It’s no secret state and county governments are facing economic hardships and looking at whatever ways they can to save and raise money.
But a new, undeveloped — as of yet — state law to expand the definition of estate to include life estates in order to recover Medicaid payments has local estates and trusts attorneys wondering what changes the Department of Health plans and what affect it may have on clients.
The law, effective as of April 1, amends Section 369 of the Social Services Law and expands the definition of an individual’s estate to include “any other property in which the individual has any legal title or interest at the time of death, including jointly held property, retained life estates, and interests in trusts” to recover medical assistance benefits.
To receive Medicaid benefits, recipients must meet basic asset eligibility requirements, such as having an account of $13,800 or less, a home and an IRA in payout status.
Advising healthy “78 year-old” clients to set up a life estate in which their home is transferred to their children is common practice, said Terrance Emmens, an estates and trusts attorney with Lacy Katzen LLP. Such an estate would typically avoid probate since Medicaid estate recovery does not include property passing to a designated beneficiary.
“In five years, the house is bullet proof if they stay out of a nursing home,” Emmens explained.
“I recommend it because upon death, a life estate evaporates and isn’t considered an available resource [for recovery],” Emmens said. However, he noted “[t]he new law seems to give the state the right of recovery” in a life estate for Medicaid payments.
Eugene O’Connor of ChamberlainD’Amanda explained further: “Typically, parents would give the deed to a house to children but keep an interest in the house. … The new law expanded the term ‘individual estate’ to include any property a person had a legal interest in at the time of death including jointly held property.
“I’m not sure how to interpret [the new law] yet,” O’Connor added. “We’ve got to see what the regulations are going to say.”
“With the new change, they’re going after anything you have an interest in at the time of death including trusts or a life estate,” said David Shaffer, an estates and trusts attorney with Woods Oviatt Gilman LLP. But, he added, “it’s one thing to talk about change and another to implement it.”
The Department of Health is expected to issue more definitive regulations in the next few weeks.
The state may also be going after individual retirement account monies that were previously exempt as long as they were in periodic payment status.
“The state may be saying they have an interest in IRA’s and that conflicts with federal law,” Emmens said. “[The Department of Health doesn’t] have a good track record and ambiguity leads to a lot of litigation.”
Emmens said it is also unclear as to whether the new law “is going to be just prospective or retroactive.”
On April 13, the Elder Law, Trusts and Estates, and Real Property sections of the New York State Bar issued a memorandum on the expanded Medicaid estate recovery regulation.
The memorandum expressed numerous concerns with the new law, including the failure of expanded estate recovery of non-probate assets in other states and the widespread potential for litigation as a result of conflict with existing state and federal laws that could cost the state more in court than it would gain in Medicaid estate recovery.