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Medicaid Recovery Rules

Posted by Nina Whitehurst | Sep 06, 2019 | 0 Comments

Many people are vaguely aware that Medicaid (not to be confused with Medicare) can collect from a decedent's estate for amounts paid for the decedent's care during lifetime.  What they do not know is that state laws on this vary widely.  This is because Medicaid is a federal-state partnership program, and the federal laws governing the Medicaid program give states some latitude in designing their estate recovery programs.

Some states have elected "standard recovery" while others have elected "expanded recovery", in the parlance used by elder law attorneys. 

In "standard recovery" states, Medicaid only pursues its claim only against a decedent's probate estate.  This is done by imposing requirements that courts and/or attorneys notify Medicaid that a probate case has been opened, thus giving Medicaid the opportunity to submit its claim along with other creditors.  In some states an affirmative clearance is required from Medicaid before the estate can be closed. 

In "standard recovery" states it is fairly easy to avoid Medicaid recovery by ensuring that all assets pass at death outside of probate.  Any experienced estate planning attorney can counsel you on this.  The pure "standard recovery" states in this law firm's field of service are Alaska, Arizona, California, and Colorado.

In "expanded recovery" states, Medicaid pursues its claims against the decedent's probate estate AND against assets that pass outside of probate, such as assets in a living trust or property held in joint tenancy.  Oregon is an expanded recovery state.  That doesn't mean that an estate planning attorney can't help you avoid Medicaid recovery in Oregon; it just means you must plan way in advance (at least 5 years).

So, where does Tennessee fit?  Well, Tennessee is a bit of an oddball.  Technically, according to Tennessee's statutes and regulations, Tennessee is a "standard recovery" state.  However, there are court cases in Tennessee that have essentially expanded the definition of "probate estate" to make Tennessee a semi-expanded recovery state.  It's a bit complicated, so let's get started with some basics.

Like many other states (such as California), Tennessee has a 12-month statute of limitations for creditors of a decedent to make a their claims (Tenn Code Ann. 30-2-310(b)), but the Tennessee Supreme Court ruled in a case known as In re Estate of Turner, 295 S.W.3d 610 (Tenn. 2009) that this statute does not apply to TennCare.  Why?  Because there is another statute that provides that a probate can't be closed without a release from TennCare.  Tenn Code Ann. 71-5-116(c)(2).  In this blogger's opinion the case could have easily and justifiably been decided the other way, but it wasn't, and this is now the law.  What this means is a decedent's heirs cannot intentionally wait more than 12 months after date of death to open a probate and thereby avoid TennCare's claim for reimbursement, if applicable.  See also In re Estate of Gregory, 2012 Tenn. Ct. App. LEXIS 438, 2012 WL 2499502 (Tenn. Ct. App. June 29, 2012).

In some "standard" recovery states, such as California, a TennCare recipient can completely avoid Medicaid (MediCal in California) estate recovery simply by putting all of his or her assets in a revocable living trust during his or her lifetime.  Individuals that employ this strategy die owning nothing in their names (all assets being in a trust) and, therefore, no probate case is opened and, therefore, the Medicaid agency (MediCal in California) makes no claim for reimbursement.  While it is well known that revocable living trusts do not provide protection from creditors in general, it is not as well known that it does (at least in California and other standard recovery states) provide protection from one particular creditor - Medicaid.

Not so in Tennessee.  In Tennessee, TennCare can (and most likely will) petition the court to appoint an administrator of the estate (if nobody else does), and then proceed to assert its claim and at the same time ask the court to claw back into the probate estate the assets that were in the revocable living trust at the decedent's date of death, just like any other creditor could do, the only difference being the other creditors are subject to the 12-month statute of limitations while TennCare is not.  In re Estate of Stidham, 438 S.W.3d 535 (Tenn. Ct. App. August 23, 2012).  The bottom line is that in Tennessee, unlike other states, a revocable living trust does not shield the estate from TennCare recovery.

So how, then, does one avoid TennCare recovery in Tennessee assuming one is so inclined?

The number one and most reliable method is to PLAN AHEAD, way ahead.  By "way ahead", we mean at least five years before you need nursing home care.  Call us at 931-250-8585 and ask about "Medicaid pre-planning".

If you fail to plan ahead, TennCare CAN AND WILL seek reimbursement from the assets in your probate estate AND the assets in your revocable living trust upon your passing.   At that time the ONLY hope your heirs will have of completely avoiding TennCare recovery is if the property subject to recovery is the sole income-producing asset of the survivors, such as a family farm or other family business. It is relatively rare for this exception to apply.

The following exceptions will DELAY TennCare recovery until the exception no longer applies, so they are usually only temporary:

  • A brother or sister of the decedent meets all of the following criteria: (a) he or she was lawfully residing in the decedent's home for a period of one year immediately before the decedent's admission to the medical institution; and (b) he or she provided care to the decedent for that one year, which permitted the individual to reside at home rather than in an institution; and (c) he or she has lawfully resided in such home on a continuous basis since the date of the individual's admission to the medical institution.  This results in deferral of recovery until the sibling no longer resides in the home.
  • A child of the decedent meets all of the following criteria: (a) he or she was lawfully residing in the decedent's home for a period of two years immediately before the decedent's admission to a medical facility; and (b) he or she provided care to the decedent for those two years, which permitted the decedent to reside at home rather than in an institution; and (c) he or she has lawfully resided in such home on a continuous basis since the date of the individual's admission to the medical institution.  The results in deferral of recovery until the child no longer resides in the home.
  • The decedent is survived by a surviving spouse.  This results in deferral of recovery until the surviving spouse passes.
  • The decedent is survived by minor children (under age 18).  This results in deferral of recovery until all children have attained age 18.
  • The decedent is survived by a child of any age who is blind or permanently and totally disabled.  This results in deferral of recovery until said child or children are deceased, usually, because it is uncommon for one to regain vision or ability (but it could happen).

Call us if you have concerns about future Medicaid recovery.  We can help a lot if you plan ahead.  We can often still help if you have waited until the last minute, but it will most likely be more expensive than planning ahead and the assets we can protect will be fewer.

About the Author

Nina Whitehurst

Attorney at Law Nina has been practicing law for over 30 years in the areas of estate planning, real estate and business law She is currently licensed in Alaska, Arizona, California, Colorado, Oregon and Tennessee. Her Martindale-Hubbell attorney rating is the highest achievable: 5 stars in peer...

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