Written by attorney Bradley Merrill Bunting

The Texas Medicaid Estate Recovery Program

The Texas Medicaid estate recovery program (MERP) became effective in Texas on March 1, 2005. Texas elected a rather limited class of property to attempt to recover or recapture after the death of a Texas Medicaid recipient. Essentially, recoverable assets are those assets that pass under Texas probate.

Since, in order to be on Medicaid in the first place, a person may only have several thousand dollars in cash, the primary asset that families desire to protect is the family home. After a Medicaid recipient dies, the family will receive a collection letter. If the Medicaid recipient's estate is going through Texas probate, and an independent executor has been appointed, essentially, this independent executor becomes personally responsible for the payment of the Medicaid debt to the state of Texas to the extent that the assets of the estate allow the same. In essence, other than to pay legal fees and funeral expenses, the independent executor is administering the estate and selling the family home for the benefit of the state of Texas, and other creditors depending on their priority status.

1.The enhanced life estate or "lady bird" deed

An enhanced life estate deed, also commonly referred to as a lady bird deed, is the most economical and reliable method at this time to enable a Medicaid recipient to protect the family home for the benefit of his or her children from Medicaid recapture in Texas. A lady bird deed is in essence a life estate in which the grantor can make changes to or revoke the transfer to the remainder interest contained therein.

2. Pros and Cons of the lady bird deed to avoid Medicaid recapture

At this time the only negative that this author has come across in connection with the use of a lady bird deed once the grantor is already on Medicaid is that some title companies simply do not like them. Title companies are used to having grantors signed an affidavit that the decedent was not on Medicaid. Since the beneficiaries will not be able assigns affidavit, it is possible that they may experience problems selling the house. However, not all title companies will refuse and it should be possible to find a title company willing to ensure the title. The alternatives, doing nothing or subjecting an independent executor to personal liability, are not very attractive. The lady bird deed avoids probate for the property, if offers creditor protection, maintains property tax exemptions and allows the grantor to remain in control of their property for the rest of their lives. There are not a lot of negatives associated with the use of this estate planning tool for the Medicaid recipient who is simply looking to leave their home to their children.

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