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A newly released unpublished opinion of the Court of Appeals looks again at the authority of the probate court to issue a protective order in the context of a married person in a nursing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.


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.

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.

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.

Department Promises Change on Spousal Annuity Beneficiary Issue

Thanks to the excellent advocacy of Amy Tripp and David Shaltz, it appears we may be getting close to resolving one of the difficult issues related to using annuities in Medicaid planning in cases involving married couples.  The issue relates to the State of Michigan’s interest in annuities purchased by a community spouse.

In the case of Hughes v McCarthy, U.S. Court of Appeals, 6th Circuit, 2013, the Court reversed a determination by Ohio’s Medicaid agency which concluded that an annuity purchased by the community spouse was divestment because the State was not named first beneficiary, but rather a contingent beneficiary after the nursing home spouse.  The Hughes opinion goes into extensive detail regarding the underlying federal law, and concludes that the Ohio agency was wrong.  The analysis of the opinion clarifies that the requirements for naming the State as a beneficiary at all are not applicable to annuities purchased by the community spouse before application for benefits.  Click here to read Hughes.

Michigan policy, set forth in BEM 401, is less clear on the topic.  It says that any annuity must name the State as beneficiary “for an amount at least equal to the amount of the Medicaid benefits provided.”  What is unclear is whether the term “benefits provided” relates to the annuitant (who would be the community spouse) or the nursing home resident.

In the Calhoun County case handled by Amy Tripp in which this issue arose, the annuity was purchased by the community spouse and the State was named as beneficiary for medical expenses incurred by the annuitant and paid by the State, which would only apply if the community spouse became a Medicaid beneficiary at some later date.  Calhoun County DHS concluded this was divestment, and that determination led to contact with higher ups in the Department.

The response from the Michigan Department of Health and Human Services was an acknowledgement that the policy as written is wrong, and a promise to revise the policy to comply with the Hughes decision.  Click here to read the exchange of correspondence.  While we do not know at this time exactly how the policy will be revised, this is a big deal for everyone who uses these types of annuities in married couple Medicaid plans.

In any event, the good news is that the Department is responsive to such inquiries and willing to review policy where it can be demonstrated that such policy is not complying with the governing law.  (The Hughes case is a Sixth Circuit decision, and Michigan is in the Sixth Circuit.)

Thanks David, Thanks Amy and Thanks Mr. Meyer, acting Deputy Director of DHHS.  We are hopeful that this is the beginning of better lines of communication with the Department so that we can work together toward the benefit of the populations we mutually serve.

AN UPDATE:  No detail – but some movement.  Click here

AND NOW THE FINAL POLICY:  Looks good.  Click here

Striking the Balance of Financial Integrity and Quality of Care for the Spouse of an Impaired Adult

Here’s another balance that’s hard to strike – and hard to help clients understand and decide.
Typical example: Husband and wife have been married 50 years.  They are both in their seventies.  They have a nice nest egg, but are hardly rich.  Let’s say their home is paid off, and is worth $150,000.  In addition they have another $250,000 in investments, bank accounts and retirement funds.
Now husband gets dementia. Wife takes care of him at home as long as she can.  Children might help toward the end of the effort, and she may start hiring caregivers for a few hours a day.  But as her husband’s care needs increase she realizes that the costs of the care-giving combined with the usual costs of life are depleting their savings at an alarming rate.
The wife investigates private pay care facilities and learns that the assisted living facility that is closest to her home and that she believes would provide her husband with the highest quality of care would cost $5,000 per month.
The wife seeks advice and learns that if she puts her husband in a Medicaid nursing home, all of the marital funds can be protected for her needs and he can qualify for Medicaid.  It might even be possible to protect most or all of the husband’s income for her expenses.  The decision she faces is when to pull the trigger and place their spouse in a Medicaid nursing home?  How much of the marital pot can the healthy spouse afford to spend before compromising her own long term financial integrity?  If she is in her mid-seventies and relatively healthy, she should consider the real possibility that she may live another twenty or thirty years –and in the long run the amount of money she retains through this process will directly impact her quality of life, and quality of care choices that she will have as she becomes more frail.
Other options, like community based Medicaid services through the MI Choice program or in some parts of the state the PACE program, may provide options that will allow the impaired spouse to remain in the home longer, even indefinitely, by providing additional assistance with care-giving at no cost.  Veterans benefits may also be available.  But in many cases these options may not be available or may be too little. 
The reality is that our current healthcare system commonly puts a spouse of an impaired adult in the position of striking the difficult balance between the quality of care that the ill-spouse will receive and his or her own long term financial integrity-  a difficult and emotional decision to have to make for sure.

Local Courts Hold Ground in Medicaid Cases

The bad news is that the Attorney General is actively shopping around for Medicaid cases to attack.  The good news is that local probate judges are – so far – holding the line.

Over the past few months, at least two cases have been decided in probate courts that involve Medicaid long term care issues.

One case, the Estate of Amy Grosskopf, related to an estate recovery claim and was decided in Gratiot County.

The other case, the matter of Emma J. Molesworth, a protective proceeding to increase the protected spousal amount, was heard in Shiawassee County.

The Opinion in the Grosskopf case is attached here:  Grosskopf Opinion.

The Transcript of the decision in the Molesworth case is attached here:  Molesworth Transcript.

Grosskopf is important because it builds on the Salemka-Shire case discussed in posts in this blog below.  In Salemka-Shire, the Clinton County Probate Court held that the failure to give notice of an estate recovery claim at the time the person began seeking Medicaid precludes the estate recovery claim entirely.  Grosskopf clarifies that this defect cannot be cured by subsequent applications filed in the redetermination process, even if those subsequent applications include estate recovery notices. 

Molesworth was a Petition for Protective Order to increase the protected spousal amount for a married couple seeking Medicaid assistance in a nursing home.  The Petition was actively opposed by the State.  The Probate Court held that the relief was appropriate, and in doing so expressly refuted the State’s claim that such proceedings are not in the best interests of the protected persons, or that they are a function of an inappropriate “loophole” in the law.

Over the past few months I have discussed several cases with colleagues in which the attorney general’s office is pushing the enveloped in challenging issues relating to Medicaid eligibility and estate recovery matters.  Congrats to the attorneys involved in these two cases for their superb advocacy: the Lansing law firm of Fraser Trebilcock in the Grosskopf case and Attorney Rebecca McClear in the Molesworth matter.

An Inconvenient Obstacle to Community Based LTC


Because asset protection strategies commonly used in the context of nursing home Medicaid are problematic in the context of MI Choice Waiver and PACE programs, a significant number of potential beneficiaries are disincentivized from pursuing these services.


PACE is the Program for All Inclusive Care that is operating in several parts of the State.  It is a unique and growing concept for long term care (“LTC”) that combines Medicare and Medicaid dollars for individuals who meet the Medicaid Level of Care requirements for long term care services.  In that combines Medicare and Medicaid money, PACE is especially interesting as it may anticipate something like what will come (if anything) from the current push for “integrated care” services.

Waiver or “MI Choice” is the home and community based Medicaid long term care benefit that provides benefits to Medicaid beneficiaries who meet the Medicaid Level of Care requirements for LTC services.  Services may be provided in the home or in those Assisted Living Facilities that participate in the program.

Both PACE and Waiver use the traditional Medicaid financial eligibility rules for nursing home Medicaid, but with an income cap.

Currently most PACE programs are looking to fill slots, whereas most Waiver programs are backlogged (but catching up).

Lawyers have long worked to qualify Medicaid beneficiaries in nursing homes while preserving assets for the spouse or other family members.  This practice area has grown dramatically in the past decade so that whereas a decade ago only a hand full of attorneys provided this type of advice and only a small percentage of nursing home residents took advantage of these asset protection strategies, today there are hundreds of lawyers in Michigan offering advice in this practice area and the majority of nursing home Medicaid beneficiaries receive advice on these strategies.

The Issue

Because the rules that allow for asset protection strategies for residents of Medicaid nursing homes are unclear in terms of how they apply to beneficiaries seeking PACE and Waiver services, a significant number of people seeking Medicaid funded LTC services are being, and will continue to be. disincentivized from pursuing PACE and Waiver services until these issues are resolved.  There are two specific areas of concern: (1) Spousal Protections and (2) Divestment.

Spousal Protections

LTC Medicaid policy provides for a so-called “protected spousal amount;” that is an amount of “countable assets” that the so-called “community spouse” (spouse not in the nursing home) gets to keep in addition to the $2,000 that the nursing home resident can keep.  The protected spousal amount is established by looking at the couple’s assets on the “snapshot date” (another term of art) and applying a formula provided by policy.  In PACE and Waiver programs it becomes difficult to establish a snapshot date, and therefore to take steps necessary to exercise strategies available to maximize the protection of assets for the community spouse.  For married couples these protections can be quite generous.  Although Medicaid policy provides a process for establishing a snapshot date in community based programs, most PACE providers and Waiver agents are unfamiliar with the importance of this process and the result is insecurity for the community spouse when pursuing these benefits.


“Divestment” is the policy that penalizes asset transfers for people who give away assets before applying for Medicaid benefits in LTC during the five years prior to applying for benefits (the so-called “lookback period”).  Notwithstanding the policy people do give away assets, either because they do not know the consequences, because they think they should notwithstanding the consequences, or because they have been provided advice on how to do so and preserve assets by using the policy to their advantage.  A key component to fixing inadvertent or ill-advised conduct and for using strategies that allow for transfers notwithstanding divestment policy is the ability to trigger the running of the penalty period of ineligibility that arises as a result of the transfer, and further to provide income to pay for care while the penalty period of ineligibility is running.  Policy for PACE and Waiver services provides no clear direction as to how these two important features of divestment rules apply in this context.  Again, for individuals seeking benefits where divestment is an issue, the lack of ability to fix divestment problems and use the rules to protect assets serves as a disincentive to pursuing these benefits.


These obstacles are fixable if PACE and Waiver providers are willing to work with planners, and apply the rules in a manner that allows families to exercise the same options that are now commonly exercised in the nursing home situation.  Until then, these issues will remain disincentives to those who seek these services.