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A Better Partnership


Oct 2011
October 31, 2011

Michigan Implements Estate Recovery

Effective July 1, 2011, the Michigan Department of Human Services finally began to administer Michigan’s estate recovery law, which has been on the books since 2007. The state began sending letters to the responsible party of deceased Medicaid long-term care beneficiaries to collect information for a possible claim. Under the estate recovery law, the state may assert a claim to recoup expenses against the probate estate of a decedent who received Medicaid long-term care assistance prior to death. Because most other assets have to be spent down in order to qualify for Medicaid in the first place, recovery would typically come from the only remaining asset most Medicaid beneficiaries have – their residence.

The scope of the current estate recovery law is limited. It applies only against the probate estate. There are also a number of exemptions that apply. For example, a claim will not be made if the home continues to be occupied by:
  • a surviving spouse;
  • a minor or disabled child of the decedent, a relative of the decedent who provided care for the decedent that kept the decedent out of an institution for at least two years; or
  • a sibling who is a joint owner and lives in the home.

Additionally, recovery is limited to that portion of the value of the home above 50% of the average price of a home in the county where the home is located. Under Michigan probate law, there are also certain claims against the estate, such as estate administration expenses and funeral and burial expenses, which have priority over an estate recovery claim.

Currently, a Medicaid beneficiary can plan to avoid estate recovery entirely by executing a “ladybird” deed. This is a deed by which the grantor conveys the property to named individuals or a trust but retains a life estate and the power to sell or transfer the property. The retained powers are so great that legally it is treated as if nothing has been transferred. Yet, upon death, if no other transfer has been made, the property will pass to the named beneficiary(ies) outside of probate.

It is possible that a tougher estate recovery program could become law in the future that would not allow a ladybird deed to avoid recovery. If there is no foreseeable need for long-term care currently, an individual could take a more aggressive approach to avoiding estate recovery by creating a joint tenancy with a very small retained interest. The estate recovery law would apply only to those interests that an individual actually owns at the time of death. Therefore, if the individual retained only a small joint tenancy interest, the majority of the property would avoid a recovery claim. This type of planning is somewhat risky because of the five-year look-back rule, which allows the state to disqualify an individual from Medicaid benefits for gifts made within five years of a Medicaid application. Before engaging in such planning, an individual would need to be satisfied that a gift could be reversed if long-term care was unexpectedly needed within five years.

If you or a loved one is concerned about protecting assets in the event long-term nursing home care is needed, contract your estate planning attorney at Warner Norcross.

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