The Medicaid program was created in 1965 to financially assist people with severe medical needs who might require long-term hospitalization and incur significant health care costs. Generally, only the most impoverished individuals who cannot afford nursing homes any other way are eligible for Medicaid. Since the cost of a nursing home might far exceed a patient’s assets, some older Americans deliberately dissipate their property to become eligible for Medicaid. However, individual states have the right to recover Medicaid paid on behalf of a patient from his estate after he dies. Leaving a will cannot prevent or supersede this.
1993 Estate Recovery Mandate
In 1993, the federal government issued an Estate Recovery Mandate to all states obligating them to at least take an individual’s assets that pass through probate. At their option, states can also take non-probate assets from an estate to recover Medicaid costs, such as life insurance payouts that ordinarily would pass directly to a named beneficiary. According to the U.S. Department of Health and Human Services, however, only 24 states report taking recovery to this extreme.
States can only recover Medicaid from the estates of people who were older than 55 years of age when they received the assistance or were permanently institutionalized. Medicaid claims cannot be recovered while a surviving spouse is still alive, from a child under 21 years of age or from a blind or disabled child. In some cases, if certain relatives lived with the deceased for one to two years prior to the patient’s admittance into a nursing home, recovery can also be deferred.
Preventative State Laws
Some state laws prevent Medicaid recovery to some extent. For instance, all states have an order of priority for claims against an estate in probate. Taxes, secured creditors and funeral costs are usually paid first. Medicaid is usually recovered after other, more significant claims are satisfied. Some estates have nothing left, or very little, to disburse at this point. When the assets of an estate are exhausted, states cannot go after heirs and beneficiaries for repayment of Medicaid. They can only recover up to the value of the estate that is available to them.
Some types of irrevocable living trusts can protect against property counting against a patient’s eligibility for Medicaid and the state's ability to recover the funds later. Generally, revocable living trusts cannot do this. If this is something you are considering, speak with an attorney who is knowledgeable in estate and Medicaid law.