Governor Baker’s Fiscal Year 2017 Budget Proposal: Expanded Estate Recovery Provisions

Governor Charlie Baker’s Fiscal Year 2017 budget proposal presents an alarming challenge to many previously established estate plans. The proposal includes provisions that significantly amend current Massachusetts law to expand the types of property against which the Commonwealth of Massachusetts can make claims to seek reimbursement for MassHealth benefits paid. Currently, the law limits “estate recovery” to the probate estate of the decedent, meaning assets that will pass to heirs or beneficiaries through a Will or by intestate laws if a person dies without a Will. Generally, a probate estate does not include property that has been placed in a trust, payable on death accounts, jointly held assets, and other assets that pass directly to selected beneficiaries by virtue of law or contract, like insurance policies, retirement plans and other investments. Under the proposed changes, estate recovery will expand to allow the state to make claims against any property in which the decedent had a legal ownership interest immediately prior to his or her death, including property outside of the probate estate. The property that may be under attack should the new law come into effect includes jointly owned personal and real property, property in which the decedent held only a life estate interest, and possibly property held in a trust in which the decedent was a beneficiary during his or her lifetime.

The effects of such an expansion on estate recovery are vast, and unfortunately, the middle and lower classes, the elderly, the uneducated, and the ill-advised will be disproportionately affected, bearing the burden of these reimbursement claims. Many individuals and families will be taken by surprise when they learn that their property interests are in jeopardy. This proposal overturns years of settled law that elders and careful planners relied upon to pass on a legacy to their beneficiaries after death through life estates or jointly-held real estate, with seemingly no type of grandfather clauses to protect plans established prior to this potential new law. Additionally, most of these MassHealth recipients have had to use up all but $2,000 of their life savings in order to qualify for the benefits. With no money saved and all other now-vulnerable property previously believed to be protected from the grasps of the nursing home, our elders will have no evidence of their success to pass on to their loved ones.

While individuals with chronic or acute illnesses that may require thousands of dollars in costs for treatment can be covered by Medicare and private health insurance, others, typically elders, with diseases like Alzheimer’s, Parkinson’s, dementia, and other long-term care needs rely on MassHealth to help pay for these ever-rising costs. But these monies must be paid back to the Commonwealth, and under the proposed law, the decedent’s loved ones will bear the burden of the reimbursement. For example, most married couples own their home jointly. Once a claim is filed by MassHealth for the benefits provided to one spouse, title to the home still occupied by the surviving spouse will be questioned. This will make it difficult for the survivor to mortgage the home, secure a reverse mortgage, or sell the property without addressing the claim, raising uncertainty as to how they will pay for their own care and daily support as they continue to age and experience inevitable long-term-care needs. Additionally, and perhaps more troublesome, these surviving spouses and loved ones will be personally liable for reimbursement to the estate with little notice and during a time of grief and loss. Even if the asset in question is sold to pay for education or health care costs, or placed in a special needs trust by parents for the benefit of their disabled children, personal liability will remain and the claim by the state will continue to be sought until paid.

The proposed language of the budget is broad and many questions remain. Such ambiguity makes it nearly impossible for families to plan for the inescapable costs of long-term-care. Any individual who has experienced some amount of success in their lifetime will be unable to pass a legacy to their children and other beneficiaries, giving their loved ones a starting point and placing them in a position to be better off than they once were. In addition, the confusion will undoubtedly lead to court disputes and legal battles, costing both the Commonwealth and vulnerable family members.

While much remains unclear, we can point with confidence to some unsettling implications of the proposed law based on history. Several years ago, this same proposal was brought by then-Governor Mitt Romney and enacted by the Massachusetts legislature in July of 2003. After just one year of turmoil and confusion, the law was repealed by the legislature and all monies collected were refunded, through a lengthy and disorganized repayment process, ultimately costing the state an untold amount of dollars. Similarly, the State of New York sought to expand estate recovery efforts in 2011 only to have the provisions of the law repealed less than a year later. Those incidents proved the exposure of the Commonwealth to a significant increase in costs of administration, including the implementation of the complex notice and tracking systems, an astronomical cost that many experts worry may outweigh the potential revenue that the expanded estate recovery set out to collect.

While existing estate plans will need to be reviewed and new plans employed to lessen the impact of the potential new change, we believe we must try to prevent these changes. We have sent letters to our legislators and representatives, requesting they advocate against the inclusion of the proposed expanded estate recovery provisions in the 2017 budget, and suggest that you do the same. Should you have any questions or wish to receive more information about the proposal and its effects on you and your loved ones, please contact us.

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