Estate Recovery topic of SBM Probate Section Meeting Jan. 17

By Roberta Gubbins

Legal News

In the early 1990s the federal government decided it needed to recoup Medicaid payments used by citizens to fund long-term care expenses. This need led to the passage of the Federal Estate Recovery statute, which called for each state, in turn, to adopt a recovery program of its own.

Michigan was the last state in the nation to come on board passing its statute (Public Act 74, the Social Welfare Act) on Sept. 30, 2007, and there has been no significant effort to enforce the law until recently. On Jan. 17, the Probate and Estates Section presented information on the new law.

The law provided that its terms would "not be implemented until approved by the Federal Government," said Melisa Mysliwiec, with Fraser, Trebilcock and a member of the Probate Council committee on estate recovery, who opened the discussion. "Just this past year, the Centers for Medicare and Medicaid Services approved Michigan's plan."

The statute instructed the Michigan Department of Community Health (MDCH) to establish Michigan's recovery program, which was to be implemented upon approval by the federal government.

"That took quite awhile," said Mysliwiec. Just this past year "the Centers for Medicare and Medicaid Services (CMS) approved Michigan's State Plan on May 23, 2011. They gave it a retroactive effective date of July 1, 2010."

The rules for the plan, published on July 1, 2011, "can be found in Bridges Eligibility Manual Section 400."

Whom does the program affect?

"Certain Medicaid recipients who died on or after July 1, 2010, will be affected. Anyone who died prior to that date wouldn't be affected at all. The question," she said, "will be those who died between July 1, 2010, and the May 23 2011 date," when the law was approved since implementation was to follow approval.

State law provides that recovery will only apply to those recipients who "began receiving assistance after Sept. 30, 2007, and were 55 years or older." The conundrum is the recipient who starts long term care before Sept. 30, continues receiving it and dies sometime after July 1. "Under the law, they would not be subject to estate recovery but pursuant to the rules they are."

There is also a requirement that written notice be given by MDCH, which did not occur until after October 2011.

"There is room there for some objections," she said. For example, "if you didn't receive the notice are you subject to estate recovery?"

What assets are affected?

"The simple answer is probate assets," said Mysliwiec.

She noted that the state's claim stands in line with other creditors such as costs of administration, funeral expenses and all of the statutory allowances. There are exceptions for the home allowing certain individuals as defined in the statute to stay, however, the state can place a lien on the home to establish their claim.

"The final exception would be for hardship, which must include an exemption for that portion of the estate that is the primary source of income for survivors such as a family farm or business."

"Be aware that there is a rebuttable presumption that no hardship will exist if the hardship was the result of estate planning methods."

What procedures must be followed?

"Of all the estate recovery laws in the country, Michigan has one of the weaker models," said Michelyn E. Pasteur, Bernick, Radner & Ouellette and Co-Chair of the Probate and Estate Planning Law Section, beginning her discussion of procedures.

The state has hired a collection agent, Health Management Systems, Inc. (HMS) to implement its estate recovery program.

"They are in East Lansing, I stopped by their office and their door was locked and they wouldn't let me in," she said, causing laughter and the question "Did you call ahead?"

Each Medicaid recipient has a caseworker that, upon notification of a death, notifies HMS. The letter is sent to the deceased's representative. She reviewed the letter sent noting that completion of the accompanying form is voluntary but required if an exemption is to be requested.

The letter states the "MDCH is a known creditor as defined by the Michigan Estates and Protected Individuals Code," requesting a notice to creditors.

"There is a question if they are a 'known creditor' if you didn't receive notice."

The hardship criteria includes waiver if the home is of modest value or with a value no higher than 50 percent of the average price of homes in the county where the home is located.

"There is no published data on what is the average value of homes in each county," said Pasteur, noting that the counties don't appear to have that information so she consulted they had to go to a realtor for the information. "I think at this point you are on your own to find the value."

Avoiding Estate Recovery

"Our main planning technique to avoid estate recovery, Michelyn said, is to avoid having a probate estate."

"One way to avoid probate is title things jointly with your kids with rights of survivorship," which makes estate planners cringe. She urged planners to be aware that equity assets, such as stock and real property, are subject to divestment rules.

A Lady Bird Deed, which allows addition of a beneficiary without ownership rights, "the subject into our next presentation. They are widely used to avoid probate and you retain power over the asset. The downside for estate recovery is that three children may be managing real estate that has expenses."

Bank accounts can be held as Transfer On Death or Payable on Death accounts.

Another technique is to deplete equity in assets. This can be done with a reverse mortgage or in situations involving a single person we use a "revolving future advance note that becomes a mortgage on the home, so every time a bill comes up that the children pay, it is a debt that is secured by a mortgage on the home," which creates a preferred claim on the estate.

Attempts to amend the law

Current attempts to amend the law include removing requirements for notice to applicants, authorizing pre-death liens on the Medicaid recipient's property, revising the definition of "estate" to expand beyond probate assets, removing hardship exemptions related to homesteads of modest value and removing the restriction that estate recovery only applies to persons who began receiving Medicaid long-term care services after Sept. 30, 2007.

"Our Elder Law Section (of the State Bar of Michigan) is vigorously fighting those attempts," Michelyn concluded.

On Feb. 21, Josh Ard will speak at the Probate Section Meeting on the topic of Transfer on Death deeds. The meeting will be at the State Bar Building in Lansing at noon. For more information, please go to the Ingham County Bar Association website.

Published: Mon, Jan 23, 2012