Medicaid Estate Recovery: What to do?

Merely qualifying for Medicaid is not enough if, after your death, your family will have to repay to the state every cent of the benefits they paid for you while you were alive. There must be some planning techniques you can implement, right? Some “secrets” to avoid this strict rule? Let’s take a look at a few…

First, in states where recovery of benefits paid (“restitution”) is only through a claim against your estate assets (so-called “probate-only” states), you need to be sure that the recipient of Medicaid is has no estate in the event of death. Therefore, the recipient should only own assets in the form of POD, TOD, joint ownership with survivorship rights, annuity, etc. This is similar to the “Legacy Avoidance” techniques except that You cannot use living trust: Any asset titled in the name of a living trust is a “countable” asset for Medicaid purposes, even if it would normally be “uncountable.” Not in trust.

For example you can name a car in common names with a child. So the car would be titled “Mary Smith and John Smith, JTWROS”. John is Mary’s son, and upon Mary’s death, sole ownership of the car outside the estate automatically passes to him. “JTWROS” stands for “Right to Survive Community Tenants”. (Be sure to check your state’s motor vehicle eligibility rules to make sure this works in your state!) Since a car of any value during Mary’s lifetime is exempt, it is protected during her life and escapes estate reclamation upon her death.

The same approach can even be taken for their home. Because a Medicaid recipient’s home is typically exempt (up to an equity value of $500,000) while they are alive, there is only a problem upon the recipient’s death. So that the house does not fall into the estate of the parents again You can refer to the house as JTRWOS. ATTENTION: Adding another person’s name to the deed is a gift of a share of the house effective on the deed date! So when Mary had her attorney put her son John’s name on the deed, she just gave him 50% of the house. While gift tax is rarely an issue, it should be considered. More importantly, this is a Medicaid-disqualifying transfer, with a heavy penalty attached. If Mary chooses to go down this route, she may not be able to apply for Medicaid 5 years after signing the document.

Likewise, What if John gets sued or divorced? Mary may still see the whole house as “hers,” but the creditor or divorcing spouse will see this 50% interest in the house as an asset of John, and it could be attacked. Mary can find herself on the street when the house has to be sold to fulfill the judgment or divorce settlement.

Some states allow another person to be added to the deed by giving them less than 50%, which could reduce the amount of the gift, but only your attorney can determine this for you. Sometimes the rule for real estate law differs from the rule for Medicaid purposes. So, a word to the wise: Make sure the attorney doing the new deed for you is up to date on the implications that will affect your Medicaid eligibility!

In my other articles on this topic, we’ll look at some other ways to plan for estate recovery.