Clients have been asking the question for years: “If I go into the nursing home and apply for Medicaid, will the State take my house away?”

For years the answer has been: “No. Michigan does not have an estate recovery program.” As of July 1, 2011, the answer to that question changed. On that date, Michigan began operating an estate recovery program through a private company, Health Management Systems, Inc., which will be paid a percentage of all of the property they collect through Michigan’s estate recovery program.  HMS has extensive experience in administration of estate recovery programs, and manages such programs for several other states.

Estate recovery is a program that allows the state to make a claim against the estate of a deceased person who received Medicaid benefits to recover the costs paid by the State for their long-term care costs (i.e., the costs of nursing home care or for care provided through other long-term care programs, including the MI Choice program). Because the only asset of substantial value owned by most Medicaid beneficiaries is their homestead (an exempt asset for eligibility purposes), the homestead is most typically the focus of estate recovery programs and of planning efforts to avoid estate recovery.

History of estate recovery

In 1993, the federal government passed a law requiring all states to institute estate recovery programs. For 14 years, Michigan completely ignored that directive, and famously became the only state in the nation without an estate recovery program.

That changed in 2007, when Michigan adopted an estate recovery law (MCL 400.112g). But that law included a provision that said Michigan would not implement estate recovery until it obtained approval to do so from the federal government.  Initial efforts to obtain federal approval were unsuccessful and as a result, estate recovery remained in limbo.

With the election of Gov. Snyder in 2010, a renewed interest in the program arose. A second request to implement estate recovery was submitted to the federal government and approved, and a contract was granted to Health Maintenance Systems to operate Michigan’s program.

Key features of Michigan’s program

While federal law limits the reach of estate recovery to persons over the age of 55, and provides other exceptions that apply in unique situations, Michigan’s law includes important additional exceptions and limitations.

Most notable is the fact that Michigan’s estate recovery program applies only to assets that pass through a probate estate. There are many methods of avoiding probate, including joint ownership. But the most common method of probate avoidance, placing assets in a revocable trust created or funded by the Medicaid beneficiary, will not be available to protect the main asset at issue in these cases, the homestead. This is because a homestead held in a revocable trust is not exempt for Medicaid eligibility purposes.

Another notable exception in Michigan’s law is a provision that says there will be an exemption for that portion of the Medicaid beneficiary’s homestead that is equal to or less than 50 percent of the average value of a home in the county in which the homestead is located. It is unclear from the materials currently available from the State as to (a) whether the State intends to try to limit this exemption to apply only to homes with values that fall below the 50 percent limit, as opposed to giving every estate an exemption against a homestead of any value up to this amount; and (b) how they will establish this value and where they will publish these county averages, although one might assume they will look to state equalized values (SEV) for residential properties on a county-by-county basis.

Michigan also has an exemption for assets that are the “primary income-producing assets” of survivors. This exemption expressly includes family farms and businesses that meet the income-producing requirement, but is not limited to these types of assets. The term “survivors” is not defined in the statute, but the State website asserts that the term “survivor” is the equivalent of “heir.”

Possibility of more to come

On June 7, 2011, Senate Bills 404-406 were introduced to the Michigan Legislature by Sen. Roger Kahn of Saginaw, the chairman of the Senate appropriations committee. Because of his leadership position, bills supported by Sen. Kahn have a high potential to become law. If passed, these bills would rewrite Michigan’s estate recovery law, and in doing so, eliminate most of the protections in the program as it now exists.

Conclusion and cautions

It is important to understand that even if Michigan implements an estate recovery program, homesteads will continue to be exempt assets for Medicaid eligibility purposes. In other words, a person can still own a home and qualify for Medicaid.  Estate recovery only arises when that person dies.

It certainly seems like bad timing for Michigan to be imposing such a program. Families with elders in the nursing home on Medicaid already struggle with decisions about how to pay the taxes and otherwise maintain the Medicaid recipient’s home. Family members do so now largely because they expect to inherit the homestead and recover their costs. If that incentive is reduced or eliminated, their willingness to cut the grass and pay the bills will be negatively impacted. It is unclear whether the State anticipates this and is ready for more homes on which the property taxes are not being paid, or are otherwise being neglected or abandoned.

All that said, people with concerns about the impact of this program need to be cautious, and should not overreact. Elders are already overly sensitive to their exposure to long-term care costs, and many elders have considered or engaged in ill-advised conduct, including transferring their property to children who may or may not be good stewards.

		Douglas G. Chalgian is the only attorney in Michigan who is both certified in elder law by the National Elder Law Foundation as well as a fellow with the American College of Trust and Estate Counsel. Chalgian is also the only attorney in Michigan who has served as chair of both the probate and estate planning and elder law and disability sections of the State Bar. He writes and speaks regularly on various topics.