8 Exceptions To Losing “Tara” Under Texas Medicaid Estate Recovery Laws

8 Exceptions To Losing “Tara” Under Texas Medicaid Estate Recovery Laws

Tara, the fictional plantation in “Gone with the Wind”, was more than Scarlett O’Hara’s plantation home. It was a symbol of family and continuity for Scarlett. The homestead is often the most important (in addition to being the most valuable) asset that a deceased person would like to leave to their family or heirs. However, if a Texan over age 55 receives benefits from various Medicaid programs (i.e., costs of care at home or in a nursing home and for drugs, etc.), then the state has a right to make a claim (not a lien) for reimbursement against the homestead (which is usually the most valuable, non-countable resource for eligibility to get public benefits) to the extent Medicaid benefits are advanced. Although the claim is equivalent to a credit card debt, many title companies want to make sure this claim is waived prior to issuing title insurance when there is an attempt by an heir or beneficiary to sell the home of the deceased Medicaid recipient.

There are several exceptions to avoid a successful claim whereby the claim can be waived by the government when completing the form the government sends to the representative after the death of the Medicaid recipient including, but not limited to, the following:

  1. Surviving spouse – Just provide a death certificate.
  2. Child under 21 – Provide birth certificate.
  3. Child of any age who is blind or disabled – Usually a letter from Social Security indicating the child is receiving Social Security Disability or Supplemental Income is sufficient.
  4. Unmarried adult child residing continuously in the decedent’s homestead for at lease one year prior to the Medicaid recipient’s death – Proof of utility statements, tax returns, etc. are often required.
  5. Ladybird deeds and Transfer on Death deeds – Texas (unlike some states) only makes a claim against estates that pass by probate (either a court order that a will is good or by intestacy (without a will). Ladybird deeds (which are enhanced life estate deeds) and Transfer on Death deeds pass the homestead directly to the beneficiary or beneficiaries (not by court order such as probate) – so either would prevent a successful claim. However, if the home is sold during the life of the Medicaid recipient, the proceeds are subject to spend-down if the recipient is single.
  6. Home transferred to an asset protection trust at least 5 years prior to application – This might be used if a potential Medicaid applicant intends to protect various assets that could include the home and unlike Ladybird deeds and Transfer on Death deeds, the home could be sold and the proceeds not be subject to spend-down. However, the transfer to an asset protection trust is subject to a 5-year lookback period whereas Ladybird deeds and Transfer on Death deeds do not result in any transfer penalty since control is retained by the owner.
  7. Undue hardship – A couple of examples permitted for an exemption for undue hardship are as follows: (a) The tax appraisal district value of the homestead is less than $100,000 and (b) the income of the beneficiary (who would inherit) is less than 300% of the federal poverty level. If the homestead value is greater than that, the first $100,000 is exempt and if one or more siblings or direct descendants of the deceased (lineal heir such as children or grandchildren) is entitled to an interest, then each sibling or lineal heir inheriting the homestead who has gross family income below 300% of the federal poverty level could inherit. If there is more than one heir, only the percentage that corresponds to the qualifying heir or heirs’ share of the homestead will be exempt.
  8. Not cost effective – If the recoverable amount is $3000 or less or the cost involved in the sale of the property would be equal to or greater than the value of the property, no Medicaid estate recovery claim should be successful. So, if the Medicaid recipient died shortly after getting benefits, then this might be applicable.

It should be mentioned that if no exemption applies, elder law attorneys often go to court and file for a dependent administration to reduce a statute of limitations time period for the state to pursue. Of course, it is best to plan in advance so your “Tara” is not lost. A home is often more than just a place to live – protection of the home is for your family or loved ones.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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