On May 16, 2017, the Nebraska Legislature passed L.B. 268, which substantially reshaped the law in Nebraska concerning Medicaid recovery claims. The fundamental principle of Medicaid estate recovery remained the same in that the Nebraska Department of Health and Human Services (the “State”) retained the ability to institute an action against the estate of a deceased Medicaid beneficiary seeking recovery of the full amount of Medicaid benefits received by a recipient who was 55 years or older at the time of the receipt of the benefits so long as they left no surviving spouse, minor child or disabled adult child at the time of their death. The State can file a recovery action within 5 five years of the death of the Medicaid recipient or, if married, the death of the recipient’s spouse.
L.B. 268 substantially broadened the definition of “estate” for purposes of determining what assets of a Medicaid beneficiary’s estate are available to the State for recovery. The new definition of “estate” now includes any property to which a Medicaid recipient had any “legal title or interest” at or just prior to death. Prior Nebraska law only allowed the State to recover assets that were part of the Medicaid recipient’s estate “as defined for purposes of state probate law,” which meant that the State was unable to recover assets that had been transferred outside of probate. Stated otherwise, under the new definition of “estate”, the State is now able to recover assets conveyed through joint tenancy, transfer on death deed, survivorship, conveyance of a remainder interest, retention of a life estate, living trust or any other arrangement “by which value or possession is transferred or realized by the beneficiary of the conveyance or transfer at or as a result of the recipient’s death….” Assets that remain excluded from recovery include insurance proceeds received for the limited purpose of paying funeral and burial expenses, conveyances of remainder interests in real estate subject to the recipient’s life estate so long as the conveyance was made prior to the effective date of L.B. 268 (i.e., August 24, 2017) and any pension rights to the extent they are exempt from Medicaid recovery claims under federal law. As with the prior law, the new legislation still allows the State to grant waivers of estate recovery based on an undue hardship on the deceased recipient’s family.
One important impact of L.B. 268, and its new definition of a Medicaid beneficiary’s “estate”, is its effect on the use of life estate deeds in estate planning. The rule remains that a Medicaid applicant will be penalized if they transfer assets for less than fair market value within 60 months of their application for Medicaid (known as the “5 Year Lookback Rule”) as that transfer will be deemed a deprivation of resources and Medicaid benefits will be withheld for the period of time that the transferred assets would have paid for the applicant’s care. A common estate planning tool prior to L.B. 268 was for an individual who might qualify for Medicaid assistance in the future to gift the remainder interest in real estate they own to a related party while reserving a life estate in the property (i.e., the right to use the real property or to receive the income generated from the real property for the duration of their life). Assuming the Medicaid applicant then waited 60 months after the conveyance to apply for Medicaid benefits, this strategy would allow the applicant to effectively convey the real property out of their estate for Medicaid recovery purposes while predominantly retaining the benefit of owning the property for the duration of their life. However, as a result of the new definition of “estate” under L.B. 268, this planning strategy is no longer viable in Nebraska. Furthermore, L.B. 268 now allows the State to file a lien on a Medicaid recipient’s real estate interests to the extent the property is transferred to a “related transferee” on or after August 24, 2017, for less than full consideration and “subject to rights, actual or constructive possession, or powers retained by the transferor in a deed or other instrument.” The lien arises at the time of the application for Medicaid benefits but is held in abeyance until the Medicaid recipient’s death. “Related transferee” includes related individuals as defined by statute, as well as an entity controlled by such related person and irrevocable trusts that include such a related person as a beneficiary. However, the term does not include the recipient’s spouse, child under twenty-one years of age, or a blind or totally and permanently disabled child.
The bottom line is that L.B. 268 substantially strengthened the State’s ability to recover assets from a Medicaid assistance recipient and now largely prevents a prospective Medicaid applicant from spending down assets for Medicaid eligibility by gifting their assets while still retaining any beneficial interest in the assets. Medicaid planning in the aftermath of L.B. 268 is quite limited. Traditional gifting is still permissible but not only must the gift be made at least 60 months prior to the Medicaid recipient’s application for Medicaid benefits, the applicant now must retain no beneficial interest or control in the asset gifted. L.B. 268 further codified that irrevocable burial trusts (for self and spouse) and pre-purchased burial plans will not be considered part of the applicant’s estate and are not subject to estate recovery. Certain home transfers will also not be subject to estate recovery if the home is transferred to a spouse, a child under 21 years of age, a child who is blind or disabled or a child who resided in the home for at least 2 years pre-assistance or care facility and provided care which allowed home residency without Medicaid so long as the child resided continuously in the home since transfer.
For further information regarding this issue or for other estate planning questions, please contact one of our estate planning attorneys.