Medicaid Estate Recovery – The Facts (Part 2) #MedicaidEstateRecovery

            Last week I was telling you about a common topic of confusion when it comes to Medicaid – the potential for estate recovery – that process by which the State attempts to recoup money from the estates of Medicaid recipients to offset the amount of Medicaid benefits it paid out.

            The son our client called with concern over the possible lien on the home that his mom owns and lives in now that his dad has died.  I told him not to worry.  That’s because the State will not place a lien on the home so long as the deceased Medicaid recipient left a surviving spouse, child under age 21 or a child who is blind or permanently and totally disabled.  The State will wait until none of these exceptions exist before pursuing estate recovery.

            New Jersey will also not seek estate recovery if the property in the estate is the sole source of income for one or more of the survivors and pursuing recovery would likely result in any of those survivors becoming eligible for public assistance or Medicaid benefits themselves.  Finally, if a family member (other than the spouse) has been continuously living in the home prior to the Medicaid recipient’s death, and the home was and remains the family members’ primary residence, the State will record a lien but won’t enforce it until the property is sold or the family member dies or vacates the home.

            The lien is similar to a mortgage.  When the home is sold an amount equal to the lien is paid directly from the sale proceeds to the State of New Jersey.  Unlike a mortgage, however, it does not accrue interest.

            In the caller’s case, because his mother is still alive and lives in the home no lien will be placed on the home at this time.  The State will wait until she dies to pursue estate recovery.  You might wonder what happens if Mom outlives Dad by 10 or 15 years?  What happens if she sells the home or moves out of New Jersey?  What happens to the lien then?

            All good questions.  In the 20+ years that I have been filing Medicaid applications, I haven’t yet seen a case where estate recovery was pursued in the case where the surviving spouse died years after the Medicaid spouse.  I am not sure how the State could even implement a system to insure that they could accomplish this.  The spouse might pass away residing in another state or there might not be a need to probate that spouse’s estate so the State wouldn’t know about the death.

            Other scenarios could occur as well.  The spouse could sell the home and spend down the money for his/her own benefit or could do asset protection planning (provided we comply with Medicaid’s 5 year look back) so that the home would no longer be an asset in the spouse’s estate at death.

            When I explained this all to the caller he felt much better.  It’s just another example of why Medicaid is so confusing and getting the right information is so critical.