Posted on: April 28th, 2021

In our previous newsletter, we examined the Medicaid application process.  As a brief refresher, in order to qualify for Medicaid, an individual must meet certain level of care requirements in addition to passing both an income test and a resource test.  In this newsletter, we will examine Iowa’s estate recovery law as well as some different strategies available to you if you are interested in Medicaid planning.

Iowa’s Estate Recovery Law

Federal law requires each state to have an estate recovery program.  Estate recovery affects recipients of Title XIX funded medical assistance (Medicaid) who are either (1) 55 years of age or older at the time they receive medical assistance benefits, or (2) less than 55 years of age and a resident of a care facility who cannot reasonably expect to return home.  When an individual who received Medicaid benefits passes away, the state of Iowa seeks to recover or be reimbursed for any amounts it previously paid in medical assistance benefits for the individual from the assets of the individual’s estate.

Upon the opening of a decedent’s estate, Iowa law requires the estate to notify the Estate Recovery program of the decedent’s death and to inquire as to whether Estate Recovery has any claim to the decedent’s assets for the recovery of medical assistance benefits.  It is important to note that Estate Recovery can go after assets that would not otherwise be included in the decedent’s probate estate such as real estate that was owned by the decedent as a joint tenant or in which the decedent retained a life estate.

The recovery of these assets by Estate Recovery may be delayed if the repayment will create a “hardship”.  Whether repayment would create a hardship is determined on a case-by-case basis by Estate Recovery.  A hardship can be found to exist when:

  1. The total household income is less than 200% of the federal poverty level for the size of the household, and
  2. The total household resources are not more than $10,000 (not including a house or a car), and
  3. Recovering the resources of the “estate” denies your family of food, clothing, shelter or medical care that might put a person’s life or health in danger.

If the debt is waived for a hardship, the debt is still due to the extent that the person applying for the hardship waiver received assets of the decedent’s estate, either when the person no longer meets the hardship waiver criteria or at the time of the person’s death, whichever occurs first.

The recovery of assets may also be delayed if the decedent left a surviving spouse or a child who is younger than 21 years of age, blind, or disabled.  Estate Recovery would then reclaim those assets upon the death of the spouse or child, or upon said child attaining the age of 21.


Medicaid Planning

Although there are times when individuals have no choice but to apply for Medicaid, it is not uncommon for family members to feel surprised or hurt after a Medicaid recipient passes only to learn that Estate Recovery has filed a claim in the recipient’s estate.  This sting can often be lessened with a little planning, but in order for the planning to be effective, it is crucial that planning begin at least 60 months before the recipient applies for Medicaid.  The remainder of this article will examine different planning techniques individuals thinking about applying for Medicaid might consider.

One option younger individuals might wish to consider is the purchase of long-term care insurance.  These insurance policies provide coverage for different long-term care services and supports in a variety of settings such as your home, a community organization, or another facility.  These policies reimburse policyholders a daily amount (up to a pre-selected limit) for services to assist them with activities of daily living such as bathing, dressing, or eating.  The cost of these policies depends on the applicant’s age at the time of purchase, the amount of coverage desired, and the applicant’s health and medical history.  Unfortunately, individuals who wait until later in life to purchase these policies often find they are too expensive.

A second planning technique is to begin transferring assets to family, friends, or charities.  As previously stated, however, these transfers must take place 60 months or more before applying for Medicaid.

Although taxpayers are allowed to gift up to $15,000 to another individual each year without facing any gift tax consequences, this annual exclusion does not apply for Medicaid purposes.  If you transfer any of your assets for less than fair-market value within 60 months of applying for Medicaid, Medicaid will learn about the transfer and will go after the value of those assets.  As we discussed in our previous newsletter, Medicaid will go after the recipient of the assets if you do not have the funds to cover the value of the asset and then the recipient will be liable – even if he or she used or spent the asset in good faith.

If individuals do not feel comfortable making outright gifts to their beneficiaries, there are other options available, such as specialized trusts, that can allow them to remove the assets from their estate for Medicaid purposes if done at least 60 months prior to applying for Medicaid without giving their beneficiaries immediate access to the assets.  This can be especially appealing to individuals with younger beneficiaries who would not otherwise be ready to manage large sums of money.  If this is something that interests you, please contact us for additional information and we can discuss all your options with you.

The last planning technique individuals should always remember is to update their estate planning documents if there is any concern they or their spouse might need to apply for Medicaid.  It is important to remember that the individual receiving Medicaid benefits is not necessarily the first individual who will pass away.  For example, suppose the community spouse passes away with a Will that leaves everything to his or her spouse and if the spouse is deceased then to his or her children in equal shares.  In this scenario, even though the assets originally owned by the community spouse were protected from Medicaid, by leaving everything to the spouse receiving Medicaid benefits, Medicaid can now recover the value of 100% of the assets.  Furthermore, the spouse receiving Medicaid benefits will not be able to disclaim the inheritance from the community spouse as a disclaimer would be viewed as a gift by Medicaid.  Alternatively, the community spouse should revise his or her estate planning documents to disinherit the spouse receiving Medicaid benefits and instead name his or her children (or whomever he or she wishes to name) as beneficiaries.

We hope these articles on Medicaid have increased your awareness of the options available to you when considering whether you should apply for Medicaid or not.  Even if you think you will not be able to qualify for Medicaid, there might be different planning options available to you.  If you have any questions about qualifying or applying for Medicaid, please do not hesitate to give our office a call and we will be happy to help you make an informed decision.

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