The Medicaid program is something you’ve paid for your whole life. Much like Social Security, you pay into Medicaid with each paycheck. However, unlike Social Security, even though you’ve paid in, you’re not entitled to recoup your money unless you meet the income and asset thresholds. In that way, Medicaid is rather restrictive. Thankfully, Elder Law attorneys have creative methods to get you qualified regardless of your income and asset levels. But even though you’ve paid into Medicaid your whole life, and you’ve finally become qualified to recoup your investment, Medicaid will still try and recover any money they paid on your behalf.
This is called the “Estate Recovery Lien” or the “Medicaid Death Penalty”. The way it works is that Medicaid will attempt to recover any amount paid on your behalf from the property in your estate after you die. Therefore, one way or another, Medicaid gets to keep the money you paid to it.
So, the question is: how do you avoid this penalty?
Let’s first talk about the common misconception that bankruptcy will eliminate the death penalty. To discharge debt in a bankruptcy that debt must have been previously incurred. In other words, the debt must have already “attached”. The Medicaid death penalty isn’t a debt that attaches during life. Instead, it is a method for recovery that allows Medicaid to calculate the amount of debt after your death and recoup the amount from your estate. This makes sense because Medicaid doesn’t know the amount of the debt until you’ve passed since they are paying for your long term care up to that point.
So how do you avoid the death penalty? North Carolina is what’s called a “limited recovery” state. This means that Medicaid is only allowed to recover what it has been paid by taking it out of the property that passes through your estate and therefore through probate. This means that they can only place a lien on property that passes through your will or through intestate succession if you don’t have a will.
Thus, you want your property to pass outside your will. This can be done in a number of ways. You can place beneficiaries on accounts, create trusts with assigned beneficiaries, or create survivorship rights in your property e.g. re-titling your vehicle “jointly titled with rights of survivorship”
If none of your property is passing through your estate i.e. the probate process, then Medicaid has nothing to take to recoup their payments.
What about the Home?
Thankfully, the home does not have to pass through your estate. You can do deed work to ensure that your home passes outside of your will and directly to your heirs at the moment of your death.
The best way to do this in North Carolina is through the utilization of a Ladybird Deed (LBD). The LBD allows you to essentially place a beneficiary on the home. This means that the home will automatically pass to the beneficiary upon your death and avoid probate altogether. Because the home is not passing through probate (or through your estate), Medicaid cannot place a lien on the property. The added benefit to the LBD is that it does not trigger the lookback period for Medicaid. Thus, the LBD allows you to predesignate who will inherit your property while avoiding the lookback period and any death penalty.
You can avoid the Medicaid death penalty by avoiding probate and allowing Medicaid to reach the property in your estate. To learn more about probate avoidance and Ladybird Deeds, contact McIntyre Elder Law at (704) 259-7050.
Brenton S. Begley
Elder Law Attorney
McIntyre Elder Law
“We help seniors maintain their lifestyle and preserve their legacies.”
PO Box 165
Shelby, NC 28151-0165