Michigan Enacts an Estate Recovery Law

The Bad News

On September 30, 2007, Michigan enacted a law that authorizes the creation of a Medicaid Estate Recovery Program (“MERP”). The MERP will allow the State to recoup the cost of benefits paid from the estate of an individual (and perhaps their spouse’s estate) who receives Medicaid benefits for nursing home level care. The law grants the State a “preferred” claim against the assets owned by the Medicaid recipient at the time of their death, which for many will include the person’s home.

The Good News

Compared to “estate recovery” laws adopted in other states,Michigan’s estate recovery law provides several exemptions that can be utilized to avoid its harsh impact.

First, the law authorizes the State to make a claim only against a Medicaid recipient’s “probate” assets, which are assets that an individual dies owning in their own name. The law specifically exempts assets held in a “living trust” from estate recovery. Assets that pass by beneficiary designation and certain types of jointly owned assets would also avoid estate recovery.

Second, recovery against “probate assets” is even subject to certain exemptions. One group of exemptions are called “hardship” exemptions, which exempt:

  • 1. The portion of the value of the homestead that is equal to or less than 50% of the average price of a home in the county where the home is located; and
  • 2. A family farm, business, or other income producing assets if they are the primary source of income to the “survivors.”

The law indicates that there will be a process by which a Medicaid recipient can “apply” for a waiver from estate recovery due to a hardship, so it is unclear whether the above exemptions will be mandatory or subject to approval.The second group of exemptions are mandatory and exempt the entire value of the Medicaid recipient’s homestead from estate recovery, under these circumstances:

  • 1. If the homestead is occupied by the spouse or child (who is blind, disabled, or under age 21) of the Medicaid recipient; or
  • 2. If the homestead is occupied by a relative of the Medicaid recipient (within the fifth degree of kinship) who provided care to the recipient in the homestead sufficient to kept the recipient out of an institution for at least two years; or
  • 3. If a sibling lives in the homestead, and had for at least one year prior to the Medicaid recipient being institutionalized, and has an “equity interest” in the homestead.

Before the MERP can be implemented, the State must get approval of the program from the federal government and incorporate the new rules into the State’s Medicaid Plan. The program may not be implemented at all if the State determines that the cost to operate the program will exceed the estimated amount to be recovered. It is unclear when these tasks will be completed.

Furthermore, if implemented, the MERP will apply to individuals who began receiving Medicaid assistance after September 30, 2007 and will be capped at an amount equal to the actual Medicaid services paid for on behalf of the Medicaid recipient, without interest. The State’s MERP claim gets paid from an estate after payment of administration costs, funeral and burial expenses, and certain statutory allowances for a surviving spouse or children.

What Does This Mean To You?

There are only two ways to avoid a claim against your estate under the MERP. The first is to avoid the necessity of receiving Medicaid benefits by either private paying for care or covering yourself with a long-term care insurance policy. The second is to have an estate plan that prevents your assets from ever passing through probate.

Be mindful that some techniques that help avoid estate recovery may actually preclude someone from becoming qualified for Medicaid in the first place. For instance, adding someone as a joint owner on real property in hopes of avoiding estate recovery may actually disqualify the person for Medicaid.

If an individual or their spouse expects that they may need Medicaid benefits, they should have their estate plan reviewed to make sure that their assets are set up in such a way as to avoid estate recovery, while yet preserving their right to receive such benefits and to accomplish their other estate planning goals.

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