Skip to main content

New Medicaid Case Revisits Spousal Income Diversion

A newly released unpublished opinion of the Court of Appeals looks again at the authority of the probate court to issue a protective order in the context of a married person in a nursing home who is receiving Medicaid benefits, when that order impacts how much of the income of the nursing home resident can be diverted to support their spouse in the community. The case is called In Re Michael DeClerck.  Click on the name to read the case.

This case follows the Vansach decision which was published in May 2018, and which I blogged about at that time.  That post was called Medicaid Planners Get Rare Win from COA Click on the name to read that post.

As would be expected, this panel of the COA remands the case to be decided in the context of Vansach, which basically requires the probate court to make certain findings about the needs of the parties in order to support the diversion of income granted.  What is interesting, and perhaps helpful, about this opinion, is that it also directly addresses the argument of the appellant (the Michigan Department of Health and Human Services), that the probate court lacks jurisdiction to issue these orders unless and until the appellee exhausts their administrative remedies.  The COA rejects this argument, which is good news for Medicaid planners.

The issue is important to planners and to the State for the reason that the more income that is diverted to the community spouse, the less that is paid to the nursing home by the Medicaid beneficiary as their “patient pay amount,” and the more the State has to pay for the nursing home resident’s care.

DHHS policy provides a formula for determining how much of the income received by a married Medicaid beneficiary in a nursing home is contributed toward their own care (the “patient pay amount”), and how much, if any, can be diverted to support their spouse in the community (the “community spouse income allowance”). DHHS policy offers two alternate processes for obtaining an exception to the default formula.  One way is to file an administrative appeal, the other is to obtain a court order.   Medicaid planners almost always take the probate court route, because the administrative route is perceived to be bias against them to the point of futility.

In this case, the COA rejects the DHHS argument that the Medicaid recipient must first go through the administrative process, and lose, before they can petition a probate court for relief.  The COA holds that, pursuant to Medicaid policy, a court order and an administrative appeal are simply alternative options, and that there is no requirement to go through the administrative process before petitioning a probate court.  This result is certainly implicit, if not express, in the Vansach opinion.  Arguably, in Vansach, the DHHS argument focused only on the proposition that the probate court simply lacked jurisdiction and that the administrative process was the exclusive process.  In this case, the issue is framed slightly differently, but the result is the same. Probate Courts may issue these orders, and DHHS must accept the probate court’s decisions.  Per Vansach, the probate courts must base their orders on certain findings regarding the needs of the parties involved.

Thanks to our friends at the Mannor Law Group for their work on this matter.

Cautious Optimism Greets MSC Decision on SBO Trusts

The SBO Trust is back – or is it?

Yesterday the Michigan Supreme Court released its long awaited decision in the case of Hegadorn v The Department of Human Services.  [Click on the name to read the opinion.]

To summarize, for twenty years the “Solely for the Benefit Trust” (“SBO Trust”) was the primary Medicaid planning tool for married couples in Michigan. In August 2014 that reign ended when the Michigan Department of Human Services (now the Michigan Department of Health and Human Services aka “DHHS”) reinterpreted their rules and started treating assets held in SBO Trust as available resources.  That change led to litigation challenging the DHHS interpretation, which litigation was unsuccessful in the Court of Appeals.  The case was then taken up to the Michigan Supreme Court.

The majority opinion in this case holds that DHHS was wrong when it determined that assets in an SBO Trust can be considered available resources. They say:

The SBO trusts  at  issue  all  contain  language stating  that distributions or payments from the trust may only be made to or for the benefit of the respective community spouse and that the  trust resources may be used only for the community spouse’s benefit.   The ALJs and the Court of Appeals recognized this but erred by concluding that payments to or for the benefit of the community spouses were available  to  the  institutionalized spouses.   Because the  community spouses  are  not themselves applying for or receiving Medicaid benefits, they are not “the individual” referred to in 42 USC 1396p(d)(3)(B). Thus, the Court of Appeals erred by holding that the  possibility of  a  distribution  from  each  SBO  trust  to  each  community spouse automatically made the assets held by each SBO trust countable assets for the purposes of the respective institutionalized spouses’ initial eligibility determination. Accordingly, we reverse the Court of Appeals judgment because it was premised on an incorrect reading of the controlling statutes and thus was contrary to law.  It follows that the ALJs’ decisions are also contrary to law and cannot stand, given that they all suffer from the same faulty reasoning employed by the Court of Appeals.

And yet, the majority does not simply order DHHS to approve the applications at issue. Rather it offers the following cryptic explanation of their remedy:

The question now becomes what relief should be granted. … The sheer complexity of the Medicaid program and the Department’s legitimate concerns about potential abuse are paramount considerations in determining what relief is warranted. We further note that, given the reasoning employed in resolving the administrative appeals, the ALJs may have forgone consideration of alternative avenues of legal analysis.  In light of these concerns, we decline to order that the Department approve plaintiffs’ Medicaid applications at this time.  Instead, we vacate the final administrative hearing decision in each case and remand each case to the appropriate administrative tribunal for the proper application of the any-circumstances test.  If the ALJs determine that circumstances exist under which  payments  from  the  trusts  could  be made  to or for  the  benefit  of  the institutionalized spouse,  then  the  ALJs  should  explain  this  rationale  and  affirm  the Department’s decision. However, if no such circumstances exist, the ALJs should reverse the Department’s decisions and order that the Medicaid applications be approved.

One has to wonder, if, as the opinion says, DHHS was wrong in concluding that assets in an SBO are available resources to the institutionalized spouse, what “alternative avenues of legal analysis” or “circumstances” test are they expecting the ALJ to apply?

The McCormack Concurrence

In a lengthy concurring decision, Justice Bridget McCormack, the Chief Justice on the MSC, argues that while the assets in an SBO may not be available resources, the funding of an SBO within five years of application would result in a divestment, and accordingly the decision of the MSC will provide no benefit to the elder law bar or their clients. While her reasoning seems strained, she has clearly offered the DHHS an avenue to continue to fight the use of SBO trusts in Medicaid planning.  And, as Justice McCormack correctly notes, the majority expressly avoided the question of a divestment analysis in their opinion.

Conclusion

The immediate impulse to rejoice at this important decision needs to be tempered. The MSC could have given the elder law bar a clear victory and reinstated the SBO trust without qualification, and nearly all of their opinion seems to be consistent with that result.  And yet, they chose to pull their punches and leave open the possibility that, in the end, this may prove to be a Pyrrhic victory.  Time will tell.

For my prior posts on this issue see:

SBO Policy Change Update (December 4, 2014)

Bloody Thursday (June 3, 2017)

SBO Believers Hear Heartbeat (March 13, 2018)

Credit again to all who believed and have relentlessly pursued this case, most notably our good friend Jim Steward of Ishpeming.

Proposed Policy Promises Problems for Planners

This is a post about Medicaid long term care planning. The topic is a proposed policy change related to the use of promissory notes in Medicaid planning.  If adopted, the new policy would take effect July 1, 2019.

The proposed policy says:

In order for a promissory note to be a bona fide loan:

  • The loan must be enforceable under Michigan law;
  • The note agreement must be in effect at the time of the loan transaction;
  • The borrower must acknowledge the obligation to repay the loan;
  • There must be a plan to repay in the loan document; and
  • The repayment plan must be feasible.

Medicaid planners use private promissory notes in a couple important contexts, both in relation to divestment. [Divestment is the term used by the Michigan Department of Health and Human Services to mean non-exempt asset transfers for less than fair market value that occur during the five year “look back” period. Divestments result in penalties.]

Promissory notes are sometimes used as alternatives to commercial annuities in “half loaf” divestment planning.  And promissory notes are used to “cure” divestments that clients come in the door with (i.e., divestments done before they met with an attorney).

The primary impact of these proposed changes would seem to be the elimination of promissory notes as a tool to cure preexisting divestments. Specifically, the second bullet above which would require that the note be “in effect” when the funds are transferred to the borrower, would be hard to work around in the typical situation in which a client comes to the lawyer having already made penalizing divestments.

The other bullet points in this notice seem to be directed at the integrity of the arrangement. While ominous, these bullets appear to be less clearly impactful on current planning approaches.

Like annuities, promissory notes, have become a target of MDHHS policy writers. Hope that the new administration in Lansing might be less antagonistic toward Medicaid planning concepts may be misplaced.

Puzzling New Medicaid Policy on Homestead Exemption to Take Effect

Heads Up: If Medicaid planning isn’t your bag, you may want to pass on this post.

As of February 1, 2019, Bridges Eligibility Manual Item 400 (aka “BEM 400”) will be changed.  For the uninitiated, BEM 400 is the source of Medicaid policy relating to exempt and countable assets.

In Medicaid planning, there is probably no topic that is more foundational and complicated than “exempt assets.” Accordingly, BEM 400 is an unusually lengthy policy item.  Click here to view the policy item as it will exist beginning February 1, 2019.  The changes are indicated by lines on the right side of the page.

The change I want to discuss relates to the rules that allow an applicant to exempt a homestead when they are no longer living in the home. [Footnote: This discussion is not relevant if the Medicaid applicant’s spouse is living in the home, or if a blind or disabled child of the applicant is living in the home.  In those cases the homestead is exempt per se.]

Historically, the rule has been that any home that the applicant owns where they formerly lived, could be claimed as a homestead. Currently that exemption is worded as follows:

Exclude a homestead that an owner formerly lived in if any of the following are true:

  • The owner intends to return to the homestead.

  • The owner is in an LTC facility, a hospital, an adult foster care (AFC) home or a home for the aged.

  • A co-owner of the homestead uses the property as his home.

Now let’s go to the policy that takes effect February 1. If you want to follow along, go to the middle of page 36 and look at the topic of “Absent from Homestead.”  The introductory paragraph has been reworded to say:

Exclude the homestead (see definition in this item) that an owner lived inprior to the time the indiidual left the property if any of the following are true:

First, it’s hard to ignore that there are two obvious typographical errors in this sentence.

Substantively, we see that the following words are added: “that an owner lived in prior to the time the individual left the property. …”

So, what does that even mean – if it means anything?

If the applicant is now absent from the home (presumably because they are in institutional care), they must have lived in the home prior to the time they left the home. But then, why put those words in there?

My initial concern is that the department intends to use this language to limit the availability of the homestead exclusion to real estate that was occupied immediately prior to entering long term care. But it doesn’t say that, and could easily have said that.  So maybe I’m just reading too much into it.

Is there another explanation? I think so. And you don’t have to look far to see it.

Also on page 36, immediately following the cited provision, is a section that talks about when a homestead can be exempt if a relative is occupying the property. The new language says:

Relative Occupied. Exclude a homestead provided both of the following are true:

  • The owner is in an institution; see BPG Glossary.

  • The owner’s spouse or relative (see below) lives there.

The current policy reads:

Relative Occupied. Exclude a homestead even if the owner never lived there provided both of the following are true:

  • The owner is in an institution; see BPG Glossary.

  • The owner’s spouse or relative (see below) lives there.

Here the difference is clear. To use the relative occupied exclusion, heretofore, it was not required that the owner ever lived in the home. Now the “never lived there” language is gone.  So, perhaps all that the department is trying to say is that the applicant-owner had to live in the home at some point in order to obtain the exemption for a relative-occupied house? Although, again, that is not what it says, and it could have easily said that.

In conclusion, I guess we will have to wait to see what these changes are intended to mean. Maybe it just means that the relative occupied exclusion requires that the applicant own and formerly lived in the house.  But maybe the department will attempt to place greater restrictions on the homestead exemption, by limiting to only those situations in which the person went directly from the house into long term care.

Policy Tweaks Scare Medicaid Geeks

When it comes to Medicaid planning, truly the devil is in the details; and the “details” are found in the Michigan Department of Health and Human Services (MDHHS) policy manuals, most often the Bridges Eligibility Manual (the “BEM”). MDHHS has announced several language revisions to a variety of BEM items, all taking effect October 1.  Folks that have been in this game long enough know that such revisions often mean mischief and that, especially during this haunted season, odds are high that there will be more tricks than treats in this bag of goodies.

Waiver Rewrite (BEM 106)

The Medicaid Waiver program (aka “the MI Choice Program”) allows persons qualified for long term care Medicaid benefits to receive services in their homes. Waiver benefits have been around awhile now, but the way the eligibility rules apply to Waiver have remained uncertain.  As of October 1, the Waiver eligibility rules will be much better organized and laid out in much more detail in the new BEM 106.  That’s a treat.

Among the clarifications are the rules for how an initial asset assessment (the “IAA”) is triggered for Waiver applicants, and how a divestment penalty is triggered. These clarifications raise concerns.

The IAA is important because it provides the date which is used for a married person to calculate their protected spousal amount (aka “community spouse resource allowance”). For traditional Medicaid long term care programs, the IAA is triggered when someone enters the hospital or a long term care facility for at least 30 days.  Now, for Waiver applicants, the IAA can also be triggered when the Medicaid applicant has begun:

Receiving appropriate home and community based services specified under the approved state waiver; see Exhibit I in this item. They do not have to receive these services from a waiver agent listed below, but the services must be received from a person or entity certified (or licensed) by the state to provide the services. See below for verification of services received.

So, it seems that a person can now trigger their own Medicaid Waiver IAA date by hiring in-home caregivers (or perhaps it will have to be nurses) that are licensed by the State. That seems to give people, and perhaps planners, more control over the IAA trigger date and may be a treat.  We’ll see.  Cautious optimism here.

Of greater concern in the new BEM 106 is the language that relates to the trigger for the divestment penalty and the way that intersects with the language defining “approved for waiver.” What is says is that the divestment penalty begins “on the date which all criteria listed under the approved for waiver section in this item has been confirmed.”  The “Approved for Waiver” section provides the following:

Approved for the waiver means:

  • The agent conducted the assessment, and
  • There is an available wavier slot for the individual’s placement and
  • A person-centered plan of service has been developed and
  • The participant received, or expects to receive, supports coordination services from the agent with appropriate waiver services for at least 30 consecutive days.

The agent determines the waiver approval date and termination date. The agent is responsible for advising the appropriate local Michigan Department of Health and Human Services (MDHHS) office of these dates. The agent is responsible for advising the appropriate local MDHHS office the dates of enrollment and disenrollment information in CHAMPS.

This seems to leave all control in the hands of the Waiver Agent, and will also depend on slot availability. This will make divestment planning strategies for Waiver clients much less predictable.  Definitely room for mischief here. Call this a trick.

Assets (BEM 400)

As of October 1, the language in BEM 400 that allows real estate to be considered unavailable during periods in which the property is listed for sale has been tweaked in three respects.

First, the policy has been modified by the addition of the following sentence: “If after a length of time has passed without a sale, the sale price may need to be evaluated against the definition of fair market value.”

Second, it now says “The asset becomes countable when a reasonable offer is received.”

Third, the non-salable exemption will not be applied to the initial asset assessment (IAA).

While none of these changes seem particularly egregious, one always wonders why DHHS would go through the trouble to include them if there isn’t some hidden agenda. But then maybe I’ve become too cynical.

The October 1 changes to BEM 400 also include beefed up language to clarify that assets remains an available resources during periods in which the applicant is waiting for a conservator (or guardian) to be appointed. So even though you may have no power of attorney or other legal ability to spend down or otherwise qualify for Medicaid, the fact that the assets exist is all that matters.  The cost of the delay of obtaining court authority falls on the applicant.  That has always been the rule. So, again, one is curious about the need for these clarifications.

Divestment (BEM 405)

BEM 405 now includes an eerily vague and portentous provision that says: “purchasing an asset which decreases the group’s net worth and is not in the group’s financial interest” is a transfer of assets, and apparently also per se “divestment.” Definitely an invitation to mischief and definitely a trick.

Divestment policy will now define “putting assets or income into a Limited Liability Company (LLC)” as a transfer of assets which presumably means it can be analyzed as possible divestment. A trick.

BEM 405 policy has been clarified to address situations where past divestment activity is subsequently discovered and reported. The new language provides that the penalty period starts on the “first day after timely notice is given.”  Maybe not a treat, but I’m ok with this.

Conclusion

There are other tweaks to the aforementioned BEMs and tweaks to other BEMs not discussed above, but these seem to me the most curious. To read the entire bulletin with links to the policy, click here.  Happy Halloween.

VA Program Adds Divestment Rules and More

The so-called “Aid and Attendance” pension has become an important source of income for older adults needing long term care services, and an important source of business for some elder law attorneys. The program is offered through the Veterans Administration.  Eligibility requires military service during a period of conflict, or being the spouse or surviving spouse of a veteran that meets that requirement. In addition, there are asset and income eligibility rules. Those income and asset rules will change dramatically with the implementation of new regulations formally adopted today (but taking effect in 30 days).

There are several changes. Some of the more notable changes are outlined below. Before I get into those, I think it would be helpful to acknowledge the context of these changes and the overriding themes that tie them together.

First, it seems evident that these new rules are a reaction to the role of lawyers and financial planners who, for the past ten years or so, have become increasingly involved in “helping” veterans qualify for these benefits. The VA clearly perceives this development as harmful to the program and perhaps even exploitative towards the veterans.

Second, this VA benefit is often considered by older adults who need help with aging issues, as something available either in addition to, or as an alternative to, applying for long term care benefits through Medicaid. For historical reasons, these two programs have had very different financial (asset and income) eligibility rules.  These changes make the VA benefit rules more like the Medicaid eligibility rules.

 

Divestment. Divestment means giving away your assets (or taking other steps to artificially reduce their availability) in order to qualify for the benefit. Heretofore, there was no penalty if an applicant gave away resources in order to qualify for this VA benefit.  Now there will be.  Most Medicaid long term care programs have had divestment rules for at least 20 years.

Like the Medicaid long term care programs, penalties for asset transfers will result in periods of ineligibility the duration of which will be a function of the amount sheltered. Whereas the so-called “look back period” for Medicaid is five years, the look-back for this program will be three years.

Use of trusts and annuities in planning can result in divestment analysis under these new rules.

There are exceptions, and interestingly there is an exception for elders who were taken advantage of by an advisor who was marketing services purportedly designed to allow them to qualify for this benefit. Or, in other words, if an attorney told you to put your assets in an irrevocable trust or annuity, and now, as a result, you are ineligible for benefits, you merely have to assert that the lawyer was a charlatan to avoid the penalty (at least that how I read it).

Homestead Exemption. Both this VA benefit and Medicaid have historically exempted the primary residence from consideration as a countable asset.  In recent years, Medicaid has placed a limit on the value of an exempt homestead.  Now VA will limit the exempt homestead by using a different measurement – two acres.

Countable Asset Limit.  The amount of exempt assets that have historically been excluded for this VA benefit has been uncertain.  While some offices used a “rule of thumb” figure at times, the real rule required a calculation taking into account the income shortfall of the applicant, their life expectancy and their available resources.  Medicaid has long had a simple $2,000 rule for single people, and a formula for married persons, with a ceiling.  That Medicaid formula is called the Community Spouse Resource Allowance (or CSRA) (also sometimes called the “protected spousal amount”).  Each year the Medicaid program announces the maximum CSRA. In 2018, the maximum CSRA is $123,600.  VA has adopted, as their new asset limit for all applicants, the Medicaid maximum CSRA.

 

Conclusion. These are dramatic changes for lawyers who offer advice on this benefit.  There are other changes.  Above are those that I perceive as most notable.  To read more:  click here to read the rule changes as they were originally published in 2015 (yes it has been around that long); and click here to read the VA commentary that accompanied the announcement that the rule changes would finally be implemented today.

Divestment Rules for Medicaid Waiver Clarified – Maybe

A policy bulletin has been issued by the Michigan Department of Health and Human Services which provides additional direction on when and how a divestment penalty period runs for persons otherwise eligible of Medicaid Home and Community Based Waiver services (aka the ”MIChoice” program).

Click here to read the policy bulletin, which takes effect October 1, 2018.

The point of the policy seems to be that under federal law there was uncertainty about how to start a divestment penalty period running for persons in waiver programs, like MIChoice. The source of this clarification is a federal directive to state Medicaid directors that explains why there is perceived confusion about this issue.  In fact, I think the federal letter does a better job of explaining the issue than the State Policy Bulletin.  Click here to read that letter.

In any event, the powers that be have decided that the penalty period begins to run when the person applying for MIChoice services is deemed otherwise eligible for the program, which is a four part test:

  • determined that the applicant meets financial and non-financial requirements for Medicaid;
  • determined that the applicant meets the level of care criteria for the 1915(c) waivers;
  • determined that the applicant has an individual person-centered service plan in place; and
  • confirmed there is an available waiver slot for the applicant’s placement.

Well, BEM 405, page 14, already says:

The penalty period starts on the date which the individual is eligible for Medicaid and would otherwise be receiving institutional level care (LTC, MIChoice waiver, or home help or home health services), and is not already part of a penalty period.

As far as I can tell, this current Michigan policy seems to be in line with the new proposed policy. It certainly seems consistent with the federal directive, which simply says:

the penalty period start date for a 217 applicant is no later than the point at which a 217 applicant would otherwise be receiving HCBS waiver coverage based on an approved application for such care but for a penalty

If you want to worry about something, you might look to the State’s decision to include the requirement that there be an open slot to start the penalty running. That might prove challenging for planners in the future.

So, in the end, I’m not sure how things change with this new policy, or if they really do. Nonetheless BEM 405 will presumably be rewritten to conform with the bulletin and those who practice in this area may run into snags, or avoid snags, as a result.

Medicaid Planners Get Rare Win from COA

The Michigan Court of Appeals has issued an opinion regarding the appropriateness of using probate court protective orders to obtain spousal support orders in situations where such orders impact the calculation of a nursing home resident’s Medicaid “patient pay amount.” The outcome is 80% good for planners, and as such is a refreshing break from the series of punishing COA opinions that have been issued in recent years with respect to Medicaid planning cases.

The case is published, lengthy and involved. Click here to read the combined cases of In Re Joseph VanSach Jr., and In Re Jerome R. Bockes.

For the uninitiated, a “patient pay amount” is the portion of a person’s income that is required to be paid to toward their care when they are in a nursing home receiving long term care Medicaid benefits. The exact amount is a function of Michigan Department of Health and Human Services (DHHS) policy, which provides a formula for calculating the patient pay amount.  When the nursing home Medicaid beneficiary is married, that formula allows for diversion of income to the “community spouse.” DHHS policy also provides that where a court order directs payment from the nursing home resident to the community spouse, that court order supersedes the formula for determining the amount of income diverted.

In both of the cases before the COA, the local probate court ordered that 100% of the income of the nursing home resident would be paid to the community spouse for their support. These two decisions were appealed by DHHS, represented by the Michigan Attorney General, and the two cases were combined by the Court of Appeals.

The main argument of DHHS was that the probate court lacked jurisdiction to hear these cases. That argument was made on several grounds, all of which failed.  In this decision, the COA holds that probate courts have the authority to grant these orders and that in doing so those courts are not engaged in making DHHS eligibility determinations even though the clear purpose of obtaining such orders may be for that reason.  That’s a big win for the planners.

The COA also holds that the fact that these individuals may have had power of attorneys in place at the time of the petition does not preclude the probate court from getting involved. The COA reasons that the specific form of relief desired (a court order of support) would not be something that an agent acting under a POA could provide, and therefore the court does have jurisdiction to hear these matters.  This holding has potential applications beyond Medicaid planning matters.

After dismissing the primary jurisdictional challenge, the COA ventures into a discussion about how a probate court should decide these cases. The COA holds that in the two cases giving rise to the appeal, the probate courts erred in awarding 100% of the nursing home resident’s income to the community spouse, and vacates both orders and remands the cases.

The COA instructs Michigan’s probate courts that the burden is on the party seeking the order of support to show, by clear and convincing evidence, that the community spouse “needs” the additional income, that it is more than a “want,” and that in deciding whether or how much to award, the probate judge must consider the interests of the institutionalized Medicaid beneficiary and their obligation to contribute toward the costs of their own care. The discussion of this process goes on for several paragraphs, and includes several lengthy footnotes, using, at times, vague and clouded statements to explain how this balance should be struck.  In the end, the opinion seems to intentionally avoid the obvious conclusion that the institutionalized spouse has no real interest in paying anything more than they have to toward their care, as their care remains the same notwithstanding, and that in almost every case the interest of institutionalized spouse would be to divert as much income to support their spouse as possible.  The COA seems to want to direct the probate judge to consider public policy and the interest of the DHHS in making its decision – but they never say that – presumably because there would be not legal basis for doing so.

Importantly, the COA rejects the standard requested by DHHS of “exceptional circumstances resulting in significant financial duress.” But in the same footnote discussion, the COA goes on to say:

… as a matter of common sense, when an incapacitated person needs to be institutionalized to receive full-time medical care, it would be an unusual case for a community spouse’s circumstances to trump the institutionalized spouse’s need for use of his income to pay his medical expenses, particularly when the community spouse has the benefit of the CSMIA. In other words, an institutionalized spouse’s receipt of Medicaid, and a community spouse’s protection under the spousal impoverishment provisions, generally weighs against the entry of a support order.

The result of this case will require more effort in bringing these matters to probate courts in the future. Practitioners will want to establish a record that the probate judge can rely upon to conclude that the burden has been met.  As evidenced by the orders vacated in this appeal, a judge simply concluding that the request was “reasonable” is not good enough.

We should also recognize that while this case is about protective orders used to establish income diversion orders to benefit the community spouse, many of the same rules and standards would presumably apply to the other common use of protective orders in Medicaid planning: orders to establish a protected spousal amount.

In the end, these important planning tools (probate court protective orders) survived the COA and planners should celebrate this decision. It isn’t perfect, but in light of the COA’s prior decisions in this arena, it’s a lot more than might have been expected.

Representing the interests of the elder law bar (as appellees) in these two matters were two renowned elder law practitioners: CT’s own David Shaltz, and my friend and colleague Don Rosenberg.

The Fix Is In

In the process of probate administration, there are certain “allowances” that are paid “off the top” before creditors and beneficiaries get what they have coming.   Among those is the exempt property allowance.  The exempt property allowance is currently $15,000.  It goes to the surviving spouse, but if there is no spouse surviving, it is divided among the surviving children.  Since 2000, it has gone to adult surviving children as well as minor children.

In 2015, the Michigan Court of Appeals issued a published opinion in the case of In Re Estate of Shelby Jean Jajuga (click on the name to read the case). Ms. Jajuga died leaving a will and one surviving child.  The will did not leave anything to the child, and expressly stated that the child should “inherit nothing.”  Notwithstanding this expression, the child made a claim for the exempt property allowance and it was granted.  The Court of Appeals concluded that this was ok, and affirmed what I think most practicing probate lawyers believed the law to be, which is that the child gets the allowance regardless of what the will says.

That result did not sit well with some people, and so legislation was introduced to change the outcome. That legislation recently became law.  Specifically, the change is in the language of MCL 700.2404(4).  Click on the statute to read it.

Because the outcome of Jajuga neither surprised nor offended me, I am not a fan of the fix. But as far as fixes go, I think this one is better than it might have been.  Notably, the way the change is written, it does not eliminate the exemption for children, nor limit it to minor children; but rather the exemption remains as it existed, but can be barred by language in a will expressly cutting out the child or children or by simply eliminating their right to an allowance.

Two observations:

When planning for small estates, lawyers may want to disable the exemption so that the exempt property allowance to a child or children does not significantly alter the resulting distribution where non-children (including descendants of deceased children) are takers. Of course this can perhaps be better addressed by simply defining beneficial interests to include an offset for any allowance received.  The risk of routinely disabling this allowance in wills is that in very small or insolvent estates, doing so would elevate creditors above children.

My second point relates to Medicaid estate recovery. In cases where assets mistakenly end up in probate for a decedent who received long term care Medicaid benefits, the exempt property allowance comes before the State of Michigan gets repaid for their estate recovery claim.  The way the fix is written, this remains true.  This will allow children in these cases to continue to have good reason to open the estate, and place them in a better bargaining position with the State with respect to settling estate recovery claims.

SBO Believers Hear Heartbeat

In June 2017, I wrote about the combined cases of Hegadorn and Ford under the title Bloody Thursday. As discussed in that post, these combine Court of Appeals cases supported the Michigan Department of Health and Human Services conclusion that resources held in a “solely for the benefit” trust are countable assets for the purposes of determining eligibility for long term care Medicaid benefits.  In other words, a long favored Medicaid planning tool was officially dead.

However, since that time the Elder Law and Disability of Rights Section of the State Bar has been working to overturn that decision. On March 7, 2018, the Michigan Supreme Court agreed to hear the case.  This is a big first step, but by no means a guarantee that the SBO Trust will be revived.  In fact, the Order granting leave to appeal specifically cites two issues on review: (1) whether the COA’s conclusion that the assets in an SBO trust are countable resources for Medicaid eligibility purposes is correct; and (2) whether DHHS could retroactively apply the change in policy that resulted in the denial of eligibility in these cases.  Note, on this second point, DHHS has argued that they did not change policy but rather only clarified existing policy.  To read the MSC Order allowing the appeal, click here.

So, the MSC could (1) affirm the COA decisions completely, (2) hold that the SBO trust is a valid planning tool and return it to use, or (3) say that the policy is fine but that it was applied unjustly in these two instances.

Those who have never accepted the demise of the SBO trust have new hope. The application for leave was written and will continue to be advocated by the pride of Ishpeming, and premier elder law attorney, James Steward.  SBO believers could have no better captain at the helm.