and exceptions can vary widely by state law. For example:

• Some states won’t seek reimbursement if a Medicaid recipient’s estate is under a specific value set by state law;
• Twenty-three states have an expanded definition of what counts as an estate, allowing them to seek reimbursement on assets beyond the probate process.

Given these complexities, speaking with an estate planning attorney who understands Medicaid rules and probate law in your jurisdiction is essential.

Medicaid Planning Strategies and Exemptions Can Avoid Estate Recovery

“People come to a Medicaid planning attorney—typically, though not always—because they have too much by way of assets to qualify for Medicaid. We can use several different estate planning strategies to legally and ethically remove assets from the individual’s name,” bringing them under the asset threshold to qualify for Medicaid.

“If we can avoid probate, we can avoid the state’s most significant Medicaid recovery effort,” says Neufeld. Avoiding probate requires removing assets from the individual’s name through various estate planning strategies, including:

• Medicaid-compliant annuities;
• Placing assets in a living trust;
• Pooled special needs trusts;
• Investing in real estate or personal services contracts;
• Ensuring that bank accounts have a pay-on-death beneficiary so the money isn’t in the individual’s name for probate.

These and other Medicaid planning strategies are not only used to avoid estate recovery after a beneficiary’s death—they can help a person with assets over the Medicaid eligibility limit qualify in the first place. For example, the Medicaid asset limit in most states is $2,000. “However, my clients typically own their house and might, in addition, have several hundred thousand dollars in assets—sometimes a little bit more, sometimes less. Elder law and estate planning attorneys can legally and ethically protect people’s assets so they can apply for Medicaid within a few months as opposed to spending everything and going broke or having to wait five years,” explains Neufeld.

In addition to Medicaid planning strategies, several estate recovery exemptions could apply to your situation, including:

• Having a surviving spouse;
• Having a surviving child who is under 21 years of age or a disabled child of any age;
• Having an adult child or sibling caregiver who can demonstrate they lived in your house to provide care for a certain number of years before the time of death.

Three Common Mistakes in the Medicaid Planning Process

Applying for Medicaid, like creating an effective estate plan, is a complicated process. For the unwary and those with no background in the area of law, it can be confusing and lead to error. Neufeld warns against common mistakes. “I would say there are three common ways people get in trouble,” he says:

1. Spending Everything

“The first mistake people often make is that they don’t even realize that Medicaid planning is available,” says Neufeld. “And so, to qualify, they spend everything and just go broke. Those are unfortunate cases. I always think, ‘I wish you had called me sooner because I could have protected what you had.'”

2. Improper Gifting

“Along with simply spending everything to get under the Medicaid limit, improper gifting is the biggest mistake people make,” says Neufeld.

“Some people think, ‘Oh, I’ve got to have $2,000 or less in assets to qualify for Medicaid. I have $200,000, so kids, I’m going to split $198,000 between the two of you and then go apply.’ This is a big mistake. Under the rules, you can’t just give things away to family members or others.”

3. Using Non-Attorney Medicaid Planners

“The third common issue arises because many people who aren’t attorneys hold themselves out as Medicaid planners. These individuals are typically, though not always, people selling annuity products,” says Neufeld.

“Now, annuity products are one of maybe a dozen Medicaid planning tools and they’re not appropriate for everybody. It’s always best to use it in conjunction with other Medicaid planning strategies. But when all you have is a hammer, everything looks like a nail—and by only offering annuities, these planners are offering an incomplete and often unnecessary solution.”

A related problem is individuals who engage in the unlicensed practice of law—who present themselves as attorneys with expertise in estate planning when they lack qualifications and experience.

Seeking Qualified Legal Help

The upshot of Neufeld’s warnings is that individuals should seek qualified, experienced legal help when planning end-of-life care and asset protection. “The first sign that a loved one is having trouble taking care of themselves is a good time to talk to an elder law attorney about Medicaid planning,” says Neufeld.

Signs that indicate an attorney’s expertise include:

• Affiliation with the National Academy of Elder Law Attorneys;
• A demonstrated focus on Medicaid planning;
• Publication of articles or other educational materials on elder law;
• Participation in conferences about elder law.

Neufeld emphasizes that elder law is an umbrella term for multiple areas of law. “Elder law attorneys might do guardianships, probate and estate planning, special needs planning, Medicaid planning, or elder abuse. These are all very important but also quite different areas. So within the elder law umbrella, look for an attorney who clearly focuses their practice on Medicaid planning—someone who really seems to be steeped in the Medicaid planning world in their jurisdiction.”

As to attorney’s fees, Neufeld says that while every lawyer is different, he typically sees flat fees rather than hourly rates when it comes to estate and Medicaid planning. “And there’s a really important reason for that. When someone comes to me with their last 50, 100, or 200 thousand dollars, we’re putting together a plan to get them below $2,000. To accomplish this, we need a budget, and legal fees are going to be part of that budget. But there’s no specificity with hourly rates. We want them to know what their fee is going to be upfront to get the job done, and flat fees work best for that.”

Find an Experienced Elder Law Attorney

If you are considering how to pay for long-term care through Medicaid, contact a qualified and reputable attorney for legal advice tailored to your specific situation. To begin your search, visit the Super Lawyer’s directory of estate planning and probate attorneys, where you can search by state and locality.

For more general information on this area of law, see our overviews of nursing home law, elder law, and estate planning.