Estate recovery: how the state gets paid back

Estate recovery is how the State of Wisconsin gets paid back for long-term care Medicaid benefits. If you or a loved one is elderly, blind, or disabled and might need help paying for long-term care, you should know about estate recovery.

The Estate Recovery Program operates under laws allowing the Wisconsin Department of Health Services (DHS) to step in after you die and take money from your estate—money that otherwise would go to your family. The state, through its Medicaid long-term care programs, pays out quite a bit of money for elderly or disabled residents who need long-term care and can’t afford it. The idea is to defray some of that cost at a time when it won’t affect the Medicaid recipient.

Who Should Worry About Estate Recovery?

Estate recovery doesn’t affect all Medicaid recipients. It applies only to the Medicaid programs that provide long-term care. Anyone who is not elderly, blind, or disabled and is not receiving long-term care services shouldn’t worry. That means estate recovery mostly affects (1) Medicaid recipients (of any age) who live in nursing homes, and (2) elderly Medicaid recipients who live at home or in assisted living and receive long-term care.

Recipients of Medicaid long-term care services shouldn’t worry about themselves, either—estate recovery doesn’t happen until the Medicaid recipient dies. If the recipient is survived by a spouse or a young or disabled child, estate recovery doesn’t happen until they die. So spouses shouldn’t worry they will be left destitute, and a young or disabled child’s support won’t be taken away. These are the most immediate concerns.

That leaves the rest of the family: the adult children and other beneficiaries who would inherit the property but for estate recovery. They still get the personal property (up to $5,000 worth, anyway). But an adult child may be surprised to learn he or she will inherit nothing of the cash or liquid assets, even though Mom and Dad may have saved their entire lives and been responsible, middle-class citizens. Unfortunately, the cost of long-term care can deplete those savings quickly, and estate recovery might take most or all of what’s left. It helps to know this ahead of time.

How Does Estate Recovery Work?

Estate recovery is not unlimited; the state can only recover up to the amount it paid out for the Medicaid recipient. But in most cases, where the recipient has received benefits for any length of time, the amount paid out will far exceed the property left in the recipient’s estate.

The type of property that’s left may affect recovery, however. Though DHS has the general power to recover from any of the recipient’s property, there are exceptions. Estate recovery works differently for three categories: probate property, non-probate property, and real estate.

First, DHS will recover from property that is subject to probate (in other words, controlled by a person’s will). DHS will be notified as part of the probate process, then come into the court proceeding and claim its share. If there is a surviving spouse, DHS will wait to make its claim until he or she dies.

Second, DHS will recover from non-probate property, which is property like life insurance or a joint bank account that doesn’t require a court proceeding to transfer ownership after death. The law allowing recovery from this type of property is new, though, and its application depends on when the property was purchased. For example, DHS will not recover from a life insurance policy purchased before August 1, 2014. This might mean you can leave something to your family after all—if you know to hold on to that insurance policy. Knowing these kinds of exceptions can change your overall plan for Medicaid and long-term care.

Third, DHS will file liens on real estate, both to secure its claim and to recover money when the real estate is sold. This is perhaps the most common form of estate recovery, because Medicaid recipients can usually keep their homes while receiving benefits. However, there are specific rules governing when DHS can file a lien and when DHS can enforce it. For example, DHS can’t file a lien on a home if a surviving spouse or disabled child still lives there. Even after a lien is filed and the recipient dies, a surviving spouse can potentially sell the home and keep the money. Again, knowing when exceptions like these apply can help your family.

Finally, you should know that family members and beneficiaries have their own rights when it comes to estate recovery. They can challenge DHS when it makes a mistake or steps beyond the law. They can also request hardship waivers. These are legal actions that should be done with the help of an elder law attorney.

Knowing the Rules Helps You Plan Ahead

Estate recovery is a simple concept: if there’s any money left when a long-term care Medicaid recipient dies, the state will recover it (up to the amount the state paid out in benefits). But, like many laws, there are common exceptions and specific rules that change how it applies in any person’s specific situation. Knowing these rules and getting good advice can help you and your family make the most of your resources.