New York's Expanded Medicaid Recovery Rules

On September 8, 2011, sections 363-a and 369(6) of the Social Services Law, 18 NYCRR Section 360-7.11 regarding Medicaid Estate Recovery were amended. Previously, recovery in New York State was limited to the estate of the Medicaid recipient which required an estate proceeding such as a probate (pursuant to a will) or by intestacy (when there is no will).  There was no right to recover against assets that passed directly to joint owners or against real property in which a decedent retained a life estate.  The purpose of the new law is to permit the State to collect more money from a Medicaid recipient's assets by placing a lien on their non-probate assets at the time of their death. The new regulations allow the State to recover assets such as joint bank accounts, revocable trusts, certain irrevocable trusts and most troubling, real property in which the decedent retained a life estate.

Historically, the use of a retained life estate in a deed for a primary residence has been one of the most popular planning tools used to protect assets from a Medicaid recovery.  So long as the deed in which the grantor retained a life interest was executed at least five years prior to a Medicaid application being filed, the entire interest in the home was deemed "exempt" from a Medicaid spend down and therefore a Medicaid lien upon death.   

The new regulations, however, specifically include assets subject to estate recovery as those owned by the decedent "through joint tenancy, tenancy in common, survivorship, life estate, living trust or other arrangement, to the extent of the decedent's interest in the property immediately prior to death." The value of the life estate subject to recovery could be quite significant because it is deemed to be the "actuarial life expectancy of the life tenant" as of the date of death.  Furthermore, Medicaid has the right to place a lien against a life estate interest no matter how long ago the home was transferred.  Since the law is retroactive, prior transfers are not "grandfathered", even if transferred more than 5 years ago. This provision of the new regulation is sure to be challenged in Court. 

Another major concern is that Medicaid can now put a lien on an annuity a Medicaid recipient owned at the time of death. This would eliminate another useful Medicaid planning tool which converted an annuity from an "available resource" into "income" for Medicaid purposes, thus protecting the annuity from being wiped out to pay for nursing home costs.

Although many questions still exist as to exactly how enforcement will be attempted, it appears that the value of a person's right to occupy real estate that he or she previously transferred to an irrevocable Medicaid trust will not be subject to recovery.  Under the regulations, estate recovery from any irrevocable trust is limited "to the extent that the person was entitled to the distribution of ... principal and interest pursuant to the terms of the trust."  Since a Medicaid trust always restricts the grantor from receiving any of the trust principal, the trust assets may pass at the grantor's death to the trust beneficiaries without risk of estate recovery, even if the grantor received Medicaid benefits during his or her lifetime.  It also appears that these trusts will still permit the grantor to retain the STAR, Veteran's and other property tax exemptions without exposing the value of the residence to any form of estate recovery.

We will continue to keep you up to date on future developments concerning this issue.  It is more important than ever that people looking to help protect assets against the high cost of long-term care seek the advice of an experienced elder law attorney to investigate their alternatives.