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New York Medicaid Estate Planning

Estate recovery is a legal mechanism frequently used by Medicaid in order to recover previous medical expenses paid on behalf of a Medicaid recipient.  The process works by Medicaid placing a lien against the estate.  A Medicaid lien is substantial particularly because its’ lien must be satisfied prior to any other distributions to other creditors or beneficiaries.  What this often means is that the decedent’s beneficiaries are left with a substantially reduced inheritance or perhaps even nothing.

However, under New York law, Medicaid’s lien against an estate is limited to the probate estate.  The probate estate includes only assets passing under an individual’s Last Will and Testament or assets passing through intestacy (if no Last Will and Testament exists).  This means that jointly held assets, retained life estates, and interests in trusts are not subject to Medicaid estate recovery in New York, even though they included as part of the decedent’s overall estate.

Medicaid estate recovery is also limited by two different time factors.  First, Medicaid cannot recover from an estate for any payments made on behalf of a Medicaid recipient before having attained the age of 55.  Recovery is strictly limited to payments made to the recipient after age 55. Second, Medicaid’s estate recovery is restricted to benefits paid no more than 10 years prior to the recipient’s death.  Therefore, if an individual has been receiving Medicaid since he was 40 years old and he passes away at 90 years old, Medicaid can only recover from his probate estate the amount of benefits paid on his behalf between the ages of 80 and 90.

Additionally, Medicaid cannot place a lien against the Medicaid recipient’s estate if one of the following persons survives the recipient: (1) a spouse; (2) a minor child; or (3) a disabled child of any age.  Disability can be demonstrated by either the receipt of Social Security Disability (SSD) or Supplemental Security Income (SSI) or by medical evidence of a disability.  In addition to these three exceptions outlined above, Medicaid also is prohibited from placing a lien on the institutionalized spouse’s home when there is a sibling who has resided in the home for at least one year and has an ownership interest in the home.  Therefore, if one of these specified individuals survives the Medicaid recipient, then Medicaid cannot have a claim against the Medicaid recipient’s estate regardless of whether these individuals are beneficiaries of the probate estate.

However, the surviving spouse’s probate estate is not necessarily free from a Medicaid lien for benefits paid on behalf of the deceased institutionalized Medicaid recipient.  Medicaid’s lien is essentially put on hold until the surviving spouse’s death.  In order for such a recovery to be viable though, the local Medicaid agency must prove that the spouse had assets in excess of the community spouse resource allowance during the span of Medicaid assistance provided.  In 2014, the maximum community spouse resource allowance is $117,240.00.  This means that by signing a spousal refusal, the local Medicaid agency has the option to file a lien against the community spouse’s estate.  Regardless of the amount of excess resources the community spouse owns, Medicaid is only able to recover the amount of benefits actually paid out on behalf of the institutionalized Medicaid recipient. Medicaid cannot recover from the community spouse’s estate, however, if the second spouse survives the first spouse by 10 years, and the first spouse was the only Medicaid recipient.  Medicaid has no claim against the second spouse’s estate because no benefits were paid for within 10 years of the second spouse’s death.

It is important to note that even if the non-Medicaid spouse dies first, his or her estate may still be subject to a Medicaid lien. New York law permits Medicaid to impose a lien against a non-Medicaid deceased spouse’s estate during the lifetime of the Medicaid recipient surviving spouse. As discussed above, the local Medicaid agency must prove that the community spouse owned assets in excess of the community spouse resource allowance at the time the institutionalized spouse received Medicaid benefits.

Another way that Medicaid can recover against the non-Medicaid spouse’s estate is by asserting the surviving spouse Medicaid recipient’s right of election.  Under New York law, a surviving spouse is entitled to $50,000.00 or 1/3 of the deceased spouse’s estate, whichever is greater. However, Medicaid’s right to recover through the elective share is not limited to the probate estate; it includes all assets that one owns at death, including trust assets and jointly held assets.  However, proper Medicaid Long Island planning can be utilized to save roughly ½ of the elective share from Medicaid’s reach in the event that the surviving spouse requires nursing home care.  If the surviving spouse only requires homecare or community Medicaid, the entire elective share can be protected since there is no transfer penalty involved in community Medicaid.

Therefore, in light of Medicaid’s right of estate recovery, it is crucial not only to seek the advice of a New York Elder Law attorney to discuss Medicaid planning strategies and estate planning for the ill spouse, but also for the healthy spouse.

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