Michigan Estate Recovery
Michigan’s “estate recovery” law was put into effect in 2011 with retroactive effect to 2007. “Estate recovery” is a law that allows the State of Michigan to make claims against assets of seniors who receive Medicaid nursing home benefits after September 30, 2007, the date the law originally passed. The intent of the law is to allow for the government to recoup money spent on Medicaid. Private pay rates at nursing homes currently average around $9,000 per month, so many seniors wind up with Medicaid helping foot the bill. With Medicaid, the most a person must pay is his or her monthly income, typically Social Security and possibly a pension.
What does the new rule say?
The rule explains the law and provides procedural guidelines for the state to make claims.
What assets are at stake?
Currently, probate assets of the Medicaid recipient are subject to claim.
Is the best approach to avoid probate?
What about a trust?
Medicaid recipients may be able to bypass being affected by this rule by ensuring that they do not have a probate estate. As most Medicaid recipients have no more than $2,000 in liquid assets, the house is typically the primary remaining asset. While a Medicaid recipient may not have their house in a revocable living trust, the recipient may utilize a “Lady-Bird Deed” (a.k.a. an “enhanced life estate deed” or “transfer on death deed”) to avoid probate.
Proposed Legislation
The state has had legislation pending that would make the estate recovery law more strict, using liens and other mechanisms to make claims against even more assets.
History of estate recovery
In 1993, the federal government passed a law requiring all states to adopt an estate recovery (or similar) program, leaving it in each state’s hands to design their own program. Although Michigan legislators did finally comply with the federal law, they were consistently reluctant to support such a program. Their reasons for opposing estate recovery were many.
It was unpopular with constituents. People do not want the state to “take grandma’s home”. It targets only senior citizens who receive Medicaid. Seniors are a small fraction of the Medicaid budget, but easier targets for recovery than low-income beneficiaries.
Other states’ estate recovery programs are unsuccessful. Administrative expenses usually reduce actual recovery to less than twenty cents on the dollar.
Many states lose property tax revenue because families are not willing to pay taxes on – or pay for the upkeep – of homes that the state will make a claim against when their parents pass away. In Michigan, the real estate market is failing. It will not behoove the state to own part or all of former Medicaid recipients’ homes. In many cases, it is unlikely that probate beneficiaries will be willing or able to pay off the state for their claim against the house, so the state may wind up owning the real estate – often non-saleable.
Some seniors will avoid seeking necessary care if they realize that the state will have a claim against their home.
All of these changes make it even more clear that families should prepare ahead of time for the possibility of long-term care and how that may affect their estates.