Assets Not Available For Pennsylvania Estate Recovery

As previously discussed, Pennsylvania has an estate recovery program that allows the Department of Public Welfare (DPW) to seek repayment from the probate estates of decedents who had been cared for through medical assistance (also referred to as Medicaid).  Because Pennsylvania only has the ability to reach assets in the decedent’s probate estate, there are naturally assets that Pennsylvania does not have the ability to recover.

To understand those assets that the PA DPW cannot reach at the death of a Medicaid recipient, let’s first look at those that the estate recovery can require repayment from.  Probate assets are those that are in the decedent’s name alone and which are not owned jointly with another person or designated to transfer by beneficiary designation.  Examples of probate assets upon someone’s death are: 1. a real estate interest owned in the decedent’s single name, 2. a bank account owned in the decedent’s single name, 3.  a stock account owned in the decedent’s single name; and 4.  a vehicle owned in the decedent’s single name.  Therefore, to avoid estate recovery, you should look to transform any assets owned by the Medicaid recipient into non-probate assets so that they will transfer outside of the Department of Public Welfare estate recovery upon the death of the Medicaid recipient.

Non-Probate Assets which are not subject to estate recovery include property owned jointly by the decedent and another person.  For example, real estate owned jointly by a former Medicaid recipient with his or her spouse, friend, child or sibling cannot be recovered.  Life insurance proceeds paid directly to a designated named beneficiary are outside of the recovery process.  Assets of the decedent which had been placed in trust during his or her lifetime are free from recovery.  Additionally, PA estate recovery cannot go after irrevocable funeral reserves and certain trusts for disabled beneficiaries.

The process of converting assets to non-probate status is an important planning tool, but is frequently overlooked.  Take this prototypical case pattern:  Husband and wife own significant assets.  Wife enters a nursing home.  Husband’s and wife’s assets are spent down to required levels and Wife qualifies for nursing home.  Husband retains his allowable spousal share of the assets such as a primary residence worth $400,000, cash in the amount of $110,000 and an IRA of $400,000.  That is over $900,000 in assets!!  Husband does not seek proper planning advice and keeps his old will and does not change beneficiaries.  Husband lives for 5 more years while Medicaid pays for wife’s care.  When husband dies all assets transfer to wife who is in the nursing home.  The inheritance causes wife to go off of Medicaid and she begins privately paying for her care.  Wife does not seek proper planning advice and she leaves all assets in her name alone so that upon her death all assets remaining are probate in nature.  She lives for 3 more years after husband’s death having a probate estate of $550,000.  As a result PA DPW will have a claim against wife’s probate estate in the amount equal to the 5 years of care Medicaid had paid for during husband’s lifetime. This estate recovery claim would likely be between $350,000 to $450,000 depending on the monthly care cost paid by the Medicaid.

This horribly negative result could have been avoided or softened if;  1.  husband had prepared his estate plan to either disinherit his wife or create a special needs trust for her benefit; or, 2.  even if husband failed to  properly plan, wife or her power of attorney (agent) could have modified the ownership of assets so that they transferred non-probate at her death.

This fact pattern serves to illustrate only one of the many cases where proper planning could thwart the PA estate recovery program.  These are legal and powerful planning options that can serve to protect hundreds of thousands of dollars.

To review this additional article on the Estate Recovery Program click here.

To review this Unruh, Turner, Burke & Frees, P.C. article on the definition of probate and non-probate assets click here.

Please contact Douglas L. Kaune at 610 933 8069 to review your case in greater detail.