Although Michigan seniors breathed a sigh of relief late last year, a new and much tougher estate recovery law may be just around the corner. According to federal law, states must try to recoup costs that the state pays for a patient’s nursing home expenses under the Medicaid program. Because the home is one of the few –- and generally the most valuable –- assets that a nursing home patient is allowed to keep, it has become the target of the state reimbursement programs called “estate recovery.” Now the homes of senior citizens are at risk more than ever.
Michigan was the last state to pass an “estate recovery” law. It passed legislation to that effect in September 2007. Nevertheless, the law had to be reviewed by the federal government and approval granted before enforcement could begin.
The Michigan version of the law was quite lenient. It provided that the state would only try to recoup from probate estates, that farms would be exempt, and that there was a certain threshold value below which the state would not ask for reimbursement. It left the door open to legal strategies such as “Lady Bird” deeds wherein the owner could simply avoid the recovery program by getting the house out of the owner’s name at the time of death.
These gracious provisions were in conflict with the tougher provisions of the federal law that called for aggressive state policies. Hence, it is not surprising that Michigan recently received word from the federal government that its version of the law was rejected.
What can we expect now? Michigan is appealing the decision. However, it is likely that the federal government will expect Michigan to enact tougher recovery actions with firmer legislation. Legal strategies to preserve the homestead and other assets will still be available but they will require expert assistance to prevail.
In a already tough economy, the last thing people will want to hear is that the state is more determined that ever to take their homes when long-term illness strikes. Record numbers in job losses and foreclosures have already taken their toll on the younger generation; the state recovery programs threaten to eliminate inheritances that they need more than ever before.
Proper insurance or legal planning can preserve the homestead and permit inheritances to survive where they are so desperately needed. Therefore, at the present time an investment in long-term care insurance and/or an estate plan for the preservation of assets is more important than ever.