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Governor Baker Seeks to Expand Estate Recovery

By Harry S. Margolis

Governor Charles Baker’s FY 2017 budget includes a proposal to expand MassHealth estate recovery to include non-probate property. Currently, MassHealth recoups its expenditures from the probate estates of individuals who received coverage of nursing home care or any other MassHealth benefits after age 55.

Estate-Recovery-Masshealth-MA-WellesleyProbate property only includes assets owned by the deceased beneficiary solely in his or her name. Jointly owned property, accounts with beneficiary designations, assets in trust, and real estate in life estates do not pass through probate and are not subject to MassHealth’s claim for reimbursement upon the death of the beneficiary.

The Proposal

Governor Baker is seeking to change this by adding the following language to M.G.L. Ch. 118E, Sec. 31:

If an individual became eligible for medical assistance on or after July 1, 2016, the term “estate” shall mean any interest in real and personal property and other assets in which the individual immediately prior to death had any legal title or interest, to the extent of such interest. This shall include interests in real and personal property and other assets that would pass to a survivor, heir or assignee of the decedent through joint tenancy, tenancy by the entirety, life estate, living trust, right of survivorship, beneficiary designation, or other arrangement. This shall not include annuities and life insurance held on the life of a decedent, with the exception of payments otherwise includable in the decedent’s probate estate.

The proposed law would delay any collection of funds if the property passed to a surviving spouse or to a disabled child, until the spouse or child’s death.

In most cases, this expanded recovery would only apply to a beneficiary’s home, because few MassHealth beneficiaries have any other significant assets. With the exception of those beneficiaries between ages 55 and 65 and living in the community, in order to be eligible, beneficiaries may only have $2,000 in countable assets and the only significant non-countable asset is their home.

Lots of Questions

The proposal raises a number of uncertainties were it to become law, including:

  • How would the claim be enforced? There is a whole set of laws and procedures for MassHealth to claim reimbursement from probate property, but none of them apply to non-probate property. What would force the surviving joint owner to pay over MassHealth’s claim?
  • Would this create title problems? Perhaps buyers of property would want to be sure that any deceased prior owner had paid off MassHealth. This would be one way of making sure the claim is paid, but how could the buyer verify that payment was made? And assuming the deceased owner did not receive MassHealth coverage, how would this be certified for the buyer?
  • How will “the extent of such interest” be determined? The proposed law only applies to the deceased MassHealth beneficiaries “interest” in the property passing outside of probate. This may not be difficult to determine with respect to jointly-owned property—with two owners, each owns half. But what about a life estate? What is the interest of an 89-year-old life estate owner who has the right to live there the rest of her life?
  • How will the interest be valued? Will the surviving owner or owners of property have get a formal appraisal to determine the value of the deceased owner’s interest? Or will MassHealth accept the tax assessment, a determination of value by a real estate agent, or even Zillow?
  • And how does the delay in collection until the death of a spouse or disabled child work? Does that mean that the survivor can’t sell the house or borrow against it to make repairs? What if a surviving owner wants to move to another house or even another state?
  • What does “living” trust mean? Usually, it refers to revocable trusts and not irrevocable trusts, which would mean that this expansion does not apply to property in irrevocable trusts. However, they may simply mean that it applies to trusts created during life, but not to those created at death. Also, does it only apply to trusts created by the beneficiary? What if a beneficiary lived in a house owned by a trust created by his parents? Would that now be subject to claim?

This Was Tried Before

The legislature passed a similar law in 2003, expanding estate recovery to include non-probate property, but then first postponed it and then repealed in 2004 due both to the outcry from constituents who where afraid that MassHealth would take their homes and concerns of real estate attorneys that the law would create significant barriers to the sale of real estate. At the time, one report said: “Unless the political makeup of the legislature is substantially changed and the concerns of advocates are alleviated, it is unlikely that Massachusetts will succeed in expanding its estate recovery program to include recovery from non-probate estates.”

Conclusion

It’s not clear how much the Baker administration believes expanded estate recovery will raise for MassHealth and whether it justifies the enforcement costs, the uncertainty, or the stress and cost to families. It may well go the way of the 2003-2004 effort and either never be passed or passed and repealed once constituents and real estate attorneys start dealing with the effects.

 

Related posts:

Massachusetts SJC Overturns Pfannenstiehl, Affirming Use of Asset Protection Trusts

How to Tailor Your Asset Protection Trust

Will MassHealth Take My House? Asset protection in Massachusetts

How Does MassHealth Calculate Life Estates?

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