A Hat Trick and a Bonus Medicaid Update

It’s been awhile since there’s been something to write about.  So when the Court of Appeals came out with three unpublished opinions on probate matters, I figured I would go with it.

 

The Ineffective Beneficiary Designation

Joseph came back from his job in Australia to die in the U.S..  While in Australia he accumulates a retirement account through his employment which has a balance of about $300,000.  He names his father and an aunt as beneficiaries on that account.

In September 2011, he is living with his Dad and creates a will leaving residue to Dad.  In October 2011 he moves to Michigan where his mother lives.  Shortly after the move he signs a new will leaving the residue of his estate to two nieces.

In November 2011 he dies.

By some seemingly unique rules regarding this Australian retirement account, the Trustee of the account is not obligated to follow the beneficiary designation, and decides to make the account balance payable to his estate.

Dad challenges the October will on undue influence and lack of capacity.  The trial court dismisses both challenges on summary disposition.  The record seems to lack any evidence for undue influence, but the lack of capacity issue is more curious.

Among other things, in support of their motion for summary disposition, Appellee filed affidavits from a doctor, a lawyer, and a social worker all indicating that they were prepared to testify that on the date of the will the Decedent had the capacity to understand what he was doing.  Dad/Appellant filed, among other things, the beneficiary designation on the Australian retirement account along with his own affidavit indicating that the Decedent had become increasingly confused about the existence of this asset during his illness.

I find the COA’s analysis of MCL 700.2501 troubling.  In the opinion it says:

It is not clear from the record the extent to which the decedent understood that if the Australian trustee did not comply with his beneficiary nominations, the death benefit arising from his ownership of the Superannuation Fund could become an asset of his probate estate.  However, the inquiry regarding testamentary capacity is only concerned with whether the testator “has the ability to understand” the general nature of the act of signing a will. MCL 700.2501(2)(d) (emphasis added).

And also:

Under the circumstances, the trial court did not err by concluding that appellant failed to establish a genuine issue of material fact regarding whether the decedent had “the ability to understand in a reasonable manner the general nature and effect of his or her act in signing the will.” MCL 700.2501(2)(d).

It seems to me there is at least a triable issue here as to whether in fact the Decedent understood the nature of his estate, and more importantly, the effect of his will.  Clearly, it would not be unreasonable for a fact-finder to conclude that he died believing that the beneficiary designation directed his retirement account to his aunt and father, and that the will only controlled the disposition of his non-probate assets. Help me out:  Isn’t that the “general effect” of his will?

Luckily this is an unpublished decision.  I also note that the father did not plead constructive trust, which might have been a valuable alternative cause of action on these facts.

Click here to read the In Re Williams Estate

 

Creditors, Pension Plans, and Sheep

This case presents another retirement account issue.

Prior to the death of Ed Sr., one of his children, “Respondent” had stolen money from his estate while serving as conservator, and there was a judgment against that child for $225,000.   When Dad died, Respondent was the beneficiary of an annuity.  The issue in this case was whether MCL 600.6023 prevented the estate from recovering the judgment against bad child’s interest in the annuity.

The analysis is complex, but ultimately, and not surprisingly, the trial court found that the annuity funds were subject to collection, and the Court of Appeals affirmed. If you have retirement accounts payable to creditors of an estate, the opinion is worth reading.  MCL 600.6023 is an important statute in the context of creditor protections.

And the real test of a probate practitioner: Do you know what farm animals are exempt under MCL 600.6023?  The answer is found in subsection (d), which says:

(d) To each householder, 10 sheep, 2 cows, 5 swine, 100 hens, 5 roosters, and a sufficient quantity of hay and grain, growing or otherwise, for properly keeping the animals and poultry for 6 months.

Click here to read In Re Estate of Coats.

 

Convenience Accounts and Convenient Testimony

The record of this case suggests a lack of sophisticated lawyering.  This is another joint accounts case.  In this case, Dad makes Child A joint on accounts.  The rest of the kids claim convenience account.  The trial court finds it is a convenience account and COA upholds trial court’s decision.

Non-joint owning children and a family friend testify that Dad says he set up a “convenience account” with Child A, but checks box that says she gets it if she survives.  This bothers the judge who senses that if Dad was so sophisticated that he used a legal term – “convenience account” – to explain what he intended, why would he then check a box that says otherwise?

In the end however, the trial court finds that the challengers met their burden of presenting clear and convincing evidence that this was a convenience account, and the COA affirms.

In its decision, the COA says: “We have been provided with no caselaw suggesting that the self-serving testimony of heirs challenging the ownership of a joint account must be excluded.”  The COA also notes:  “The record evidence is largely self-serving hearsay, admitted without objection.” (OUCH)

Click here to read Estate of Edward Sadorski, Sr.

 

Bonus Post:  Another Change in GA/CA PPA Deduction

DHHS has released a proposed policy change which, assuming it takes effect, will increase the deduction allowed from a Medicaid beneficiary’s patient-pay amount to $95 per month for a guardianship/conservatorship fee.  Starts October 1.  For reference, the deduction was $60 forever, and was increased to $83 earlier this year.  Two bumps in a year – government waste and excess continues unabated (joking).

 

The policy notice says

Issued:    September 1, 2017 (Proposed)

Subject:    Increase to Guardian/Conservator Income Deduction

Effective:    October 1, 2017 (Proposed)

Programs Affected:   Group 2 Under 21, Caretaker Relative, Supplemental Security Income (SSI)-Related Medicaid

Effective October 1, 2017, the Michigan Department of Health and Human Services (MDHHS) may deduct up to $95 per month as an allowable expense against a beneficiary’s income when determining medical services eligibility and patient pay amounts if the beneficiary pays a court- appointed guardian/conservator.

The fee must be verified as paid by a fiscal group member. Guardianship/conservator expenses include:

  • Basic fee
  • Mileage
  • Other costs of performing guardianship/conservator duties

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Ladybird Deeds: Readers Digest Version for Upcoming Program

 

I am presenting on ladybird deeds at the upcoming State Bar Solo and Small Firm Institute, September 19-21.  Still time to sign up.  Following is an abbreviated version of what I will be covering.

Intro

A ladybird deed is an odd duck that serves as a valuable estate planning tool in limited situations, but which plays a much more important role in Medicaid post-eligibility planning.

Basically, a ladybird deed allows the owner(s) of real estate to designate a beneficiary on the property, with all the same characteristics as a beneficiary designation on a life insurance policy or bank account; including the power to encumber or sell the property without the consent or participation of the named beneficiary(ies).

A ladybird deed is sometimes referred to as an “enhanced life estate” deed.  Other states use ladybird deeds or some statutory variance of it sometimes called a “transfer on death” deed or affidavit.

I don’t know where the name came from.  The name is curious, to be sure.  Is it named after Ladybird Johnson or something else?

Source of Law

We recognize ladybird deeds in Michigan primarily because Michigan Land Title Standard 9.3 says this arrangement is valid under Michigan law.

The Land Title Standard is thin on detail, and there some important questions about these deeds remain unclear.  Most notably, the question of grantee vesting is not addressed by the land title standard.

A recent unpublished Michigan Court of Appeals case addressed the best way to subsequently convey land subject to a prior ladybird deed.

In Estate Planning

Ladybird deeds can serve as simple tools in simple estates with simple schemes to provide clients with a clean result.

In Medicaid Planning

Although ladybird deeds have been used by some planners for decades, the explosion of their use is clearly a function of the role they play in post-eligibility Medicaid planning.

After a client (or the spouse of a client) becomes eligible for Medicaid, where there is an exempt homestead, a ladybird deed can be used to avoid probate and therefore the specter of estate recovery (Because estate recovery currently only reaches probate assets).

Further, and of equal importance, because the ladybird deed does not convey anything of value (it is merely a beneficiary designation) the execution of a ladybird deed is not divestment.  Accordingly, the ladybird deed can be created before or after the Medicaid application is filed, and it does not matter that it is done during the look-back period.

Clearly the ability of people to avoid estate recovery simply by executing ladybird deeds is a thorn in the side of those who expect the estate recovery program to generate revenues.  Accordingly, planners must be realistic about the future of this planning tool, and need to advise their clients about the prospects that the law may change in the future.

Legislation currently pending would eliminate the probate only aspect of Michigan’s estate recovery program, and therefore eliminate the benefit of ladybird deeds in Medicaid planning.  But even if this law is not passed, it would not be surprising for the Department of Human Services to implement policy that seeks to reach property passed by ladybird deed.

Creditor Rights

A Michigan probate court opinion out of Wayne County, written by a highly respected Probate Judge, the Hon. Milton Mack, and which is published in the Quinnipiac Probate Journal holds that an unsecured creditor of the state cannot reach the value of property that passed by operation of a ladybird deed, and further, that the execution of a ladybird deed is not subject to the Fraudulent Conveyance Act.  This author knows of know contrary authority.

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