Probate Section discusses Estate Recovery Program

By Robert M. Gubbins

Legal News

"Estate Recovery has been around since 1993," said Michelyn Pasteur, opening the Probate Section meeting to a standing-room only crowd Oct. 16. The event was held at the State Bar of Michigan building in Lansing.

"The Federal law required all states to adopt an Estate Recovery Program to recoup Medicaid payments used to fund long term care expenses. It wasn't until 14 years after the federal law was enacted that Michigan adopted Public Act 74, known as Michigan's Estate Recovery Law."

Although the law was effective on Sept. 30, 2007, there was no significant effort to impose the law until the Michigan Department of Community Health (MDCH) published the rules describing how the law was to be enforced. A summary of the rules, which became effective July 1, 20ll, can be found in Section 400 of the Bridges Eligibility Manual (BEM). The revised rules can be found "with some more detail in the Bridges Administrative Manual (BAM) section 120."

It is important to note that the law requires that "MDCH shall not implement the Estate Recovery Program until after it's approved by the Federal Government." Approval came in May of 2011, effective retroactively, which Pasteur noted could be a problem since the rules were not effective until July 1, 2011 and "it is hard to comply with rules we didn't know about."

Who is covered?

"Individuals," said Pasteur, "who are 55 or older who began receiving long term care services after September 30, 2007 are affected."

It applies after the death of the individual receiving the benefits and requires written notice that their estate could be forced to repay for the benefits paid. This notice is to be given during the Medicaid application process. Failure to receive notice provides grounds to object to any claim made by the State, although the challenge has not yet been tested in the courts.

Pasteur explained that because some people received benefits before September 30, 2007 and are still receiving them, practitioners should verify when benefits began so they can object to inappropriate claims.

What assets are subject to Estate Recovery?

"Under the law as currently written, it is your probate assets," said Pasteur. This excludes many assets such as those with beneficiary designations or held jointly with rights of survivorship."

If the state does have a claim against a probate asset of an estate, they stand in line with other creditors, she explained. Under the law, claims are paid in the following order:

1. Costs and expenses of administration.

2. Reasonable funeral and burial expenses

3. Homestead allowance

4. Family allowance

5. Exempt property allowance

6. Debts and taxes with priority under federal law including estate recovery

This does not mean the state will automatically collect since recovery is restricted when the spouse, a child under 21 or a disabled child or the recipient's caretaker relative resides in the home, which is usually the major probate asset.

"There is also the ability to request a 'hardship' exemption," said Pasteur "which is explained in the new BAM section 120, page 8."

"If you have a client who has passed away and was receiving long term Medicaid benefits," said Rhonda Clark-Kreuer, carrying on the discussion, "you will receive a Notice of Intent to file a Claim against Estate from HMS."

HMS is a collection agency that MDCH hired to assist with collection of estate recovery funds.

"There is an ability to request an exemption," she said. She described a case where the only asset was a house worth about $25,000, upon which the state filed a claim under Estate Recovery. Clark-Kreuer objected to the claim and the matter resulted in a court case. The judge ruled in their favor since there had been no notice before the decedent's death and recovery was barred because the statute had not been approved before the date of death.

What techniques can help avoid estate recovery claims?

Pasteur offered suggestions for avoiding estate recovery. For example, pre-planning before application for Medicaid could include joint ownership with rights of survivorship with a spouse. If, however, the title would be with a child she recommended using a Lady Bird Deed to transfer the property, the language for which is included in the Michigan Title Standards. Transfer or payable on death designations can be used with bank or brokerage accounts while insurance and other accounts have beneficiary designations.

Clark-Kreuer noted that probate could be avoided in small estates using the methods described in Michigan Compiled Laws (MCL) 700.3938 and 3987. These processes can be accomplished "quickly and without notice."

Rhonda Clark-Kreuer, a sole practitioner in St. Louis, MI, focuses her practice on estate planning, elder law and trust administration. She is a counsel member of the Probate and Estate Planning Section of the State Bar of Michigan.

Michelyn Pasteur is with Burnett, Radner and Ouelette. She specializes in estate planning, trust administration and Medicaid and Elder Law.

The next Probate Section meeting will be held on Nov. 20 at noon at the State Bar of Michigan building. The speaker will be George Strander, Register of the Ingham County Probate Court.

Published: Wed, Nov 7, 2012