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Losing Your House to Medicaid Estate Recovery

With planning, heirs may be able to keep the family home

Like almost every state, Washington has an office to help recover the large costs it pays out in Medicaid benefits. Considering that Medicaid recipients receive coverage because of very limited countable assets—currently $2,000 or less—there are very few assets for the state to collect from. This is the reason the Medicaid recipient’s home is typically the target for estate recovery.

Owning a home does not affect a Medicaid applicant’s ability to qualify. In fact, the home is often the largest exempt asset a Medicaid applicant has. Once an applicant begins receiving Medicaid, however, they may relocate to a nursing home. And a recipient who spends a few years in nursing home care will have incurred enormous costs—likely in the hundreds of thousands of dollars.

Once a recipient passes away, the state will determine if it can recover some of those costs from the estate of the deceased recipient. There are two methods the state will use to attempt recovery of a recipient’s home: recovery through a pre-death lien (commonly referred to as a TEFRA lien), or collection from the recipient’s estate after they’ve passed.

Pre-death lien

The TEFRA lien can only be placed on the home if the recipient cannot reasonably be expected to return. If the state makes that determination, it must give the recipient an opportunity to ask for a hearing to contest the decision. If the recipient does return home in the future, the state must remove the lien if it’s been placed.

The state may not file a pre-death TEFRA lien if any of the following family members are living in the home:

  • a spouse
  • a registered domestic partner
  • a child who is under 21, or a blind or disabled child of any age
  • a sibling with an equity interest in the home who has lawfully resided in it for at least a year before the resident’s admission to the facility

Estate recovery after death

If any of the above persons remain in the home after the recipient passes, the state must defer recovery efforts. The state may also agree to delay recovery if the recovery would cause an undue hardship to a survivor who is an heir of the deceased Medicaid recipient. Undue hardship exists in any of the following circumstances:

  • The survivor who remains in the home is a state-registered domestic partner
  • The property is the heir’s sole income-producing asset (like a farm) and their income is limited
  • Recovery would deprive the heir of shelter when the heir lacks the financial means to live elsewhere

Can estate recovery be avoided?

Those previous methods will only delay state recovery of the recipient’s home. However, there are some methods that may help the recipient’s heirs hold onto the home. Unfortunately, all methods come with risk:

  • Transferring the home into the recipient’s spouse’s name only. Transfers between spouses avoid a transfer penalty. However, the spouse may need Medicaid in the future, leaving the heirs in no better position to save the home.
  • Transfer the home to a child or other heir five years prior to applying for Medicaid. The applicant would lose all rights to the property and would be at the whim of the heir if the heir changes their mind later. Also, the applicant’s health may force them to apply sooner and suffer a penalty period of no coverage.

These methods and other possible alternatives come with extreme risk to the Medicaid applicant, who risks losing coverage for potentially five years for an improper asset transfer. No one should attempt do-it-yourself estate planning; get the advice of an experienced Washington elder law attorney. For more information on this area, see our overview of elder law and estate planning.

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