Avoiding Medicaid Estate Recovery in Washington, DC
Medicaid can pay for years of nursing-home care, assisted-living services through a waiver, home-based care, prescription drugs, hospital care, and other medical services. But in Washington, DC, Medicaid may seek repayment after the recipient dies.
The District’s Medicaid State Plan permits recovery from the estate of a person who received Medicaid at age 55 or older. DC’s recovery program is unusually broad because it covers all services and health premiums paid under the State Plan, except protected Medicare cost-sharing payments. (DHCF)
Proper planning can often prevent the family home and other assets from being consumed by a Medicaid estate-recovery claim.
What Is Medicaid Estate Recovery?
Medicaid estate recovery is the process through which the DC Department of Health Care Finance seeks repayment for Medicaid benefits paid during a recipient’s lifetime.
DHCF explains:
“The Department of Health Care Finance (DHCF) must request repayment from estates of deceased Medicaid beneficiaries for services paid for by Medicaid.” (DHCF)
For a Medicaid recipient who received benefits at age 55 or older, the District’s approved State Plan authorizes recovery for:
• Nursing-facility services
• Home- and community-based services
• Related hospital and prescription-drug services
• Other services and health premiums paid under the DC Medicaid State Plan
Medicare Part A and Part B premiums, deductibles, coinsurance, and copayments paid for qualifying dual-eligible beneficiaries for dates of service on or after January 1, 2010, are excluded from estate recovery. (DHCF)
What Property Can DC Pursue?
The District uses the probate-estate definition contained in DC law.
The DC Medicaid State Plan defines the recoverable estate as:
“Real and personal property and any interest in such property that is owned by the decedent and that does not pass at the time of decedent’s death to another person by the terms of the instrument under which it is held, or by operation of law.” (DHCF)
DHCF describes this more simply:
“An estate includes all real and personal property, including a home, owned by a deceased beneficiary that does not pass to another person at the time of the beneficiary’s death.” (DHCF)
The family home is usually the largest exposed asset, but a recovery claim may also affect:
• Bank accounts
• Investment accounts
• Vehicles
• Business interests
• Personal property
• Other assets remaining in the probate estate
DC’s probate-based definition creates significant planning opportunities. It also creates traps. An asset may avoid probate but still remain countable for Medicaid eligibility. A transfer that removes property from the probate estate may also trigger Medicaid’s five-year transfer penalty.
The estate plan and the Medicaid plan must be coordinated.
An Exempt Home Is Not Necessarily a Protected Home
A Medicaid applicant may be permitted to retain a home during life. The home may be excluded as a countable resource because the applicant intends to return home or because a protected family member resides there.
That does not mean the home is safe after death.
The eligibility exclusion answers one question:
Is the home countable while the Medicaid recipient is alive?
Estate-recovery planning answers a different question:
Will the home be subject to a DC Medicaid claim after the recipient dies?
A complete plan must address both.
How Can DC Medicaid Estate Recovery Be Avoided?
There is no single technique appropriate for every client. The strategy depends on the client’s health, marital status, assets, family relationships, tax circumstances, and how soon Medicaid may be needed.
Medicaid Asset Protection Trusts
A properly drafted Medicaid Asset Protection Trust can protect a home and selected investments from Medicaid spend-down and estate recovery.
This is not a revocable living trust.
A revocable living trust leaves the creator with the power to revoke the trust and reclaim the assets. The trust assets therefore remain available to the creator and ordinarily remain countable for Medicaid purposes.
A properly designed Medicaid Asset Protection Trust is irrevocable. The person creating it must surrender access to trust principal. When the trust is properly drafted, funded, and administered, the assets can eventually become unavailable for Medicaid eligibility and can pass outside the Medicaid recipient’s probate estate.
Because Medicaid applies a five-year lookback period to many transfers, earlier planning produces substantially better results.
Probate-Avoidance Planning
Because DC limits estate recovery to property remaining in the probate estate, nonprobate planning can be important.
Depending on the circumstances, planning may involve:
• Irrevocable trust ownership
• Transfer-on-death designations
• Payable-on-death designations
• Joint ownership with survivorship rights
• Deed planning
• Life-estate and remainder arrangements
• Beneficiary designations
These techniques are not automatically safe.
A transfer-on-death deed, joint account, life estate, or beneficiary designation may avoid probate while creating a Medicaid eligibility problem, tax problem, creditor problem, or loss of control.
The correct question is not simply whether an asset avoids probate. The correct question is whether the arrangement works for Medicaid eligibility, estate recovery, taxation, asset protection, and the client’s family circumstances.
Transfers Permitted Under Medicaid Law
Certain transfers can be made without creating the usual Medicaid penalty.
Depending on the facts, a home may be transferred to:
• A spouse
• A blind or disabled child
• A qualifying caregiver child
• A qualifying sibling who has an equity interest in the home
These exceptions have strict requirements. A transfer should not be made without confirming that every statutory and regulatory condition is satisfied.
Spousal Planning
A married Medicaid applicant has protections that are unavailable to an unmarried applicant.
Assets may sometimes be transferred to or retained for the spouse who is not receiving long-term care. The home may also be placed in a form of ownership designed to prevent it from returning to the Medicaid recipient.
The surviving spouse’s estate plan is critical. A will, trust, or beneficiary designation that leaves protected assets directly back to the Medicaid spouse can undo the entire plan.
Crisis Medicaid Planning
A five-year advance plan is preferable, but a nursing-home admission does not necessarily eliminate every planning option.
Available crisis-planning strategies may include:
• Spousal transfers
• Exempt transfers of the home
• Medicaid-compliant annuities
• Conversion of countable assets into exempt assets
• Caregiver-child transfers
• Carefully calculated gift-and-cure strategies
• Revision of deeds, wills, trusts, and beneficiary designations
The available options narrow as the need for care becomes more immediate, but families should not assume that all assets must be spent before seeking legal advice.
When Is DC Estate Recovery Prohibited or Delayed?
DC may not recover correctly paid Medicaid benefits until after the death of the Medicaid recipient’s surviving spouse. Recovery is also prohibited when the Medicaid recipient has a surviving child who is under age 21, blind, or disabled. (DHCF)
DHCF’s public guidance states that it will not pursue a lien when:
• The surviving spouse lives in the home
• A child under age 21 lives in the home
• A blind or disabled child lives in the home (DHCF)
These protections may delay or prevent recovery, but they do not always eliminate the claim permanently. The title to the property and the surviving family member’s estate plan still require careful review.
Undue-Hardship Waivers
DC must waive or reduce an estate-recovery claim when recovery would create an undue hardship.
The DC Medicaid State Plan identifies hardship circumstances including:
• Recovery would deprive an heir of shelter, and the heir lacks the financial ability to obtain and maintain alternative shelter
• The home is the sole income-producing asset of a family business, and recovery would eliminate the heir’s livelihood
• An heir would become eligible for public-assistance payments without the inheritance
• Receiving the inheritance would cause an heir to lose public-assistance eligibility (DHCF)
The State Plan also makes clear that hardship does not exist merely because recovery reduces an inheritance, inconveniences the family, or restricts the heir’s lifestyle. (DHCF)
A hardship waiver is a last line of defense, not a substitute for advance planning.
What Happens After the Medicaid Recipient Dies?
DHCF sends a Notice of Proposed Recovery to the estate, personal representative, attorney, survivors, or heirs.
The notice should identify the proposed claim and provide information about exemptions and hardship waivers.
DHCF currently instructs recipients of a Notice of Proposed Recovery to return the exemption or hardship-waiver application within 30 calendar days after receiving the notice. (DHCF)
A family receiving such a notice should immediately determine:
• Whether the deceased person received recoverable Medicaid services
• Whether the amount claimed is accurate
• Whether the property is part of the probate estate
• Whether the surviving-spouse or protected-child limitation applies
• Whether an undue-hardship waiver is available
• Whether DHCF’s claim can be reduced or compromised
• Whether probate should be opened at all
The notice should not be ignored. Missing the response deadline can eliminate important defenses.
Common DC Medicaid Estate-Recovery Mistakes
• Assuming that a home excluded during life is protected after death
• Assuming that a revocable living trust avoids Medicaid recovery
• Adding a child to a deed without considering Medicaid’s five-year lookback period
• Using joint ownership without considering creditor, divorce, and tax consequences
• Leaving protected assets directly to a spouse receiving Medicaid
• Failing to coordinate beneficiary designations with the Medicaid plan
• Opening probate before analyzing the DHCF claim
• Selling the home without understanding the effect on estate recovery
• Missing the deadline for an exemption or hardship-waiver request
We Help DC Families Protect Their Homes and Savings
Farr Law Firm helps Washington, DC, residents plan for Medicaid eligibility while reducing or eliminating exposure to Medicaid estate recovery.
Our planning may include:
• Medicaid Asset Protection Trusts
• Home-protection strategies
• Probate-avoidance planning
• Spousal asset protection
• Permitted transfers
• Crisis Medicaid planning
• Deed and beneficiary-designation review
• Estate-recovery claim analysis
• Undue-hardship waiver applications
• Probate coordination
The best results are usually achieved before Medicaid is needed. But significant planning opportunities may remain even after a nursing-home admission or after DHCF asserts a claim.
Contact Farr Law Firm to schedule a consultation regarding Washington, DC, Medicaid planning and estate-recovery protection.
See our page for Avoiding Virginia Medicaid Estate Recovery
See our page for Avoiding Medicaid Estate Recovery in the State of Maryland.