I can’t say that the short delay in the September newsletter was an effort to hold off until the Michigan budget crisis was resolved at the last minute. However, another crisis was at least temporarily resolved by the passage of an Estate Recovery bill.

What is Estate Recovery? Estate Recovery basically means recovery by Michigan of Medicaid monies paid for nursing home care.

Recovery is typically sought after the death of the patient and usually this means an attempt to recover monies from the patient’s home (which a patient can retain and still receive Medicaid).

Why the Rush? Estate Recovery was a concept introduced in 1993 Federal legislation. Congress required states to enact Estate Recovery laws, in an effort to reduce Medicaid costs. Supposedly, the enactment of Estate Recovery laws by each state was precondition to continued Medicaid funding. By 2007, Michigan was the only state out of all 50 states that had not enacted an Estate Recovery law. According to the press, the federal government finally sent Michigan a warning that federal funds would be cut off unless the state complied with the 1993 federal mandate for enactment of an Estate Recovery law.

How Do These Laws Work? Estates have laws with varying degrees of severity. Some states have far reaching laws which attempt to reach property held in revocable trusts (which would not be subject to probate), other non-probate interests such as life estates, or even in some cases, attempts to reach property in the estate of a surviving spouse. In the latter case, some states have attempted to recover all or part of monies paid for care of one spouse who may have died years before the survivor’s death.

Needless to say, enforcing Estate Recovery laws is time consuming, cumbersome and expensive, especially when the scope of the state’s law is very broad. There is considerable controversy whether the expense of recovery is worth the amounts recovered. Evidence tends to show that recoveries by even the most vigorous states are quite minimal. Often the expense of that recovery is not accurately calculated. For example, attempts to recover from the estate of a surviving spouse years after the Medicaid patient has died, can be huge and in many cases, court’s have not been sympathetic to enforcing those claims.

How Severe is Michigan’s Law? The Michigan legislature passed what I would term a "token" Estate Recovery law. Recovery efforts will be directed only at the probate estate of the Medicaid recipient. Usually, this probate estate would be confined only to the residence, since the applicant presumably has no other assets.

Assets which pass outside the probate estate would not be covered. Therefore, this will place a premium on advanced planning and the possible uses of joint ownership, or revocable trusts, for example.

The Michigan law will not go into effect until after certain formalities are worked out with the federal government.

The Michigan law also contains an exemption for 50% of the average price of a home in the county where a residence might be located. It is not clear how this is going to be calculated, and whether this will be determined by actual sales prices. In all probability, it will be measured by the transfer tax revenues, which are based on actual sale price, not listing prices. Thus, houses valued at less than 50% of average would presumably be completely exempt.

Is This Important to You? In all probability, most readers will not be directly concerned with Estate Recovery in Michigan. However, we find that clients often become involved when planning for possible Medicaid assistance for parents or other family members. At that time, asset preservation and Medicaid planning come to the fore.

Conclusion. The Deficit Reduction Act of 2005 (DRA) placed much more stringent limits on asset protection planning for Medicaid applicants (generally nursing home residents). These federal guidelines and rules were incorporated into Michigan regulations, which became effective July 1, 2007. Now with Estate Recovery, planning gets even trickier. However, there are still opportunities to preserve assets. Families facing nursing home care from long term degenerative deceases such as Parkinsons, Alzheimers, or Lewy Body Disease should be planning ahead for the often inevitable need for nursing home care.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H. Douglas Shepherd, Jonathan J. Siebers, Karin Church and Laura E. Garneau at (231) 941-9660