29 Oct Can Medicaid take this life insurance policy?

Q. If a person gets Medicaid after taking the cash surrender from their whole life policy for funeral expenses, but the policy remains in effect through continued payments by the beneficiary, who is entitled to the remainder of the policy? Medicaid or the beneficiary, which is not the estate? The Medicaid beneficiary only lived for two months after.
— Beneficiary

A. The rules surrounding Medicaid can be complicated.

Under the terms you describe, it seems the beneficiary – and not Medicaid – would get the money from the life insurance policy.

Here’s why.

Under Federal and New Jersey law, Medicaid is required to recover funds from the estates of certain deceased Medicaid recipients for all payments provided by Medicaid for services received on or after age 55, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

She said states have the option of using a narrow probate definition of “estate” in their Medicaid recovery program or defining “estate” more broadly to include probate and non-probate assets.

Probate assets are those that pass under a will. Non-probate assets include joint accounts and assets that are designated to go to a beneficiary other than the estate.

New Jersey uses an expanded definition of estate recovery, which includes any property that belonged to the deceased person at the moment prior to his or her death, Whitenack said. This includes property such as the deceased person’s home or share of a home, bank accounts, whether solely or jointly held, trusts, annuities, stocks, bonds and any other real or personal property.

She said proceeds from whole life insurance policies are subject to estate recovery if they are not liquidated prior to death as required.

“Proceeds from any life insurance policy are subject to Medicaid recovery when the proceeds are paid to the estate,” she said. “In this case, if the policy was liquidated there should be no estate recovery against the policy since there was a designated beneficiary other than the estate.”

Email your questions to .

This story was originally published on Oct. 29, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.