Lawmakers Hear How Medicaid estate recovery, life estates and trusts affect long‑term care planning for H120

Legislative counsel Eric briefed the House Committee on Human Services on how Vermont's Medicaid estate recovery rules and common estate‑planning tools affect proposals in H120 for a long‑term care trust fund.

Eric told the committee that federal Medicaid law requires each state to operate a Medicaid Estate Recovery Plan (MERP) and that Vermont's Department of Vermont Health Access (DVHA) and the Attorney General's office use those rules to file claims against probate estates for long‑term care costs after a recipient's death.

The explanation focused on three policy levers that commonly determine whether assets are recoverable: whether property is part of the probate estate; the legal form used to transfer ownership (enhanced life estate deeds versus trusts); and federal/state look‑back rules that can make recent transfers recoverable.

Nut graf: The committee is considering H120, which aims to create a long‑term care fund; Eric said the bill's enabling language will need to specify whether contributions would count as part of an individual's probate estate or be treated like Social Security (a public trust) to avoid becoming a target of MERP claims.

Eric summarized how the probate process interacts with recovery: the probate division of the Superior Court opens an estate and the executor or administrator files an inventory that lists real and personal property. "An estate shall include all real and personal property and other assets which are included in the estate when it is filed in the probate court," Eric said, citing DVHA's state plan language and rules used to implement MERP. He noted Vermont is an "estate‑only" recovery state, meaning DVHA generally seeks recovery only from property that is listed in the probate estate, not from every property interest.

Committee members and other legislators asked about common estate‑planning tools. Eric said a traditional life estate transfers ownership on death and can keep a primary residence out of probate and thus out of recovery. He explained Vermont's enhanced life estate deed (enacted in recent years) gives the grantor more authority during life but still operates to avoid probate and, in many instances, to prevent that property from being part of a recoverable estate.

The session also covered trusts. Eric described revocable and irrevocable trusts and the role of the trustee as the legal owner. He warned that revocable trusts typically remain accountable to Medicaid because the grantor retains access. He read a DVHA response confirming that "the assets in a revocable trust owned by an individual applying for Medicaid are fully accountable as resources of that individual."

Committee members pressed on the federal look‑back (60 months) that makes many recent transfers, including into trusts, subject to review. Eric said Medicaid's eligibility and recovery staff routinely examine applications and may contact banks or attorneys as part of eligibility checks. He also flagged exemptions and timing rules such as surviving‑spouse protections and limited exceptions for surviving children who are blind or permanently and totally disabled.

Several members raised equity concerns: legislators noted people with legal or financial knowledge can use deeds, trusts and beneficiary designations to protect assets, while lower‑income, immigrant or less‑resourced households may not access that planning and therefore are more likely to spend down and rely on Medicaid.

Eric closed by advising the committee that if it proceeds with H120, lawmakers should be explicit in statute about how contributions to any long‑term care fund would be treated for probate and MERP purposes and that further cross‑committee work with Judiciary and input from DVHA will be needed.

Ending: Committee leadership thanked Eric and signaled additional testimony and analysis will follow before H120 advances; the committee then moved on to a separate bill on seclusion and restraint.