20 Jan Medicaid Estate Recovery in Illinois

Medicaid Estate Recovery in Illinois

How It Works and How Families Avoid It

By Martin Fogarty, Founder of ElderSmart

For many Illinois families, the real surprise does not come when a loved one qualifies for Medicaid. It comes later, after death, when the state files a claim against the estate.

This process is known as the Medicaid Estate Recovery Program, often referred to as MERP.

Families regularly tell me, “We thought Medicaid was handled. No one told us the state could come back later.”

Understanding how estate recovery works in Illinois, and how it can be limited or avoided with proper planning, is one of the most important parts of Medicaid planning.

What Is Medicaid Estate Recovery?

Medicaid estate recovery is the process by which Illinois seeks reimbursement for certain Medicaid benefits paid on behalf of a deceased recipient.

Federal law requires every state to pursue recovery of medical assistance paid after age 55, and Illinois carries this out through its estate recovery program.

Estate recovery is not a penalty and it is not personal. It is a legal claim made against a deceased person’s estate, similar to other obligations that must be resolved before heirs receive distributions.

When Does Estate Recovery Apply in Illinois?

Illinois may pursue estate recovery if:

• Medicaid benefits were paid after age 55

• The recipient passes away owning assets subject to a recovery claim

Contrary to a common misconception, estate recovery is not limited only to individuals who lived in nursing homes.

What Costs Can Illinois Recover?

Illinois focuses most estate recovery efforts on long-term care costs, such as nursing home care and related services. However, under federal and state law, Illinois has authority to recover all Medicaid medical assistance paid after age 55, subject to the terms of the state Medicaid plan.

This can include:

• Nursing home care

• Home and community based long-term care services

• Hospital stays

• Surgeries

• Dialysis

• Prescription medications

In practice, recovery efforts are generally concentrated on long-term care and related services, but the legal authority is broader. Whether specific costs are pursued depends on how the claim is administered and what assets exist in the estate.

Importantly, Illinois cannot recover more than the value of assets legally subject to the claim.

How Estate Recovery Works in Illinois

Illinois primarily pursues estate recovery through claims filed against probate estates. Unlike some states, Illinois does not broadly apply expanded estate recovery to reach non-probate assets by default.

This means recovery typically targets assets that legally pass through probate, rather than property that transfers automatically by operation of law.

That said, assets structured incorrectly, incompletely, or with retained interests may still be subject to challenge. Proper planning and correct implementation matter.

Assets Commonly Subject to Recovery

Assets that commonly fall within estate recovery include:

• A home titled solely in the Medicaid recipient’s name

• Bank accounts without beneficiary designations

• Personal property owned individually

Assets that may avoid recovery if properly structured include:

• Property held in correctly drafted and funded irrevocable trusts

• Jointly owned property with rights of survivorship, if it does not pass through probate

• Accounts with valid beneficiary designations

Avoidance depends on how the asset is titled and whether it becomes part of the probate estate. No strategy is automatic.

The $25,000 Probate Estate Exemption

Illinois protects the first $25,000 of every probate estate from Medicaid estate recovery.

Think of this as a standard deduction. The first $25,000 of any probate estate is protected before recovery is considered.

This means:

• If the probate estate is worth $25,000 or less, Illinois does not pursue recovery

• If the probate estate exceeds $25,000, only the amount above $25,000 is potentially subject to recovery

For example, if an estate is worth $100,000, Illinois effectively disregards the first $25,000 and may seek recovery only from the remaining $75,000.

This exemption explains why some families never receive a recovery notice even after years of Medicaid coverage.

When Estate Recovery Is Barred or Typically Eliminated

Illinois law provides strong protections for certain family members.

Estate recovery does not apply if the deceased is survived by:

• A spouse

• A child under age 21

• A child of any age who is blind or disabled

Illinois is considered a probate-focused recovery state. If assets are legally and fully transferred out of the Medicaid recipient’s probate estate, such as through proper spousal transfer or survivorship ownership, Illinois generally does not pursue those assets further.

Unlike some states, Illinois typically does not file a claim against the surviving spouse’s later estate, provided the assets were properly titled and no retained interests remained in the original estate.

Improper transfers, retained life estates, or incomplete planning can change this outcome, which is why spousal planning must be done carefully.

Does Illinois Place Liens on Homes?

Illinois historically had authority to place pre-death liens on homes in limited circumstances.

In practice, Illinois stopped placing new liens on the homes of living Medicaid recipients in 2022. For current applicants, the risk of a lien during life is virtually non-existent.

Estate recovery today occurs almost entirely after death through probate.

Note: While Illinois no longer places new liens as a matter of policy, the underlying legal authority still exists in federal and state law and could theoretically change in the future.

Undue Hardship Waivers

Illinois allows heirs to request an undue hardship waiver in limited circumstances.

A waiver may be considered if estate recovery would cause an heir to become or remain dependent on public benefits such as SSI, SNAP, or other assistance.

Hardship waivers are narrowly applied and must be properly documented, but they remain an important protection for qualifying families.

How Families Avoid Medicaid Estate Recovery

The goal of planning is not to hide assets, but to structure them legally and correctly.

Common planning strategies include:

Medicaid Asset Protection Trusts

Irrevocable trusts can remove assets from the probate estate while allowing continued use of the home.

To avoid Medicaid eligibility penalties, these trusts generally must be created and funded at least five years before applying for Medicaid due to the look-back rule.

Simply signing the trust document is not enough. Assets such as real estate must be properly re-titled into the trust. An unfunded trust offers no protection.

Avoiding Probate

Keeping assets out of probate through correct titling, beneficiary designations, and trusts is often the most effective way to reduce recovery exposure.

Spousal Planning

Ensuring assets transfer cleanly to a surviving spouse and do not remain in the Medicaid recipient’s probate estate is essential to eliminating recovery risk.

Each strategy must be tailored to timing, health, and family structure.

A Real-World Example

A widowed parent enters a nursing home at age 80 and receives Medicaid for four years. The parent dies owning a home titled solely in their name.

Because the home passes through probate, Illinois may file a claim against the estate for the cost of care.

If that same home had been transferred into a properly funded irrevocable trust years earlier, or titled in a way that avoided probate, Illinois would have no claim against the property.

The outcome depends entirely on planning.

Final Thoughts

Medicaid estate recovery in Illinois is real, but it is also predictable and manageable with proper planning.

Illinois can seek recovery for medical assistance paid after age 55, but recovery is limited by probate rules, statutory exemptions, and how assets are structured. The first $25,000 of every probate estate is protected, and properly implemented planning, especially spousal and trust planning, can often eliminate recovery exposure altogether.

Families who understand these rules are far better positioned to protect their home and preserve what they worked for.

The key is planning early and planning correctly.

Contact ElderSmart today for a comprehensive Medicaid planning consultation. Whether you’re planning ahead or facing immediate needs, we’ll help you understand your options and implement strategies to protect your assets while ensuring access to quality care.

Martin Fogarty is the founder of ElderSmart and has spent over three decades guiding Illinois families through complex elder care decisions. His approach combines deep legal expertise with genuine compassion, earned through both professional experience and his family’s personal journey through long-term care challenges.

 

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