Jim Schuster, Certified Elder Law Attorney, Medicaid Applications, Medicaid Nursing Home Asset Protection

The Detroit Free Press has a series running on nursing home neglect and abuse.  It is a must read for any patient advocate and family of a nursing home resident.  This series relates what we have seen for years: no matter how fancy or expensive nursing homes do not have the staff to meet the needs of very sick people.  This is why we have always advised vigilance, daily visitation and informed, empowered advocacy.

Hats off to reporter Robin Erb for an excellent, excellent job.

The link is http://www.freep.com/article/20111211/FEATURES08/111207034/Trust-neglect-Special-report-nursing-homes-Michigan?odyssey=tab|topnews|text|FRONTPAGE

Give me a call at 248-356-3500 if you want to know more,

Jim

I had a great time at the Wayne State University, Institute of Gerontology Crossing Borders conference.   It was great to see old friends and meet new ones.  I received so much interest in the example I gave in my presentation  that I thought I would repeat it for the rest of you.  It is below.

As a lawyer in the geriatric field I see many questions relating to family feuds brought on by the conflicts arising out of caregiving and estate planning. At the core of the dynamic reside two conflicting propositions: 1) a parent wants to treat all children equally; 2) a caregiver who is available 24 hours around the clock for years should receive some recognition, especially when the “burden” is not shared by other children.  The typical estate plan is represented by a Will, which usually provides all children inherit equally.

When we add Medicaid planning to the mix things get explosive. It approaches “estate planning” from a different direction.  The goal is to save money and property to the applicant and family.  It is “asset protection.”   In theory the estate plan would distribute the money saved, but it doesn’t always work out that way.

Here’s the hypothetical:
Mom has advanced Alzheimer’s disease.  Dad was her caregiver and he has now died.  Mom cannot live in the house alone. The three children investigate in-home, 24 hour care and find it cost prohibitive.  They find a “dementia care” assisted living that will charge $4,500 per month.  They decide mom will live with oldest daughter.  It is clear to everybody that oldest daughter is providing a financially valuable service and that mom will likely need a nursing home down the road. Mom will ultimately need Medicaid to pay the bill.

One year later Mom’s savings is down $50,000. What is going on?  Is it financial elder abuse? Is what Medicaid will call “divestment of assets”?   Here are some situations  that, if they consulted an experienced elder law attorney, would not be either.
1.    Mom can pay daughter the fair market value of rent and services the same as if she were living in a commercial assisted living facility.  The need would be documented, the payments would be made according to a full lease identifying all services provided.  Daughter would show the payments as income on her tax return as rental income.
2.    Some of the funds may be used for necessary “improvements” so that mom could safely live on the premises.
3.    Mom could pay to become a joint owner of the property and would be responsible for her share of maintenance. If the home has a mortgage then that would have to be addressed at the outset.
4.    Mom could enter into a caregiver contract with daughter and family and pay for services received at a commercial rate.  The contract would have to meet Medicaid requirements.

The money saved when mom enters the nursing home and Medicaid begins to pay will be distributed by her “estate plan.”  If we look at each of the options we will question how much has been saved for estate planning purposes.  For example, how much value does the daughter receive for improvements to her home?  Suppose they put in $15,000 and the increase in value of the home is $5,000.  How much has daughter received?  How should the savings be distributed?  Should it be by equal distribution to all?  Should the caregiver daughter receive financial recognition for the commercially valuable service she performed?

Unless these issues are agreed at the outset by the entire family we can predict that a family feud will end up in probate court with all the savings going to lawyers fees.

Here’s a question.  Should one move investments out of an IRA during a deep recession?

The standard advice that we receive from investment professionals is to keep funds in an IRA as long as possible.  That way the money you would have sent to Uncle Sam in taxes you can invest tax free for more growth.

Here’s another scenario:  suppose you believe that your stocks and mutual funds will grow once the recession is over.  Suppose further you think they will double in value in, say, 5 to 10 years.   In your IRA every dollar of that gain will be taxable as income when you, or your beneficiaries after your death, take it out.   But, if you take investments out now, and pay the tax on it now, and keep the fund invested in those same stocks and mutual funds then your gain – that doubling – will be taxed as capital gain.  In other words you will have the Warren Buffet tax on your gain of 15%.

Here’s a related thought.  If you are feeling particularly mortal then when you die those investments will pass to your beneficiaries without any tax at all – they receive the step-up in basis under current tax law.

Disclaimer: I am not a tax attorney or investment professional.

So there it is.  Talk to your investment advisor and/or your tax attorney and ask should you take stocks and mutual funds out of your IRA during a recession?

The Department of Community Health’s hired collection agency HMS has been sending out computer generated “collection” letters to representatives of deceased Medicaid recipients.  They have caused much concern by those who receive them.  The letter includes a form titled “Michigan Estate Recovery Questionnaire.”   The form states “completion is voluntary but required for Estate Recovery exemption.”  It implies, correctly, that there are exemptions from estate recovery.  The letter warns ominously that if the form is not returned within two weeks of receipt a claim will be filed against the estate of the deceased.  The implication is that the exemption is lost.  The letter further states that a “hardship waiver” is available and application must be made to the HMS office and complete a Hardship Waiver Request within 60 days.  It continues that the waiver may be denied and MDCH will continue its recovery.

Will you lose an exemption if you do not respond to the letter and complete a Hardship Waiver Request?  The answer is not clear, but there is an argument that answers “no.”

First let me observe that this Michigan estate recovery process is new and untested in the courts.  My review of Michigan’s Estate Recovery statute, MCL 400.112g, is based on a plain reading of the statute and my comments based on the general principles of probate law.  This blog is not legal advice or an in-depth review of all legal authorities.  If you are faced with such a letter from the state’s agent HMS do get legal advice.

The first thing to know about Michigan’s Medicaid Estate Recovery program is that Michigan’s claim may only be presented to the personal representative of a decedent’s probate estate.  That means there has to be an open file in the probate court and an estate personal representative appointed.  It may not be presented to family members unless they have opened a probate estate and if one of them is the personal representative. If there is an ongoing probate estate, the personal representative must give notice to the state who then has limited period of time to present its claim.  The letter is not a claim in probate.  Under probate law the personal representative may approve or deny a claim in whole or part.   The personal representative may rely upon the Estate Recovery statute to determine whether to accept a claim.  So the question comes up,  cannot the personal representative deny the claim on the hardship exemptions allowed in the Michigan Estate Recovery Act?  These are:
(1) An exemption a portion of the value of homestead.  This is the amount that is equal to or less than 50% of the average price of a home in the county.
(2) An exemption for the portion of an estate that is the primary income-producing asset of survivors, including farms and businesses.
The letter and Michigan Estate Recovery Questionnaire do not inform recipients of these exemptions!  How would anybody know to ask for them?  It only makes sense that the personal representative may deny a claim based on these statutory exemptions.

The letter conflicts with Michigan Medicaid policy.  In Department of Human Services Policy Item BEM 400 it recognizes that an estate includes property that pass through probate and it states “the state may decide not to recover” if it creates an undue hardship. That only means the state may elect to not pursue recovery.  It does not mean that the Department or HMS determines if there is hardship.  The Michigan estate recovery law is clear that hardship must be found where the statutory criteria are met. It says the state “shall develop a definition of hardship”  that includes (1) and (2) above.  In other words the state department does not have the power to decide whether or not a family would face hardship.

I might briefly note that the Department correctly followed the statutory mandate in defining hardship in policy item BEM 400.  Its categories of hardship include cases where:
• The estate is the sole source of income for the survivors, such as a family farm or business; or
• The estate is a home of modest value; or
• A survivor would become or remain eligible for Medicaid if recovery occurred.

It is clear that it is not the state that determines whether hardship exists.

Over and above hardship exemptions the personal representative would inform the state, or HMS, that it is prohibited from recovery from the home where any of the following people live:
(a) The medical assistance recipient’s spouse.

(b) The recipient’s child who is under the age of 21 years, or is blind or permanently and totally disabled.

(c) The recipient’s caretaker relative who for two years lived in the Medicaid recipient’s home and provided care that permitted the medical assistance recipient to reside at home rather than a nursing home.

(d) The medical assistance recipient’s sibling who co-owns the home and who was residing in the home for at least one year before the Medicaid recipient began long term care.

Finally there is a question about the whole procedure behind the letter.  The Michigan Estate Recovery act required the Department to inform the applicant of possible estate recovery. The statute says:
“(7) The department of community health shall provide written information to individuals seeking medicaid eligibility for long-term care services describing the provisions of the Michigan medicaid estate recovery program”
If the applicant was never informed, then the state may have no claim at all, not even in probate.

Michigan Medicaid estate recovery is an evolving situation.  If you are contacted by the state or its agent(s) get legal advice immediately.    And as a final comment, we see we have yet another strong reason to avoid probate.

Be well, friends.

Michigan has published its Medicaid estate recovery policy.  It is based on the 2007 law, not the aggressive and mean bill introduced by Senator Kahn in June. There have been no further developments on that bill.

The Michigan policy went into effect July 1, 2011. It provides for recovery against assets going through probate only.  If assets avoid probate, they avoid estate recovery.  Michigan’s estate recovery claim will only be presented in a probate estate of any person over age 55 who received long term care services after September 30, 2007.  The services include  nursing facility care, MI Choice waiver, Home Health and Home Help.   The state may grant a hardship waiver if a qualified person lives in the home.  These include a spouse, a minor, blind or disabled child, and a caregiver who lived in the home for two years and kept the applicant out of a nursing home.

When a probate estate is opened the personal representative must send out a notice to creditors.  The state of Michigan is a creditor.  When the state is notified of the probate estate it will send a notice that it will file a claim unless a hardship waivers is applied for within 60 days.  The policy stops there.  It does not cover the estate recovery law or the probate process.

The 2007 Michigan Medicaid Estate recovery law provides that a personal representative may reject the claim if the Medicaid beneficiary’s homestead that is equal to or less than 50% of the average value of a home in the county in which the homestead is located..  The state’s claim may not be applied to primary income producing assets of survivors, including family farms and businesses.  The personal representative need only pay the claim out of money left after expenses of administration, funeral costs and the homestead, family and exempt property allowances.  Probate will be more complicated now that the state of Michigan will be looking over every transaction and every asset.

The Michigan Medicaid estate recovery law is found at MCL 400.112g.  The policy is found at BEM 400.

It is clear that anybody contemplating application for Medicaid see an experienced elder law.  There is now much more to lose than a life-savings, you could lose your home and everything.

Senator Kahn, R of Saginaw, chair of the Senate Appropriations Committee, has introduced several new aggressive estate recovery bills: SB 404, 405 and 406.  These would convert Michigan to a lien state, subjecting the property of Medicaid recipients and spouses to liens and pressure to collect even before the nursing home resident dies.

Bill  404 2(c) allows the department of community health or an outside agent to demand accelerated settlements of estate recovery claims against the spouse or heirs of medical assistance recipients subject to estate recovery if the medical assistance recipient is unlikely to return to his or her home.

The bills do not exempt dependents who children under the age of 21 years, or blind or permanently and totally disabled from the government grab of property.

The bills would give the government a double dip against assets divested for less than fair market value before the recipient applied for benefits.  Those would have caused a penalty period during which Medicaid did not pay the bills, causing the nursing home resident to incur the bills.  The government would now claim against those same assets for which it refused to pay the nursing home bills.

The bills reduce the incentive to commence probate since the personal representative would mail a properly completed Michigan medicaid estate recovery program reporting form within 30 days of appointment.  The form would list all property for the government to come and get.  Bill 404 even proposes that people who would hold tangible personal property, e.g. furniture, to deliver it to the government department.

Property would languish with no incentive to maintain or pay taxes on it.

Advocates of seniors and outraged citizens should immediately contact their state representatives and senators and demand defeat of these Big Government proposals.

The bills may be found at http://www.legislature.mi.gov/%28S%28xdzcpkmugazrj1yh2plnzv45%29%29/mileg.aspx?page=getobject&objectname=2011-SB-0404

NEWS ALERT!
MEDICAID ESTATE RECOVERY JULY 1, 2011
GOVERNMENT TO TAKE  HOMES OF MEDICAID RECIPIENTS

On June 1, 2011 The Michigan Department of Community Health announced in a policy proposal effective July 1, 2011, implementation of  Medicaid Estate Recovery. Medicaid beneficiaries who receive nursing facility care, MI Choice waiver services, home health, home help, and hospital or prescription drug services on or after July 1, 2010, and after will be subject to recovery upon their death or the death of a spouse.

I have a copy of the policy bulletin. Please call me at (248-356-3500 )or email (Jim@JimSchuster.com) if you want a copy.

You may submit your comment to the State of Michigan in writing to:
Eligibility Policy
Michigan Department of Community Health
Medical Services Administration
P.O. Box 30479
Lansing, Michigan 48909-7979
Or
E-mail: eligibilitypolicy@michigan.gov

This proposed policy means Michigan will finally start going after homes of nursing home residents. This is called estate recovery. First, a little background. In 2007 Michigan was the last state without a Medicaid estate recovery law.  That changed on September 30, 2007 when Governor Granholm signed the law passed by the legislature.  The law authorized the state to make a reimbursement claim in probate after a recipient died.  It could have been worse. During the summer of 2007, elder advocates, including yours truly, got the legislature to pass a limited estate recovery program.  It would only allow the claim in probate.  Avoid probate and avoid estate recovery.

Who is at risk to lose their home to the government?  Those who receive Medicaid after July 1, 2010.  What about those who received Medicaid after the law was passed but before the policy becomes effective?  It is not clear. At this time it appears the state is not going after those recipients.  We need to see what the state proposes to do.

As of right now the following points are clear.  Under the 2007 law the state will not make a claim if a spouse lives in the home. What about on the death of the spouse?  In general, homes that avoid probate avoid the state’s grab. What if the spouse sells the home? Again if the spouse’s estate goes through probate then any asset, including cash in bank accounts  will be subject to the claim.  There are other exemptions and exceptions.  Give us a call if you need immediate assistance and “stay tuned” for further developments.

It’s been hectic since I got back from Las Vegas last week – had a lot of catching up to do!  Got a chance to take a breath and I thought I’d write you this note.  I presented on the Ethics of Medicaid Planning.  Like many areas it is a huge subject that looks simple from afar. I won’t go through all the boring details, but I came away with the sobering thought that when it comes to Nursing Home Medicaid client representation many attorneys, not all, come up short.   When we compare the level of advocacy that goes on in the tax bar with that often practiced in the Medicaid arena we may conclude that the tax attorneys do a better job for their clients.

The Medicaid problem is Medicaid policy is written by people who are not lawyers and may be political appointees – or their subordinates.  Many lawyers greet Medicaid policy pronouncements with disbelief  along the lines of  “They can’t do that!”  But from them comes no challenge.  If we compare the result with attorneys in the tax bar we may ask where are the lawyers who bring or defend a position in a Medicaid application, or assert or controvert a position that includes a good faith argument for an extension, modification or reversal of existing policy?  Not many will stand up to answer.

For my part I say that any attorney who practices in the Medicaid field must be ready to challenge abuses of power by Medicaid bureaucrats.   I am.

“Will the Government try to take my house?”

“  Yes.”

“Can I stop them?”

” Almost certainly.”

Talk of Medicaid estate recovery has returned as the budget crisis continues to impact states.  Governor Snyder has made clear that ordinary citizens must make sacrifices so businesses can keep more money, with the hope they will use it to hire more people.

What is Medicaid estate recovery?  In short the government claims pay back for Medicaid payments made to nursing home residents.  Since the program only allows the recipient $2,000 and exempts a home and car.  The home is the only thing of value that the person has when he dies.

The Michigan legislature passed the Medicaid estate recovery law in September 2007. The bill required the Medicaid department to put a plan together and present it to the federal Medicaid agency, which is CMS.  The agency did not approve the state’s first efforts and the state has kept trying.  In late 2010, near the end of the Granholm term, the state filed an amended plan proposal with CMS.  It is still being reviewed.

Can you stop the government from taking your home?  The answer is yes under the 2007 Michigan law.  All you have to do is to be sure the home does not go through probate.  In 2007 when the law was being pushed through, senior advocates including the author and other members of the State Bar Elder Law Council vigorously opposed the concept of government taking people’s homes who committed no crime.  We got the legislators to limit Medicaid estate recovery to a claim in probate.

Will Governor Snyder propose to make the 2007 Medicaid estate recovery law more brutal?  The subject has not yet come up, but we can see he already targeted seniors in paying for part of the budget shortfall.  If we look to winds coming out of Washington we can expect to see Medicaid made a leaner, meaner program.  And that means, once again seniors are in the bull’s–eye of the budget cutters both in Michigan and in Washington.

So how can a senior and family members stop the government from grabbing the family home?  One thing is clear, speak to your legislator Loud and Clear.  Let them know it is immoral for the government to take the home of a 50 year+ taxpayer who has committed no crime.  At the same time you should speak to an elder law attorney about having the home avoid probate and Medicaid estate recovery without running afoul of the Medicaid asset divestment rules.  You should also have the attorney check your trust, will, and powers of attorney to be sure you are safe and protected.   Give me a call and we’ll take care of you pronto.

Michigan Medicaid Rules Change April 1, 2011
Change is always part of Medicaid.  I’m often surprised by prospective clients who tell me that they know somebody whose mother applied for Medicaid years ago and all they had to do was . . .   When it comes to Michigan Medicaid one cannot presume to know the policy interpretation of any office at any one time let alone presuming things are the same as they were years ago.  In proof of that proposition here we go with the latest Medicaid changes.

The biggest change is interpretation of joint ownership of real property.  It is effective April 1, 2011.  The new rule raises questions – as always.  The rule continues the real property law recognition that if property is jointly owned, then any one owner cannot sell without another owner’s consent.  The change in the rule is addition of : “Jointly owned real property is only excludable if it creates a hardship for the other owners, see hardship in this item.”  The new rule explains its meaning and hardship further:
“For jointly owned real property count the individual’s share unless sale of the property would cause undue hardship. Undue hardship for this item is defined as: a co-owner uses the property as his or her principal place of residence and they would have to move if the property were sold and there is no other readily available housing.”
So, if a son lived in the cottage as his primary residence then he would have to prove “there is no readily available housing.”  That would be difficult to impossible.  What is the limit of “readily available”?  Does that mean in the neighborhood?  Or, anywhere in Michigan?

A plain reading informs us that jointly property, such as a cabin up north is a countable asset unless the applicant proves that the selling would create a hardship for a co-owner.   Unlikely at best.

We might note further that the rule has finally caught up to Michigan property law in recognizing fractional shares of real estate.  In other words Lion-Cub deeds, where the original owner takes a smaller fraction (the cub) of ownership, can still work to divest a future applicant of assets and yet retain the property tax limitation.  Of course, this would have to be done more than five years before application.

In the mean time it looks like quite a few Michigan Medicaid applications will be denied due to excess assets.