Avoiding Medicaid Estate Recovery in Maryland

Many Maryland families are shocked to learn that qualifying for Medicaid is only part of the story.

Yes, Medicaid can help pay for nursing home care, assisted living through certain programs, and other long-term care services. But after the Medicaid recipient dies, the State may seek repayment through the Medicaid estate recovery program.

For many families, that means the home they thought was “safe” may still be at risk later.

The good news is that with proper planning, there are often ways to protect your home, your savings, and your legacy.

The Big Misunderstanding

A lot of people are told:

“The home is exempt, so it’s protected.”

That is only half true.

A home may be exempt for Medicaid eligibility purposes while you are alive. But that does not automatically mean the home is protected from estate recovery after death.

Those are two completely different issues:

• Will Medicaid count the home while you are alive?

• Can Maryland seek repayment from the home or other assets after death?

A proper plan needs to address both.

Maryland Can Place a Lien on the Home During Your Lifetime

Estate recovery usually occurs after a Medicaid recipient dies. A TEFRA lien is different. It may be placed against real property while the Medicaid recipient is still alive.

Federal law permits a lifetime Medicaid lien against the real property of an institutionalized person when:

• The person is receiving care in a nursing facility or another qualifying medical institution;

• The person is required to contribute most of the person’s income toward the cost of care; and

• After notice and an opportunity for a hearing, the State determines that the person cannot reasonably be expected to leave the institution and return home.

Federal law states that a lien may be imposed when the State determines:

“after notice and opportunity for a hearing . . . that he cannot reasonably be expected to be discharged from the medical institution and to return home.”

Maryland’s Medicaid Manual similarly provides that a lien may be imposed when:

“The Department has determined, after notice and opportunity for a hearing, that there is no reasonable expectation that the person can be discharged from the LTCF and return to live in his home property.”

This is important because a person’s stated intent to return home may keep the residence excluded as a resource for Medicaid eligibility, but that stated intent does not necessarily prevent Maryland from imposing a lien. The Maryland Medicaid Manual expressly states that excluding the home based on an expressed intent to return does not prevent a lien when the lien requirements have otherwise been satisfied.

When Maryland Cannot Impose the Lien

A TEFRA lien may not be imposed on the home while it is lawfully occupied by:

• The Medicaid recipient’s spouse;

• The recipient’s child who is under age 21;

• The recipient’s blind or disabled child of any age; or

• A sibling who has an equity interest in the home and lived there for at least one year immediately before the recipient entered the institution.

These protections appear in federal law and Maryland’s Medicaid Manual.

What the Lien Does

The lien does not immediately transfer ownership of the home to Maryland. The Medicaid recipient remains the owner. Instead, the lien secures Maryland’s claim against the property.

The Maryland Medicaid Manual explains:

“A lien does not affect ownership interest in a property until it is sold, at which time the Program will be entitled to reimbursement for expenditures paid on behalf of the recipient.”

That means the lien may become payable if the property is sold during the recipient’s lifetime. It can also affect the property after death through Medicaid estate recovery.

The Lien Must Be Removed If the Recipient Returns Home

Federal law requires a TEFRA lien to dissolve if the institutionalized person is discharged and returns home. Maryland’s Medicaid Manual likewise states that the lien must be lifted when the person leaves the long-term-care facility and resumes permanent residence in the home.

A discharge to another residence does not necessarily require Maryland to release the lien. The recipient must actually return to the property as the recipient’s permanent residence under the Maryland Manual.

Planning Before a Lien Is Imposed

A TEFRA lien can complicate a later sale, transfer, refinance, or estate plan. Families should seek advice as soon as Maryland begins a medical review or sends notice that a lien may be imposed.

Depending on the circumstances, planning may involve:

• Challenging the determination that the recipient cannot reasonably be expected to return home;

• Establishing that a protected spouse, child, or sibling occupies the property;

• Reviewing whether the Department provided the required notice and hearing rights;

• Evaluating permitted transfers of the home;

• Coordinating the deed, trust, and Medicaid plan before the lien attaches; or

• Seeking removal of a lien after the recipient returns home.

A TEFRA lien and Medicaid estate recovery are related, but they are not the same. A complete Maryland Medicaid plan must address the risk of a lifetime lien as well as the risk of recovery after death.

What Is Medicaid Estate Recovery?

Medicaid estate recovery is the process by which the State seeks reimbursement for certain Medicaid benefits that were paid during a person’s lifetime.

In plain English, the State may come back after death and make a claim against assets the person still owned or had an interest in.

That is why so many families are surprised. They spend enormous effort getting a loved one approved for Medicaid, only to find out later that the estate may face a recovery claim.

Why Maryland Families Should Plan Early

If your goal is to preserve assets for your spouse, your children, or future generations, waiting too long can limit your options.

The earlier you plan, the more opportunities you may have to:

• Protect the family home

• Preserve savings and investments

• Reduce or avoid Medicaid spend-down

• Minimize or avoid estate recovery

• Protect a healthy spouse

• Coordinate the estate plan so assets do not accidentally flow back into harm’s way

Early planning is usually best, but even if a loved one is already in a nursing home or may need care soon, there may still be planning options.

Common Ways We Help Clients Avoid Estate Recovery

There is no one-size-fits-all solution. The right strategy depends on your health, family situation, timing, and the type of assets you own.

At Farr Law Firm, we may help with strategies such as the following:

Medicaid Asset Protection Trust Planning

A properly designed Medicaid Asset Protection Trust can often help protect a home and other assets from both Medicaid spend-down and estate recovery.

This is very different from a standard revocable living trust.

Many people assume that a revocable living trust protects them from Medicaid. It usually does not. A revocable trust may avoid probate, but it typically does not protect assets from long-term care costs or estate recovery.

A properly structured irrevocable Medicaid trust can be a very different story.

Home Protection Planning

For many clients, the home is the single biggest concern.

We help families evaluate the best way to protect the residence, while also considering:

• Medicaid rules

• Capital gains tax consequences

• Control during life

• Family dynamics

• What happens if a spouse survives

• What happens if a child has creditor, divorce, or disability issues

Too many families make the mistake of adding a child to the deed or signing a new deed they found online, only to create tax problems, family disputes, or Medicaid penalties.

Spousal Planning

When one spouse needs long-term care and the other spouse does not, special planning opportunities may exist.

A married couple often has planning tools that a single person does not.

We help healthy spouses protect assets without accidentally undoing the plan through a will, trust, deed, or beneficiary designation that sends assets back to the Medicaid spouse.

Permitted Transfers

Certain transfers are allowed under Medicaid rules and may be used in the right situation.

Depending on the facts, this may include transfers to:

• A spouse

• A blind or disabled child

• A qualifying caregiver child

• A qualifying sibling with a protected interest in the home

These rules are technical, and close enough is not good enough. A transfer has to be done correctly.

Crisis Medicaid Planning

Even if someone already needs care, it may not be too late.

In a crisis, we may be able to help with strategies involving:

• Spousal protections

• Exempt transfers

• Repositioning assets

• Medicaid-compliant planning tools

• Caregiver child analysis

• Coordinating deeds, trusts, and beneficiary designations

The options are narrower in a crisis, but they are often not gone.

What About a Revocable Living Trust?

This deserves its own section because it causes so much confusion.

A revocable living trust is a very useful estate planning tool. It can help avoid probate and make incapacity planning easier.

But a revocable living trust in Maryland does not protect assets from long-term care costs or Medicaid estate recovery.

If your goal is asset protection, you need more than basic probate avoidance.

Important Protections May Still Apply

Estate recovery is not absolute.

In some cases, recovery may be delayed, limited, or avoided because of protections involving:

• A surviving spouse

• A child who is under 21

• A blind or disabled child

• Hardship situations

These protections can be very important, but they should not be your only plan. They are not a substitute for a well-designed strategy created in advance.