Introduction

Medicaid estate recovery is a federally mandated program that allows states to recoup some of the costs of Medicaid benefits paid on behalf of a recipient, particularly for long-term care services. Despite the importance of this program, it is often overlooked by individuals when planning their estate. Hence, it is important to understand the rules and procedures surrounding estate recovery and to work with an experienced New Jersey estate planning attorney to safeguard your assets and protect your family’s future.

What is Estate Recovery?

Estate recovery refers to the process by which the state recovers some of the costs of Medicaid benefits paid on behalf of a recipient, typically for long-term care. This is to help states offset the costs associated with providing Medicaid benefits and to ease their burden on providing resources to future beneficiaries.

Under the Omnibus Budget Reconciliation Act (OBRA) of 1993, states are required to implement estate recovery programs from the estates of deceased recipients. OBRA provides the minimum estate recovery program that states must establish, but allows states to expand their estate programs beyond the federal mandate.

One type of Medicaid service generally subject to estate recovery includes long-term care services, such as nursing home care, assisted living facilities, and home and community-based services. Hospital and prescription drug services are also typically subject to estate recovery. Further, when individuals who are eligible for both Medicaid and Medicare, states can recover the costs of Medicare premiums, deductibles, and co-payments that were paid by Medicaid on the beneficiary’s behalf.

Estate Recovery in New Jersey

Estate recovery in New Jersey is implemented in the context of the Medicaid Long-Term Services and Supports (MLTSS) program. MLTSS, for those who don’t know, is a comprehensive program for providing long-term care services and support for seniors, people with disabilities, and those who require assistance with daily living activities.

The MLTSS estate recovery program focuses on recouping costs associated with long-term care, including nursing home care, assisted living, home and community-based services, and related hospital and prescription drug services. When an individual who has received long-term care services under the MLTSS program dies, the state of New Jersey may initiate the estate recovery process to recover some of the costs associated with the provided services.

The New Jersey Division of Medical Assistance and Health Services (DMAHS) begins the estate recovery process by identifying deceased Medicaid recipients who received long-term care services and are subject to estate recovery. Typically, these are individuals who were 55 years of age or older when they received long-term care services. There are, however, exemptions from estate recovery, which will be explained in the next section. 

DMAHS then sends a notice of estate recovery to the executor or administrator of the deceased recipient’s estate, which provides information about the estate recovery process, the amount the state intends to recover, and any available exemptions or waivers. It is the executor or administrator of the estate’s responsibility to settle the deceased recipient’s affairs, which includes paying any valid claims against the estate, including Medicaid estate recovery. Once the state’s claim for estate recovery has been satisfied or waived, the executor or administrator can proceed with distributing the remaining assets of the estate according to the testator’s will or state intestacy laws. If you are the executor or administrator of an estate subject to estate recovery and have any questions or concerns, it is a good idea to reach out to a New Jersey elder law attorney for advice.

Exemptions and Protections from Estate Recovery in New Jersey

Luckily, there are a number of exemptions and protections that can limit or prevent Medicaid estate recovery in New Jersey. One of the most common exemptions is the surviving spouse provision, which prevents the state from pursuing estate recovery while the deceased recipient’s spouse is still alive. However, once the surviving spouse passes away, the state may then recover from the remaining estate. Another prevalent exemption is the protection for minor or disabled children, which bars estate recovery if the deceased recipient has a minor child under the age of 21 or a blind or disabled child of any age living in their home.

In some cases, caretaker relatives may also be exempt from estate recovery. Depending on the specific circumstances and duration of care, the state may be precluded from pursuing estate recovery if the family member has been living in the Medicaid recipient’s home and providing care for them.

Finally, the state may be barred from estate recovery in cases where estate recovery would cause substantial financial difficulties for the surviving family members. Known as undue hardship waivers, these are granted on a case-by-case basis and often require documentation to support the claim of hardship. It is worth noting that these waivers are subject to high standards of hardship and are rarely granted.

Minimizing Medicaid Estate Recovery in New Jersey

With careful planning and the use of legal strategies to protect assets while adhering to Medicaid rules and regulations, you can soften the potential impact of Medicaid estate recovery. Consulting with an estate planning attorney can help you understand your options and develop a plan that reduces the impact of estate recovery while maximizing asset protection.

One such strategy may be to establish an irrevocable trust. Since this would transfer certain assets to a trust, it would no longer be considered part of the recipient’s estate, and thus beyond the reach of Medicaid estate recovery. Of course, when considering this option, one must be aware of the Medicaid look-back period, which penalizes transfers made within five years of applying for Medicaid benefits.

Another strategy could be to create a life estate, which would transfer your home ownership to a family member or loved one, while retaining the right to live in the property for the remainder of your life. Since the ownership of the property transfers immediately upon your death, it would then be beyond the reach of estate recovery. Again, you should make sure that the life estate is established outside the look-back period.

You may also consider purchasing long-term care insurance to help cover the costs of long-term care services and reduce reliance on Medicaid. By utilizing this strategy, you can minimize the likelihood of estate recovery affecting your assets.

No matter which estate recovery protection strategy you choose, it is always important to consult with an experienced estate planning attorney to ensure that you are complying with all relevant rules and regulations.

Conclusion

In sum, understanding Medicaid estate recovery and its implications is essential for individuals and families who use long-term care and Medicaid in New Jersey. Being proactive and employing estate recovery protection strategies can help minimize the impact of estate recovery on your loved ones and allow your assets to be distributed according to your wishes. Contact our experienced estate planning attorneys at the Chamberlain Law Firm today at (201) 273-9763 to begin developing an estate recovery protection plan.

This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a lawyer about the specifics of your case, contact The Chamberlain Law Firm at (201) 273-9763 to schedule a consultation.