New Medicaid Estate Recovery Law
Koldin Law Center E-Mail Newsletter
This edition of the Koldin Report E-Newsletter reviews the newly enacted Estate Recovery Law which will cause families to lose more of their life savings. This newsletter outlines that part of the Law that affects the Life Use of Real Property and Irrevocable Trusts. Under the current Medicaid law, an applicant for Medicaid is allowed to keep $13,800 of his/her life savings. When there is a healthy spouse, he/she is also entitled to keep the family home and one-half of the family savings with a minimum of $74,820 and a maximum of $109,560. However, if the healthy spouse later requires long term care, he or she will only be entitled to keep $13,800 and he/she will lose the family home and the remaining life savings. Since the Medicaid rules for losing your life savings are so harsh, many families retain an Elder Law Attorney to discuss their Estate planning options to protect their life savings. Two of the more common asset protection plans involved: 1. Transferring the family home to children and retaining a life estate 2. Establishing an Irrevocable Trust In the past, using either of these 2 planning options was successful as long as 5 years elapsed from the date of the plan. This is commonly known as the 5 year lookback period. These planning options are still valid to initially protect assets to establish Medicaid eligibility. However, the newly enacted regulations greatly affect the asset protection of the life estate option upon the death of the Medicaid recipient. These regulations apply to past, present and future life estates. Under these new regulations, Medicaid is now entitled to recover from the Estate of a Medicaid recipient up to the amount that Medicaid paid towards the cost of care as follows: 1. Retained Life Estate: Medicaid can recover the value of the life estate based on the age of the Medicaid recipient at the time of his/her death. Example 1: Mother transferred her home to her children 10 years ago and reserved a life estate and applied for Medicaid now. The home would not be counted as part of her life savings for determining Medicaid eligibility. However, at the time of her death, the Medicaid Agency under this new regulation can now pursue a recovery against the children for the value of the life estate. As an example, if the life estate table used by Medicaid showed that based on the mother’s age at death, the life estate was worth 30% of the value of the property, then the Medicaid Agency would require that the children pay Medicaid 30% of the value of the property. Example 2: Husband and Wife transfer their home to their children 10 years ago and reserve life estates to both of them. Husband entered a nursing home 1 year ago and was approved for Medicaid. He dies now. Wife is still living in the home with her life estate. As in Example 1 above, Medicaid is entitled to an estate recovery against the children for the value of the life estate based on the value of the life estate at the time of the husband’s death, however, Medicaid would defer requiring the children to pay Medicaid the life estate value until after the wife’s death. 2. Irrevocable Trust: If a Medicaid recipient is entitled to receive Trust income under the terms of the Trust, Medicaid can only recover the undistributed income still owed to the Medicaid recipient at the time of his/her death. The principal of the Trust remains fully protected. In both examples below, assume that the Irrevocable Trust was properly drafted to meet the Medicaid requirements to protect the principal of the Trust: Example 1: Mother set up an Irrevocable Trust where she retained the right to receive all of the income from the Trust, but chose to reinvest some of the income and not receive it. Medicaid would have the right to demand at the time of mother’s death to be paid all of the undistributed income. The balance of the Trust continues to be fully protected. Example 2: Mother set up an Irrevocable Trust and did not retain the right to receive any income. In this situation, Medicaid would not have the right to demand any estate recovery. The Trust remains fully protected. As can be seen from the examples above, under this new regulation, a properly designed Irrevocable Trust continues to provide asset protection. However, transferring real property to children and retaining a life estate no longer protects the real property from a claim by Medicaid upon the death of the parent, or if applicable upon the death of the surviving spouse. As a result of the new Medicaid Estate Recovery Law, proper asset protection planning is more important than ever. Make sure that your family and friends are made aware of these changes and that help is available. The Koldin Law Center, P.C. closely monitors the Medicaid laws and court cases to make certain our clients are well-informed of their options. The Koldin Law Center, P.C. reviews many different asset preservation options with our clients, including establishing an Irrevocable Family Trust. There is no fee for the initial consultation. |
