ALTCS: Will They Take the House?
Written by Dane J. Dehler
When clients (or their grown kids) start thinking about the possibility of nursing home care, one option to discuss is ALTCS (Arizona Long-Term Care System), and one question always comes up: Will the State take our house?
The answer is generally no, at least not the entire home. But it’s complicated.
To begin, let’s review the basics of the program. ALTCS is part of the Arizona Health Care Cost Containment System (AHCCCS), which implements the Federal Medicaid program in the State of Arizona. ALTCS is the long-term care aspect of the program. To qualify, an applicant must be:
1. A United States citizen or permanent resident;
2. An Arizona resident;
3. In need of nursing home care as determined by ALTCS/AHCCCS;
4. Have income under a certain limit;
5. Have resources under a certain limit.
If a person meets these requirements, the person will begin receiving care, and typically will continue to receive ALTCS benefits for the rest of his or her life.
An important note to this discussion is that the individual’s home is “exempt,” or not counted as part of an applicant’s resources as long as the value of the home is less than $572,000 (a value adjusted periodically) and they intend to return home (even if that’s not realistic). If other countable assets are under the limit, they can qualify for ALTCS and still own the home.
These benefits are not without costs, one of which is the possibility that your estate may have to pay ALTCS back for the care it provided. Federal law, specifically the 1993 Omnibus Budget Reconciliation Act (1993 OBRA), requires that each state have a system to recover costs from the estates of those who received benefits. Recovery can be pursued if the Medicaid recipient
1. Was 55 or older when they received benefits, or;
2. Has been determined to be permanently institutionalized, regardless of age, and not survived by a spouse or other dependent.
If the ALTCS recipient does not fall within these parameters, the state is not required to seek reimbursement and is very unlikely to try.
However, when recovery is mandatory under federal law, the state has tasked AHCCCS, implemented by HMS (Health Management Systems), with administering the Estate Recovery Program. It is this program that may assert a claim against the individual’s house.
If an ALTCS recipient owns a house and falls into the categories above, the program utilizes several different types of recovery methods. If your estate, including your house, is subject to a probate proceeding, ALTCS can file a claim just like any other creditor; ALTCS could also seek reimbursement from non-probate assets. And for a residence owned by the ALTCS recipient, ALTCS has another option: liens on real property. A lien is a notice of indebtedness that is recorded with the county recorder; the property can’t be sold unless the liens are satisfied. ALTCS employs two kinds:
This type of lien is authorized by federal law, specifically 42 U.S.C. § 1396p, and is referred to as a “Pre-Death” or Tax Equity and Fiscal Responsibility Act (“TEFRA”) lien. A TEFRA lien may be recorded on property owned by the Medicaid recipient only if:
1. The recipient has been receiving care at a nursing facility or an intermediate care facility, or other medical institution for 90 consecutive days;
2. The spouse or child (under 21 or disabled) of the recipient is not residing in the property; and
3. No sibling of the recipient who owns an interest in the property has been residing at the property for more than one year before the Medicaid recipient was admitted to the inpatient nursing facility.
Even if all the above are true and a lien is placed, a lien must be released if the Medicaid recipient is discharged and returns home.
If the property is sold during the recipient’s lifetime, the lien has to be paid. If the property is still owned by the recipient at his or her death, ALTCS will not pursue estate recovery so long as a spouse, child under 21, or disabled child survives the recipient. Further the lien won’t be enforced if one of the following is living in the home
1. A sibling who lived there at least the one year before the recipient was institutionalized,
2. A child who lived there at least the two years before the recipient was institutionalized and provided care allowing the member to delay institutionalization. (Documentation proving care required.)
There also are rare cases when a hardship waiver or reduction in lien amount can be granted.
If none of those applies and the estate requires a probate proceeding, the lien will be paid via that process. The executor can sell the house, pay the lien, and distribute the remainder to heirs. If there are other assets, those assets could be used to satisfy the debt; or, if an heir is to receive or wants to receive the property, he or she can pay off the lien (even getting a mortgage for the funds to pay off the TEFRA lien) and keep the home in the family.
The second type of lien is known as a post-death or non-TEFRA lien. Just as it suggests, it means that ALTCS may record a lien on real property owned by a Medicaid recipient after his or her death. So, the family of a recipient can’t just let the house sit, take no action to probate or transfer it, in hopes of avoiding the debt; a lien can still attach.
The exceptions for attaching or enforcing a TEFRA lien also apply to post-death liens.
Beneficiary Deeds Will Probably Not Avoid Liens
A beneficiary deed allows a person to transfer property automatically at death, without a probate proceeding, by recording a deed stating their intent during life. This process used to avoid ALTCS recovery, but that has become less likely. AHCCCS has fought this strategy in court on theory of fraudulent transfer. However, there are no published cases on record, likely because these fraud cases settled.
In addition, AHCCCS once was limited to seeking estate recovery from probate assets. But Arizona law, specifically A.R.S. § 14-6102, now allows creditors of the probate estate to reach non-probate assets. As a result, AHCCCS can now attempt to claw back assets that pass outside of the probate estate.
That all might sound terrible, but it’s possible, even likely, that more of a person’s estate can be preserved on ALTCS than not. Usually (but not always), the amount ALTCS pays for care is significantly less than would be paid with private funds. Furthermore, no interest is charged on the debt, and a lien can’t exceed the ALTCS recipient’s interest in the property. So if the recipient co-owns property with someone else and the recipient dies first, only half of the property can be subject to a lien. If the property is real estate and passes by right of survivorship then AHCCCS/ALTCS has no claim.
For example, consider a married couple who own a $500,000.00 house as community property with right of survivorship; husband receives care in a nursing home for five years, and the TEFRA lien or claim totals $300,000.00. Assuming husband’s half is not transferred to wife (which is allowed), as long as wife is still living and residing in the home, no lien can be attached at all. If she is no longer residing in the home at husband’s death, she can inherit the property because ALTCS won’t recover until her death, if at all. If wife is no longer living, she, at minimum, should have changed her estate plan so that her half of the house does not go to husband. Let’s say it goes to their only child, Bob, who also is the beneficiary of husband’s plan. Bob can still receive the property, but the lien, if it was placed, will need to be paid, but only up to husband’s interest, $250,000.00 (assuming no increase or decrease in value). Bob can take out a mortgage or sell the property and pay off the lien with the proceeds. He still inherits mom’s half.