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Jun 2011
01
June 01, 2011

Estate Planning Tip: Estate Recovery


Estate Recovery - Revisited

Senator Roger Kahn of Saginaw, the chairman of the Senate Appropriations Committee, has introduced legislation that would drastically change estate recovery in the State of Michigan.  Estate recovery allows the state to recover funds spent on health care costs from the Medicaid recipient’s estate after death.  Usually, that means the home, since that is nearly the only asset a Medicaid recipient is allowed to keep (with some important exceptions for the spouse of a Medicaid recipient).  Currently, estate recovery can only occur if the State makes a claim against a home in the probate estate.  Proper planning to avoid probate, such as with a Ladybird deed, can avoid estate recovery.  There are also important exceptions to the applicability of estate recovery, such as protections for family farms and homes of less than a minimum value

Changes to the Current System

That would change under the Kahn bill.  Under the Kahn bill, Michigan would become a lien state.  When a person goes on Medicaid, a lien will be placed against their home for eventual recovery of costs after death.  Ladybird deeds and other probate avoidance measures will become ineffective to avoid estate recovery because the lien will follow the property.  Spousal protections are not specified but may be worked out in the future.

Consequences

More aggressive estate recovery will likely have several unintended consequences.  First, it is likely to increase foreclosures and urban decay as families will be unwilling to put money into homes that will be lost to the state anyway after death.  Second, based on the experience of other states, the administrative costs of the program are likely to eat up most if not all of the funds recovered.  On the other hand, perhaps a little net recovery is better than nothing.  Perhaps the biggest effect on the state’s Medicaid budget will be that families may try to put off nursing home care for longer. This may have its own unintended health care consequences.  As helath care costs continue to rise and the reach of the state expands, clients may also become more aggressive in their planning and seek to give away interests in their home and other assets to family members at an earlier age, so as to avoid the 5-year look back.  When doing so, it is important that clients use trusts to preserve and protect the assets in case it becomes necessary to return the assets.
 

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