part of the 2011-2012 New York State Governor's budget bill adopted by the
legislature, Medicaid estate recovery has been expanded beyond assets passing
under the terms of a valid will or by intestacy. Under the prior law Medicaid estate recovery
was limited to an individual's property included within the individual's estate
passing under the terms of a valid will or by intestacy, and would not include
property passing to a beneficiary outside of estate administration such as
through a beneficiary designation or by operation of law. (These rules do not apply to the estate of a
legally responsible relative, such as a spouse.) However, a Medicaid recipient may only have
assets valued at $13,800 plus limited exempt resources. Therefore the only property likely to be in a
Medicaid recipient's estate was a personal needs account with a maximum of
$13,800, a homestead valued under $758,000, an exempt family business, such as
a farm, or a retirement plan which was in payout status. Aside from estate recovery, if the person was
in a nursing home, the Medicaid agency is likely to have asserted a lien
against the homestead if it was determined that the individual was permanently
absent and unlikely to return to the home.
2011 Article VII Budget Bill provides:
Subdivision 6 of section 369 of the social
services law, as added by chapter 170 of the laws of 1994, is amended to
read as follows:
For purposes of this section, [the term] an
individual's "estate [means] includes
all of the individual's real and personal property and other
assets [included within the individual's estate and] passing
under the terms of a valid will or by intestacy. Pursuant to regulations adopted
by the commissioner, which may be promulgated on an emergency basis,
an individual's estate also includes 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 the extent of such interests; provided, however, that a claim against
a recipient of such property by distribution or
survival shall be
limited to the value of the property received or the amount of medical
assistance benefits otherwise recoverable pursuant to this section,
whichever is less. Nothing in this
subdivision shall be construed as authorizing the department or a
social services district to impose liens or make recoveries
prohibited by federal laws
governing the medical assistance program.
the time of this writing there are no regulations or emergency regulations
implementing this law. However, the law
does raise some important issues which may be resolved by the regulations.
there be expanded estate recovery against existing life estates and
trusts? Expanded estate recovery should
only affect transfers and conveyances after the effective date of the
regulations. Any other retroactive
effect of the statute would be unfair and raise Constitutional questions
regarding the taking of property.
statute clearly only affects "retained life estates." It was probably the intent to affect only
other retained interests. This
interpretation would eliminate the problems caused by including lifetime
interests in trusts created by third parties such as third party supplemental
needs trusts, pooled third party supplemental needs trusts, QTIP trusts, credit
shelter trusts and trusts created for descendants.
party trusts are frequently created for minor children or grandchildren
pursuant to an individual's Last Will and Testament. This would cause a chilling effect on all
trusts established for purposes having nothing to do with Medicaid protection.
an interest in a trust at the time of death should be limited to a "beneficial"
interest. Powers such as a limited power of appointment or a power to substitute
property do not create any beneficial interest in the holder of the power and
often created for tax purposes.
is obviously a problem in valuing the individual's interest at the time of
death. If there is to be any estate recovery from life estates or income only
trusts, an artificial value will have to be assigned to the life estate or
income interest. Will it be the value at
the moment before death? Will that value
be based on life expectancy tables? Life estates are considered to have a zero
value for eligibility (see the New York State Dept. of Health's Administrative
Memo, 96 ADM-8), since there is no market for them, so any attempt to count
them as having a value for estate recovery would be inconsistent with both
current policy and the economic reality it reflects.
Aside from these questions, such recoveries
potentially conflict with existing New York laws. Life estates terminate upon
the death of the life tenant and upon the life tenant's death, the remainder
interest passes to the remainderman. If
the remainder beneficiary is ascertainable at the time the life estate is
created, the remainderman has a future estate which is indefeasibly
vested. EPTL 6-4.7 defines a future estate indefeasibly vested as
"...an estate created in favor of one or more ascertained persons in being which
is certain when created to become an estate in possession whenever and however
the preceding estates end and which can in no way be defeated or
abridged." This is the case with most
transfers of real property with a retained life estate. The assignment of an artificial value to the
life estate after the death of the life tenant for the purposes of estate
recovery reduces the vested property right interest of the remainderman. The
same reasoning applies to an income interest in a trust and the remainder
interest. Furthermore, Pursuant to EPTL 6-5.1, the remainderman's property right interest is
alienable. A remainder interest may have
been sold or transferred by the remainderman prior to the life tenant's
death. Estate recovery against a life
estate would therefore generate a conflict between Medicaid's rights and the
rights which may have been conferred by a remainderman, leading to a
significant amount of litigation against third party transferees. EPTL 6-5.1 states: "Future estates are
descendible, devisable and alienable, in the same manner as estates in possession."
preceding paragraph highlights the problems that this recovery statute will
create for title to real property. Not
only is there a potential conflict with the EPTL provisions, but every transfer
of property where the title search reveals a transfer by survivorship of a
joint tenant or vesting of a remainder interest where there was a life tenant
will raise the issue of a potential recovery claim by Medicaid. However, unlike a Medicaid lien, there is no
recording of the claim, and unlike an estate claim there is no set period for
raising such a claim.
state already imposes a transfer penalty for the full value of property
transferred to an irrevocable trust, thus recognizing that the transfer was of
the full value of the assets in the trust, regardless of a retained interest or
benefit. Imposing an estate recovery
would be inconsistent with the transfer penalty policy. Additionally, certain transfers are exempt
from Medicaid penalties. For example a homestead may be transferred to a
spouse; a child who is blind, disabled or under age 21; a sibling who has an
equity interest in the home and who resided in the home for at least one year
before the person was institutionalized; or a child who resided in the home for
at least two years before the person was institutionalized and provided care to
maintain the person at home ("caretaker child"). It would conflict with federal and state
Medicaid law to recover against these transfers of a homestead even if they
were subject to a retained life estate.
certain transfers in trust other than the homestead are exempt from Medicaid
transfer penalties. For example assets other than a homestead may be
transferred to a trust for the sole benefit of the spouse; to a trust
established for the sole benefit of a disabled child; a trust established for
the sole benefit of a disabled person under the age of 65. To recover against
these trusts (even if there is a retained life interest) would conflict with
state and federal Medicaid law.
against retirement plans would conflict with Employee Retirement Income
Security Act of 1974 (ERISA) and CPLR 5205. These accounts are traditionally protected from
creditors. EPTL. 13-3.2(a) provides that the rights of beneficiaries
of a pension, retirement, death benefit, stock, bonus or profit-sharing plan,
system or trust or (insurance proceeds) "shall not be impaired or defeated by
any statute or rule of law governing the transfer of property by will, gift or
intestacy." For the protection of these
accounts after the owner's death see Matter of Gallet, 196 Misc. 2d 303,
308, 765 N.Y.S.2d 157, 161 (Sur. Ct. New York County 2003) [enhanced version available to lexis.com subscribers]. Estate recovery against retirement plans
would therefore generate a conflict between Medicaid's rights and the rights of
the beneficiaries leading to a significant amount of litigation. Likewise, life insurance should not be
considered to be a recoverable asset. Life insurance is not subject to claims
of creditors; and it should not be considered in Medicaid estate recovery.
In summary, the ambiguities,
conflicts with other state laws, constitutional issues, and conflicts with
federal and state Medicaid laws will cause challenges and litigation which will
ultimately cost the state more than the potential savings from expanded estate
recovery. Hopefully the regulations will
limit some of these problems.
. . . .
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Thank you, Mr. Goldfarb, for laying out the issues in a clear and concise fashion and for all the work you do for the Elder Law bar in our state.
I agree that the cure could end up being a lot worse than the disease. Sorta like no-fault insurance.
The medicaid estate recovery was limited to an individual property.