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By Joseph A. Bollhofer, Esq.

Effective Sept. 8, 2011

            I do not have good news for the families of many Medicaid recipients and those who anticipate the need for coverage.

            During the past several months New York State's Medicaid laws changed dramatically. Financial planning has gotten more complicated because the State has broadened the definition of 'estate' to include much more than the probate estate. Now New York will have the right to recover money it paid for Medicaid benefits from the property interests that a deceased person had in essentially all forms of ownership. On September 26, 2011 the State Health Department issued its awaited regulations, which actually became effective September 8. Although those regulations answer some questions, several more remain.

            Many of you may have interests in trusts or own retained life estates in real property. Those interests held by Medicaid recipients will be affected, as will jointly held interests in any property or account, and interests in annuities purchased with assets of the recipient or his spouse. All “payable on death” accounts are subject to recovery by Medicaid. The proceeds of life insurance policies are not subject to recovery unless there are no surviving named beneficiaries. It is important for you to review your documentation to determine whether these changes might affect your estate. It remains to be seen exactly how the State and local Departments of Social Services will seek to enforce these new rules. I will provide more details in a future article.

            In order to understand what is potentially at stake, it is necessary to know the basics of the Medicaid laws. In prior articles I explained nursing home Medicaid law and home care Medicaid law. Those articles can be found on my website using the address at the end of this article. 

            Medicaid has a claim against the estate of a deceased Medicaid recipient for the amount of Medicaid paid from the date he turned fifty-five years of age or the date he was permanently institutionalized, whichever occurred first. 

            There are certain exceptions and limitations to the State’s right to recover. Only those amounts paid within the last ten years before a person’s death are subject to recovery. Medicaid is not permitted to recover if it would result in “undue hardship,” such as recovery from a beneficiary’s sole modestly-income-producing asset or from a beneficiary’s home of modest value. However, this concept is not well defined in the regulation, and it is bound to be an area where many battles will be fought.

             While a surviving spouse or minor or disabled child is alive, recovery against any asset must be deferred. Recovery against the interest that a recipient had in a home must also be deferred if certain relatives (siblings and adult children) lived in the home under certain conditions. Recovery against a recipient’s interest in real property may be deferred under some conditions that are stated in the regulation. 

            The new law raises many questions. However, one thing is certain: Those responsible for recovering money for Medicaid benefits paid will now have a broader target. 

            However, simply giving away all ownership interests in all property might not be the best solution. The capital gains consequence of doing so must be considered. Also, in the case of a life estate in the primary residence, loss of property tax exemptions must be considered. Transfer of a home to a properly drafted irrevocable trust can be helpful in many circumstances. However, since the law is brand new and not yet interpreted, it remains to be seen whether a Medicaid recipient’s life interest in a home that is owned by the trust will be treated as a legal life estate and therefore subject to recovery. It is likely that this issue will be one of the more hotly contested issues in the near future.  

              The rules regarding Medicaid eligibility and recovery are extremely complex, and many alternatives exist. Since each particular case has its own unique facts, the reader is cautioned that the above summary can not be considered legal advice and should consult with an appropriate legal advisor.

Copyright 2011 Joseph A. Bollhofer, Esq.

Editor’s Note:

Joseph A. Bollhofer, Esq., is an attorney who practices law in the areas of elder law, Medicaid, estate and business planning and administration, real estate and personal injury. He is a member of the National Academy of Elder Law Attorneys (NAELA) and of the Elder Law, Real Property, and Surrogate’s Court Committees of the Suffolk County Bar Association and  the Elder Law, Real Property Law and Torts, Insurance and Negligence Sections of the New York State Bar Association. He has been serving area residents since 1985 and is admitted to practice law in New York and New Jersey. His office is located at 291 Lake Ave., St. James, NY. (631-584-0100). For reprints of this article and others send a request to info@bollhoferlaw.com or visit www.bollhoferlaw.com.