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Recent changes to Medicaid asset recovery laws in New York State have expanded the manner in which the State may engage in Medicaid estate recovery. These changes may threaten existing asset protection plans, and will affect the way in which title companies clear title. The focus of the changes have been non-probate assets, including retained life estates, revocable living trusts and joint tenancies, which have been popular tools used for limiting Medicaid recovery by New York State. These types of transfers are now subject to estate recovery and may not be relied upon to shield the assets of Medicaid recipients.
Under prior law, an estate for recovery purposes was limited to property passing under a will or by intestacy. A transfer of a Medicaid recipient’s interest that passed outside the probate process would be beyond the reach of the state. Common transfers included a conveyance by a recipient to (1) themselves and a relative as joint tenants with rights of survivorship; (2) trustees under a revocable trust; and (3) to relatives while retaining a life estate interest. In each of these types of transfers, the recipient was divested of their interest in the property upon the recipient’s death. Since title to the property passed automatically to the remainderman when the recipient died, no estate recovery could be had against the remainderman’s interest. This is no longer the case.
In an effort to prevent Medicaid recipients from avoiding estate recovery by transferring assets out of the probate estate, Social Services Law Section 369 Subdivision 6 was amended on April 1, 2011, as follows:
“6. For purposes of this section, an individual's "estate" includes all of the individual's real and personal property and other assets passing under the terms of a valid will or by intestacy. Pursuant to regulations adopted by the commissioner, which may be promulgated on an emergency basis, an individual's estate also includes any other property in which the individual has any legal title or interest at the time of death, including jointly held property, retained life estates, and interests in trusts, to the extent of such interests...”
On September 8, 2011, the Emergency Regulations under NYCRR 360-7.11 were issued to define “Estate” as “ (i) all of a decedent's real and personal property and other assets passing under the terms of a valid will or by intestacy; and (ii) any other real and personal property and other assets in which the decedent had any legal title or interest at the time of death, including such assets conveyed to a survivor, heir, or assign of the decedent through joint tenancy, tenancy in common, survivorship, life estate, living trust or other arrangement, to the extent of the decedent's interest in the property immediately prior to death.
In an effort to put mortgage lenders and prospective purchasers on notice of a Medicaid claim, the NYCRR states that real property post death liens shall be imposed on property and assets as soon as practicable after the person's death. Unfortunately, it is not entirely clear whether the amendments will affect all existing and future non-probate transfers, or only those created after the amendment’s enactment. What is clear is that a recovery is allowed up to the amount of the Medicare assistance provided, but no more than the value of the property interest.
The statutory changes do not have an effect on transfers made to irrevocable trusts however. If a transfer is made to an irrevocable trust that provides the settlor with payments of trust income, estate recovery is limited to any undistributed income due the settlor at the time of the settlor’s death. If the irrevocable trust provides for no income to the settlor at all, no estate recovery can be effected whatsoever.
From a title company’s perspective, it will want to ensure that there are no possible liens under section 369 of the Social Services Law. Accordingly, where the public record suggests the possibility of a Medicaid estate claim, the title company may require (1) a copy of a death certificate to determine whether the decedent died in a medical facility; and (2) an affidavit to establish that a party with an interest in the premises was not a Medicaid recipient for whom a Medicaid estate recovery could be effected under Section 369 of the Social Services Law. Any lien docketed by the Department of Social Services must of course be discharged of record.
To prevent fraud in its short sale transactions, Freddie Mac requires the buyer, the seller, the real estate brokers, the escrow/closing agent and any short sale facilitator to certify that the short sale transaction is an arm’s length transaction and that the buyer will not resell the property within 120 days of the sale unless substantial improvements have been made to the property. The requirement as originally imposed, was problematic because it made escrow and closing agents liable for matters which they would not have knowledge of.
On November 18, 2011, Freddie Mac amended its policy regarding short sale affidavits. The amendments, which are contained in it Bulletin Number 2011-23, became effective on January 1, 2012, and are as follows:
Prestige Title Agency is pleased to announce that it is now offering the Coop UCC/Plus Policy, an exciting insurance product specifically designed for cooperatives! Unlike a leasehold policy which insures only a right to occupy a coop unit, the Coop UCC/Plus policy insures both an ownership interest in a cooperative organization and the possessory rights to a specific coop unit. Most significantly, the Coop UCC/Plus is available at a fraction of the cost of a leasehold policy. Policies are available for both owner and lender. A cooperative addendum is also available to add the cooperative organization as an insured in the event of a lost stock or destroyed stock certificate. Please contact Prestige Title Agency for additional details.
In yet another example of aggressive enforcement by the NYC Department of Finance of its real property transfer tax, the Department is imposing its penalty and interest provisions on court appointed referees for late filed Real Property Tax returns. Although Title 19 section 23-03(d)(2) has always stated that the real property transfer tax applies to deeds given by referees, receivers, sheriffs, etc., for realty sold under foreclosure or execution, it was only beginning on May, 2011, that the Department began enforcing the penalty and interest provision against referees. Since the tax is computed on the amount bid for the property, senior liens not canceled by the sale, and advertising expenses, taxes and other costs paid by the purchaser, whether the purchaser is the mortgagee, judgment creditor, or other person, the penalties and interest on the tax can be significant. Fortunately for the referees, enforcement efforts were suspended through December 31, 2011. Starting January 1, 2012, however, the Department will resume enforcement of its penalties and interest provisions against referees.
If you have any questions or would like further information regarding any of the articles in this newsletter, please contact Anthony Chiellino at (212) 651-1200 or achiellino@prestitle.com.
Also, if there are any topics that you would like us to include in future newsletters, please feel free to e-mail us with suggestions at info@prestitle.com.
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