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Rumors Abound About Estate Recovery

MPLP Summer 2008 Elder Law Section Newsletter Article

                Issue 36, Summer 2008


Rumors Abound About Estate Recovery But Its Fate Remains Uncertain

When Michigan finally passed S.B. 374 last year, the long battle to establish an estate recovery program in the state was still not over.  The legislation was passed after the Centers for Medicare & Medicaid Services (CMS) threatened to withhold federal Medicaid funds if the state did not comply with a long neglected  federal law that requires states to recover the costs of providing Medicaid funded long term care from the estates of former recipients under certain circumstances.  However, before the state could move forward with implementation of the law, it had to obtain CMS approval of its state plan amendments incorporating estate recovery.  The state has now submitted those amendments to CMS and CMS has responded with requests for additional information the state is required to provide. 

Michigan’s estate recovery program is not a very aggressive attempt to recover funds from estates.  For example:

  • If a Medicaid recipient is single, no recovery may occur until after his or her death.
  •  If a Medicaid recipient is married, no recovery may occur during the lifetime of the surviving spouse.
  • No recovery will take place if the Medicaid recipient has a surviving child under the age of 21 or a child who is blind or permanently disabled as determined by the Social Security Administration.
  • The state may attempt to recover only from the recipient’s probate estatethus anything that does not pass through probate is not subject to estate recovery.
  • The state may not attempt to recover costs from the home of a deceased recipient if  any of the following relatives reside in the home: a spouse, a child under the age of 21, a blind or permanently disabled child of any   age, a caretaker relative who lived with the recipient for at least 2 years  immediately bprior to his or her institutionalization and whose care of him  or her delayed nursing home placement, or a sibling with an equity interest in the property who resided there at least a year immediately before the    recipient entered the nursing home.
  • The law contains general language that “heirs of persons subject to the           Michigan medicaid estate recovery program will not be unreasonably harmed by the provisions of this program”  and that “any settlements shall take into account the best interests of the state and the spouse and heirs.”The law limits the amounts of assets that can be recovered and permits the state to avoid engaging in recovery at all in specific circumstances. For example, the law protects from recovery  50% of the average value of  a homestead in the county in which the homestead is located on the date of the recipient’s death  as well as the part of an estate that is the primary income-producing asset of survivors, including, but not limited to, a family farm or business.  In addition, the state may forego recovery if the costs of recovery exceed the value of the estate that could be recovered or if recovery is not “in the best economic interests of the state.”
Both because the Michigan legislation is more generous than many other state’s estate recovery programs and because CMS appears to be sending signals that it will  require more aggressive enforcement of the federal estate recovery mandate, many rumors have been circulating that CMS has disapproved Michigan’s proposed state plan amendments.  While it is possible that CMS will reject the Michigan proposal, it has not taken any final action on the Michigan plan. 

If CMS does approve the Michigan state plan amendments, a number of additional steps must occur before the program can be implemented.  The state must establish mechanisms to track Medicaid recipients’ assets and services, develop policy, and create written materials for Medicaid applicants that explain both the estate recovery program and the process for applying for a hardship waiver to exempt the recipient from recovery.

In the meantime, a number of unscrupulous financial planners and others are trying to capitalize on many seniors’ fears about estate recovery by providing inaccurate information and attempting to sell them ill advised financial planning services or products.  Elder law attorneys are also likely to hear from more clients seeking advice regarding estate recovery.  While some modest estate planning in anticipation of the implementation of the new law may be appropriate, clients should be advised that the new law is not particularly aggressive and that its implementation remains uncertain.  Moreover, the law will not apply to anyone who began receiving Medicaid funded long term care services before September 30, 2007 and may not apply to anyone who began receiving services before the state provides notice to recipients about the implementation of the program.


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