The "Augmented Estate" and How It Can Affect Your Family
You may be familiar with Medicaid as a government program that provides funding for health care to people with limited income. You may also believe that, as someone who has worked and saved for all of your adult life, you will never fall into the category of individuals who need Medicaid assistance. Hopefully, you are right about that.
You might be surprised to learn that many people in a similar situation to yours have ended up needing Medicaid services for one reason: they have needed nursing home care for an extended period. Nursing home care is expensive—in some cases up to $100,000 per year or more—and it is not covered by Medicare except in certain limited instances. That means that when an individual's funds are depleted and they can no longer pay out-of-pocket for care, they may become eligible for Medicaid.
After a person who has received Medicaid dies, the State of Ohio has the right to file a claim against their estate to recover some or all of the assets paid out through Medicaid on their behalf. This is called "Medicaid estate recovery." All states that receive federal Medicaid funding are required by law to establish such an estate recovery program.
What is Included in Medicaid Estate Recovery?
When the Medicaid estate recovery program was instituted in Ohio in 1995, only the assets in a deceased person's (decedent's) probate estate were subject to recovery. However, as of July 1, 2005, Ohio adopted an "augmented estate" approach to recouping Medicaid expenditures. This approach expanded the class of assets available for Medicaid estate recovery.
The updated approach, codified in ORC 5162.21, applies to Ohio Medicaid recipients who died on or after September 20, 2005. For those individuals, the so-called "augmented estate" includes all real and personal property in the probate estate; any real or personal property that would have been part of the decedent's probate estate but for release of administration procedures; AND any other real or personal property in which the deceased had an interest or to which they had legal title up until death (to the extent of such interest).
What does this mean? Well, let's say that Bob Smith, Medicaid recipient, had a vacation home, a joint bank account, and a living trust. He conveyed an interest in the vacation home to his adult daughter, and they became joint tenants with right of survivorship. Prior to the establishment of the augmented estate, the vacation home would have passed automatically to Bob's daughter on his death, and would never have been part of the probate estate. Therefore, it would not have been subject to estate recovery. Similarly, a joint bank account with right of survivorship would have passed outside of probate. So would the assets in the living trust; Bob's successor trustee could have distributed those to the named beneficiaries in the trust.
After the establishment of the augmented estate approach, however, Bob had a legal interest in all of those assets in the moment before his death, which means they would be included in his augmented estate for the purposes of Medicaid estate recovery.
How Can I Protect My Family?
The use of the augmented estate approach closes a loophole of sorts. Previously, an individual could preserve assets for his or her family simply by removing them from their probate estate; this was easy enough to do with planning tools like living trusts, joint tenancy and joint bank accounts, payable on death (POD) bank accounts, transfer on death (TOD) vehicles, and similar devices.
The state can only attempt to recover against the estate of a Medicaid recipient after the death of their surviving spouse (if married), and when the Medicaid recipient no longer has any surviving children who are either under the age of 21 or are blind or totally disabled. (Total disability is defined by Medicaid regulations.) However, if you do not have a surviving spouse or children with qualifying disabilities, your adult children or other heirs could find assets they expected to receive will be claimed instead by Medicaid estate recovery.
If you are concerned about preserving assets for your family in the event that you need Medicaid assistance at some point in your life, you will need to plan to keep assets out of your augmented estate. Certain types of "safe harbor' transfers are permissible to keep assets out of an augmented estate, as are other estate planning tools like supplemental needs trusts for disabled or special needs beneficiaries. Your estate planning or elder law attorney can advise you on how best to keep assets out of your augmented estate in light of your particular circumstances.
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