Death, Taxes and now, Medicaid Estate Recovery The fact by onetwothree4


									               Death, Taxes and now, Medicaid Estate Recovery

        The fact Indiana is now more aggressively pursuing estate recovery for
medical assistance provided to seniors makes many attorneys believe this is some
new program. Surprisingly, the original Social Security Act of 1935 required
states to reimburse the federal government one-half of any amounts collected from
recipients of old-age assistance. The Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA) allowed states to impose liens on real estate to recover for medical
assistance paid for an individual 65 years of age or older.

       Congress mandated Medicaid estate recovery plans for all states as part of
the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). On September 30,
2007, Michigan became the 50th state to enact Medicaid estate recovery rules
mandated 14 years earlier by OBRA ’93. The Medicaid estate recovery laws now
apply to medical assistance provided on behalf of an individual 55 years of age or

       The Indiana statute, most recently revised to authorized expanded estate
recovery, is found at IC 12-15-9-1. Estate recovery was first mandated in 1995
and there have since been several important amendments. These laws originally
applied only to assets of a Medicaid recipient passing at the time of death through
probate (through the actual court process). The estate recovery efforts were
greatly expanded in 2002 when non-probate assets were exposed to estate

       When the non-probate estate recovery laws were enacted, existing non-
probate assets were “grandfathered” against estate recovery. Income-producing
property placed in a trust before May 1, 2002, is exempt from estate recovery.
The law is not clear as to what happens if the trust is amended after that date, so
the careful attorney will not change a non-probate transfer made before May 1,
2002, unless a compelling reason exists that requires an amendment. Indiana has
lien laws that allow liens to be placed against real estate in certain circumstances
to secure repayment of the costs incurred for Medicaid. There has not yet been a
test case to determine if liens can be placed against property which would
otherwise be exempt from estate recovery.

       The funds recovered from Medicaid recipients or their families have
increased dramatically in recent years. In 1998, $2,808,882 was recovered from
recipients. This amount increased to $9,770,222 in 2007. The explosive growth
in Medicaid estate recovery will likely increase in the near future as technology
makes it easier to trace assets and as budget considerations compel the state to
more actively pursue sources of funds.
       There can be no estate recovery while a surviving spouse, minor, blind, or
disabled child is living. Indiana also prohibits estate recovery if such recovery
would cause undue hardship to the surviving heirs. The hardship application
process starts with the completion of an Application for Hardship Waiver. I have
used this exemption to keep a home for a low-income child after her mother’s

        When an estate is open, Medicaid estate recovery is simple. Medicaid is a
known creditor and notice is given to Michael Staresnick, Estate Recovery
Manager, Office of Medicaid Planning & Policy, 402 W. Washington St., Room
W-382, Indianapolis, Indiana 46204-2772. Michael orders a printout of medical
expenses paid for the individual and files a claim for that amount. To the extent
the estate has assets, the claim is paid in full in accordance with the priorities set
forth in IC 29-1-14-9.

       The failure to notify Medicaid in an estate situation is discussed in Opinion
2 of 2003 of the Legal Ethics Committee of the Indiana State Bar Association. A
lawyer who knows of a Medicaid claim, but does not provide notice to Medicaid,
is not permitted to prepare a closing statement in an unsupervised estate or a
petition to settle the estate in a supervised estate. One consequence of a failure to
provide notice is there is no time limit to estate recovery.

       The Medicaid recipient may have assets at the time of death. The family
wants to use those assets to pay for the funeral, if not prepaid. Indiana law allows
for the use of these resources for funeral arrangements under the provisions of
IC12-14-17, provided the recipient did not have prepaid funeral arrangements
exempted under the provisions of IC12-15-2 at the time of the application for
Medicaid. Michael Staresnick has been very good to work with when questions
exist about whether funds of a recipient can be used to pay for funeral
arrangements. You should contact him about your client’s specific situation if
there are questions about the payment of funeral expenses.

       The issues are more complicated for non-probate transfers. You must first
consider if the existence of the non-probate asset was disclosed to the Medicaid
office when the Medicaid application was made. If so, Medicaid has 9 months to
open an estate proceeding to enforce its rights of recovery against the non-probate
asset under the provision of IC 32-17-13. When Medicaid has not been informed
of a non-probate asset, there is, again, no time limit on the estate recovery efforts
pertaining to that asset or the proceeds from that asset.

       The estate recovery rules for annuities are even more complicated. Indiana
law (IC 12-15-9-0.5) states that Medicaid estate recovery is permitted for money
due after June 30, 2005, from an annuity purchased on or after May 1, 2005, with
assets of a Medicaid recipient or a Medicaid recipient’s spouse. Indiana law
implies that annuities purchased before May 1, 2005, where the owner does not
engage in certain later “transactions”, are protected from estate recovery. When
Indiana enacts the provisions of the Deficit Reduction Act of 2005, effective
February 8, 2006, or sooner if these provisions are already in place, the balance of
the annuity as of the date of death of the annuitant will be (is) assigned to the State
to the extent of benefits paid by the State for the Medicaid recipient or the
recipient’s spouse after the age of 54.

       The current non-probate transfer rules do not allow estate recovery against
life insurance, the survivorship interest in tenants by entireties property, the
survivorship interest in joint tenancy property created prior to June 30, 2002, or
the remainder interest in life estates. There is only estate recovery against other
non-probate property if the Medicaid recipient had the power, acting alone, to
prevent the transfer of the property by revocation or withdrawal to the transferee
immediately before death. This prevents estate recovery against assets in an
irrevocable trust.

       The State of Indiana does not recognize prenuptial agreements when a
spouse applies for Medicaid. When the spouse of a Medicaid recipient remarries,
funds received by the spouse from a subsequent spouse are not subject to estate
recovery. As a practice tip, I recommend the cost of nursing home care be
addressed in a pre-nuptial agreement along with the right to serve as a health care
decision maker.

        The 2005 amendment to the Indiana Medicaid estate recovery rules allows
estate recovery against the estate of the second spouse to die for benefits paid for
the first spouse to die (IC 12-15-9-1). This may or may not comply with federal
law and no Indiana case has fully addressed this issue as yet. Please see Wayne
Walston’s excellent article on this in the December 2005 ICLEF Elder Law
Institute and as updated December 2006. Litigation on this issue is presently
being conducted in Indiana.

JUNE 2008

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