Under federal Medicaid law, the state must attempt to recoup the amounts it paid for a person under the Medicaid program. This generally means that there would be a lien put on the Medicaid recipient’s house (because that is often one of the few assets the person has left while receiving Medicaid). However, there is no effort to “take” assets by the government until the Medicaid recipient has died. Even then, no recovery can take place if the recipient’s spouse or their blind or disabled child are still living.
The “estate recovery” program generally reaches into the Medicaid recipient’s probate estate. However, states have the option to reach to non-probate assets (assets that the Medicaid recipient had an interest in prior to his death), which includes joint assets, life estates and assets in a revocable living trust.
Fortunately, Michigan’s version of the estate recovery law (passed September 30th, 2007) has avoided the more aggressive legal maneuvers – at least for now. Under the current estate recovery law in Michigan, the “estate” that will be subject to a claim is the probate estate. In addition, assets in a revocable living trust are expressly excluded; however, a house in a revocable living trust is a countable asset pursuant to Medicaid regulations. Therefore, it is unwise to conclude that a revocable living trust is the answer for asset protection. Moreover, the state does have the option of changing its laws to be much more aggressive and could still choose to take assets in a living trust.
Significantly, Michigan’s new law also says that no TEFRA liens shall be placed on homes. What is a “TEFRA lien”? This is an encumbrance filed again the real property in the local land recording office (Register of Deeds). Such liens were made possible under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).
Furthermore, the new law (PA 280 as amended) shows that our legislators were striving in good-faith to look for less harsh alternatives. For example it states that: “The department of community health shall work with the appropriate state and federal departments and agencies to review options for development of a voluntary estate preservation program.” What is “estate preservation”? Under this program all mortgage holders would be required to pay a small additional monthly payment which would exempt them from estate recovery if they ever receive Medicaid funded long term care in the future. There could be provisions that would permit individuals who are not paying mortgages to obtain similar protection. Those who suggested this option believe that it could generate as much or more revenue for the state of Michigan as the estate recovery program. Still, it is not known whether the federal agencies to which the states are accountable would find such a program acceptable and approve it.
In sum, the Michigan law as currently written does show restraint. However, concerned citizens should prepare for the worst case scenario. In light of the present budget crunch and the burgeoning aging population it is unlikely that Michigan will overlook the aggressive options permanently. Those who have planned in anticipation will be prepared.