On November 26, 2014, the Oregon Court of Appeals decided that the state agency’s attempt to expand estate recovery (where the state goes after the resources of a Medicaid recipient after such person’s death) was improper. Oregon had amended its rules so that the state could not only go after the Medicaid recipient’s assets after such recipient’s death, but it could also go after assets the Medicaid recipient had conveyed to his or her spouse or others within five years of the Medicaid application or any time thereafter. The court ruled that the state agency exceeded its statutory authority under federal law since the state attempted to go after assets of which the Medicaid recipient had no legal interest at the time of his or her death – which is beyond what federal law permitted.

Oregon’s attempt to change the rules shows a clear lack of understanding of basic Medicaid rules since one of the elementary rules that has been in existence since 1988 (at the passage of the Medicare Catastrophic Act) was to prevent spousal impoverishment as before that time spouses were choosing divorce rather than risk impoverishment. Furthermore, federal law permits the transfer of resources from the institutionalized spouse to the community spouse since the state looks at the resources of both when there is an application for Medicaid. It should be mentioned that one of the planning techniques sometimes used by elder law attorneys is to transfer assets to the community (well) spouse and then revise the community spouse’s will (such as having the assets pass by a special needs trust instead of outright) to prevent potential loss of Medicaid eligibility (so that the assets don’t go directly to the ill spouse which would otherwise be a countable resource subject to spend down since Medicaid is “means” tested).

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