Many Texans rely on Medicaid, a joint federal-state program, to receive medical services and long-term care. While this program provides vital support, it's important for those whose estates might be affected by untreatable health conditions to understand the related Medicaid Estate Recovery Program (MERP).
In this article, the knowledgeable estate planning attorneys at Texas Horizons Law Group delve into MERP and its implications.
Do You Have to Pay Back Medicaid in Texas?
In Texas, the MERP program only applies to long-term care received by individuals over 55, and only if they applied for those services after March 1, 2005. The estates of those who applied before that date aren’t subject to MERP claims.
Here are some of the long-term care services that can trigger estate recovery:
- Nursing homes
- Care facilities for people with intellectual disabilities
- Certain hospital stays and prescription medications
- In-home and community-based care services
- Support programs for community living
- Alternative community-based care options
- Programs for individuals who are deaf-blind or have multiple disabilities
- Services provided by home health aides
It's important to note that when Texans apply for Medicaid to cover long-term care, the state will provide information about the Medicaid Estate Recovery Program. After the person receiving care passes away, the state may reach out to their heirs or estate representative for information to determine whether to file a MERP claim.
What Property Does MERP Consider?
For the purpose of estate recovery, an estate encompasses all real and personal property owned by the deceased Medicaid recipient at the time of their death. This includes houses, bank accounts, vehicles, and any other assets with substantial monetary value, except for assets that have a beneficiary or payable on death designations.
What Is the Time Limit for Medicaid Estate Recovery in Texas?
The Medicaid Estate Recovery Program has a specific statute of limitations. This means that the state has a limited window of time in which to file a claim against the deceased Medicaid recipient's estate.
In Texas, the statute of limitations for MERP claims is generally four years. This timeframe begins from the date of the Medicaid recipient's death.
There can be exceptions to this deadline in certain situations. For instance, if the state wasn't properly notified about the recipient's death, the four-year window might not begin until authorities receive notification.
It's always advisable to consult a qualified attorney to understand the specific circumstances and time limits applicable to your situation.
Situations Where MERP May Not Apply
There are certain situations where Texas may not enforce the provisions of the Medicaid Estate Recovery Program, meaning the state won't seek reimbursement for Medicaid costs. These include:
Surviving Spouse
If the deceased Medicaid recipient’s spouse is still living, the state typically won't make a claim against their estate.
Minor or Disabled Children
The state also won't pursue repayment if the former recipient has a dependent child under 21 or a child of any age who is blind or permanently disabled as defined by Social Security who resides with the decedent.
Small Estates
Estates with a total value of $10,000 or less are typically exempt from MERP claims. This is uncommon when there’s a house or multiple vehicles involved.
Minimal Medicaid Costs
If the recipient’s total Medicaid costs equal $3,000 or less (which usually only happens if they passed away shortly after starting to receive benefits), authorities likely won't file a claim.
Unmarried Adult Child Living in the Home
Unmarried adult children who resided full-time with the deceased Medicaid recipient for at least a year before their death may qualify for a MERP exemption.
Selling Costs That Exceed Property Value
If the expense associated with selling the property is greater than its appraised worth, it isn’t in the state’s interest to pursue a claim.
Undue Hardship
Lastly, heirs facing undue hardship as a result of recovering the home's value might be eligible for a waiver.
An estate planning attorney can provide more information about these exemptions and whether they apply to your or your loved one’s estate.
Hardship Waivers: Protecting the Recipient's Homestead
Texas recognizes the importance of keeping family homes intact. In some situations, an undue hardship waiver may be available for up to $100,000 of the homestead value for families where the combined income of the heirs is below a specific threshold ($45,180 for one person and $61,320 for a family of two as of 2024).
Safeguarding Other Assets
While the homestead is eligible for some protection under MERP, other assets within the estate might be vulnerable. Here are some strategies attorneys can discuss with clients eager to keep certain assets off-limits:
Living Trusts
Irrevocable living trusts established well before the need for Medicaid benefits can potentially shield assets from MERP claims. However, there are strict rules regarding timing and asset transfer, so it’s essential to consult an attorney with a focus on this area of estate law.
Retained Life Estate
Structuring a retained life estate with a remainder interest to a qualified charity is another option. In this scenario, the Medicaid recipient retains a life estate, while the charitable remainder avoids any potential MERP claims. Careful planning is necessary to ensure compliance with Medicaid rules.
Reducing the MERP Reimbursement Amount
While it might not always be possible to obtain a full waiver, there are strategies you can use to potentially reduce the amount of a MERP claim.
First and foremost, review all medical bills to ensure that the claimed Medicaid costs are accurate and only reflect necessary and reasonable expenses. If any assets within the estate qualify for exemption (e.g., vehicles used for work), highlight them to bring them to the attention of Texas Health and Human Services (THHS).
How to Avoid Medicaid Estate Recovery in Texas
There are proactive steps individuals can take to minimize the impact of MERP on their estates. One is to explore long-term care insurance or community-based alternatives, which can help reduce reliance on Medicaid for long-term care.
Gifting assets is another possibility. While strategic gifting can be useful, it’s imperative to speak with an attorney to make sure you’re satisfying Medicaid's look-back period rules.
A third option is a Lady Bird deed, which uses life estates with remainder interests to shield the home.
Lady Bird Deeds and Texas Medicaid
An enhanced life estate deed, or “Lady Bird deed,” is a legal strategy that can potentially protect a home from MERP claims.
The deed transfers ownership of the home to an individual or individuals, with the Medicaid recipient retaining a life estate that allows them to live in the property. Their grantees receive a remainder interest granting them fee simple ownership only after the life estate holder's death. However, their rights are limited, preventing them from selling the property or forcing the life estate holder to move.
A Lady Bird deed can offer several other significant benefits for Texas residents planning their estates, including the following:
Bypassing Probate for Smoother Inheritance
An enhanced life estate deed allows the property to transfer directly to the beneficiary upon the grantor's death, avoiding the time and expense of probate court.
Retaining Lifetime Use and Benefit
The grantor retains full rights to live in and enjoy the property throughout their lifetime. They can collect rent, make improvements, and leverage the asset in various ways if needed.
Maintaining Control Over Sale
The grantor has the authority to sell the property at any time during their life. This flexibility can be crucial for any number of situations.
Minimizing Gift Taxes
Since the grantor retains a life estate, the transfer to the beneficiary isn't considered a complete gift for tax purposes. This key detail can help reduce potential federal gift tax liabilities.
Does a Transfer-on-Death Deed Avoid Medicaid Estate Recovery?
A transfer-on-death deed (TODD) typically won’t dodge the state’s Medicaid estate recovery efforts. A TODD only transfers ownership of the property after the grantor's death. For Medicaid purposes, assets transferred within a certain look-back period (usually five years in Texas) might still be considered part of the estate for settling MERP claims.
The grantor retains full control of the property during their lifetime with a transfer-on-death deed, including the ability to sell it or use the equity for other purposes. Because of this ongoing control, Medicaid might view the property as still being available to pay for long-term care costs, even though ownership technically transfers upon death.
Additional Considerations
Understanding the connection between the Medicaid Estate Recovery Program and various estate planning tools is essential for protecting your assets. Here are a few further points to consider:
Impact on Heirs
MERP claims can significantly impact inheritance plans. Attorneys should be prepared to explain the potential consequences to heirs and explore options to minimize their burden. This might involve taking out life insurance policies to offset Medicaid costs or restructuring the estate to prioritize assets exempt from MERP claims.
Multiple Heirs and Disagreements
With multiple heirs, disagreements regarding the MERP claim or the overall estate can arise. A legal professional can act as a mediator, facilitating communication and advocating for a fair resolution that considers everyone's interests.
Community-Based Alternatives
Encouraging clients to explore community-based alternatives to nursing homes whenever possible can drastically reduce dependence on Medicaid for long-term care. Attorneys can help clients navigate available programs like Community Attendant Services (CAS) or adult foster care, which may not trigger MERP claims.
Probate Court and MERP Claims
MERP claims are typically filed in probate court alongside other claims against the estate. The lawyer for the estate must make sure to address the MERP claim appropriately during probate proceedings, prioritizing necessary and reasonable expenses like funeral costs and legal fees before considering Medicaid costs.
Why You Need a Texas Real Estate Attorney When Dealing with MERP?
Navigating MERP and its legal and financial implications on your or a loved one’s estate requires specialized knowledge. Here's where a Texas real estate attorney can be invaluable.
Explaining MERP Rules
Attorneys can advise their clients on the intricacies of Texas’s Medicaid Estate Recovery Program, including the eligibility requirements and potential exemptions.
Outlining Estate Planning Strategies
Your attorney can help develop strategies to minimize the impact of MERP on your estate, including exploring Lady Bird deeds and other options.
Carrying Out Probate and Estate Administration
Additionally, your legal representative can guide you through the probate process and ensure proper handling of your estate in relation to MERP claims.
