Estate Recovery Rules

By Scott Koldin

This entry was posted on October 15, 2013

We received an email question on our website as follows:

"My mother was on Medicaid and living in a nursing home when she passed away early this year. Will Medicaid try to recover her $14,400 savings she was allowed to keep when she was alive and a small $5,000 life insurance policy that named me beneficiary?"

The Medicaid Agency has two opportunities to take away family savings.

First, there are the eligibility requirements where the Medicaid applicant must spend his/her life savings towards the cost of care until he/she only has $14,400 in savings which is called the exempt funds (2013 figure). Under certain circumstances, a small life insurance policy may also be exempt for eligibility purposes.

Second, after the Medicaid applicant dies, any funds left of the $14,400 could become subject to an estate recovery claim by the Medicaid Agency seeking reimbursement for funds it paid for medical expenses.

As a general rule, the Medicaid Agency can only recover from the Probate Estate. This means if an account needs to go through probate to pass on to the heirs, then Medicaid would have a right of recovery. If an account is a joint account with right of survivorship or has a beneficiary designated on the account, then Medicaid would not have a right of recovery because the account would pass directly to the beneficiary or co-owner without the need for an estate proceeding to release the funds.

In the question above, the answer to whether the Medicaid Agency will have a right of recovery against the bank account will depend on whether the account was joint with any of the children or whether the account had beneficiaries designated on it. The life insurance will not be owed back to the Medicaid Agency because there was a beneficiary designated on the policy.