Texas Medicaid Estate Recovery Program and Probate

If a loved one is receiving Medicaid, hopefully prior to applying for benefits, they met with an attorney who could assist them in protecting as many assets as possible from a potential future Medicaid Estate Recovery Program (MERP) claim.  However, many times advanced planning is overlooked and Medicaid issues arise in the probate context.  When this happens, it is important to consult an attorney to attempt to protect the homestead or any remaining probate assets.

MERP Applicability and Process:  If a loved one applied for Medicaid benefits on or after March 1, 2005, for certain nursing or long term care services in Texas, it is important to be aware of MERP.

MERP allows the State of Texas to recover Medicaid funds spent on behalf of a recipient from the Estate of deceased recipient.  MERP only applies 1) to recipients age 55 or older, 2) who applied for benefits on or after March 1, 2005, and 3) who received certain long term care services, specifically including the cost of services, hospital care and prescriptions supported by Medicaid in a nursing facility, intermediate care facility for those with intellectual disability (including state supported living centers), Medicaid waiver programs, and community attendant services.  The State can only recover the amount expended in Medicaid benefits, nothing more.

Many people fear MERP will come and "take" assets or file a lien against assets of the Estate.  First, it should be noted that so far, MERP has only been applied to probate assets.  If an asset is non-probate, such as a payable on death account, life insurance proceeds paid to someone other than the probate estate, etc., said non-probate asset will not be subject to MERP.  Second, some assets are completely exempt from Medicaid recovery.  A complete list may be found here:  http://info.sos.state.tx.us/pls/pub/readtac$ext.ViewTAC?tac_view=5&ti=1&pt=15&ch=358&sch=C&div=2&rl=Y

MERP is not a lien statute, thus the State will not be able to "take" or lien assets without a judgment lien.  The State must file a claim in the Medicaid recipient's probate estate, if one has been opened.    A MERP claim is considered a class 7 probate claim.  Claims are classified and paid in priority of payment with class 1 claims paid first, and class 8 claims paid last.  A MERP claim is just above general unsecured claims, such as credit card bills. 

Exceptions:  The State will not file a MERP claim in every estate.  There are a variety of exceptions where the state will not seek to file a claim. 

Cost Effectiveness:  The state will not file a claim when it is not cost effective, specifically when:
     1)  the value of the estate is $10,000 or less;
     2)  the recoverable amount of Medicaid costs is $3,000 or less; or
     3)  the cost of selling the property would be equal to or exceed the property's value.

Certain Conditions:  The state will not file a claim when certain conditions exist:
     1)  a surviving spouse exists;
     2)  there is a surviving child or child under 21;
     3)  there is a surviving child(ren) who is blind, visually impaired or has low vision or is totally   disabled according to Social Security criteria; or
     4)  there is an unmarried adult child continuously residing in the recipient's homestead for at least one year prior to the recipient's death.

Undue Harship:  There is also an exception for undue hardship, where an undue hardship waiver must be filed with the Texas Health and Human Services Commission.  Undue hardship applies where:
     1)  the property of the estate has been the location of a family business, farm or ranch for a minimum of 12 months prior to the recipient's death, the property is the primary income producing asset of the heirs, must produce at lest 50% of the heirs' livelihood, and MERP recovery would result in the heirs losing primary income sources;
     2)  If the MERP claim was pursued the heirs/beneficiaries would become eligible for public assistance;
     3)  Receipt of the estate allows one or more heirs to discontinue public assistance;
     4)  the recipient received Medicaid as the result of being a crime victim; or
     5)  Other compelling reasons.

Homestead Hardship Waiver:  This waiver of MERP claims applies to the homestead when one or more lineal heirs have gross family income below 300 percent of the federal poverty level.  This generally only applies to the first $100,000 of the tax appraisal district value for the most recent tax year.

Deductions:  There are also deductions from the recovery for expenses, such as expenses associated with maintaining a homestead or expenses which allowed the recipient to remain in the home longer.  Examples include, real estate taxes, utility bills, insurance, home repairs, and home maintenance expenses such as lawn care.

How to Handle a MERP Claim:  When a loved one who received Medicaid benefits passes away, and there is a homestead or any other probate assets, it is essential to contact an estate planning and probate or elder lawyer.  Pursuant to the Texas Administrative Code there are several steps MERP must follow in order to preserve their claim.  If they fail to strictly follow even one step, they cannot recover the MERP claim.  A lawyer can request the Medicaid file, point out the flaws in MERP's claim and hopefully obtain a waiver.  Once a waiver is obtained, it relieves the Estate from the looming MERP claim and opens your probate options if the recipient left a will. 

Waiver of the MERP claim allows for the potential to probate a will as muniment of title.  If there is a will, one of the simplest probate procedures for transferring real property in Texas is muniment of title.  It is simpler and cheaper than an administration.  To use this procedure there must be a will, the estate should consist primarily of real property and there can be no outstanding debts.  A MERP claim is considered a debt, so this procedure cannot be used if there is an outstanding MERP claim.   If a waiver of the MERP claim is obtained (and the other criteria are met), the will may then be probated as muniment of title.

Obtaining a waiver is also important in an heirship proceeding and administration (no will was left) or an application for administration and letters testamentary (a will was left).  Applying for administration of the estate (whether there was a will or not), generally results in an appointment of an executor or administrator.  Once someone is appointed, that person has fiduciary duties.  If there is a MERP claim still hanging out there, that has not been waived and is properly presented to the estate, the executor or administrator will have a duty to pay the claim.  So, even if muniment of title is not available for reasons other than the MERP claim, it is still important to attempt to obtain a waiver of the MERP claim prior to initiating any probate proceeding.

As demonstrated by the information in this post, handling a MERP claim without legal counsel may result in complication of the probate process and unnecessarily paying a MERP claim.  If you receive a Notice of Intent to File a Claim or are aware there may be a claim, contact an estate planning and probate or elder law attorney.