You can access the training presentation on Medicaid Estate Recovery in Alabama given today for the Middle Alabama Area Agency on Aging’s Take a Stand for Caregivers series at this web site. You can read or download the presentation.
Category Archives: Medicaid Estate Recovery
Medicaid Estate Recovery Training
I will be providing training on Alabama Medicaid Estate Recovery on Tuesday, 09/20/22, at 10:00 a.m. Central time. If you feel like you could benefit from information on this topic be sure to register with the Middle Alabama Area Agency on Aging. Free CEUs are being offered for social workers, nursing home administrators, occupational therapists and physical therapists.
We will be examining how estate recovery works in Alabama, and who is at risk for losing property to repay benefits Medicaid pays on their behalf.
Medicaid Caregiver Child Transfer Exemption
When a person applies for Medicaid the agency looks back at transfers the applicant made during the previous five years to determine if any property was given away or transferred for less than the value assigned by Medicaid. If so, a transfer penalty is incurred, and that means Medicaid will not pay for care for a length of time based on how much was transferred.
There are some permissible transfers allowed by law resulting in no penalty being imposed. These include:
The home when a child under 21, blind or disabled lives there;
The home when a sibling with an equity interest was residing there for at least one year prior to the institutionalization;
The home when a son or daughter of such claimant who was residing in the applicant’s home for a period of at least two years immediately before the date of applicant’s admission to the medical institution or nursing facility, and who provided care to such claimant which permitted the applicant to reside at home rather than in an institution or facility (the caregiver exemption);
Transfers of money into a Special Needs Trust.
Looking more closely at the caregiver child exemption, you often see children who have lived with the parent for many years to keep them safe at home and out of a nursing home who are concerned about their own security when the parent applies for Medicaid. If the child can meet the caregiver child standard, the home can be transferred to him or her without penalty, but often there is debt on the home preventing a transfer. The lesson here is to pay off debt on the home as quickly as possible to be able to take advantage of the caregiver child permissible transfer.
If the transfer cannot be done, and the parent goes in a nursing home, the property counts as a resource. But if the parent receives Home and Community Based Services through Medicaid the house does not count as a resource until the parent dies. At that time Medicaid will claim what it paid for the parent through Medicaid Estate Recovery. The only good news here is the estate recovery can be delayed until the caregiver child no longer lives in the home.
Selling Life Estate Property
A life estate deed can be a great tool for passing property after death. A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies. The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will. Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant. An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property. That all sounds like a win, win situation, right?
It is, except for one thing. If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents. The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.
Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case. Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.
Alabama Medicaid for Long Term Care
To assist caregivers who are making arrangements for long term care a booklet concerning Alabama Medicaid is being made available to provide clarity for some of the issues that may arise and to provide basic information about the application process. The booklet is made available here and will remain available in the Publications section of our website. It can be read online or downloaded and printed.
Medicaid Estate Recovery: What Medicaid Can Recoup From Your Estate
Some benefits paid by Medicaid, including expenses for long-term care after age 55, can be recouped from the recipient’s estate upon death. The federal government makes estate recovery mandatory, and each state has enacted its own rules to comply with that requirement. A new publication is available to help you understand how Alabama Medicaid Estate Recovery works and what property is at risk for being lost upon death and repayment to Medicaid. This document can be read online or downloaded and printed. It will remain available in the Publications at this web site.
Alabama Medicaid Estate Recovery
Medicaid benefits seem more like loans than benefits these days. This is because there are laws that require states to recoup what it spent on care from estates after the Medicaid recipient dies.
This federal recoupment effort carried out by each state is known as Medicaid Estate Recovery. For this reason it is important for a person who is considering application for any type of Medicaid to get solid advice on this topic prior to applying for Medicaid. It is also important for any person probating a will or administering an estate to consider the possibility of Medicaid being an estate creditor to put the agency on notice before disbursing the proceeds of an estate or else risk personal liability against the personal representative (aka executor).
To grasp Medicaid Estate Recovery, it is important to understand that there are many different categories of Medicaid, but they are all part of a joint federal/state program. Estate recovery applies to some categories of Medicaid and not to others.
Also understand that there are certain types of liens on property that individuals can give to Medicaid to allow them to qualify for Medicaid. These are pre-death liens referred to as TEFRA (Tax Equity and Fiscal Responsibility Act) liens. An example might be a single person of any age who cannot qualify for nursing home Medicaid because he owns his home, thus resulting in resources that exceed the $2000 resource limit. He might give a lien and place the property on the market to sell and qualify for nursing home Medicaid under the “bona fide effort to sale” property exclusion. Medicaid will hopefully recoup funds from the sale of the property up to the amount it paid for the care of the individual who gave the lien, but often the property does not sell during the lifetime of the Medicaid recipient. Medicaid will continue to hold that lien and right to recover funds from the sale after the Medicaid recipient dies.
But what is referred to as Medicaid Estate Recovery goes a step further. Even without a specific TEFRA lien being given by the property owner, Medicaid can recoup funds from the probate estate of the Medicaid recipient after his death provided there are funds from which to recoup. In other words, this is a statutory lien that applies to estates of deceased Medicaid recipients for whom certain types of Medicaid benefits were paid.
Through Medicaid Estate Recovery the federal government requires states to seek recovery of funds spent on care from the estates of persons who received certain benefits, particularly benefits paid after the age of fifty-five years and incorrect payments. This includes:
- benefits that were not paid correctly to a person of any age (resulting in what is known as an overpayment);
- benefits paid after age 55 for nursing home Medicaid;
- benefits paid after age 55 for waiver services (at home care provided to avoid institutional care);
- benefits paid for hospital and drugs for persons who received those benefits in connection with nursing home or waiver Medicaid after the age if 55.
Federal law gives the states the option to seek recovery of funds for all Medicaid expenditures for services received after age 55 unless otherwise exempted (more on this later). This would include money spent for SSI eligible persons who qualify for Medicaid in the community. Alabama has opted to exercise this recovery.
To further complicate matters, the Alabama Medicaid Administrative Code includes language indicating that the agency will seek recovery for benefits paid for a person of any age who permanently resides in a nursing facility, intermediate care facility for the intellectually disabled or other medical institution. There are attorneys in Alabama who believe that this application of estate recovery for institutional benefits for persons under the age of 55 violates the federal statute. If Medicaid does seek recovery of such funds a recovery in this category will likely be challenged in years to come.
Medicaid Estate Recovery does not apply to the Medicare Savings Programs (QMB, SLMB and QI), but Alabama is collecting on benefits paid for these programs prior to 2010. These are programs that help low income persons eligible for Medicare pay for healthcare costs through Medicaid. Due to the Medicare Improvements for Patients and Providers Act (MIPPA) these categories of Medicaid benefits are not subject to estate recovery. Note that as of 2016 the award letters to these recipients incorrectly indicated that estate recovery would apply. An exception to this exclusion is Medicare Savings Program benefits paid on behalf of beneficiaries of first party special needs trust.
At this time Medicaid Estate Recovery only applies to property in the probate estate in Alabama. That means that property that passes directly to someone outside of the probate estate cannot be reached by Medicaid. Examples include property titled as survivorship property (in a deed where the owners hold property as joint tenants with right of survivorship); property in which the deceased had already transferred it to another retaining only a life estate (through a life estate and remainder deed); proceeds of life insurance, IRAs, or brokerage accounts with a beneficiary named to take the proceeds at death; joint bank accounts with a co-owner or set up as payable on death to a named beneficiary.
Estate recovery/lien enforcement can be delayed or waived in certain circumstances.
Delay may occur:
- until after the death of any surviving spouse (no lien was taken);
- related to the home, until the property is no longer occupied by a surviving child under the age of 21 years of age; a surviving child who is blind or disabled (no lien was taken);
- related to the home, until the property is no longer occupied by a sibling with an equity interest who had resided in the home for at least one year preceding the Medicaid recipient’s admission to the facility where benefits were paid (no lien was taken);
- related to the home, until the property is no longer occupied a son or daughter who provided two years or more of care immediately before the admission to the facility where benefits were paid and that care was of such a level that it allowed the Medicaid recipient to reside in the home and avoid institutional care (a lien may exist, and note that the property could have been transferred to the child without penalty).
- related to the home, until the property is no longer occupied by a sibling who is lawfully living in the home and was lawfully residing continuously in the home for at least one year immediately prior to the Medicaid recipient being admitted to the facility where benefits were paid (a lien may exist).
Waiver may occur:
- for an amount of money equal to sums paid under a qualified long-term care insurance policy;
- upon proving undue hardship which is: the existence of a situation, established by convincing evidence, that the estate subject to recovery is an asset such as a family farm or family business which produces “limited income” (defined as equal to or less than the income limit established in Rule 560-X-25-.14 [at or below 141% of the poverty level]) and is the sole income-producing asset of one or more heirs to the estate. The limit of 141% of the poverty level is $1426.45 for a one person household, $1934.05 for a two person household (for larger households, add 507.60 for each additional person). Note that the Medicaid regulations state that undue hardship does not apply for recipients with long term care insurance policies who became Medicaid eligible by virtue of disregarding assets because of payments made by a long term care insurance policy or because of entitlement to receive benefits under a long term care insurance policy OR if the Medicaid agency determines the hardship was created by the recipient by resorting to estate planning methods under which the recipient illegally divested assets in order to avoid estate recovery.
To request an undue hardship waiver a request for a waiver application must be made to Alabama Medicaid within 30 days of receiving the agency notice against the estate or upon the sale, transfer or conveyance of real property subject to a TEFRA lien.
A bill was filed in the Alabama Senate in the 2017 legislative session and again in the current 2018 session that would give the Alabama Medicaid broad statutory powers to impose liens against the real property of any Medicaid beneficiary. Astonishingly it would require every estate administered in Alabama to notify the agency as a creditor even if the deceased person never applied for Medicaid. That pending legislation can be read here.
Deeding Property with a Reserved Life Estate
The term “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, at which time it passes to the other owner, referred to as the person with the remainder interest. Life estates can be used to avoid probate while giving a house to children without losing the ability to live in the home, remaining responsible for property tax – with the benefit of homestead and age related tax exemptions, remaining responsible for homeowner insurance, yet creating ownership in the children at the death of the parent. This type of deed can play an important role in Medicaid planning since Medicaid does not assign any value to a life estate when the parent applies for Medicaid to pay for nursing home care. If the transfer occurred prior to five years before application, there will be no penalty for the transfer.
In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.
Another example of use of life estates is when a spouse who owns property in only his or her name wants to leave that property to his or her children from a former marriage but wants the later in life spouse to be protected and have a place to live. That person might write a will leaving a life estate to the spouse with the remainder to his or her children on the death of the spouse. This comes up not infrequently when individuals want to protect property passed to them by family and who want to keep that property in their blood line while protecting the spouse as well.
When the life tenant dies, the house will not go through probate, since at the life tenant’s death the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states that have not expanded the definition of estate recovery to include non-probate assets, which includes Alabama at the time this is being written.
Although the property will not be included in the probate estate, it will be included in the taxable estate. Depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation. However, the joint federal lifetime estate tax exemption and gift tax exclusion is $5,490,000, so few people are actually subject to estate tax.
The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share and the larger the share of the remaindermen.
Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if Medicaid application is made within five years of the transfer. Further, purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property and live in the house for more than a year.
For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid. Just be aware that there may be some local variations on how this is applied, so get good advice before finalizing arrangements involving a life estate if long term care could be a future concern.
Elder Law Training at OLLI
On October 10, 2016, Jan taught the first of a two part presentation on Elder Law at Osher Lifelong Learning Institute (OLLI) at Auburn University entitled Elder Law: Enhancing the Lives of Seniors Through Education, Planning For What Comes Next. The second session will be taught on Monday, October 17, 2016, at 2:30 p.m. at The Clarion in Auburn, Alabama.
Topics covered in this training include: Older Americans Act Legal Assistance; Important Documents Needed for Proper Planning; Authority Issues; Long-term Care Levels of Care and Payment Options; Medicaid for Long-term Care; Special Needs Planning; Probate; Administration of Estates; Planning for Last Remains and Funerals.
A 39 page Keynote presentation covering these topics is provided to course participants.
Anyone interested in this and the many other learning opportunities available through OLLI can learn more by visiting the OLLI website.
Alabama ABLE Act to Provide Planning Opportunity for Disabled Persons
On June 9, 2015, Governor Bentley signed ABLE Act legislation into law in Alabama permitting the state to implement a program to permit developmentally disabled persons to have limited tax free savings without losing public benefits. ABLE stands for Achieving a Better Life Experience, and the act was passed on the federal level in December 2014 permitting each state to set up its own program. Though the program in Alabama has not yet become operable, it will be getting underway in the coming months.
The ABLE Act will permit up to $14,000 per year to be placed in one approved bank account set up for a developmentally disabled person living in Alabama (one who became disabled prior to age 26) with those funds exempt from counting as resources for public benefit purposes. This means that the disabled person can have these funds to use for disability-related expenses without losing his or her public benefits such as SSI or Medicaid. Up to $100,000 can be accumulated in an ABLE account without loss of SSI, and $350,000 can be accumulated in such an account in Alabama without loss of Medicaid (note that this is state specific, and some states may permit an accumulation as high as $425,210 or as low as $235,000 before loss of Medicaid). At the death of the disabled person any funds left in the ABLE account will be payable to Medicaid to repay that agency in amounts up to what the agency paid for the disabled person’s health care costs.
Contributions to an ABLE account are not tax deductible, and income earned by an ABLE account is not taxable.
Stay tuned for more information about these accounts in the coming months or go to the Alabama State Treasury’s ABLE website and sign up for an update notification when accounts are available.