I looked at the basics of Medicaid Estate Recovery in Pennsylvania previously in the first part of this series, but there are other matters that may come into play and should be kept in mind whenever the possibility of estate recovery exists. One involves an objective of estate planning (namely, to transfer wealth to those of one’s own choosing), which estate recovery can hinder. Another issue concerns the need to protect a claim subject to estate recovery, including who can be held responsible for not doing so. A third topic of potential interest is the ability of the Department of Public Welfare (DPW) to postpone or waive its claim and the implications of these paths.
When someone may become subject to Medicaid Estate Recovery, how does this impact estate planning?
For anyone who was at least 55 years old and was on Medical Assistance (as Medicaid is called in Pennsylvania) after August 15, 1994, estate recovery is possible if the individual received nursing facility services, home and community based services, and related hospital and prescription drug services, as was noted in the previous post. This means that any estate planning must be handled prior to that point in time in order to avoid possible Medicaid Estate Recovery.
You need to focus on assets that DPW targets – in general, these are assets that are part of the “probate estate.” If something does not have to go through the process of estate administration in order for a beneficiary to become the new owner, then it should be free from estate recovery. A life insurance policy that names a beneficiary is an example. For a house to avoid estate administration and also to avoid estate recovery, you must plan carefully. If you are over 55 and receiving Medical Assistance (MA), you have options as long as you do not receive it for the three types of services mentioned above. You would need a deed that makes the property jointly owned by you and your beneficiary with rights of survivorship or that transfers the property entirely to the other individual.
(As an aside, if you would die within one year of this transfer, the entire value of the house would be subject to inheritance tax. In fact, if you transfer things that you own to an individual that have a total value exceeding $3000 during the year of your death, then Pennsylvania’s inheritance tax will apply.)
If probate property that is subject to Medicaid Estate Recovery is transferred, can anyone be held liable and forced to pay DPW’s claim?
The decedent’s personal representative – the estate’s executor or administrator (when there is no Will) — has a duty to make sure that DPW’s claim is paid after creditors whose claims have higher priority have been paid. Therefore, the personal representative will be personally liable for DPW’s claim when property subject to that claim is transferred without valuable and adequate consideration to an heir or anyone else with a claim of lower priority if DPW has not been paid when the transfer occurs. “Valuable and adequate consideration” is defined by DPW as a sale of property at fair market value by the estate’s personal representative to a party who is unrelated to the decedent or the personal representative. If this amount is obtained, then the personal representative would not be liable for payment of DPW’s claim.
As will be discussed briefly, DPW may postpone its claim under certain circumstances. However, the personal representative remains liable for transfers during this period. The personal representative must take steps to protect DPW’s claim. This may require a mortgage or other recorded encumbrance to be placed against real property in the decedent’s estate on behalf of DPW. There also are provisions for perfected security interests to be placed against items of personal property worth more than $10,000 as well as cash (or cash equivalents such as securities) to have a total value exceeding $50,000 to be placed in trust, with DPW receiving the remainder at the trust’s termination up to the amount of its claim.
In addition, a person who receives property subject to a Medicaid Estate Recovery claim by DPW will be liable if the property’s fair market value was not paid for it. The transferee’s liability is the difference between the property’s fair market value and the amount of money received by the estate for the property. This person also must protect DPW’s claim during a period of postponement so that it is paid when the period ends.
When will a claim under the Medicaid Estate Recovery Program be postponed or waived?
Postponements can be requested under certain circumstances. For example, DPW will wait to collect its claim against a decedent’s home when any of the following reside there: a surviving spouse; a child who is “totally and permanently disabled” (as defined by the Supplemental Security Income (SSI) program); a surviving child is under the age of 21; or a sibling who has lived in the home at least one year before the death of the MA recipient and who also owns an equity interest in the property. When the last of these individuals has died, transferred the property, or left it, the postponement period ends, and the Medicaid Estate Recovery claim must be paid.
Undue hardship waivers are more complex so what follows is not an all-encompassing review. However, the most important difference between these and postponements is that a waiver means that DPW has relinquished its right to collect its claim against the estate forever.
The most common type of waiver probably involves a person who meets certain criteria relating to the primary residence of the decedent. First, the person must have continuously resided in the home for at least 2 years immediately before the decedent started to receive nursing facility services or for at least 2 years during which MA-funded home and community based services were received. Also, the person cannot have an alternative permanent residence. The third requirement is that the person provided care or support to the decedent for at least 2 years while MA-funded home and community based services were received by the decedent or for at least 2 years before the decedent received nursing home services and while the decedent needed care or support to remain at home for those two years.
Other sources of waivers involve income-producing assets that were the primary source of household income, without which gross family income would be less than 250% of the Federal poverty guideline — family farms and businesses are examples; payment of necessary and reasonable expenses to maintain the home while the decedent was receiving home and community based services or while the home was vacant when the decedent was in a nursing facility; and the administered estate of the decedent had a gross value not greater than $2,400 and there is an heir.
Medicaid Estate Recovery is a complex area of law, and answers to these questions only touch its surface. For all of the needed details, you should contact an attorney familiar with this subject to protect the interests of all concerned.