For a long time, Michigan was one of the few states that had no Medicaid lien laws or Medicaid estate recovery. In 2007, after a long and arduous journey, Michigan’s estate recovery statute was finally passed by our legislature and signed into law. However, before the new law could be implemented, it had to be approved by the Federal government.
Nothing happened with the law until early 2011 when the Michigan Department of Community Health published a preliminary policy for estate recovery. The feds then approved Michigan’s program and it went into effect on July 1, 2011.
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.
But what does this mean to you and your family? What does the law provide? 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.
As implemented, there are many protections for families and many opportunities to keep family assets outside the reach of such a program. Estate recovery currently only applies to your estate’s probate assets.
One type of asset transfer that would not be subject to estate recovery is real estate, bank accounts or other assets which you jointly owned with another. If the titling of one of these assets is properly drafted as joint ownership with rights of survivorship, it would allow title to the property to pass to your joint owner as a matter of law upon your death. Such asset would not be part of your probate estate. If you were a Medicaid recipient, that joint asset would pass to your joint owners free of any estate recovery.
Properly drafted beneficiary designations or payable on death or transfer on death designations for life insurance, bank accounts or other assets also pass outside of probate and bypass estate recovery. A transfer on death or ladybird deed which was properly drafted would also allow your home to be conveyed outside of your probate estate and beyond the grasp of estate recovery.
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 recipient.
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 considered 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 recorded 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.
In addition, there are homestead protections as part of the law in which there can be no estate recovery from the equity of your home if certain persons are 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. There are also hardship waivers for which your family could apply if estate recovery creates an undue hardship upon them.
One unusual provision in the new policy is that it applies to Medicaid benefits paid on your behalf on or after July 1, 2010. You read that right, 2010. The new policy is retroactive for one full year. The are many elder law attorneys who have questioned the legality of such a retroactive policy, especially since the statute specifically prohibits it. At this time, I am unaware of anyone who has challenged the policy on that basis.
If you were a Medicaid recipient during your lifetime, the personal representative of your estate is required to give notice to the State as a known creditor. This notice provides information with which the State may file a claim against your estate to recover the Medicaid payments made on your behalf.
When the State does file a claim against your estate, your personal representative should consult with an elder law specialist before accepting and paying the claim. There may be reasons to deny the claim. One reason to deny the claim is that the claim amounts may be calculated erroneously. Your personal representative may also want to deny the claim because the retroactive policy is unlawful. Another reason to deny the claim is for the State’s violation of the estate recovery statute by its failure to notify you or your agent when you applied for Medicaid that those payments may be recovered.
There have been a number of proposed bills in Lansing over the last several months that would alter the current Medicaid estate recovery scheme. These proposals would allow estate recovery not only of probate assets, but also non-probate assets. Under these proposals, 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. As of the writing of this column, there has been little action in Lansing on these proposals.
If you are a Medicaid recipient, you or your agents should consult with an elder law specialist before your death or your assets may have to be surrendered to the State after your death to the extent of Medicaid benefits paid. There may also be ways to protect family assets under the new proposals.
By: Matthew M. Wallace CPA, JD
Published edited October 30, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Medicaid loopholes can trip up the unwary