Heavy-Handed Estate Recovery

One of the scariest and most frequent questions when a person goes into a nursing home is, “Will the state take my home?” The answer is, “No and yes.” A Michigan homestead is exempt while the person in a nursing home on Medicaid, but if the person dies and does not have a surviving spouse, the state will claim against the estate. Usually, the probate estate of a deceased Medicaid recipient consists of the homestead. So, yes, the homestead may be subject to the state’s claim.

The Michigan Medicaid estate-recovery law was enacted on September 30, 2007, but did not become effective until July 1, 2011, with retroactive coverage for services received on or after July 1, 2010. The legislature included what seemed to be a straightforward exemption from estate recovery for “the portion of the value of the medical assistance recipient’s homestead that is equal to or less than 50% of the average price of a home in the county in which the medicaid recipient’s homestead is located.” MCLA 400.112g(3)(e)(I). However, because the homestead exemption was included under “hardship,” the Michigan Department of Health & Human Services (DHHS) has constructed a set of administrative obstacles that is practically impossible to penetrate.

greatdepressionAt the outset, DHHS requires that “an applicant must file the [undue hardship] application with the department not later than 60 days from the date the department sends the Notice of Intent to the personal representative or estate contact.” Bridges Administrative Manual (BEM) 120, at 8.  This, in itself is a huge problem. The “Notice of Intent” is mailed to wherever Medicaid notices were sent before the person died. This might be a relative, or it might be an employee at the nursing home, an attorney, or a social worker. Many times Medicaid notices are sent to the recipient at the nursing home. This is about as effective as addressing it to the cemetery.

The Notice of Intent to file a claim against the deceased Medicaid recipient’s estate is mailed very shortly after DHHS is notified of the death – usually well before an estate is opened. There is no personal representative until the estate is opened, but the Department covers its bets by sending the Notice of Intent to what it calls “an estate contact.” To request a hardship exemption, the applicant must provide information about the estate that may not be available until a personal representative – the person designated by the statute to communicate with the Department – is appointed. The Department has set an artificial deadline that may be impossible for the family to meet.

To make matters more bizarre, DHHS policy states, “An undue hardship exemption is granted to the applicant only and not the estate generally.” The policy also limits the exemption to applicants who personally have income no more than 200% of the federal policy level and “total household resources” that are not more than $10,000.00. This is contrary to the estate recovery statute. The homestead exemption is separate from the poverty exemptions and should apply without regard to the beneficiaries’ financial status.

Unless there is a sole heir, the situation is this: An undetermined group of beneficiaries have 60 days to respond to a notice that they may or may not receive. By the deadline, the beneficiaries, who are by definition in poverty themselves, must compile a well-documented case for hardship based on information they may or may not have to meet mysterious criteria that they must research. If they miss the deadline, they lose out.

I don't hafter read it; I'm White!
I don’t hafter read it; I’m White!

Clearly, the rules are designed to make it impossible for anyone to qualify. This is reminiscent of Jim Crow voting laws. In addition to paying a poll tax, Black voters were required to provide extensive proof of identity and citizenship and pass “literacy” tests that would have stymied most White citizens in the same municipality.

The hardship rules devised by DHHS are not the rules of a social service agency dedicated to the protection and improvement of the vulnerable and financially constrained. They are the rules of a greedy and overbearing bureaucracy intent on excluding as many heirs from the benefit of the statutory exemption as possible, without regard to eligibility.

The Federal Estate Tax threshold for an individual is $5.43 million and twice that for a couple, but many in this country still oppose the tax because they claim it threatens “family farms.” They also believe that family wealth should pass down generation after generation and protecting $10.86 million from tax for a couple is too limiting.

Just as there is strong sentiment about family farms, many families are very attached to the family home. They do not want to sell the home where the children were raised and the parents grew old. It is not unusual for single men and women in their 60s or 70s to remain in the homes where they grew up.

Because of their sensitivity to the attachments families have to the parental homes and to help less affluent families preserve at least a small amount of wealth, the Michigan legislature protected family homesteads from Medicaid estate recovery up to the exemption amount mentioned above – half of the average cost of a residence in the county. However, DHHS is determined to deprive families of this modest protection through its voracious administrative procedure.

Appallingly, the Michigan Court of Appeals is letting DHHS get away with its rape of estates. In an unpublished opinion, the court held that the personal representative could not assert the homestead exemption in probate court without first seeking a hardship exemption through the futile DHHS administrative process. The case, Department of Community Health v. Estate of Clark, Docket No. 320720 (Mich. Ct. App., May 28, 2015), does not establish precedent because it is unpublished, but it may be an important indication of which way the court is leaning on the issue. Unless other panels of court of appeals judges hold otherwise, the statutory estate recovery homestead exemption will be a dead letter. That would be a sad misfortune for the families of those needing state assistance for the cost of their long-term care.

This blog has previously advised ignoring estate recovery notices and questionnaires.  Where there is no homestead and no probate estate that is still valid advice, although the family should discuss this with an experienced elder law or probate attorney.  A homestead that will require the opening of a probate estate greatly complicates matters.  Estate of Clark, if it is good law, would clearly require the family to file an administrative request for hardship within the 60-day time limit.  Until there is a published opinion, Estate of Clark is the only indication of how the court of appeals views the issue.  If within the 60-day time frame, the family will need to decide whether to request a hardship exemption that will almost assuredly fail, or claim the exemption in probate court.  Many families will miss the deadline for lack of notice or because a probate estate was not opened in time.  The resulting cases will give the court of appeals many opportunities to clarify the requirement to exhaust administrative remedies.

An issue that is not addressed in either Estate of Clark or DHHS policy is the tolling of all periods of limitation under MCLA 600.5852 until two years after a personal representative is appointed.  Therefore, any “applicant” should have two years from the date a personal representative is appointed  to request an administrative determination of “hardship.”

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2015 John B. Payne, Attorney

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