Elder Law Estate Planning in Michigan for Medicaid Benefits: Michigan Supreme Court Interpretation
On May 9, 2019, the Michigan Supreme Court rendered an opinion with thorough analysis in "Hegadorn v. Department of Human Services, et al", ("Opinion"), that addresses planning tools for married couples, when one spouse becomes institutionalized and the other is not, utilizing irrevocable trusts.
Medicaid Look BackThe federal enabling act, 42 USC 1396, and the segue to the States of the Union, who administer the substantive law with regard to Medicaid entitlement, asset protection, estate planning techniques and the look back period of five (5) years is all so complex, many lawyers do not comprehend the ultimate effects or protections of elder law planning. The 2019 Opinion became ripe because 3 Michigan administrative law judges rejected the ability of a "community spouse" to utilize an irrevocable trust, with a third party trustee, to shield a marital couple's assets, when the other spouse becomes "institutionalized" and seeks Medicaid benefits from the Department of Health & Human Services of Michigan.
SBO TrustsUnder current Michigan law, an individual applicant for Medicaid benefits, which originates through the federal goverment Medicare system, for the "medically needy", is eligible for Medicaid benefits monthly provided that "countable income and assets" are at or below $2,000.00 monthly. Since 1988, certain elder law plans to protect community spouses from pauperization while an institutionalized spouse benefits from Medicaid have come into vogue. The federal act allowed for an irrevocable trust as a planning tool because such a trust removes properties into the title of a third party and neither spouse there after is the deemed beneficiary of such a trust. The challenge in "Hegadorn" was the use of a trust for the sole benefit of an individual or "SBO" irrevocable trust, established by the "community spouse", not the "institutionalized spouse". Certain conditions of the an irrevocable trust can make the same become a resource available to an institutionalized spouse, and therefore reachable by the state agency administering the Medicaid benefits if: (1) the assets of the institutionalized spouse are part of the trust principal; (2) means were used other than a will to establish the trust; and (3) there exist any circumstances under which payment could be made from the trust for the benefit of the institutional spouse.
Case OutcomeThe Supreme Court unanimously reversed the multiple Court of Appeals decisions that upheld the administrative law judge rulings that such SBO trust structures failed the Medicaid compliance tests. That leaves the use of SBOs for estate planning with elder law clients questionable. However, in a well delivered concurring opinion, Chief Justice McCormack, a former University of Michigan Law School professor, elaborated on the detailed process that should be undertaken by the Dept. of Health & Human Services to analyze when SBO trusts are a valued estate planning tool for married couples concerned with "pauperizaiton" versus Medicaid benefits eligibility for institutionalized spouses. Clearly, an elder law specialist is needed for selecting the right tools and process for maximizing benefits and at the same time protecting the marital assets.
GuidanceThe tools available for estate planning with regard to elder law issues, while complex and not universally understood, should be analyzed by legal experts who recognize the complexity of issues, the rationale for theories of irrevocable trusts with third party trustees, utiltizing the same with caution, and at the same time concentrating upon the benefits needed by institutionalized spouses, in order to protect assets from undesirable look back effects or outright reimbursement to state agencies, after the fact, for benefits expended.
ConclusionSince the use and benefits of SBO irrevocable trusts are unclear at this time, the use of Lady Bird deeds, annuities or promissory notes in Medicaid estate planning to circumvent Medicaid estate recovery claims appear to be a more certain benefit, when one spouse has been institutionalized.
CONTACT INFORMATION -Larry E. Powe, Esq., Attorney at Law, Of Counsel
FABRIZIO & BROOK, P.C. Troy, Michigan
700 Tower Drive, Suite 510
Troy, Michigan 48098-2837
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