Medicaid Death Tax
The Medicaid Death Tax

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Medicaid Estate Death Tax


While Washington and the Media recently debated about what to do about the Federal Estate Tax, another even more pernicious death tax goes unnoticed by lawmakers. Medicaid Estate Recovery is a federal mandate that requires states to recoup the costs of long term care paid by Medicaid.

Medicaid, not Medicare, is the biggest government source of payment for long term care.  Most people who reside in nursing homes have part of the cost of their care paid by Medicaid.  And many frail seniors who reside at home with help from their family also get some assistance from Medicaid. If you are old and need financial help to meet your care needs, the Government wants your home or farm when you die.

In a curious exercise of age discrimination, the recovery program only applies to people who are over age 55. Essentially, estate recovery turns government financial help to frail seniors of modest means into a loan program with collection taking place at death. If Medicaid helped pay for any of your care, your estate will be forced to repay the government after you die. This can be avoided via an Irrevocable Medicaid Trust.

Estate recovery is a Medicaid “death tax” imposed only on the elderly. The program has been referred to as “picking the bones of the poor,” and “sucking the last ounce of blood from the corpse.”

Because most assets must be spent before a senior becomes eligible for Medicaid, recovery efforts focus on real estate – mainly the home or family farm. Although states bear the costs and burdens of collection, most of the money collected goes to the federal government.

Estate recovery was first mandated by the federal government in 1993. States are given some discretion over the scope of the assets that will be subject to recovery, although, at a minimum, recovery must include collection from the probate estate of the recipient of Medicaid. Most states have expanded recovery beyond the minimum requirements. Avoid this terrifying outcome through familiarizing yourself with various exempt transfers, life estate deeds and how to avoid mistakes.

How Estate Recovery Works


When John came back from Korea he took over working the family farm. Eventually, John and his wife Mary inherited the farm from John’s parents. John and Mary were always “dirt poor.” But they worked hard their whole lives and raised two fine sons. They were proud when both of the boys received degrees in Agriculture from their state’s university. They were even more proud when both of the boys came home to help their father work the farm.

In 2000 Mary’s health began to decline due to Parkinson’s disease and dementia. Everyone in the family pitched in to care for Mary and keep her home. In 2003, after three years of struggle, the family needed some outside help. They applied for home care that was paid for in part by Medicaid. This extra help, combined with the ongoing care by John and the boys and their wives, allowed Mary to stay at home for another full year.

In 2006 John died of a heart attack. Without John's support in caring for Mary, the family was no longer able to care for Mary at home. She moved to a local nursing facility. The family didn't have the cash to fully afford the nearly $9,000 a month cost and Medicaid benefits were needed.

Mary died in January 2009. She was 84. Three weeks later her sons received a letter in the mail from the Government. The letter said the State was owed $171,386 for the Medicaid that was provided for Mary’s care, both at home and in the nursing facility. The boys are going to have to find some way to pay off this state lien. But they don't have this kind of money. Most likely, the farm will have to be sold.

In some cases, the fear of losing their home or farm to estate recovery deters seniors from getting the care they may desperately need. Failing to provide needed care puts both the senior and caregiver at risk and is likely to ultimately increase the cost of care.

These are tough times for all of us, including State government. But helping people get the care they need at the end of their lives should not give the government the right to take our property. Much more than money is at stake in the battle over estate recovery. Thousands of families are struggling, often magnificently, to do the right thing for their loved ones. We need to support our families and caregivers, not take their property. This is why we so strongly advocate asset protection trusts for medicaid.

The Medicaid Estate Recovery Problem


This arises because, since nursing homes are so expensive, most of their residents run out of money and end up on Medicaid. But, when you die, Medicaid expects to be repaid for the money it spent on your nursing home or other long term care. It will force your home to be sold to pay the government back. Recoverable services include nursing home care and in-home care provided under the Aging Waiver program, as well as certain other services. Every State is required to try to collect the money from the estates of benefit recipients after their deaths. This is called the “Medicaid Estate Recovery program.” Also, Federal law requires that each State withhold Medicaid payments for nursing home and other long-term care services for individuals who dispose of assets, including their homes, for less than fair market value.  These provisions also apply when transfers were made by the individual’s spouse. As a result, giving your home away can make you ineligible for any assistance from Medicaid.

Again, Medicaid Recovery specifically includes transfers of assets for less than fair market value during a five year “claw-back” period.  The law, however, exempts a number of types of transfers from penalty. If the transfer qualifies under any of these exemptions, you can protect your home and other assets without losing the ability to qualify for Medicaid benefits when you need long term care. Don't let the above story happen to you, avoid these common medicaid mistakes.

Most people want their home to go to their children or other family, not to the government. Many wonder whether there is anything they can do to protect their home from being lost if they end up needing long term care.

Finally, I have some good news: with expert planning, and especially if you plan in advance, seniors can ensure that their homes will stay in the family after their deaths and not be lost to estate recovery. Read our follow up article with further information on Irrevocable Trust Taxes.

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Cloud Peak Law Group

203 S Main St #3000 Sheridan, WY 82801

1901 Energy Court #319, Gillette, Wyoming 82718

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