Medicaid Estate Recovery: Why You Received a Letter After a Loved One’s Death

Q: My mom did estate planning to prevent Medicaid from going after her assets. Why did I receive a letter from Medicaid stating her estate owes money?

A: When a recipient of home care or nursing home Medicaid passes away, a state agency will send a letter to the recipient’s estate with the value of the services it rendered during the last 10 years preceding the recipient’s death. However, recovery only applies to recipients who were age 55 or older.

Regardless of whether the state is entitled to repayment for Medicaid services rendered, a letter will be sent to the deceased recipient’s estate to attempt recovery.

Recovery can only be made from the deceased’s probate estate. A probate estate includes assets owned in an individual’s name without a beneficiary designation or joint owner.

Probate estate assets do not include life insurance policies, 401(k)s, payable-on-death accounts, or transfer-on-death accounts with beneficiary designations. Likewise, if the Medicaid recipient owned property or another asset jointly with rights of survivorship, Medicaid cannot recover from that asset because it passes outside of probate.

If the Medicaid recipient was a party to a wrongful death lawsuit, the proceeds are paid directly to surviving family members and are therefore not subject to Medicaid recovery. However, if the recipient was a party to a personal injury lawsuit that settles after the recipient’s death, or before the recipient can engage in asset protection planning measures, Medicaid can try to recover from the proceeds because they are payable to the estate.

Furthermore, if the recipient is survived by a spouse, the state cannot attempt recovery until the surviving spouse has also passed away. Interestingly, if the deceased recipient was survived by a child under the age of 21 or a child of any age who is permanently blind or disabled, the state cannot recover against the recipient’s probate or non-probate estate assets.

Even when recovery is permitted, the amount owed may be reduced by allowable estate expenses, including funeral costs, legal fees related to estate administration, outstanding state or federal tax liabilities, and executor or administrator commissions.

While Medicaid is considered a preferred creditor, claims held by creditors with collateral (such as an outstanding mortgage) take priority and must be satisfied first. Medicaid can recover only up to the value of the recipient’s probate estate after these priority expenses.

Medicaid asset protection estate planning can help preserve assets during life and after death. If you receive a Medicaid recovery claim, consult an attorney experienced in trusts and estates and Medicaid recovery to determine whether any exemptions or planning strategies may reduce or eliminate Medicaid recovery entirely from a deceased recipient’s probate estate.

Erin Cullen, Esq., is an associate attorney at Burner Prudenti Law, P.C., focusing her practice on trusts and estates. Burner Prudenti Law, P.C. serves clients from New York City to the East End of Long Island, with offices in East Setauket, Westhampton Beach, Manhattan, and East Hampton.