Part 6: “Title is Very Important in Estate Recovery”
Originally published January 31, 2010 in the Stamford Advocate
Copyright Julie Jason 2010. All rights reserved.
Many people are surprised to learn the states are required by federal law (Omnibus Budget Reconciliation Act of 1993) to recover Medicaid spending for long term care on your behalf. Typically, they do that by asserting a claim against your estate (“estate recovery”) after your death.
It is up to the individual states to determine whether to pursue recovery from the probate estate (generally, transfer made through your Will) or to go beyond the probate estate to include non-probate transfers, such as those made through beneficiary designations, living trusts, joint accounts with rights of survivorship, and transfer on death registrations.
Connecticut limits estate recovery to probate assets, according to elder law attorney, Richard Fisher, of Cacace, Tusch & Santagata. However, Fisher notes that banking laws also allow recovery of the individual’s share of the joint bank account.
According to the US Department of Health and Human Services’ Medicaid Estate Recovery Collections Report of 2005, the state of Connecticut spent over $1 trillion in nursing home expenditures in 2004 and recovered only $8.2 million (0.8 percent). On a national basis, the states spent $45.8 trillion and recovered only $361.7 million, for a recovery rate of less than 1 percent.
While estate recovery needs to be understood by everyone who receives Medicaid benefits, it is absolutely essential for married couples to address as soon as there is any indication that one spouse may need long term nursing care.
In prior installments of this column, we discussed how title to the home is unimportant between couples when dealing with eligibility for Medicaid.
But, with estate recovery, it’s another story.
Title becomes paramount (and order of death), not only for recovery, but also for eligibility. After the death of a spouse, the newly single person who needs care is subject to more strict eligibility rules, as we’ve discussed in previous columns.
Let’s go through a few scenarios.
If the home is titled in the name of the healthy spouse (the “community spouse”), and the spouse in the nursing home (the “institutionalized spouse”) dies first, the house is off limits; the state will not attempt estate recovery. (Connecticut asserts claims against the person’s estate who received assistance, not against the estate of the spouse, according to Stamford elder law attorney, Sam Starks.)
You’ll get the same result if the property is in joint name with right of survivorship, since the property will pass to the community spouse outside of probate and will not be part of the institutionalized spouse’s probate estate – again assuming the institutionalized spouse dies first.
But, what if the community spouse dies first? The jointly owned home passes to the institutionalized spouse. Then, the issue is not only estate recovery, but also continued eligibility for Medicaid.
Now the home becomes “countable” for Medicaid purposes (Connecticut’s Medicaid eligibility requirements limit a single person’s countable assets to only $1,600).
The newly single institutionalized person will have to put the house on the market so that assistance can continue pending the sale of the house, explained Starks. The state puts a lien on the house. If the house does not sell before he dies, the state will claim against the estate, explained Starks.
What if the institutionalized spouse dies first with the house held in his name alone? The house will pass through his estate. The state will have a claim against his estate, but will not assert it as long as the community spouse lives in the home, according to Starks. But, the community spouse doesn’t own the home, he or she will not be able to get a reverse mortgage or otherwise encumber the home.
For all of these reasons, its common practice to transfer title to the home to the community spouse, explained attorney, Marilyn Toland of the Toland Law Firm of Hamden and Waterbury. In fact, even case workers who handle Medicaid applications will suggest that this be done.
What about the timing of such a transfer to a spouse?
You don’t have to worry about the look-back period (5 years) that penalizes transfers of property made during the five years preceding a Medicaid application. That rule does not apply to transfers between spouses, explained elder law attorney, K. Gabriel Heiser, author of “How to Protect Your Family’s Assets from Devastating Nursing Home Costs.”
Of course, the institutionalized person must be competent (of sound mind) to do the transfer, or have appointed an attorney-in-fact (durable power of attorney) with the authority to specifically do gifting, according to Starks. If the institutionalized person has a court appointed guardian (“conservator”), the transfer must be approved by the probate court.
Basically, the planning that needs to be done is to get property transferred to the community spouse and Wills drawn to minimize the assets going to the institutionalized spouse, explained Starks. Protection is not perfect, however, since the state can assert a claim based on elective or statutory shares, according to Starks.
This is an area that calls for further study. I wish I could refer you to a good Connecticut resource, but I have yet to find one. As a result, I’m recommending these excellent resources to arm you with questions you’ll need to ask your Connecticut elder law attorney.
They are:
1) “Medicaid Estate Recovery: What Seniors Should Know” published by the West Virginia Attorney General, Darrell McGraw, Jr. (April 2009), at http://www.wvago.gov/pdf/EstateRecovery.pdf.
2) “Medicaid Estate Recovery,” prepared by HHS Office of the Assistant Secretary for Planning and Evaluation, at: http://aspe.hhs.gov (search for “estate recovery”).
3) “Medicaid Liens and Estate Recovery in Massachusetts,” which you can also find on the http://aspe.hhs.gov website.
4) “Medicaid Estate Recovery: A 2004 Survey of State Programs and Practices,” published by The AARP Public Policy Institute, at http://assets.aarp.org/rgcenter/il/2005_06_recovery.pdf.
Click here to read part 7 on how you can protect additional assets by buying a certain type of long-term care insurance policy.
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