Reader's question reveals legal complexities
November 1, 2019
In the last issue of the Senior Voice, a reader named Yvonne Gossett from Palmer asked what sounds like a simple question: When I die, will Medicaid take my life insurance? She complained that nobody, not even Medicaid, would tell her. Presumably her concern is, why should I keep paying the premiums if the government is going to take the proceeds?
That’s a fair question to ask. And you would think that the answer would be simple. But it ain’t.
To begin with, even for attorneys who deal with Medicaid on a regular basis, finding the law is not necessarily easy. These are not the kind of laws you can just look up in your handy copy of the Alaska Statutes. Yes, there are statutes about Medicaid, but there are also detailed regulations. On top of that there are a lot of federal statutes and regulations which states have to follow if they want the feds to give them money (federal money accounts for about 2/3 of the Medicaid budget).
In order to comply with the federal laws and get their money, the state has to have a detailed official plan, which is approved by the feds. Then there are various federal and state manuals which the agency follows. That’s a lot of law to have to dig through if someone wants to find an answer.
And the answer is not always clear, even after going through all of those sources of law. Let’s take Ms. Gossett’s case (and she is not my client, so I am not giving away any confidences here). I’m going to narrow down the question by making some assumptions, namely that she is receiving long-term care Medicaid, that she is single, and that the insurance policy is a “term” policy, not a “whole life” policy. A whole life policy has a cash value, which would probably make her ineligible for Medicaid in the first place.
Let’s start with the statute. AS 47.07.055 allows Medicaid to recover from the “estate” after someone dies. There are various exceptions, such as Native allotments, the house if the surviving spouse can still live there, and so forth. But what does “estate” mean in this context? There are lots of different meanings of the word “estate”. If you go bankrupt, they refer to your assets as your bankruptcy estate. In conservatorship cases, the assets of the respondent are referred to as his or her estate.
But obviously, this statute refers to the estate you leave after you die. Even that, though, is subject to multiple interpretations. There is the probate estate, which is what has to go through a specific legal proceeding after you die, but not everything goes through probate. If you have a living trust, there is a trust estate. There is the taxable estate, for inheritance tax purposes, which includes a lot of things that do not go through probate or a trust. There is even something called an augmented estate, which comes up when somebody tries to disinherit their spouse, and the spouse makes a claim under the elective share law.
So the statute is ambiguous, but can we look to the regulations? Yes indeed! There we find 7 AAC 160.990, which refers us over to a different statute, and says that the word “estate” has the same meaning found there. The statute the reg points us to, AS 13.06.050, is not actually part of the Medicaid laws, it is the definitions section for the probate code, and it says that estate means everything subject to the whole set of laws from AS 13.06 to AS 13.36.
Think you have now found the answer? Sorry Charlie, that is an almost useless definition. AS 13.06 to AS 13.36 covers 268 pages. It covers probate estates, it covers trusts, it covers adult and minor guardianships, powers of attorney, direct beneficiary designations, and just about everything else.
But does it cover life insurance? Well, sort of. In AS 13.33.101(d) it refers to life insurance (and retirement plans) but it says that they are not subject to the rights of creditors. But does that mean that Medicaid cannot go after it?
It probably does. However an attorney could certainly make the argument (presumably on behalf of the State) that it is not the specific provisions of that statute which matter for Medicaid purposes, but merely the fact that life insurance is referred to somewhere in that broad expanse between AS 13.06 and AS 13.36, which means the State can go after it under the Medicaid statutes.
But that would be a stretch, and my best guess is that a judge would not buy the argument.
Chances are, the life insurance payment could not be taken by the State. So should our alert reader continue to pay the premiums on a life insurance policy which might not ultimately benefit her family? I don’t have a simple answer for that. She will have to take into account such other questions as how much the premium costs her, what else she would prefer to do with that money, and how badly her family would need the insurance payout after she dies. The possibility that Medicaid may try to grab the policy when she is gone, is a risk that she will have to take into account.
Life is full of simple answers. Sometimes the law gives us clear and simple answers. Unfortunately, this is not one of those times.
Although there is one solution she might consider — transfer the policy to her heirs, and let them pay the premiums. Then it’s out of her hands, and since a term life policy has no value until she dies, the transfer would not cause her problems with Medicaid.
Tough question. Unclear answer. But easy solution?
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account.