If a person receives Medicaid benefits after taking the cash surrender from their whole life policy for funeral expenses but that policy stays in effect through continued payments by the beneficiary, who gets the remainder of the policy? Medicaid or the beneficiary? What if the Medicaid beneficiary only lived for a few more months after that?
nj.com’s recent article on the subject asks “Can Medicaid take this life insurance policy?” The article says that the rules concerning Medicaid can be very complicated.
In this situation, it looks like the beneficiary, not Medicaid , would receive the money from the life insurance policy.
Under Federal and state laws, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments made by Medicaid for services received on or after age 55.
States are able to apply a narrow probate definition of “estate” in their Medicaid recovery program. They can also define “estate” more broadly to include probate, as well as non-probate assets.
Remember that probate assets are those that pass under a will, and non-probate assets are accounts like joint checking accounts, pensions and other assets that are designated to go to a beneficiary directly and not the estate.
This also includes property, such as the deceased person’s home or share of that residence, other bank or investment accounts (whether solely or jointly held), as well as trusts, annuities, stocks, bonds and any other real or personal property.
Proceeds from whole life insurance policies are subject to estate recovery, if they’re not liquidated prior to death as required. The proceeds from any life insurance policy are subject to Medicaid recovery, when the proceeds are paid to the estate.
In the example here, if the policy was liquidated, there should be no estate recovery against the policy, because there was a designated beneficiary other than the estate.
Your estate planning attorney can help you with the specific Medicaid and probate laws in your state.
Reference: nj.com (October 29, 2019) “Can Medicaid take this life insurance policy?”