Have you ever wondered how you would pay for long-term nursing home care at a cost of $350 to $500 a day or more? Medicaid, also known as MassHealth in Massachusetts, is the combined federal and state benefit program that pays for nursing home care for individuals who do not have assets to pay for their care. An individual applicant can have no more than $2,000 of countable assets in order to qualify for Medicaid benefits. A married individual’s spouse who lives in the community may own up to approximately $120,000 of countable assets. The home of a Medicaid applicant is considered a non-countable asset and may be owned by an individual, or a married couple, without impacting eligibility.
Under current law, if a Massachusetts resident over the age of 55 receives Medicaid benefits, whether for care in the community or to pay nursing home costs, the Commonwealth may recover those costs from the recipient’s probate estate at death. This is called “estate recovery.” Probate assets do not include assets that are owned jointly with another person, or are owned by a trust, or a home in which the Medicaid recipient may have a life estate interest.
Governor Baker’s Fiscal Year 2017 budget includes a proposal that would expand estate recovery to allow Medicaid claims to be made against any asset in which the deceased owned an interest at the time of death. Here are five ways this proposed change to the estate recovery law could impact you:
- Recovery against Property in which a Medicaid Recipient holds a Life Estate. A life estate is an interest in real estate that allows the “life tenant” to live in a property or collect any rental income the property generates. The life tenant is responsible to pay property taxes and maintain the property during his lifetime. Many parents who are concerned about protecting their home or its value for children will transfer their home to their children (holders of the “remainder interest”) and reserve a “life estate” that will ensure they can live in the property for their lifetime. At the death of the life tenant, the life estate ends and the property is owned by the holders of the remainder interest. Under current law, if the life tenant receives Medicaid benefits during his lifetime, the property is not subject to estate recovery because the property will not be part of the life tenant’s probate estate. Governor Baker’s proposal would allow the state to file a claim against real estate in which a deceased Medicaid recipient held a life estate interest immediately before death, and recover the value of that life estate interest from the remainder interest holders.
- Recovery Against Assets held in Irrevocable Trusts. The same principals apply to real estate or other assets owned by an irrevocable trust created for the purpose of transferring assets in trust to children or other family members. Often, the person who establishes the trust retains the right to receive the income generated by the trust assets for his lifetime, or in the case of real estate, the right to live in the property. Under Governor Baker’s proposal, the state would be able to make a claim against the irrevocable trust assets to recover Medicaid benefits paid on behalf of the person who establishes the trust to the extent of their interest. How that person’s interest in the trust would be valued is unclear.
- Recovery Against Joint Tenancies. Life estates and irrevocable trusts are typically strategies used by individuals who have taken steps to protect assets from liability for future long-term care expenses. However, almost every married couple owns their home jointly (either as joint tenants or tenants by the entirety), whether or not they have ever thought about planning for long-term care. Joint ownership ensures that the surviving spouse will automatically become the owner of the jointly held property at the death of the first spouse, without the need for a probate proceeding. The survivor is free to sell or mortgage the property, or continue to live there. Governor Baker’s proposal will jeopardize the surviving spouse’s security in the home by permitting the state to place a lien against the home of a married couple for Medicaid benefits paid on behalf of one spouse. If the surviving spouse wants to sell the home (whether to downsize, move closer to children, or move to assisted living), she will have to address the state’s lien. This will have a far-reaching negative impact on surviving spouses, many of whom have no significant assets other than the home, especially if their spouse has received nursing home care for several years.
- Impact on Real Estate Titles. Apart from the risks to the home, the Governor’s proposal will create serious title problems for Massachusetts real estate. Because the Governor’s proposal will allow the state to lien real estate, this will create uncertainty as to whether the title to property is clear. Anything that could create a “cloud” or a question about whether a property owner has clear title to property will have a severe negative impact on the owner’s ability to sell or mortgage the property. This proposed law, if enacted, has the potential to wreak havoc with the ability of owners to buy, sell or mortgage real estate if an owner (even a deceased owner) has received Medicaid benefits. Potential buyers may shy away from properties where this is an issue. Serious delays are likely to occur when closings are held up until surviving spouses or other owners negotiate with the state to release liens or claims on the property. Since ‘time is of the essence’ in almost every real estate sale, this has the potential to be a real disaster. This is just one example of the far-reaching impact of this proposal.
- Lack of Grandfathering. Governor Baker’s proposal will make these new estate recovery rules applicable to anyone over the age of 55 who becomes eligible to receive Medicaid benefits after July 1, 2016. This aspect of the proposal penalizes those who have planned in advance for the possibility of long-term care by conveying property to their children reserving a life estate or by transferring assets to an irrevocable trust they created many years ago, in reliance on current law which would protect those properties from estate recovery. The proposal also penalizes people who have not done any long-term care planning. In those cases, a surviving spouse who owned property jointly with a Medicaid recipient prior to the Medicaid recipient’s death will be faced with the prospect of a claim by the state against her home for her deceased spouse’s Medicaid benefits. This will impact the surviving spouse’s ability to sell or mortgage that property for the rest of her life.
Although the focus has been on real estate, Governor Baker’s proposal would allow the state to file claims against jointly held bank accounts, assets held in trust, and assets such as IRAs received by a beneficiary after a MassHealth recipient’s death (not including life insurance or annuities). This proposal is a serious and significant departure from previously settled Medicaid law, and will have a wide-ranging negative impact on surviving spouses and families of Medicaid recipients. It will significantly impact the planning that elder law attorneys are able to do for their clients, especially with respect to protecting the family home for the benefit of the surviving spouse or children.
Governor Romney made a similar proposal in 2003, which was enacted but repealed a year later by the legislature after numerous attempts at implementation showed that the law was seriously flawed and had significant unintended consequences. More recently, New York State had a similar experience.
Read more information about the Governor’s proposal and what you can do to register your objection here.
Attorney Maria Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.