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Medicaid Estate Recovery Expands to Non-Probate Assets

Estate Planning

Recently, the State of Michigan quietly made a change to the State Medicaid Plan.  If you or a loved one are currently receiving, or will need Medicaid benefits in the future, this seemingly minor change greatly impacts Michigan residents, including those in Bay, Midland, and Saginaw counties.

In 2011, Michigan implemented its “Estate Recovery Program,” in which the State seeks reimbursement against the probate estates of deceased Medicaid recipients for healthcare benefits received during the recipients’ lives.  While the State can defer Estate Recovery in the event of a surviving spouse or dependent child, the State has increasingly made claims against a Medicaid recipient’s estate.

For nearly five years, Estate Recovery only applied to probate assets, meaning those assets left in the Medicaid recipient’s name alone, and did not include assets that passed via a transfer on death designation, such as life insurance proceeds or real estate via a Lady Bird Deed.  With proper estate planning, such as a Trust or transfer on death plan, Medicaid recipients could meet with an estate planning attorney to create a plan to avoid probate and thereby Estate Recovery.  This gap allowed Medicaid recipients to pass their assets to their loved ones without fear their assets would be up scooped up for the State’s benefit.

As of May 2016, it appears the State has closed this gap.  This spring the State changed the definition of “estate” to include those assets that were disregarded during the Medicaid recipient’s life, such as a home or long-term care partnership policy.  More importantly the definition now expressly includes assets that pass outside of probate that a recipient owned at his or her death.  Essentially this means the State has expanded the potential sources to seek reimbursement.

At this time it is unclear how the State will go about enforcing Estate Recovery against these non-probate assets, but this change indicates the State’s upcoming plans.  While only time will tell how the State intends to inflict Estate Recovery on its residents, it is still important to understand how your death or incapacity may affect you or your loved ones.  Meeting with an estate planning attorney can reduce the “what ifs” by giving you a plan to deal with life’s uncertainties.

Kelli M. King-Penner is an estate planning, real estate, and business attorney in Saginaw, Michigan and a member of the Northeastern Michigan Estate Planning Council.