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Don't let state take your home



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November 21, 2007
Editor's note: Welcome to 'Senior Moments,' a new monthly column written by local attorney Gerard J. Garno. Garno owns and operates the law firm of Heritage Elder Law & Planning and is a partner in the law firm of Rickard, Denney, Garno & Associates, with affiliated offices in Imlay City, Lapeer, and St. Clair Shores.

On September 30, 2007 state legislators were trying to get a budget passed and avoid a shutdown. Late that night the governor signed a bill that would permit the State of Michigan to assert a claim against the estates of persons who received state assistance for long-term care costs through the Medicaid program. The new law specifies in Senate Bill No. 204 that a person's probate estate must pay, after costs and expenses of administration, all claims for "medical assistance payments subject to adjustment or recovery from an estate under section 1917 of the social security act, 42 USC 1396p."

What does this mean? It means that the state can get your home. Here's how it works: Those who are out of money and qualify for Medicaid long-term care will generally only have a home left in their name. The state will have a claim for any amount of money it spent on that person's care. When the person dies, the state will file a claim against the probate estate of that individual and can file a lien against the home. The home will have to be sold or mortgaged to pay the debt.

What items will be subject to the state's claims? The new law definitely applies to items that are in the probate estate of the Medicaid recipient. What about assets in a revocable living trust? The estate recovery law says that assets in a revocable living trust are currently exempted; however, this is misleading because there is another law that generally results in Medicaid not being obtainable if the applicant's house is in a revocable living trust.

When does the new law go into effect? The law states that it is to have "immediate effect." It takes effect as to "medical assistance recipients who began receiving Medicaid long-term care services after the effective date of the amendatory act." Thus, it appears that those who began receiving Medicaid long-term care before the effective date of the new law will not be subject to estate recovery. All those who begin to receive Medicaid long-term care after the effective date will be subject.

Why did the state do this? Why do they want to take our homes? The federal government is trying to reduce Medicaid costs. The estate recovery program is required by federal law for the states in 42 United States Code section 1396(p). This requirement has been in existence since the passage of the Omnibus Budget Reconciliation Act of 1993. All other states have previously complied with the law. Michigan has resisted for many years. However, recently the Michigan Department of Community Health told state senators that Michigan could lose five billion dollars in federal Medicaid funds if the state didn't comply with the federal law by September 30, 2007. At that point the legislators knew that they must act or cause the state to be unable to provide Medicaid services to many needy individuals.

How is this estate recovery law working out in other states? In her article entitled 'Some Heirs Find A Costly Surprise, Bill From Medicaid' (Wall Street Journal, June 24, 2005) Sarah Lueck states:

"For many families, the Medicaid bills come as a surprise. Medicaid applicants are supposed to be told that their estates may be subject to claims after they die, but there's no system for warning heirs of the potential debt. Myree Sparks, a 72-year-old retiree who lives in Richmond, Va., got an $89,000 bill from the state of Tennessee for her late mother's nursing-home care. To pay off the debt, Mrs. Sparks sold the 80-year-old farmhouse and surrounding land that she inherited from her mother, along with all the contents of the house. This brought in $96,000, which after costs was about enough to pay the state's bill. Mrs. Sparks spent $900 to buy two family heirlooms at the auction, a Hoosier kitchen cabinet and a cupboard for storing pies. Other than that, the state 'got everything.'"

Ms. Lueck examined the estate recovery programs in the various states. She reminds us that the most important item subject to estate recovery is a home, but the state can also go after the car, small bank accounts or life insurance policies. She mentions that most of the states did not want to get involved in filing claims against people's estates and some even challenged the requirement in court. Nevertheless, eventually all of them had to comply with the federal law and begin the recovery process. Now most of the states work more and more aggressively to capture assets.

What can be done to protect the home and other assets from this harsh law? First, those preparing for retirement or already retired can obtain a policy for long-term care insurance. Those who have difficulty qualifying or don't want to pay high premiums may consider alternative long-term care policies (such as an annuity with a long-term care rider). Many of these alternatives have limited underwriting requirements. Second, there are still legal options available such as certain trusts, deeds and transfers which will protect the estate. Third, if you get caught in a situation where a Medicaid claim on the home or other assets may be inevitable, make sure to review all legal options with a competent elder law practitioner. You may qualify for an exception. For example, if the home is occupied by a spouse, disabled or dependent child the recovery may not be carried out. Furthermore, there is a possible "hardship" exemption that would exempt the homestead from estate recovery in certain circumstances.

Planning for long-term care has become more urgent in light of the new estate recovery law. More than ever senior citizens and those who love them need to know their legal rights and take action to protect themselves.

Contact Gerard Garno at 1-877-731-4357, or visit his Web site at www.planwithheritage.com.

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