The Estate Recovery Act technically isn’t a tax, but it involves the government taking money out of your estate after you die. In fact, the Estate Recovery Act can have a far more devastating impact on your estate than any estate tax does.
The idea behind the Estate Recovery Act is simple (but devious): If you need to accept help from Medicaid for health care services, you have no problem while you’re still alive. But after you die, the government wants its money back.
Find out when your state will seek repayment. For example, the state may wait until your surviving spouse (if any) has died, or your children have grown. Your state may also have other exemptions (such as a below-the-poverty-line exemption), or you may be allowed to apply for a waiver.
In 1993, the U.S. Congress passed an act that requires each state to demand repayment for Medicaid benefits that had previously been provided to certain citizens for certain services:
Certain citizens: People over the age of 55 who have received Medicaid payments within a specified period of time.
Certain services: Payments for nursing homes and nursing care facilities, home and community-based services, related services at hospitals, and prescription drugs.
The Estate Recovery Act can be the most detrimental tax, because the people most likely to require Medicaid assistance are people who probably have the least property. Chances are that most of what they do have is in their houses. So guess what the government will go after for reimbursement once a “targeted” person dies? You guessed it: the family home.
Your state may have some type of homestead exemption or personal residence waiver to protect your house if you ever need Medicaid and fall within your state’s guidelines to seek reimbursement after you die. For example, your house may be safe as long as your spouse is still alive. You also can look into other estate-planning and gift-giving strategies to protect your house, such as joint tenancy.
Each state’s version of the Estate Recovery Act — and the names they go by — vary. Your state’s version may not apply to property that passes to others outside of probate. Your nonprobate estate may include property in which you and someone else have joint tenancy with right of survivorship.
Your attorney can explain all the rules governing personal representative responsibility to you, both for your own estate as well as any personal representative responsibilities you have for someone else’s estate. For example, you need to know how long the personal representative has to notify whatever department in the state government that administers the state’s recovery plan, and how to do the notification (for example, by certified letter).
If your personal representative transfers property to others (such as family members) without first satisfying a claim for recovery from your state, the state can come after the personal representative for payment. If you’re someone else’s personal representative, make sure you know whether the person’s estate that you are a personal representative for is subject to a claim by the state.