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.

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MSC Takes Its Shot at Estate Recovery

The Michigan Supreme Court has released an opinion in four combined cases all involving Michigan’s Medicaid Estate Recovery Program.  As we’ve learned from prior posts, the Michigan Court of Appeals has not been a friendly environment for Medicaid long term care planning (see for instance the “Bloody Thursday” from just a few weeks ago).  Well it turns out the Supremes are even less welcoming.

In their opinion the Michigan Supreme Court concludes the Court of Appeals was too generous in calculating the start date for estate recovery. They hold DHHS can go back to July. 2010.  The Supremes reject all constitutional arguments or considerations, and address the “house of modest value” issue by vacating those portions of the Appeal’s Courts decisions that discuss it.

Click here to read In Re Rasmer Estate, Gorney Estate, French Estate and Kethcum Estate.

Appreciation for all who have worked so hard on this issue. It appears however that the time has come to let it go.


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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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Bloody Thursday

June 1 2017 was a bad day for Medicaid planners who pinned their hopes on the Court of Appeals to reverse a string of losses. The Court issued three opinions, all unpublished.  Two of them are substantive losses; the third a pyrrhic victory.

In the combined cases of Hegadorn v DHHS (click here to read the case), the COA held that DHHS is correct that assets placed in a “Solely for the Benefit” Trust are countable resources for determining eligibility of a married couple; and by doing so put a final nail in the coffin of the once beloved planning tool. Ah the good old days.  Note: the Hegadorn case was subsequently approved for publication.

In Estate of Calvin Bacon (click here to read the case), the COA upheld the bizarre manner in which DHHS used policy to undermine the value of the statutory hardship exception to estate recovery. Click here to read the concurring opinion which suggests a panel to resolve a perceived conflict with this outcome and the outcome in Ketchum.

In Estate of Marian Cary (click on name to read the case) the Court upheld a trial court’s decision that it was ok to spend $46,000 on legal fees fighting with DHHS over an estate recovery claim that the estate disallowed. The COA notes that at the time the issue was litigated, estate recovery cases were new and the COA had not issued its controlling decisions.  That means, while it was ok at that time, it would not be ok now.  There was a dissent which said the trial court did not create an adequate record.  Click here to read the dissent.

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Medicaid Block Grants – What If?


The news over the weekend is hardly new at all.  President Trump’s plan for fixing Medicaid is to send a set amount of money to each state and let them figure out how to run their own Medicaid programs.  It’s called “block grants” and the idea has been tossed around for years. Click here for a NYT article on the subject.

Currently, the federal government pays a portion of the Medicaid budget for each state, and the state pays the rest. In return for the federal funds, the states agree to operate their Medicaid programs in accordance with federal rules.  States have some flexibility within the broad umbrella of rules that the feds impose, and states can ask for waivers (permission to deviate further), if they think they have a way of managing their Medicaid program that makes sense in their state.

With block grants, each state would get a flat amount of money, and they would assume responsibility for operating their own Medicaid programs. There would be no federal rules, and states could (theoretically) craft their own rules from scratch.

While the idea of block granting Medicaid has been around, there has never been any realistic prospect that such a radical approach was politically feasible. For better or worse, it may be politically feasible now; or at least sufficiently feasible to consider what Medicaid block grants could mean to that population of older Michiganders who rely on Medicaid for long-term services and supports.

The LTSS Mess

When politicians talk about Medicaid, they rarely dissect it into the various programs that make it up. In most conversations, the term “Medicaid” is used to simply mean health insurance for poor people.  But Medicaid is a lot of things to a lot of different people.  And, of all the components of Medicaid, the one the politicians and the press seem least interested discussing are those Medicaid programs that help older people, particularly older people with cognitive impairments, pay for care in assisted living facilities, nursing homes, and in their own homes with assistance – the so-called “long-term services and supports” (LTSS) Medicaid programs.

But these programs are massive. More than half of all LTSS costs in our country are paid by Medicaid; and LTSS makes up about 28% of the total Medicaid budget.  Click here for a helpful Kaiser Foundation Report.

While all Medicaid programs are needs-based programs, that is, to qualify you have to meet various assets and/or income eligibility rules; the rules for LTSS Medicaid programs are unique. Eligibility rules for Medicaid LTSS programs have evolved over decades to address the particular challenges of older people who can no longer take care of themselves, but who, because of a historical quirk that distinguishes “skilled care” from other forms of healthcare, can expect to have little or none of these types of healthcare costs covered by Medicare or their private supplemental healthcare insurance policies.

Among the unique eligibility rules that apply exclusively to the Medicaid LTSS programs are the “divestment rules” (you can’t give things away during the five year “lookback period” prior to applying), spousal income and asset protections (the “snapshot date” and the calculation of how much a married person who has a disabled spouse can keep), and estate recovery (the prospect that once you die, the state can come back and recoup their costs by taking your house).

Not surprisingly, these bizarre and seemingly punitive rules have caused many older people to fear the idea that they might need long-term care. These fears, and the vulnerability they create in the older population, have spawned an entire industry of sales programs, typically promoted as “educational seminars” and built around a free dinner, at which seemingly professional people will wax eloquent about snapshot dates, divestment rules and estate recovery – offering just enough factual information to shove their high-pressure sales pitches down the throats of the trusting audience members.  In the end, the presenters will offer relief to these traumatized audience members in the form of magical (and high commission) legal and/or financial products that will “protect their assets” from the threat of long-term care costs.

Meanwhile, the confusing nature of these Medicaid rules and this fear of long term care costs, has given rise to “Medicaid planning,” a practice area of the law, in which regular folks pay lawyers to figure out how to get help with their care costs and avoid financial ruin.

It’s a terrible system.

Better or Worse?

So, would block grants make it any better?

Hard to say of course.

What would seem to be clear is that the whole structure of federal rules that exists now, spousal protections, divestment, countable and exempt assets, estate recovery, etc., could go by the wayside. As bad as they may be, those federal rules now serve as protections against even more draconian eligibility requirements that states could theoretically impose.

One would also assume that some states would use the new funding arrangement to improve their Medicaid programs, while other states would simply see it as an opportunity to cut benefits and make eligibility more difficult. There are currently several states that voluntarily provide more than the federal government requires (i.e., the wealthier states).  But Michigan, like the rest of the rust belt, struggles each year just to meet the minimum federal requirements.  So, unless the formula by which the block grants are handed out takes into account the economic health of each state (as opposed to, for instance, the population), things in Michigan could easily get worse under a block grant scenario.


This world of LTSS Medicaid benefits is a mess, and has been for a long time. That said, it could get worse.

Whether block grants, if that happens, will make things better or worse will depend on any number of variables, most obviously, how much money states like Michigan would get as compared to what they get now.

The real fix will come when all forms of healthcare are treated the same. But no one is proposing that.

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Estate Recovery – Last Gasp or Second Wind

Thursday, January 12, the Michigan Supreme Court is scheduled to hear oral arguments in several combined matters all relating to the issue of Medicaid estate recovery. The main issue in these cases is whether the manner in which the State implemented the estate recovery program gave those Medicaid beneficiaries who were subject to recovery sufficient notice of their rights and responsibilities – i.e. Was it fair? To read the briefs that have been filed in this matter, click here and follow the links.

This hearing is the culmination of years of litigation in local courts throughout Michigan, followed by several of those cases being appealed to the Michigan Court of Appeals.   While many local judges ruled in favor of the elder law attorneys who fought these cases, to date, as readers of this blogsite know, the appellate courts have not been nearly as friendly.  But those have all been COA cases. Perhaps the MSC will be kinder.

The State Bar Elder Law and Disability Rights Section has funded the Appellant’s case. They’ve invested a lot and have a quality product to show for it.  But one wonders what they expect to come of it.  While it’s possible the MSC could decide that every case in which the State has collected money under the estate recovery program was defective and the money should be refunded, that seems highly unlikely.  At best, perhaps, relief for the named plaintiffs and some instruction to the State to do better in the future. At worst, a stamp of approval on the process as it was followed.

In any event, one can’t knock the advocates for pushing back. The implementation of estate recovery in Michigan has been a long and curious process.

And in other news: dower is dead. The lame duck session of the Michigan legislature passed laws abolishing this relic of the common law.  No surprise here.  To read more on dower, click here.

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Two Happy Notes

notes jpeg

On the topic of self-settled special needs trusts (aka Medicaid Pay-Back Trusts; aka D4A Trusts), the “Special Needs Trust Fairness Act” has passed both houses of Congress and is headed to the desk of President Obama for his signature. These trusts have long been used to protect the assets of persons who are disabled and under age 65, and who apply for Medicaid and/or Supplemental Security Income.  However, the law has been that these trusts must be created by a court, a guardian/conservator, or the parent or grandparent of the disabled trust beneficiary.  After this new Act becomes law, in addition to these existing methods, persons who are disabled and competent will be able to create their own trusts.  A very important and long sought development in the special needs world.

On the topic of long term care Medicaid benefits, Michigan’s Department of Health and Human Services has amended the rules relating to the treatment of annuities in the context of qualified retirement accounts owned by a Medicaid applicant.   Specifically, as of January 1, 2017, new BEM policy (click here) will provide that where the Medicaid applicant has money in retirement accounts (IRA’s, 401k’s, 403B’s, etc.), different rules will apply to the conversion of those accounts to income through the use of a commercial annuity.  Specifically, the requirement that such annuities are irrevocable, actuarially sound, and that they make payments in equal monthly amounts; will not apply to annuities created with these types of accounts.  Welcome back balloon annuities – I guess. [This positive development was brought about by Chalgian and Tripp’s own David Shaltz, who continues to work under the radar for important reforms that benefit the broader elder law community.]


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A Bridge Too Far


When clients come in with really difficult problems, we all try to come up with creative solutions to get them out of the jam. But there is a line where “creative solutions” ends and “WTF give it a try, there’s nothing to lose” begins.  File this unreported COA case in that second bin.

Lyle was on Medicaid and had an exempt homestead. He only owned 50% of the home because well prior to applying for Medicaid, he had made his home joint with his child, Steven.  The language of the deed however clearly created a tenancy-in-common, meaning that Lyle and Steven each owned 50%.  Lyle died and the State of Michigan filed a claim for estate recovery against Lyle’s 50%, claiming nearly $50,000.

Attorney consulting on the estate recovery issue, decides that the solution is to go to court and have the deed “reformed” so that upon Lyle’s death, the entire ownership interest went to Steven, as would have been the case had the deed been drafted to provide for survivorship rights. The argument, which is probably exactly true, is that Lyle no doubt believed that the deed he signed meant that his house would go to Steven when he died.  The local judge went along with the reformation/strategy/scheme/charade, but, unsurprisingly, the Attorney General (representing the Department of Health and Human Services) appealed.  The Court of Appeals reverses the trial court, and holds that Lyle’s 50% is in his estate and subject to the estate recovery claim.

So, while I’m sure many of us can appreciate the “nothing to lose” thinking that went into the effort (and I suspect I would have given the idea some consideration), the fact is that the Attorney General is on a roll in Medicaid cases that go up to the appellate courts, and the result from the COA in this case shouldn’t be a surprise. If so inclined, read the case by clicking here.

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New Policy undermines LTC Partnership Insurance Benefits

Foolish me. I got excited about the implementation of a long term care insurance partnership program in Michigan, and have written about it here several times.

As previously discussed, the law, which was finally implemented just this spring, provided two benefits to those who purchased and used a LTC partnership policy: (1) an increased asset protection at the time of application, and (2) an equivalent protection of those assets at death from Michigan’s estate recovery program. For a simple example, if a single person purchased a partnership policy which paid out $300,000 in benefits to that individual, that individual could apply for Medicaid and be eligible when they had countable assets of less than $302,000 ($2,000 as the usual asset limit, plus $300,000 as a benefit of having purchased the insurance).  Likewise, at death, this individual would have an “asset disregard” of $300,000 from the estate recovery program.  The concept is to incentivize people to buy LTC insurance and in return the State would provide them with greater asset protections if they exhaust their resources and turn to Medicaid for assistance.

Seemed reasonable and even creative. But apparently state policy-makers thought the deal was too sweet for the consumer.  Hence they are changing in the definition of “estate” as it appears in the State Medicaid Plan so that the asset disregard related to estate recovery is essentially negated.  Specifically the new policy will change the definition of an “estate” to be as follows:

… If a decedent received (or is entitled to receive) benefits under a long-term care insurance policy and had assets or resources disregarded, pursuant to 42 USC 1396p(b)(4)(B) “estate” includes all real and personal property and other assets in which the decedent had any legal tittle or interest immediately before or at the time of death to the extent of that interest, including but not limited to, assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, transfer-on-death deed, payable on death contact, promissory note or other arrangement.

This means that the exempt assets, including one’s house, would be considered as part of the asset disregard for estate recovery, and that the value of the home would be counted even if it passed to others at death by ladybird deed or otherwise in a manner which would avoid estate recovery under current rules.

The long term care Medicaid application now includes matching language. It says:

If you have received an asset disregard due to a long-term care partnership policy, Estate Recovery applies to all assets whether they are subject to probate administration or not.

After all is said and done it looks like the energy that so many put into making the concept of a long term care insurance partnership meaningful in Michigan will not be realized thanks to the efforts of the state bureaucrats who seem obsessed with the perception that the people of Michigan, and especially their planners and counselors, are all part of a conspiracy to rip off their system.

Thanks much to my colleague David Shaltz for ferreting out this development.

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Nothing New: DCH Wins Again

The Court of Appeals has issued yet another published opinion re Michigan’s Medicaid Estate Recovery Program.  Click here to read In Re Estate of Catherine Klein.  The case repeats the factual circumstances of prior estate recovery cases – and the result, not surprisingly, is the same.  Hard to understand why this opinion is published – but estate recovery ophites may choose to read it.

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