Estate Recovery By The State

“Estate recovery” is the legal term for a state’s ability to attach a lien on a person’s probate assets in order to recoup funds the state paid out for the person’s medical care during his or her lifetime. Elder law attorneys must have a solid understanding of estate recovery rules before advising their clients on any estate planning or Medicaid matters. People often become eligible for Medicaid (a federal program administered by the states), despite owning assets. Each state has its own rules as to which assets are “countable” when determining a person’s Medicaid eligibility.

Here is a hypothetical but common scenario where estate recovery rules come into play: Susan is widowed, owns her home valued at $300,000, and has one bank account holding $20,000. She also has monthly income of $3,500 from an IRA. She is now ill and in need of long-term, nursing home care.

Rhode Island Medicaid eligibility rules dictate that an applicant may have no more than $4,000 of countable assets in order to qualify for a Medicaid-paid nursing home stay. However, Rhode Island does not consider the person’s primary residence a countable asset when determining this figure. Thus, Susan’s $300,000 home is not taken into account when tallying her assets. More on the house below.

Nor does Rhode Island consider the principle value of an IRA as countable, provided the person is taking their required minimum distributions (RMDs). So whatever amount is currently held in Susan’s IRA is not countable in the asset tally either. Note, however, that Susan’s monthly draw from the IRA is considered income. In Rhode Island, a Medicaid recipient may have no more than $50 of income per month (“the personal needs allowance”). So each dollar in excess of $50 will be paid over to the nursing home as Susan’s “patient-pay amount”. Medicaid will pay the remainder once Susan is otherwise eligible from an asset standpoint.

Susan’s relatively small bank account of $20,000 will be her only impediment to qualifying for Medicaid. She must spend down the account to below $4,000 in order to qualify. In Rhode Island, there are efficient ways of spending down one’s assets, but those methods are beyond the discussion of this article.

Susan may eventually qualify for Medicaid if she is able to meet these requirements, but her issues do not end there. Rhode Island’s estate recovery rules dictate that any time a person has received Medicaid benefits after turning age fifty-five (55), Medicaid must be notified upon their death if a probate estate is being opened. This allows Medicaid the opportunity to attach a lien to any probate property in order to recoup funds it paid out on the person’s behalf.

As a result, the distinction between probate vs. non-probate property is important. In Rhode Island, Medicaid may only seek to recover from probate assets. So if Susan’s real estate was held solely in her name, it is a probate asset and subject to a Medicaid lien. Assuming Susan eventually gets her bank account down below the $4,000 threshold, it too could be subject to a Medicaid lien if it was held solely in her name at her death. Susan’s IRA would be a non-probate asset provided she has named a “transfer on death” beneficiary. If she failed to name a beneficiary, the IRA would default to her estate and become part of the probate process, and thus, subject to Medicaid’s recovery.

The key to preserving assets from estate recovery is advance planning with an attorney familiar with the rules and planning options available in your case.