Texas offers Huge Loophole to Recovery Program by Hammerle Finley Law Firm

MERP is the Texas Medicaid Estate Recovery Program. Its sole purpose is to seize money from the estates of deceased Medicaid recipients and then plop the recovered funds back into the state’s coffers. The government, acting through a contractor called Health Management Systems, Inc. (HMS), does this by filing a claim in probate.      

Why is this a prudent financial maneuver by the government? Because although Medicaid is a needs-based program, not every Medicaid recipient is a pauper. The type of assets that a recipient can own and still be Medicaid -eligible – such as a homestead, an automobile, and a retirement account – can be valuable.

MERP claims can involve a significant amount of money. Long- term care alone for a Medicaid recipient can easily run into the hundreds of thousands of dollars.  

Large government claim, finite probate assets – the result is that a successful MERP claim can end up wiping out the entire value of a probate estate. The government wins and the probate estate’s distributees lose.

Before you say that is only fair– you need to understand that MERP was forced upon Texas by the federal government. Medicaid is a federal-state program, and the feds require the states to meet certain conditions before it puts its money in the pot. One of those conditions is that the state have a recovery program for the money it pays out. In 2005, after years of resistance, Texas finally capitulated by putting in place the least onerous program it could muster and leaving a huge loophole.

What Is The Medicaid Estate Recovery Program In Texas?

The Texas version of MERP plays as follows.

A MERP claim is limited to Medicaid monies paid on your behalf after you reach the age of 55, and then only if your Medicaid application was filed on or after May 1, 2005.

HMS can only recover a MERP claim after you die, and then only against the assets that go through your probate estate.

The loophole?  There is no recovery against assets that do not go through your probate estate.  It only takes a bit of planning on your part to protect your assets.

A few popular tactics:

  • Name a beneficiary (not your probate estate) on your accounts.  The ownership of the account will go directly to the beneficiary when you die.
  • Establish a Revocable Living Trust. The assets that pass through a revocable living trust are non-probate assets.  When you die, your trustee will distribute the assets to the beneficiaries.
  • Sign a Lady Bird Deed for your homestead. This transfers the ownership of your home at the moment of your death.

There is a lot of fine print to the MERP law, and a lot to consider before you implement a plan. Remember the big picture and do not jeopardize your Medicaid eligibility by trying to protect assets.  For example, through a quirk in the law, if you put your house into your trust during your lifetime then it becomes a countable asset for Medicaid purposes. And beware: tactics that are available for a single person may not work for a married couple.

If your probate estate still ends up with assets, all may not be lost.  Some defenses may be available if properly presented.

Virginia Hammerle is a Texas attorney whose practice includes estate planning, guardianship and probate. Sign up for her newsletter at legaltalk@hammerle.com. Contact Hammerle Finley Law Firm to schedule a consultation at hammerle.com

This column does not constitute legal advice.