Will I Lose My Home?
Many people who apply for medical assistance benefits to pay for nursing home care ask this question. For many, the home constitutes much or more of their life savings. Often, it’s the only asset that a person has to pass on to his or her children.
Under the Medicaid regulations, the home is an unavailable asset so long as the equity in the home is $500,000 or less. This means that it is not taken into account when calculating eligibility for Medicaid. But in 1993, Congress passed a little-debated law that affects hundreds of thousands of families with a spouse or elderly parent in a nursing home. That law requires states to try to recover the value of Medicaid payments made to nursing home residents.
Estate recovery does not take place until the recipient of the benefits dies and no recovery will be made so long as there is a surviving spouse, a minor child under age 21 or a disabled child. Then, federal law requires that states attempt to recover the benefits paid from the recipient’s probate estate. Generally, the probate estate consists of assets that the deceased owned in his or her name alone without beneficiary designation. About two-thirds of the nation’s nursing home residents have their costs paid in part by Medicaid. Obviously, the Estate Recovery law affects many families. The asset most frequently caught in the Estate Recovery web is the home of the Medicaid recipient. A nursing home resident can own a home and receive Medicaid benefits without having to sell the home. But upon death, if the home is part of the probate estate, the state may seek to force the sale of the home in order to reimburse the state for the payments that were made. However, as previously stated, no recovery will be made so long as there is a surviving spouse, a minor child under age 21 or a disabled child.
On September 30, 2007, Michigan became the last state in the nation to adopt an estate recovery law. Michigan’s estate recovery law seeks recovery from probate assets only and even provides for exemptions to some of those probate assets. If assets are in the probate estate, the following exemptions apply:
The homestead, if occupied by the spouse or child (blind, disabled, or under age 21) of the Medicaid recipient. The homestead, if occupied by a relative of the Medicaid recipient (within fifth degree of kinship) and if that relative provided care to the Medicaid beneficiary for at least two years, thereby keeping the Medicaid recipient out of an institution. The homestead, if the Medicaid recipient’s sibling is a joint owner and lives in the home.
Additionally, with regard to the homestead, recovery is limited to that portion of the value above 50% of the average price of a home in the county where the home is located.
The priority of the state for an estate recovery claim in a probate estate comes after the costs of administration, funeral and burial expenses, and the homestead, exempt property, and family allowances.
Estate recovery will only apply to Medicaid beneficiaries who began receiving Medicaid assistance after September 30, 2007. Any recovery is capped at actual costs of Medicaid medical services paid for on behalf of the Medicaid recipient, without interest.
The law provides that estate recovery will not be implemented at all if the costs of operating the program are not justified by the amounts recovered. The law also requires approval of the program from the Centers for Medicare and Medicaid Services (CMS) and the promulgation of new rules before implementation. It is now uncertain that these events will occur. In September of 2008, the CMS disapproved Michigan’s request for a state plan amendment to allow for an estate recovery program. The state has appealed the denial.
In order to avoid estate recovery, we look to planning devices that have worked in other states, such as Ladybird deeds and certain trusts. Since the estate recovery law is not settled, we will monitor these rules as they develop.