The term “medicaid planning” is somewhat of a misnomer. It implies that our healthcare system is structured in a way that allows people to purposely organize their affairs in ways that enable them to receive free healthcare and not have to worry about the specter of “estate recovery.”

If you haven’t heard any of these terms before, don’t worry they are explained in this post.

A better description of “medicaid planning” would be “medicaid loopholing.” Contrary to popular belief, Medicaid laws are designed to prevent you from dodging estate recovery.

Over the years, Medicaid has frantically tried to cover up loopholes that prevent estate recovery. They even went as far as to criminalize the practice of advising clients on how to avoid estate recovery. That law has since been overturned but it shows just how far medicaid has gone to prevent the estate recovery loopholes.

If you’re reading this you’ve probably pieced together the general framework of estate recovery… Terms like “five year lookback” and “irrevocable trust” may come to mind.

Understanding medicaid in depth is a long process that even lawyers have difficulty keeping up with.

So let me give you a brief run down without any jargon or explainers:

The straight dope

Here’s what you need to know. If you die while receiving medicaid, or medicare with certain medicaid benefits, the state will put a lien on your property or assets and recover the costs that free healthcare paid for you. It’s called “estate recovery” because when you die your assets are said to be part of your “estate” and medicaid will recover from your “estate” the costs of healthcare that you got for free. Hence, “estate recovery.” How do they do this? When your assets go through probate (and everyone goes through probate even if you have a trust, or no assets at all), medicaid will put a lien on your assets when they are going through court. They have first priority over other creditors so they’ll get their money first.

How to avoid estate recovery

A lot of people ask… “how do I avoid estate recovery.” Again, this phrasing is not an entirely accurate way to frame the question.

A prerequesite for Medicaid elgibility is being worth less than $2,000. Essentially, Medicaid REQUIRES you to be poor. If you don’t meet their definition of poor then they will take your money when you die. And this is how their laws are structured.

So a better phrasing of the question would be “how do I legally impoverish myself while making sure my most important assets go to my loved ones and not Medicaid when I die?”

A lot of clients don’t understand that if you don’t want Medicaid to come after your stuff, then you can’t own any stuff.

So if you have a house, you need to get it out of your name. And you can’t just give it to a spouse because their assets are included for estate recovery as well.

So whats the bottom line, can I avoid estate recovery?

There are three primary ways that people get rid of their assets while preserving them for their loved ones after they die.

1. Give your assets away.
   
   If you don’t own your house or your money then Medicaid can’t take it. This is the simplest solution. Some people even spend down their assets during life.
   
2. Life estate deed
   
   A life estate deed gives your house to your kids but reserves a life interest for you during life. This way, technically, you don’t own the house and medicaid can’t take it.
   
3. Irrevocable trust
   
   If you put your assets into a trust, you don’t technically own them anymore. The trust must be irrevocable, meaning you can never change it.