Practical Pointers from Practitioners

Arkansas Reduces the Burden of Estate Recovery

Contributing Author: Maya Goree, Cross, Gunter, Witherspoon & Galchus, P.C., Little Rock, Arkansas.

Arkansas, like many other states, participates in the Medicaid program, providing, among other services, financial support to those in need of long-term care. As a Medicaid participant, federal law requires Arkansas to recoup some costs through estate recovery, which includes collection from a deceased recipient’s estate from sources such as first-party (d)(4)(A) special needs trusts, Miller Trusts, Medicaidcompliant annuities, and property passing via beneficiary deed. A beneficiary deed conveys a grantor’s interest in real property to a grantee upon the grantor’s death.

Arkansas’s 2021 legislative session brought about a significant change in the state’s Medicaid estate recovery rules related to property transferred via beneficiary deed. Specifically, House Bill 1162 proposed eliminating the power of the Arkansas Department of Human Services (DHS) to place liens on real property transferred by beneficiary deed. Under the prior law, a grantee’s interest in a beneficiary deed was subject to DHS’s claim for reimbursement of federal or state benefits, including Medicaid, from the estate of the grantor. The new law removed all reference to estate recovery by DHS from the statute, releasing the grantee’s interest in the inherited real property from potential encumbrance. This change did not eliminate estate recovery altogether in Arkansas. DHS can still recover the cost of benefits from a decedent’s estate through traditional probate recoveries and the other sources mentioned above.

Ultimately, the legislature codified this change by amending Arkansas Code Sections 18-12-608 and 20-76436. Arkansas’s General Assembly adopted House Bill 1162 on April 5, 2021, and the law took effect on July 28, 2021.

This change in the law has both practical implications for practitioners and some broader policy implications to consider. For practitioners advising clients on Medicaid planning, this change offers another tool clients may use to preserve their assets for the next generation. For many clients seeking benefits, their home may be the largest or only asset available to leave for loved ones. Further, in Arkansas, an applicant’s home is excluded from the calculation of her assets, as are any expenditures to improve the home. Knowing that a home is not subject to estate recovery if transferred via beneficiary deed gives clients more options. Practitioners have even more incentive to advise clients not only to complete a beneficiary deed but also to make any necessary improvements on that home as part of a spend-down strategy when appropriate.

In addition to the practical implications for advising clients, this change in Arkansas’s estate recovery law has some policy implications worth noting. Estate recovery is designed to recoup the costs of Medicaid, but, in reality, states recover very little of the costs for long-term care through this process. According to a study by the Medicaid and CHIP Payment and Access Commission (MACPAC), states recover as little as .53 percent to .62 percent of the cost “of the Medicaid fee-for-service longterm services and supports.” Updates on Medicaid Estate Recovery Analyses, September 2020 at slide 9, available at https://bit.ly/3pmFg8K. This minimal contribution points to the reality that the effort likely does not achieve the intended purpose. Although this change does not eliminate estate recovery in Arkansas, it takes an important step toward limiting what is likely an inefficient tool.

The potential drawback of this change is that it shifts Medicaid costs to taxpayers and away from individual Medicaid recipients and their families. Although this may be a legitimate concern, it ignores the purpose of the benefit to begin with—to help individuals in need of long-term care who cannot provide for themselves. When the state provides this benefit, it is worth asking whether the burden of the cost should be charged disproportionately to the recipients who survive loved ones. By reducing the burden of estate recovery, the state also reduces the burden of generational poverty by lowering the cost on the next generation for reimbursement of a government benefit used by a deceased loved one.

Taking a recipient’s home off the table for estate recovery may have another benefit: reducing individual hesitancy to use Medicaid benefits. The threat of estate recovery may discourage potential clients who need Medicaid’s services from using available benefits because of fear of losing the only asset they may have to pass on to their children or loved ones. By eliminating this source of stress, clients may be more inclined to engage an attorney for both advice and Medicaid benefits for their healthcare needs.

Arkansas’s most recent change to its estate recovery laws may be a small step with a big effect on the lives and loved ones of recipients of Medicaid long-term services and supports.

Published in Probate & Property, Volume 36, No 2 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.