As COVID-19 increases pressure on state Medicaid budgets as demands for Medicaid coverage become even greater, states may be inclined to expand Medicaid estate recovery giving the state the right to have a lien against the property (most commonly a homestead) of a Medicaid recipient – even after the death of the surviving spouse of a Medicaid recipient. Could Ladybird deeds (commonly used to avoid Medicaid estate recovery) now be in peril?

Although there are numerous (110) Medicaid programs in Texas, some of the most common and costly programs for the elderly help pay for care costs (either at home or in a facility in addition to drug costs) since most Americans have no or limited long-term care insurance (and Medicare has very limited coverage). Usually, the most valuable “non-countable” resource (long-term care Medicaid has resource limits for eligibility, but certain resources do not count) is a homestead. In Texas, there is no limit to the value of a home if the Medicaid applicant is married. However, if the applicant is single, then the equity limit must be under $595,000 in year 2020.

However, even though a homestead may be “non-countable”, there are estate recovery rules which permit states to be reimbursed for the funds advanced against “non-countable” resources such as the homestead. Under federal laws, states are given the  right to make a choice to have a claim or have a lien against the homestead. Under present Texas laws, the state is only permitted to make a claim for services and premiums paid on behalf of the Medicaid recipient after the recipient is 55 years old. Furthermore, there are exceptions to a successful claim by the state if the Medicaid recipient is survived by a spouse or by a disabled child, or by an adult child living in the home for at least one year prior to the death of the Medicaid recipient (and there are several other exceptions). Texas only makes claims against property that passes through probate (i.e., by Will). As a result, Ladybird deeds (enhanced life estate deeds) and transfer on death deeds are often used since the homestead would pass by deed, at the Medicaid recipient’s death (not by Will). For either type of deed, the Medicaid recipient is in control of their interest in the homestead until their death, thus avoiding a successful claim by the state. However, if a state decides to be a “lien” state, the state could go after all real and personal property and other assets in which the decedent had a legal title or interest at the time of death – no matter how the property passes. If the Medicaid recipient is survived by a spouse, then the state would have a right to recovery delayed until the death of the surviving spouse. Thus, if a state decides to become a “lien” state, Ladybird and transfer on death deeds would no longer be used to avoid Medicaid estate recovery. There is no guarantee of being “grandfathered” either. Estate and elder law attorneys would then consider other planning options such as irrevocable trusts (which are often used to protect assets) and other transfer planning strategies.

In May, the governor of California suggested a revision to the state’s budget to become a “lien” state due to the deficit created in large part by COVID-19. Although other states are already “lien” states, this could result in other states following its lead as it is the largest of all dominoes. At this time, Texas has not made any suggested revisions to change from a “claim” state to a “lien” state. However, laws are always subject to change. 

If interested in learning more, consider attending our next free “Estate Planning Essentials” virtual workshop by calling us at (214) 720-0102 or sign up by clicking here. Our goal is to make it easy for you to attend from the comfort of wherever you reside. 

Skip to content