Defending a Medicaid Claim in an Estate in New York

Medicaid may initiate a claim against a recepient’s inheritance. This is true even when the inheritance is from the Medicaid recipient’s spouse, and may happen whether or not there is a will. Medicaid may also initiate a claim against a spouse of a Medicaid receipent who signed a spousal refusal.

Even if the Medicaid recipient is not in the spouse’s will, Medicaid still has the right to assert a claim, by claiming the Medicaid recipient’s elective share, which can be up to one third (1/3) of the estate. Being sued by Medicaid is still better then private-paying for nursing home care – payment is delayed, the claim is at the Medicaid rate not the private-pay rate, and Meddicaid is easier to settle with the nursing homes that can just not admit you.

It is better to avoid a DSS lawsuit by properly planning for Medicaid. For someone who is already facing such a lawsuit, a qualified New York estate attorney will defend the claim and usually settle with the DSS for a percentage of the claimed amount.

What Medicaid Estate Recovery Looks Like in New York

Federal law requires every state Medicaid program to seek recovery from the estates of certain deceased recipients. The reasoning is straightforward: Medicaid is a needs-based program funded by taxpayers, and when the recipient dies leaving an estate, the program looks to that estate to recoup what it paid. In New York, the recovery is carried out by the local Department of Social Services in the county where the recipient lived. In New York City, the Human Resources Administration handles these claims.

Recovery is limited to recipients who were 55 or older when they received Medicaid services, and to a defined set of services – primarily long-term care services in a nursing home, home and community-based services, and related hospital and prescription drug services. Routine medical care provided to a Medicaid recipient under 55 does not generate a recoverable claim against the estate.

What Counts as the Recipient's Estate

Federal Medicaid law gives states a choice between a narrow definition of "estate" – only assets that pass through probate – and an expanded definition that includes assets passing outside probate such as joint accounts, trusts, life insurance, and transfer-on-death accounts. New York has historically taken the narrower view. The result is that many assets that would otherwise be subject to recovery in other states pass to heirs in New York without a Medicaid claim attaching.

This narrow definition is one of the cornerstones of Medicaid planning in New York. By structuring asset ownership so that most assets pass outside probate – joint with right of survivorship, in trust, with named beneficiaries – the family can substantially reduce or eliminate Medicaid recovery exposure. The plan has to be put in place before the recipient becomes ill and may need Medicaid, given the program's 60-month look-back for institutional care and the new look-back rules being phased in for community-based care.

Claims Against a Spouse's Estate

When the Medicaid recipient predeceases a spouse, recovery generally does not happen during the surviving spouse's lifetime. The recovery is deferred until the surviving spouse dies. At that point, DSS can assert a claim against the surviving spouse's estate for the cost of services provided to the deceased Medicaid recipient. This is true regardless of whether the recipient was named in the surviving spouse's will, because Medicaid stands in the recipient's shoes for purposes of the elective share under EPTL § 5-1.1-A.

The elective share gives a surviving spouse the right to take the greater of $50,000 or one-third of the deceased spouse's net estate, calculated using a broader definition of estate than ordinary probate. If the Medicaid recipient died first, DSS can step into the recipient's shoes after the surviving spouse's death and claim that elective share against the recipient's deceased spouse's estate – an unintuitive result that frequently surprises families.

Spousal Refusal Cases

New York allows a community spouse to "refuse" to make their income and resources available to support a Medicaid-applicant spouse. This is the spousal refusal procedure. When properly executed, it allows the institutionalized spouse to qualify for Medicaid even though the community spouse retains assets above the spousal allowance. The trade-off is that DSS retains a right of recovery against the refusing spouse. The agency may sue the community spouse during their lifetime or assert a claim against their estate at death.

Spousal refusal claims are negotiable. DSS routinely settles these claims for a fraction of the gross amount – often 25 to 50 cents on the dollar, depending on the size of the claim, the community spouse's financial situation, and the strength of any legal defenses. An experienced attorney handling the negotiation can produce significant savings compared with what the agency initially demands.

Defending a Claim in Surrogate's Court

When DSS files a claim against an estate, the claim is filed in the Surrogate's Court where the estate is being administered. The executor or administrator must include the claim in the accounting and either pay it, settle it, or contest it. Contesting the claim usually means challenging the amount, challenging whether the services were actually provided, challenging whether the recovery is authorized by law, or challenging whether the estate has any assets subject to recovery.

Defenses that come up regularly include:

• Statute of limitations. DSS must file its claim within a defined period. Late claims can be excluded.
• Improper documentation. The agency must provide an itemized statement of services. Vague or unsupported claims can be reduced or rejected.
• Exempt heirs. Federal law prohibits recovery while there is a surviving spouse, a child under 21, or a child of any age who is blind or permanently disabled. These exemptions apply to recovery from the recipient's own estate, but the rules are nuanced and require careful analysis.
• Hardship waivers. Where the estate's only significant asset is the family home and selling it would create hardship for a survivor who has lived there long-term, a hardship waiver may be available.
• Equitable defenses. Surrogate's Court has equitable powers and can consider fairness arguments in appropriate cases.

Settlement with DSS

Many Medicaid estate claims are settled at a discount. The agency has limited staff and limited resources to pursue every claim through litigation. A well-prepared attorney can often negotiate a settlement that recognizes the legitimate portion of the claim while pushing back on overreach. Settlements typically involve a single payment in exchange for a release of the claim and dismissal of the proceeding.

The settlement amount depends on the strength of the defenses, the size of the estate, the existence of other claims competing for the same assets, and the agency's own internal policies. We approach negotiation with a clear understanding of the agency's settlement patterns and a defensible bottom line based on the merits.

Planning Before Medicaid Is Needed

Estate recovery is much easier to avoid than to fight after the fact. The core of Medicaid asset protection planning is:

• Transferring countable assets into an irrevocable Medicaid asset protection trust well before any application is contemplated, so that the look-back period expires before benefits are needed.
• Converting countable assets into exempt assets where possible – improvements to the primary residence, a Medicaid-compliant immediate annuity for the community spouse, prepaid funeral expenses.
• Reviewing beneficiary designations on retirement accounts, life insurance, and TOD accounts so that those assets pass outside probate.
• Holding the primary residence in a way that takes advantage of the New York probate-only definition of estate.
• Considering caregiver contracts and other compensation strategies for family members who are providing care.

Each of these strategies has rules and limits. Some require many months or years of advance planning to be effective. Some are tied to the spouse and require coordinated planning for both. The right combination depends on the family's resources, health, and goals.

What to Do If You Have Received a Claim Notice

If you are the executor or administrator of an estate and you have received a notice of claim from DSS or HRA, do not ignore it and do not pay it without review. Get a copy of the itemized statement, identify the services and the amounts, and review whether the claim is properly supported. Identify any exempt heirs, hardship situations, or other defenses. Confirm whether the estate definition that the agency is using is correct for New York. Then negotiate.

Talk to a New York Medicaid Estate Recovery Attorney

If a family member who received Medicaid has died and DSS is asserting a claim against the estate, or if you are planning ahead to protect a family member's inheritance from recovery, contact us. We handle Medicaid estate claims throughout New York. You can reach the Law Offices of Albert Goodwin at 212-233-1233 or by email at [email protected].