It’s now been a year since Michigan has implemented its Medicaid estate recovery statute, which became effective July 1, 2011. Under the statute, if you have received Medicaid benefits during your lifetime, the state could seek reimbursement of those benefit payments after your death from your assets.
For most Medicaid recipients, this isn’t a big deal because you can only have $2,000 in countable assets to qualify for Medicaid. However, if you have other assets which are non-countable or exempt during your lifetime, they may be subject to estate recovery after your death. These exempt assets could include your home, automobile and death benefits from pensions or life insurance.
If you are a Medicaid recipient, upon your death, your representatives of your probate estate are required to give notice to the State of Michigan. The notice gives the State all the information to file a claim against your estate. If the State files claim, there may be legitimate legal reasons for your representatives to deny the claim. If the claim is denied, the State will likely file a lawsuit against your estate. According to a representative from the Michigan Attorney General’s office, they will take any losing case all the way to the Supreme Court, if necessary. Because of this, it is often more economical for your estate to pay the claim, than to fight it.
Even if there is no probate estate, your survivors may be intimidated to pay the State. The State has hired a contractor to chase down Medicaid estate recovery claims. It seems that the survivors of every deceased Medicaid recipient are getting official looking forms seeking information about the deceased, including asset information. However, if you look at the fine print, you will see that the form is voluntary.
Under the current law, there is only an obligation to repay the State for Medicaid payments if the deceased Medicaid recipient leaves a probate estate. If there is no probate estate, there is no legal obligation to repay the State. In such situations when there is no probate estate, I generally advise my clients to ignore the demands from the State for information. There is no legal obligation to provide it.
As implemented, there are many protections for your family and many opportunities to keep your assets outside the reach of such a program. There are homestead protections for certain qualified persons living in your home. There are also hardship waivers for which your family could apply if estate recovery creates an undue hardship upon them.
One type of asset transfer that would not be subject to estate recovery is jointly owned real estate, bank accounts or other assets. If the titling of these assets are properly drafted joint ownership, the assets would pass to your joint owners as a matter of law upon your death.
Properly drafted beneficiary, 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. Similarly with a properly drafted deed, your home would 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 home 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 generally dangerous, but especially so if you are a Medicaid recipient.
Firstly, the deed may have been inadvertently drafted as a tenancy in common rather than a properly drafted joint tenancy. In such case, you still own a portion of your home at your death, which must be probated and is subject to Medicaid estate recovery. Secondly, if the deed is a quit claim deed, you could void your title insurance you received when you purchased your home. Thirdly, the deed could be lost, stolen or inadvertently destroyed before recording causing your home to be subject to probate and Medicaid estate recovery.
Fourthly, deeds are generally effective only 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 delivered to one of your joint owners during your lifetime but not recorded and you apply 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 because that transfer must be reported. On the other hand, if you or your family does not report the transfer when you applied for Medicaid, then it could be considered Medicaid fraud.
If you delivered a joint ownership deed removing your name from your home, it is no longer homestead property, even if you still live there, because you technically do not own it. If the deed is never recorded or reported to the tax assessor until after you death, it may be considered property tax fraud and there may be non-homestead property taxes and penalties due.
If the deed is never delivered during your lifetime and just sits in your dresser drawer, you do not have to report it 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 type of transfer on death deed called a ladybird deed. This type of recorded deed properly drafted by an elder law specialist would keep the home in your name during your lifetime and 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.
There have been a number of proposed bills in Lansing that would alter the current Medicaid estate recovery scheme. Some of these proposals would allow estate recovery not only of probate assets, but also non-probate asset transfers, including joint tenancy, tenancy in common, survivorship, life estate, living trust or other arrangements. There has been little action in Lansing on these proposals over the last year and I doubt there will be little action before this fall’s elections. However, after that, who knows??
If you are a Medicaid recipient, you or your agents should consult with an elder law specialist before your death. If your assets are not protected during your lifetime, your assets may have to be surrendered to the State after your death to the extent of Medicaid benefits paid.
By Matthew M. Wallace, CPA, JD
Published edited July 22, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Medicaid estate recovery, one year after law began