I believe it is important for people to know about the estate recovery program , and how it may affect them. It doesn’t seem fair the way that the government disproportionately treats people based on the health care issue they have. If someone goes to a nursing home, as a result of having dementia or a stroke, they often go broke before the government helps them. This is because they spend all of their money on long term care.

Medicare Won’t Pay

Many people believe that Medicare will support their healthcare needs when they reach retirement, but this is sadly not the case. Medicare only pays for acute care including surgeries, medications and hospitalizations resulting from having a heart attack or cancer, for example. However, if you have a stroke or get dementia, and you need long term care, Medicare won’t pay. This means that people have to pay privately for care in a skilled nursing facility, costing around $15,000 per month. 

Let’s assume that a single senior goes into a nursing home, and he owns a home, with $200,000 in the bank. He’s spending $15,000 a month on long term care in the nursing home, paying privately. As a result, after 14 months he has spent $200,000 and is now broke. He is told when applying for Medicaid benefits, that he can still own his home. However, once he is eligible for Medicaid, all of his monthly income needs to go to the nursing home. This means he is left with no money to pay property taxes and utility bills.

All the Money Has Gone

In cases like this, what often happens is that the adult children approach our law firm, telling us they want to sell dad’s house. This is often because they can’t afford to pay expenses on the house. However, selling the house for $200,00 means that dad will get cash which he is not allowed to have. If he does get the money, he will lose Medicaid benefits. He would then have to spend another $200,000 on his care for the next 14 months. When that money has been spent, dad will get Medicaid benefits again. In the meantime, he has lost his house and the money has been spent on his care. Every penny he worked for has gone. 

Being eligible for Medicaid while still owning a house, is based on the document you sign, confirming your intent to return to your house. However, it becomes financially impossible to keep your house when you have no money to pay for the maintenance. Bear in mind too, that having dementia and needing care in a nursing home, means there is very little chance you will return to your house. If the kids know that dad is leaving the house to them in his Will, the kids may decide not to sell dad’s house. They may decide to rather pay the bills and taxes on the house. What they don’t realize, is that if Dad has been a Medicaid recipient, and he still owns the house, the house ends up in his estate. 

What is Estate Recovery?

This also means the state has a claim against the house, known as the estate recovery program. This is based on the idea that you will lose the house when you pass away. The claim requires that the executor of the estate must sell dad’s house. The proceeds from the sale of dad’s house must be paid back the State of Pennsylvania for every penny spent on dad’s care. Our government system requires you to go broke if you need long term care. While you are told you can become eligible for Medicaid while owning a house, it doesn’t mean the family gets to keep the house if the house is in the Will.

The Good News

The estate recovery claim is limited to a probate estate, when assets go through the will upon your death. This is why my clients often don’t own their houses in their own name. What I recommend doing is putting the house in an irrevocable asset protection trust. By doing so, the house is not in your name but owned by the trust. This protects the house should you need to go to the nursing home five years later. Medicaid can’t claim the house when you pass away if your house is in a trust. The terms of the trust may include instructions to sell the house and give the money to the children. It may even instruct the Trustee to distribute the house to a child.

This Could Be You

I encourage you to do some planning if you are a retired middle class family. If you are concerned about you or your spouse having dementia, please consider putting your house in an irrevocable trust. Doing this protects the house from the nursing home. Your biggest financial risk in your retirement is the cost of long term care. If you are told that all you need is a simple will, don’t believe it. The primary purpose of a Will is to say who gets your stuff when you pass away. It is not enough to only have a Will.

If this resonates with you, please come to one of our workshops, which you can register for on our website. Visit sechlerlawfirm.com/workshops. Feel free to check out the wealth of educational content on our website including blogs, pdf downloads, videos and podcasts.