Medicaid can pay hundreds of thousands of dollars toward nursing-home care and other long-term-care services. But Medicaid benefits are not always the end of the story.
After a Medicaid recipient dies, the Virginia Department of Medical Assistance Services may seek repayment from property the recipient owned or retained an interest in at death. This process is known as Medicaid estate recovery.
For many families, the largest asset exposed to recovery is the family home.
The good news is that proper planning can often protect a home and other assets from Medicaid estate recovery. The planning must be completed correctly, and in many cases it must be completed before the need for nursing-home care becomes immediate.
What Is Virginia Medicaid Estate Recovery?
Virginia Medicaid estate recovery allows the Commonwealth to seek reimbursement for certain Medicaid benefits paid on behalf of a deceased Medicaid recipient.
The amount claimed can be substantial. A person who receives Medicaid-funded nursing-home care for several years may accumulate a Medicaid claim worth hundreds of thousands of dollars.
After the Medicaid recipient dies, Virginia may assert a claim against property included within the recipient’s estate-recovery estate. Depending on how the property was owned and what legal interests the recipient retained, this may include:
• A home
• Bank and investment accounts
• Vehicles
• Certain jointly owned property
• Certain trust interests
• Other real or personal property
Virginia’s definition of an estate for Medicaid recovery purposes is broader than many families expect. Merely avoiding probate does not necessarily eliminate the Medicaid estate-recovery risk.
Can Virginia Take the Family Home?
Virginia does not simply arrive and take a home when someone applies for Medicaid.
The more accurate concern is what happens later.
A home may be exempt while the Medicaid recipient is alive and still qualify for favorable treatment during the Medicaid eligibility process. But exempt during life does not necessarily mean protected after death.
Unless the home has been protected through proper planning, Virginia may seek repayment from the home or from the deceased recipient’s interest in the home after death.
This frequently surprises families. They were told that the house was exempt for Medicaid eligibility purposes, so they assumed it was permanently protected.
Those are two separate questions:
• Is the home countable when the person applies for Medicaid?
• Can Virginia pursue the home after the Medicaid recipient dies?
An effective Medicaid plan must address both.
When Is Medicaid Estate Recovery Delayed or Prohibited?
Virginia cannot always recover immediately after the Medicaid recipient’s death.
Recovery is subject to important protections. For example, recovery is generally deferred while the Medicaid recipient has a surviving spouse. Additional protections may apply when there is a surviving child who is under age 21, blind, or disabled.
Virginia also has an undue-hardship process. A waiver may be available in limited circumstances, including certain cases involving a modest-value home, a family business or farm that produces income for survivors, Medicaid-eligible heirs, or other compelling circumstances.
These protections are important, but families should not rely on the possibility of a hardship waiver as their primary estate plan. A waiver is fact-specific, may be temporary or limited, and is usually considered only after the Medicaid recipient has died.
Advance planning is far more reliable.
How Can Medicaid Estate Recovery Be Avoided?
There is no single solution that works for every family. The appropriate strategy depends on the person’s health, marital status, assets, family circumstances, and anticipated need for long-term care.
Our planning may include one or more of the following:
A Properly Drafted Medicaid Asset Protection Trust
A Medicaid Asset Protection Trust can protect selected assets from both Medicaid spend-down and Medicaid estate recovery when the trust is properly drafted, funded, and administered.
This is not the same as a standard revocable living trust.
A revocable living trust ordinarily leaves the assets available to the trust creator. Because the creator retains control and access, the trust ordinarily does not protect those assets for Medicaid purposes.
A properly designed irrevocable Medicaid Asset Protection Trust can produce a very different result. It can allow a person to protect a home and selected investments while preserving carefully defined rights and benefits.
Because Medicaid applies a five-year lookback period to many transfers, earlier planning provides substantially more options.
Permitted Transfers of the Home
Federal and Virginia Medicaid law allow certain transfers that do not result in the usual Medicaid transfer penalty.
Depending on the facts, a home may sometimes be transferred to:
• A spouse
• A blind or disabled child
• A qualifying caregiver child
• A qualifying sibling with an equity interest in the home
These exceptions have detailed requirements. A transfer should never be made based only on a general description found online.
Spousal Planning
Married couples have protections that are unavailable to unmarried applicants.
Depending on the circumstances, assets may be restructured or transferred for the benefit of the spouse who is not receiving long-term care. The home and other assets may also require coordinated estate planning so that protected assets do not later pass back to the Medicaid recipient and become exposed.
Spousal planning must consider both the Medicaid application and what will happen when either spouse dies.
Long-Term-Care Partnership Protection
A qualifying Virginia Long-Term Care Partnership insurance policy may protect a corresponding amount of assets from Medicaid estate recovery.
This protection depends on the amount of qualifying insurance benefits paid and whether the policy satisfies the applicable partnership requirements.
Beneficiary, Ownership, and Estate-Plan Coordination
Certain ownership arrangements, beneficiary designations, trusts, and estate-planning provisions may affect Medicaid estate recovery.
But probate avoidance by itself is not a complete Medicaid strategy.
A transfer-on-death designation, joint ownership arrangement, life estate, deed, or trust may solve one problem while creating another. It may affect Medicaid eligibility, capital-gains taxes, creditor exposure, control of the property, or the rights of a surviving spouse.
Each technique must be evaluated as part of an integrated Medicaid and estate plan.
Why a Revocable Living Trust Is Usually Not Enough
Many people assume that placing a home in a revocable living trust protects it from Medicaid.
It does not.
A revocable trust is designed primarily to avoid probate and provide asset-management continuity. The person who creates the trust ordinarily retains the right to revoke it, change it, and use all trust assets.
That retained control ordinarily causes the trust assets to remain available for Medicaid eligibility purposes. It can also leave the assets exposed to Medicaid estate recovery.
A revocable trust may still be an important part of an estate plan, but it is not a substitute for Medicaid asset-protection planning.
Is It Too Late to Protect Assets?
Not necessarily.
Planning five or more years before a Medicaid application usually provides the greatest flexibility. But families should not assume that nothing can be done when a nursing-home admission has already occurred.
Crisis-planning strategies may still be available.
Depending on the facts, we may be able to use:
• Spousal protections
• Exempt transfers
• Medicaid-compliant annuities
• Caregiver-child or sibling exceptions
• Asset-conversion strategies
• Carefully structured gifts combined with private payment
• Other permissible Medicaid-planning techniques
The available options become narrower as the need for care becomes more urgent, but waiting does not automatically mean that all planning opportunities have been lost.
Mistakes That Can Create an Estate-Recovery Problem
Common mistakes include:
• Assuming that an exempt home is permanently protected
• Believing that avoiding probate automatically avoids Medicaid estate recovery
• Adding a child to a deed without analyzing the Medicaid and tax consequences
• Giving away assets without considering the five-year lookback period
• Using a standard revocable trust instead of a properly designed Medicaid Asset Protection Trust
• Leaving protected assets directly to a spouse who is receiving or may soon need Medicaid
• Waiting until after the Medicaid recipient dies to investigate estate recovery
• Relying on advice from someone who does not regularly practice Virginia Medicaid law
Medicaid planning involves much more than completing an application. Eligibility, asset protection, tax planning, estate recovery, and the family’s long-term goals must be considered together.
We Help Virginia Families Protect Assets from Medicaid Estate Recovery
Farr Law Firm has focused on elder law, Medicaid planning, and asset protection for decades.
We help clients develop plans designed to:
• Protect the family home
• Preserve savings and investments
• Avoid unnecessary Medicaid spend-down
• Reduce or eliminate exposure to Medicaid estate recovery
• Protect a healthy spouse
• Coordinate trusts, deeds, beneficiary designations, and powers of attorney
• Preserve the greatest possible flexibility for the family
Our attorneys work with families before a long-term-care crisis, during a nursing-home admission, and after a Medicaid recipient has died and an estate-recovery claim has been asserted.
Start Planning Before the Options Disappear
The strongest Medicaid estate-recovery plan is usually created before the Medicaid application is filed and before major assets are transferred.
Do not assume that your home is protected merely because it is exempt during your lifetime. Do not assume that a will, revocable trust, joint account, or beneficiary designation will prevent Virginia from making a claim.
The correct strategy depends on exactly what you own, how it is titled, who is in your family, and when you may need long-term care.
Contact Farr Law Firm to schedule a consultation regarding Virginia Medicaid planning and Virginia Medicaid estate recovery protection.
See our page for Avoiding Medicaid Estate Recovery in Washington, DC.
See our page for Avoiding Medicaid Estate Recovery in the State of Maryland.