Welcome back to “Ask an Advisor,” the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.
In retirement, there are many worst-case scenarios to worry about: not saving enough, spending your savings too fast, losing your portfolio in a stock market crash. Less well known is another nightmare: having your home seized by Medicaid.
It’s a real possibility. Under a law passed in 1993, state Medicaid programs not only can — but must — recover long-term care expenses from retirees’ estates after they die. In some cases, that can mean putting a lien on the family home.
“State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee,” Medicaid says on its website. “States may impose liens for Medicaid benefits incorrectly paid pursuant to a court judgment.”
The rationale is that a senior should not qualify for Medicaid unless they have very little wealth (most states set the limit at $2,000). As long as the beneficiary is still alive, homes are exempt from this calculation. But after they die, it’s a different story — and their children are often the ones who pay the price.
This practice, known as Medicaid estate recovery, has not gone unnoticed by U.S. lawmakers. Rep. Jan Schakowsky of Illinois has introduced a bill to ban these seizures, called the “Stop Unfair Medicaid Recoveries Act.” By her staff’s estimate, 17,000 families in Illinois have lost their homes to Medicaid.
READ MORE: The financial advisor’s guide to Medicare
“Medicaid is the only public benefit program that requires states to seek repayment for long-term care services,” Schakowsky said in a statement. “In many cases, Medicaid estate recovery keeps families in poverty and forces seniors and disabled individuals to forego care.”
All of this is a concern not only for retirement but also for estate planning. If the home in question is an important part of a retiree’s legacy, how can they make sure their children’s inheritance isn’t seized by the government?
This is exactly the question that a stressed-out homeowner in New York is pondering. For help, she turned to the experts. Here’s what she wrote:
Dear advisors,
My husband and I are in our early 60s, and we plan to retire in five to seven years. We have no long-term health insurance, and I’m worried about how this might affect the inheritance we leave for our kids.
My concern is this: If we do end up needing long-term care and the costs are overwhelming, we fear that we’d be forced to sell our apartment — or even that Medicaid or the care provider might seize it. That apartment, which is worth about $1.3 million, is the main asset we plan to leave to our two daughters. To protect their inheritance, would it make sense to put the apartment in trust? Or is there a better way?
Sincerely,
Muddled in Morningside Heights
And here’s what financial advisors wrote back: