Real Property and Medicaid Estate Recovery

Theodora Vaporis

When a person age 55 or older is the recipient of Medicaid, Medicaid tracks all of the money spent on the person’s behalf. While a Medicaid recipient can hold on to his or her home while alive, at the recipient’s death, Medicaid will place a lien on the recipient’s estate. This is known as Estate Recovery. The lien is typically placed on the Medicaid recipient’s home which then must be sold to pay back Medicaid. Clearly this disrupts many people’s plan of passing their real property down to their loved ones.

There are some exceptions—times when Medicaid does not place a lien. If the recipient is survived by a blind or disabled child of any age, a child under age 21, is survived by a spouse, or is survived by a child who lived in the home and took care of the recipient for the last two years prior to death.

If one of the above exceptions does not apply, there are still some ways that real property can be held that, under current law, avoids Medicaid Estate Recovery. Real property that passes directly to others outside of probate is generally exempt. For example, real property held as joint tenants with right of survivorship. In this case, it is typically recommended that the heirs only obtain a 1% interest in the real property with the Medicaid Recipient maintaining 99%. This protects the Medicaid recipient if the heir falls in to their own financial hardship such as bankruptcy or divorce. This property is not a “countable asset” under the Medicaid rules. At death, the heir(s) owns 100% of the real property and it passes outside of probate. Medicaid Estate Recovery cannot reach it. The property also passes with a full step up in basis—to be distinguished from property gifts to heirs during the recipient’s lifetime.

If you are considering applying for Medicaid and are interested in trying to preserve your home for your heirs, the attorneys at Black, Slaughter & Black, P.A. can further discuss this with you.