In some states, the definition of estate recovery from Medicaid includes everything that belonged to the deceased person at the moment just before they die. nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” Here’s one example.
A person owned a whole life insurance policy with a named beneficiary. The person cashed out the policy with the intention of paying for funeral expenses, but the policy remained in effect because the beneficiary continued to make payments on the policy. The person who was receiving Medicaid passed two months after the policy was cashed out. Does Medicaid get to recover the balance of the policy, or does the beneficiary keep the cash proceeds?
In this situation, it looks like the beneficiary, not Medicaid, would receive the money from the life insurance policy.
Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.
States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.
Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.
This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.
Proceeds from whole life insurance policies are subject to estate recovery if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.
Since the policy was liquidated, there shouldn’t be any estate recovery against the policy. That’s because there was a designated beneficiary that was not the estate.
Situations like this differ based on the facts and the Medicaid rules of different states. Talk with an estate planning elder law attorney to guide you in your unique situation.
Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”
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