Medicaid, a federal program administered by the states, helps low-income individuals pay medical expenses, thus avoiding a financial burden on the family. After you pass away, however, your state’s Medicaid office may be able to take assets from your estate to pay for the expenses it covered while you were alive. For example, though most states exempt your house from eligibility considerations, the state may be able to go after your house to recover costs.
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Federal law requires states to recover Medicaid costs from your property and assets that would otherwise pass to your heirs or beneficiaries under probate procedures. Medicaid programs, however, only recover expenses from your estate if you are 55 years of age or older when you receive benefits or are permanently institutionalized. When it comes to the exact scope of property eligible for recovery, state laws vary. For example, federal law allows your state to exempt you from recovery procedures if your only benefit is Medicaid cost-shares such as Medicare Part B premiums.
Federal law prohibits states from recovering funds from estates under certain circumstances. For example, your state cannot attempt a recovery during your surviving spouse’s lifetime, no matter where your spouse lives. Your state also cannot attempt recovery from your surviving child if he is under 21, blind or permanently disabled. Special rules apply if your sibling or adult child is living in your former home at the time of your death. Typically, your state cannot recover costs if your sibling has an ownership interest in your home, lives there for at least one year immediately before you are institutionalized and lives in the home continuously thereafter. Your state also will not attempt recovery if it is likely to cost more than the state would recover.
Procedures vary slightly, but states generally begin seeking recovery by determining whether an estate is eligible for recovery. The state may contact the estate's representative to make this determination, and it may record a lien against real property, such as a house, if the estate is eligible. State procedures may require the Medicaid recovery office to file a claim in the probate court where the estate is being processed for the amount of money provided to cover medical costs. State probate laws govern how these and other claims are processed and paid.
Avoiding Estate Recovery
Depending on your situation and your state’s laws, you may be able to avoid estate recovery with proper estate planning, thereby allowing your loved ones to inherit your assets instead of seeing those assets go to Medicaid. In states where estate recovery is only available for assets that go through probate after death, you can avoid estate recovery by passing those assets to your beneficiaries outside the probate process. For example, your state’s laws may allow you to create a transfer-on-death deed for your real estate so that it transfers automatically to your beneficiary without a probate proceeding.