For a long time, Michigan was one of the few states that had no Medicaid lien laws or Medicaid estate recovery. And for about the last five years, Michigan was the only state in the union that had not implemented such a program.
What is Medicaid estate recovery? Basically, if you have received Medicaid benefits during your lifetime, the state could seek reimbursement of those benefit payments after your death from your assets.
In 2007, after a long and arduous journey, Michigan’s estate recovery statute was finally passed by our legislature and signed into law. However, Michigan’s estate recovery law was never implemented. When Michigan submitted its request to the Federal government to approve the implementation of the law, the feds rejected it. At the time, it was reported that those at the federal level believed that Michigan’s estate recovery law was not tough enough because it allowed numerous exceptions to estate recovery and provided many opportunities for people to plan around the law and avoid it.
Flash forward to 2011. The Michigan Department of Community Health publishes a preliminary policy for estate recovery with an effective date of July 1, 2011.
Even though these proposed rules are currently being circulated for public comments due by July 2, 2011, the rules are slated to go into effect July 1, 2011. This is because “the public comment phase of this policy is being conducted concurrently with final” implementation. Don’t you just love government. This is just like municipalities doing the first, second and final readings of an ordinance at the same meeting.
It appears that effective July 1, 2011, Michigan will finally join the rest of the nation in having an estate recovery program for payments of Medicaid benefits. But what does this mean to you and your family? What does the law provide?
As originally published, all the protections that were in the original 2007 law for families had not changed. There were still numerous exceptions to estate recovery and many opportunities to avoid the reach of such a program. As was set to be implemented, estate recovery would only have applied to your probate assets and only if you received Medicaid benefits on or after July 1, 2010. A bill proposed in the Michigan legislature this week may change all that.
The current bill would allow estate recovery not only of probate assets, but also non-probate assets. For estate recovery, your “estate” would not only include your probate estate assets, but also assets you conveyed by joint tenancy, tenancy in common, survivorship, life estate, living trust or other arrangement. If the bill is on the fast track, it may also be implemented by July 1, 2011.
If you can only have $2,000 in countable assets to qualify for Medicaid, what is the big deal? The big deal is that there are other non-countable or exempt assets which may be subject to estate recovery. In addition to your bank account, you could have a home or automobile. There could also be proceeds of life insurance payable to your estate.
Until the bill was proposed this week, there were a number of non-probate asset transfers that were not subject to estate recovery. One type of asset transfer that would not have been subject to estate recovery was real estate, a bank account or other asset which you jointly owned with another.
Properly drafted beneficiary designations or payable on death or transfer on death designations for life insurance, bank accounts or other assets would also have passed outside of probate and bypassed estate recovery. A transfer on death or ladybird deed which was properly drafted would also have allowed your home to be conveyed outside of your probate estate beyond the grasp of estate recovery. All of these non-probate assets would also now be subject to estate recovery under the bill proposed this week.
You may have prepared a quit claim deed naming your children as joint owners of your property and put the deed in your dresser drawer with instructions to your family to record the deed after your death. These dresser drawer deeds are especially dangerous if you are a Medicaid applicant.
Deeds are generally effective upon delivery. You are considered to have delivered your joint ownership deed by either giving it to one of your joint owners or recording the deed at the county register of deeds office. If the deed is given to one of your joint owners during your lifetime and you applied for Medicaid within five years of that delivery, then that transfer may be considered a divestment which could disqualify you from Medicaid for a period of time. If the deed is delivered within five years of your Medicaid application but not recorded, and your family does not report the transfer when you applied for Medicaid, then it could be Medicaid fraud.
If the deed is never delivered during your lifetime and just sits in your dresser drawer, you do not have to report the transfer to the Department of Human Services when you apply for Medicaid because there has been no transfer or divestment. However, since the deed was not delivered during your lifetime, it expires with you and is not effective to transfer ownership after your death.
The best type of deed to use in this situation is a transfer on death or ladybird deed. This type of deed properly drafted by an elder law specialist would keep the home in your name during your lifetime, transfer a remainder interest to your beneficiaries upon your death. However, it would allow you to still be able to fully transfer, sell, mortgage and control the entire property during your lifetime. Since it is effective only upon death, it is not considered a gift or divestment that is a reportable transfer for Medicaid purposes during your lifetime. A transfer on death or ladybird deed would pass your property outside of probate, but under the bill proposed this week, it would still be subject to estate recovery.
There are hardship protections afforded to your family under the proposed new Medicaid estate recovery policy. The state may decide not to recover money from your estate if it creates an undue hardship for certain persons living in your home, such as: 1) your spouse; 2) your disabled or minor children; 3) a sibling co-owner of the home who had lived in your home for at least a year before your death; or 4) a beneficiary who cared for you at least two years in your home which allowed you to stay at home.
What is considered a hardship? Under these new rules, a hardship could exist for one of these individuals if: 1) your estate is the sole source of his or her income such as a family farm or business; 2) your estate is a home of modest value; or 3) such individual would become or remain eligible for Medicaid if the recovery occurred.
Michigan appears now to have finally implemented its long awaited and long feared Medicaid estate recovery program. If you are a Medicaid recipient, your assets may have to be surrendered to the state after your death to the extent of Medicaid benefits paid. Under the current proposals, we will have to wait and see what protections and exceptions are provided to safeguard your assets for your family. I will keep you posted.
By: Matthew M. Wallace, CPA, JD
Published edited June 12, 2011 in The Times Herald, Port Huron, Michigan as: State looks to grab more of your assets Medicaid estate recovery plan Allows after-death reimbursement