Do I understand that there is a recent change in Alabama Medicaid that allows them to recover from probate?
October 1, 2019 | View PDF
Yes, that is correct. It is however conditioned on certain criteria and in my view will cause some changes in estate planning and in debt collection by creditors.
Whenever an estate is opened in an Alabama probate court, the named personal representative whether appointed for a testate (having a Will), intestate (no Will) estate or the person initiating the settlement of a Small Estate (with or without a Will where the probate assets are less than twenty-five thousand dollars), must file a specific document with Alabama Medicaid and file an affidavit of notice along with a copy of the Medicaid document with the Probate Court. This document must be filed regardless of whether the deceased person did or did not use Alabama Medicaid. Alabama Medicaid has thirty days in which to respond.
And it’s not just confined to Alabama Medicaid in general. The criteria is that the deceased must have received Medicaid at or after age fifty-five (55) and/or that the Medicaid assistance was in long term or nursing home care and/ or while receiving Medicaid assistance a special needs trust was used. The age constraint means that even though someone may require Alabama Medicaid for instance in a nursing home prior to age fifty-five (55), it’s only the Medicaid usage from age fifty-five and later (if used for that long) that is countable towards recovery.
If Alabama Medicaid finds the deceased in their files, then they will determine how much Medicaid paid for services at or after age 55. Medicaid waiver programs are not countable. It will be interesting as this fleshes out since it only became effective for estates filed after September 1st, 2019. For starters a Medicaid recipient can have no more than two thousand dollars in assets. However, at application and throughout the assistance there are exempt items such as an automobile and rented land worth no more than six thousand dollars. Certainly after death there is no need for those items and I would think they would be eligible assets that would have to be sold for recovery. When an institutionalized spouse leaves a spouse living in the marital home, it is an exempt asset as long as that spouse remains in the home. There is a cap on the value of the home of over a half million dollars. I would guess that after both spouses have died, assuming the last to die is in the marital home then half of the home value is probably available for recovery. A self settled special needs trust already has the requirement that Alabama Medicaid have a payback provision up to the amount expended on the person, but a third party settled special needs trust for the Medicaid recipient should not have a payback provision and instead has contingent beneficiaries. I have to wonder if there is any push to try and access those assets. There are some unknowns and Alabama State Bar members affected by this are working now to understand the exact implications of this program.
Though there are differing camps on estate planning, I generally favor a Will over a Trust because of the Trust cost to the client, the fact that assets such as vehicles, bank accounts, investments and the home must be placed in the Trust and that a Pour Over Will is done in case there are assets that need a legal transfer and are not a part of the Trust for some reason. The use of Trusts or other instruments that circumvent probate, I believe will become more important. I anticipate a certain segment of my estate planning clientele will need further discussion on what to do.
This new law also places Alabama Medicaid, sixth in the line of things that must be paid before creditors are paid. Some of the items that precede Medicaid recovery include the cost of burial, estate administration, taxes of employees, etc. The thing to consider is that some 75-80% of Alabama nursing home residents are on Medicaid with an average stay of about two years. The cost rises each year, with Alabama Medicaid paying a part of the more than $6,000 per month per resident. With Medicaid recovering whatever may be left, I would assume that creditors will have little recourse for those individuals since one assumes that whatever part of the estate may be available for debts (remember that family members have no personal responsibility for debts of a decedent) may be completely “taken” by Medicaid. This is not derogatory towards Medicaid and I understand that the program must be run as a tight ship and I also understand that individuals must bear personal responsibility in their care during life, but creditors may tighten up credit limits or whom they extend credit to if they feel there is a lesser chance of repayment.
This article is informative only and not meant to be all inclusive. Additionally this article does not serve as legal advice to the reader and does not constitute an attorney- client relationship. The reader should seek counsel from their attorney should any questions exist.
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