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Medicaid estate recovery and the “community spouse”

On Behalf of | Dec 28, 2011 | Estate Planning |

In our last couple posts, we’ve been looking at the concept of Medicaid estate recovery. As we’ve noted, Medicaid estate recovery refers to the ability of state governments to recover from the beneficiary’s estate benefits paid out while they were alive. Because these claims only arise after the beneficiary’s death, they are sometimes described as Medicaid’s “death tax.”

Medicaid estate recovery is a good thing to be aware of when approaching estate planning, as it can affect the assets of the Medicaid beneficiary’s spouse, as well as other beneficiaries. One issue that can come up with Medicaid estate recovery is what happens when the Medicaid beneficiary’s spouse-also known as the community spouse-predeceases the Medicaid spouse.

In New Jersey, a community spouse’s estate is generally exempt from Medicaid recovery. That is the case when the Medicaid beneficiary dies first, but the law is a bit more unclear when the community spouse dies first. A further complication can result when the spouse of the beneficiary dies before the beneficiary has even become eligible for benefits. In this situation, it needs to be determined how to apportion assets between the spouses.

If the deceased community spouse’s will provides that the spouse is to receive all their property, then it would be clear that all that property would go to the institutionalized spouse who will become a Medicaid beneficiary. When the will excludes that spouse, though, it isn’t so clear. In New Jersey, that spouse would be able to waive his or her right to a one-third elective share, but if this is done within five years of applying for Medicaid, the waiver is considered a gift and penalties could result.

Under New Jersey Medicaid regulations, all assets owned in the name of either the husband or wife or both names are pooled together and divided so that each spouse receives half of the joint assets up to a maximum amount allowed to the community spouse. The rest of the assets must then be spent on care for the institutionalized spouse.

With these matters it is important to consult a knowledgeable attorney, but it may be possible to exempt funds which are titled only in the name of the deceased community spouse from Medicaid recovery.

These comments only touch on the surface of possibilities with respect to Medicaid estate recovery. Our point here is only to make you aware of this aspect of estate planning, so that you will be more aware in your planning.

Sources: nj.com, “Your Legal Corner: Community spouse and Medicaid estate recovery,” Victoria Dalton, December 18, 2011.