If you are like most people, you like to keep things private. Nobody needs to know what you own, how much you make or how much you pay in taxes. Or do they? A lot of people try to do things on their own without getting proper advice and counsel because they heard it was the proper thing to do. A couple of months ago, we talked about sharing your estate plan with your loved ones. But should you share your information with others?
For example, I have known people that have heard that you only can keep a certain amount of assets before you can file a Medicaid application to pay for your nursing home care. So they go about disposing of assets by giving them away or by hiding them.
What they do not realize is that all of these gifts have to reported to the Michigan Department of Health and Human Services (MDHHS) in the Medicaid application if they have been made within 60 months or five years of the application. Any such gifts to anyone other than a spouse are generally considered divestments.
These divestments then result in a divestment penalty period during which Medicaid will not pay for your nursing home care. You will have to pay for your care at private pay rates during that divestment penalty period, even if the gifts were already spent by the recipients.
We sometimes get people who ask us, “How will the state know if we never tell them?” Firstly, this is the electronic age. If there is any electronic record of it, MDHHS will find out. They have cooperative agreements with the Michigan Department of Treasury and the IRS. Anything that gets reported to the IRS, gets reported to MDHHS though the Michigan Department of Treasury. And that includes the 1099’s you receive for interest, dividends or the sale of real estate. It also includes W-2P’s for IRA and other retirement plan distributions. If you have an account, MDHHS can find it.
In addition, MDHHS can request additional documentation from you if they feel it is necessary. We had one case a number of years ago in which the MDHHS eligibility specialist asked for five years of bank statements with check images. She went through all of the bank statements and treated any check to any individual as a divestment, unless it was clear that the payment was a fee for service, even gifts to charities. The money was spent. It was gone. The family had to come up with some additional funds to privately pay for the nursing home care during the divestment penalty period.
I have also seen a number of cases in which the family did not have a doctor approved caregiving contract in place prior to directly paying a family member or other individual to care for mom or dad at home. They thought that they were doing the right thing but did not get proper counsel before making the payments. All of the payments to the caregivers are considered divestments by MDHHS. These divestments then result in a divestment penalty period during which Medicaid will not pay for nursing home care. The family then has to come up with substantial sums of money to pay for nursing home care at private pay rates during that divestment penalty period.
And the Medicaid application is signed and sworn to by the Medicaid applicant or their agent, under the penalty of perjury. If any of these secret assets are discovered after Medicaid is approved, it can have some devastating effects. Firstly, the Medicaid approval is revoked and the family has to privately pay the nursing home. MDHHS then asks for a return of all of the Medicaid payments that have been paid on the nursing home resident’s behalf. The nursing home resident and the signer of the Medicaid application, if different, then may both face temporary or permanent ineligibility for Medicaid to pay for nursing home long-term care expenses. And lastly, although I have never seen it happen, MDHHS could file for criminal perjury charges against the signer of the false Medicaid application.
You may also try to keep a deed secret. You want to give your home to your kids after you die, so you sign a deed that puts the house in the kids’ names, but do not record it. You keep the deed with your other important papers and with instructions to your loved ones to take the deed and record it at the register of deeds office after your death.
This approach is sometimes recommended by well-meaning friends or relatives and even in some cases by attorneys as means of avoiding probate while still maintaining complete control of your property during lifetime. However, there are significant disadvantages to this estate planning strategy that could result in unintended consequences. There are better ways to achieve your objectives.
Unfortunately, these deeds oftentimes never get recorded. Because you did not record the deed during your lifetime, it can be lost, mislaid or never found. If the deed cannot be found, what you wanted to happen does not happen, and your home ends up going through probate anyway.
The deed can cause a property tax increase and assessment of back taxes. In 2006, the Michigan Tax Tribunal ruled that the date of transfer of real estate was the date of the deed, not the date of recording, even if it is years later. The Michigan Department of Treasury has an auditing program in which the dates on recorded deeds are being compared with dates on the principal residence exemption affidavits, property transfer affidavits and the date of death on death certificates. When there are differences in the dates and the deeds are from parents to kids, they are assessing back taxes, interest and penalties to the date of the deed for the 18 mil homestead property tax exemption that should not have been claimed.
Although the regular statute of limitations for state of Michigan taxes is four years, there is no statute of limitations for fraud. You are supposed to file a property transfer affidavit within 45 days of signing of the deed. If you did not, it could be considered fraud. I have seen Michigan Department of Treasury assessments for payback of the 18 mil homestead exemption taxes going back years, together with interest and penalties.
Next is the question about the validity of the deed itself after your death. A deed is generally considered effective upon delivery of the deed and acceptance of that delivery. The two most common ways of delivery and acceptance are handing it to the person named in the deed receiving the property or upon recording at the deed at the county register of deeds office.
If your deed is not delivered prior to your death, then that deed would expire with you because it was an uncompleted gift. Your deed is no longer effective to transfer the property after your death. Your loved ones may be able to argue that it was your intent to transfer the property after death with the deed. In such instances, your deed may be considered a “will” and have to be probated as such
Undisclosed unrecorded deeds may also be considered Medicaid fraud. When you apply for Medicaid to pay for your long-term care in a nursing home, you are required to disclose all of your assets and how they are titled. Failure to disclose an unrecorded deed could result in assessments to return the Medicaid benefits paid on your behalf, temporary or permanent ineligibility for Medicaid to pay for your nursing home long-term care expenses, or civil and criminal penalties.
As you can see, keeping secrets could have unintended consequences. If you have given assets away within the last five years, or you have an unrecorded deed, consult with a knowledgeable legal specialist with experience in real estate, Medicaid and elder law matters. By doing this, you can stay in control of your assets while you’re alive and well, provide for you and your loved ones in the event of your mental disability, and when you’re gone, give what you have to whom you want when you want the way you want, all at the lowest overall cost to you and your loved ones.
By Matthew M. Wallace, CPA, JD
Published edited September 10, 2017 in The Times Herald newspaper Port Huron, Michigan as: Keeping secrets may not be the wisest thing to do