New York Passed Then Repealed Expanded Medicaid Estate Recovery: A Summary

What is “estate recovery”?
When a Medicaid recipient dies, Medicaid can seek reimbursement from their estate for benefits paid on their behalf. This is known as “estate recovery.” Each state has rules detailing how and to what extent such recovery is possible.

Historically, NY limited estate recovery to estate assets
Until 2011, New York limited such recovery to Medicaid recipients. probate assets, that is, only those assets titled solely in the name of the Medicaid beneficiary. Other assets, including assets held jointly with another person, a “life estate” set aside in a deed, and assets held in revocable and irrevocable trusts, were excluded from estate recovery.

New rules and regulations expanded estate recovery
On April 1, 2011, New York enacted “expanded” estate recovery rules[1]. These new rules became subject to regulations that were to be promulgated by the New York State Department of Health, and on September 8, 2011, the Department of Health finally promulgated these long-awaited regulations.[2]. The regulations were actually enacted as “emergency regulations” on an expedited basis, with a built-in expiration date if they were not extended or made permanent regulations. then, on September 26, 2011, the New York State Department of Health issued an Administrative Directive to clarify the scope of the regulations[3].

These new rules and regulations expanded the definition of “estate” to specifically include as assets subject to estate recovery those owned by the decedent “through joint tenancy, joint tenancy, survivorship, life estate, living trust, or other arrangement, to the extent decedent’s interest in the property immediately prior to his death” (emphasis added). Both the extension to these categories of goods, as well as the express expression “immediately before death”, were very significant. As explained below, they were also very concerning.

For example, a very popular planning tool is the use of a life estate in a deed for the primary residence. It is a powerful tool because it accomplishes several things, in particular: (1) it removes ownership of the Medicaid applicant’s name; and (2) the life estate causes the real property’s tax base to be “incremented” to fair market value upon the death of the Medicaid beneficiary, saving tens of thousands, even hundreds of thousands, of dollars in capital gains taxes once the Medicaid recipient dies. As you can imagine, the life title deed, which is relatively easy, quick and inexpensive to implement, has been very popular and widespread as a planning tool.

In New York, the theory was that a life estate is extinguished at death, so Medicaid has nothing to tax or pursue after the death of the Medicaid beneficiary. But once the definition was expanded to include annuities and the value of annuities “immediately before death,” Medicaid intended to seek recovery against annuities. Consequently, whereas before the critical calculation was the value of the life estate based on the life expectancy of the beneficiary at the time of transfer of the deed, the key concern now became the recoverable amount, which is the value based on the age of the Medicaid recipient. just before the moment of death.

The problems with the new rules and their application
From the beginning, the new rules were challenged on constitutional and legal grounds; in fact, the New York State Bar filed a lawsuit challenging them. Among the problems with the new rules:

1. There was no clear effective date or acquired rights. Children to whom their parents transferred real estate years ago may have been faced with the dilemma of reimbursing the State for the care provided to their parents decades after the transfer was made, even if the property was no longer owned by the family and even if the income (if any) was long gone. Similarly, parents and others who did their planning under the laws in effect at the time of the transfers may have seen all of their planning, even if it was done decades ago, derailed by the new law;

2. Duration of Medicaid Link not stated;

3. Title companies could have had many problems and potential financial exposure from subsequent title problems.

Due to pressure from the Bar Association, and the problems and inconsistencies pointed out, the regulation was not extended, it was not made permanent, but it was allowed to expire after December 6, 2011.[4].

The extended wealth recovery is repealed
Finally, on March 27, 2012, New York repealed[5] regulations that had expanded the definition of “Estate” for Medicaid recovery purposes; therefore, the old rules governing estate repossession remain in place and life estates are no longer vulnerable to repossession.

The consequences:
While this result is a relief to seniors and their families in New York, and brings the law back in line with established constitutional and statutory principles, it is fair to conclude that “the writing is on the wall” that Medicaid will strengthen and the legislature will learn of this misfortune. Future laws will surely have a grandfathering provision and will stick to established law. The recommendation is clear: do your planning now, while it’s still possible.
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[1] As part of the 2011 New York State budget legislation, Chapter 59 of the Laws of 2011, Medicaid Estate Recovery, was expanded by amending the definition of “Estate” in Section 369(6) of the Social services.

[2] The Regulations at 18 NYCRR 360-7.11 were amended, effective September 8, 2011, to implement this change.

[3] 11 OHIP/ADM-8, effective September 8, 2011, “Expanded Estate Definition for Medicaid Recoveries,” regarding the application of the regulations and the method to be used to assess life estate interests.

[4] GIS 11 MA/028 provided: “This GIS is to inform local districts that as of 12/6/2011, the revised regulation at 18 NYCRR 360-7.11 that implemented the expanded definition of estate for Medicaid recovery purposes expired Effective immediately, districts must not include assets passing out of probate as part of the decedent’s estate for recovery purposes.”

[5] Governor Cuomo and the State Legislature have agreed to the New York State Health Budget Bill for 2012-2013, which repeals the expanded definition of “estate” of a Medicaid recipient.