As life expectancy continues to increase, many of my clients find themselves confronting the realities of long-term care planning. Many of them focus on qualifying for Medicaid to help pay for nursing home care without fully understanding what can happen after a Medicaid recipient passes away. Although qualifying for Medicaid may be an important step in the long-term care planning process, it is often just part of the journey. What people often fail to realize is that qualifying for Medicaid does not necessarily mean your assets are completely protected because Maryland participates in the Medicaid Estate Recovery Program (MERP), a program that allows the state to seek reimbursement for certain Medicaid expenditures after a recipient’s death. Understanding how the program works is critical if you want to protect your home, preserve family wealth, and incorporate effective Medicaid planning into your overall estate plan. Toward that end, allow me to explain what you need to know about the Medicaid Estate Recovery Program in Maryland.
What Is Medicaid?
Medicaid is a government healthcare program jointly funded by federal and state governments. Although federal guidelines establish the framework for the program, each state administers its own Medicaid program and establishes eligibility standards within federal guidelines.
For seniors, Medicaid often becomes most important when long-term care services are needed. While Medicare provides valuable health insurance coverage for older Americans, Medicare generally does not pay for extended nursing home care or ongoing custodial care. Consequently, individuals who require long-term care frequently turn to Medicaid as their primary source of financial assistance. Medicaid may help cover the costs of:
- Skilled nursing facility care
- Long-term nursing home care
- Home and community-based services
- Certain assisted living services
- Physician care
- Hospital services
- Prescription medications
Given the extraordinary cost of long-term care, Medicaid often becomes the only realistic option for middle-income families who cannot afford years of private-pay nursing home expenses.
Why Is Medicaid Planning So Important?
When discussing estate planning, many people focus primarily on distributing assets after death. While that remains an important objective, modern estate planning must also address the possibility of incapacity and long-term care needs. The cost of long-term care in Maryland has risen dramatically in recent years with the average annual cost of nursing home care in Maryland ranging between $155,000 and $173,000 per year. For many families, paying privately for that level of care for several years would quickly consume retirement savings and other assets accumulated over a lifetime. Not surprisingly, Medicaid has become an essential source of financial assistance for many Maryland seniors who require long-term care.
What Is the Medicaid Estate Recovery Program?
The Medicaid Estate Recovery Program is a federally mandated program that requires states to seek reimbursement from the estates of certain deceased Medicaid recipients. In practical terms, if Medicaid paid for some or all your long-term care expenses during your lifetime, Maryland may attempt to recover those expenditures after your death by filing a claim against your estate.
The purpose of the program is to reimburse taxpayers for Medicaid expenditures whenever assets remain available after a recipient’s death. While many people are surprised to learn about MERP, the program has existed for decades and represents an important part of Medicaid administration throughout the country.
Who Is Subject to Estate Recovery?
The good news is that not every Medicaid recipient will be subject to estate recovery. Unfortunately, however, Maryland may seek recovery from the estate of a Medicaid recipient who received benefits after reaching age 55, which means that most seniors who rely on Medicaid to help cover LTC costs are subject to MERP. Recovery efforts typically focus on benefits paid for long-term care services and certain related medical expenses.
When a recipient dies, the state reviews the estate to determine whether assets exist that may be subject to recovery. The most significant concern for many families is the family home and whether it is at risk because of MERP. While a primary residence is often treated as an exempt asset during the Medicaid eligibility process, that exemption does not protect the property from estate recovery after death. This distinction frequently creates confusion because people often mistakenly believe that exempt assets are permanently protected from Medicaid claims when, in fact, your home remains at risk even after you are gone.
Can Maryland Place a Lien on Your Home?
Under certain circumstances, Maryland may place a lien against a Medicaid recipient’s home as part of the MERP process. A lien may become possible when all the following apply:
- The individual has been admitted to a nursing facility.
- Medicaid is paying for long-term care services.
- Medical review determines that the individual is unlikely to return home.
While the existence of a lien can significantly affect the future transfer or sale of the property, certain family members are protected from the impact of a MERP lien. Specifically, Maryland usually cannot place a lien against a home if any of the following individuals reside in the property:
- A surviving spouse
- A child under age 21
- A blind child
- A permanently disabled child
What Happens After the Medicaid Recipient Dies?
After a Medicaid recipient’s death, Maryland may file a claim against the estate seeking reimbursement for Medicaid expenditures. The claim functions much like other creditor claims filed during probate administration. Before beneficiaries receive inheritances, valid claims against the estate must generally be satisfied. If estate assets remain after debts and expenses are paid, the state may seek reimbursement for qualifying Medicaid expenditures. The amount recoverable depends on several factors, including the amount Medicaid paid on behalf of the recipient and the value of assets remaining in the estate. If you failed to plan for the possibility of a MERP claim, estate recovery can significantly reduce the inheritance ultimately passed down to loved ones.
What Assets Are Subject to Recovery?
Estate recovery generally focuses on assets that are part of the probate process, such as real estate owned solely by you, bank accounts titled exclusively in your name, investment accounts without beneficiary designations, and personal property that goes through probate. The extent of recovery depends upon the nature of the assets and how they were owned at the time of death. Because probate assets are generally more vulnerable to estate recovery, many Medicaid planning strategies focus on reducing the value of assets that remain within the probate estate. In addition, MERP recovery can include seeking recovery from the estate of the non-nursing home resident spouse after death.
Does Maryland Recognize Hardship Exceptions?
Maryland recognizes that MERP recovery efforts may create significant hardship in certain situations, which is why the state provides a hardship exception that may allow recovery efforts to be waived. A hardship may exist when recovery would result in the displacement of a dependent individual who:
- Lived in the property at the time of the Medicaid recipient’s death
- Resided there continuously for at least two years before death
- Cannot reasonably secure alternative housing
Although hardship exceptions can provide what may only be temporary relief in appropriate situations, families should not rely on them as their primary asset protection strategy. Proactive planning is generally far more effective than attempting to seek relief after a claim has already been filed.
How Can Estate Planning Help Protect Assets from MERP?
The most effective way to address estate recovery concerns is through comprehensive estate planning. Because Medicaid imposes a five-year look-back period on asset transfers, Medicaid planning within your estate plan should ideally begin long before long-term care becomes necessary. Several planning tools may help protect assets while preserving Medicaid eligibility opportunities, including:
- Medicaid Asset Protection Trusts: An irrevocable Medicaid Asset Protection Trust may allow certain assets to be removed from your countable estate while preserving benefits for family members. Because transfers to these trusts are subject to the five-year look-back period, timing is critical.
- Strategic Asset Ownership: Proper titling of assets can affect both Medicaid eligibility and estate recovery exposure. Evaluating ownership structures before a health crisis occurs often creates more planning flexibility.
- Probate Avoidance Planning: Because estate recovery frequently focuses on probate assets, reducing probate exposure may also help reduce recovery risks. Trust planning, beneficiary designations, and other probate-avoidance techniques may form an important component of a larger Medicaid planning strategy.
Do You Have Questions about the Maryland Medicaid Estate Recovery Program?
For more information, please contact our estate planning office in Owings Mills, Maryland by calling 410-654-3850 to schedule an appointment.
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