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A Better Partnership


Oct 2014
October 22, 2014

Michigan’s Abrupt Policy Change Could Be the End of Sole Benefit Trusts

The Michigan Department of Human Services recently, and suddenly, changed its policy with respect to sole benefit trusts, the trusts that are established for the sole benefit of a spouse of a Medicaid applicant. Prior to this change, a married nursing home resident who was applying for Medicaid could transfer any assets in excess of Medicaid’s limits to a trust for the sole benefit of a spouse living at home and get immediate Medicaid qualification. There was no need to spend down assets on nursing home care and impoverish the spouse living at home. However, with the policy change, DHS will now be treating the assets of these trusts as countable. 

There was no law change that precipitated this change in policy. DHS simply decided to interpret existing law differently. Because the policy change was implemented without notice to the public, it caught many applicants going through the Medicaid qualification process by surprise and will certainly lead to litigation over the resulting unpaid nursing home bills. 

There is a reasonable chance that the new policy will be found by the courts as contrary to existing law. If that happens, sole benefit trusts will once again become a viable means to conserve assets for a healthy spouse.  For the time being, those married couples who are currently facing a long term care admission will want to avoid the use of a sole benefit trust as a means of qualifying for Medicaid benefits.    

Fortunately, there are other planning alternatives. A married couple facing an immediate need for nursing home care can still obtain immediate Medicaid qualification for the ill spouse by properly structuring ownership of their assets and converting some of their assets to Medicaid compliant annuities or promissory notes. This would involve transferring nearly all assets to the healthy spouse (or to a revocable trust established by the healthy spouse) and then having the healthy spouse annuitize the assets or enter into a loan transaction. 

Annuities and promissory notes must meet specific requirements under DHS rules, so it is important to obtain competent legal counsel before moving forward with such a transaction. It may also be possible in some cases, as an alternative planning measure, to petition the probate court for an order establishing a higher asset limit for the healthy spouse. Which option is best for a particular couple depends on a number of factors, which should be discussed with your estate planning counsel. 

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