A Courtly Alternative for Community Spouses

The December 18, 2011 post, “Divorce Will Not Help to Pay the Nursing Home,” and the four follow-up posts described strategies to preserve marital assets for the healthy spouse of a person in a nursing home – home investment, annuity purchase, irrevocable sole-benefit trust and small-business investment. Seeking a court order was not discussed because, at least in Michigan, an irrevocable trust to protect the financial security of the spouse of a nursing home resident (the community spouse) was faster, easier and less risky. An August 20, 2014 Michigan Department of Human Services Memorandum drastically changed the treatment of sole-benefit trusts, making them unworkable to protect the community spouse.

Since the memo came out, Elder Law attorneys in Michigan have been seeking financial protection for community spouses in probate court. They ask for a “protective order” that assigns increased assets or income from the nursing home spouse to the community spouse for his or her financial security.  The legal foundation and judicial rationale for these community-spouse protective orders are explained in an outstanding article by eminent Elder Law attorneys David Shaltz and Sanford Mall, “Probate Court Orders and Medicaid Community Spouse Allowances.”

Before the August 20, 2014 memo, probate petitions to protect the community spouse’s resources were not generally contested by the Medicaid agency.  It was up to the judge to determine what was fair.  Some Michigan judges were more generous than others in how much they would allow community spouses to keep, but petitioners were allowed to keep all of the resources they asked for in a large majority of cases.

The Department’s abrupt curtailment of the use of federally-sanctioned community spouse trusts was not the only assault on the financial security of the spouses of nursing home residents. Starting in 2013, assistant attorneys general started appearing and contesting protective orders.  It became more risky to file a petition for a protective order in probate court than to use an immediate annuity.  For example, an Ottawa County judge’s support order giving a low-net worth, low-income community spouse a small allowance was bitterly contested and overturned by the attorney-general’s office.  Two cases filed shortly after the August 20, 2014 Memorandum were heard by different judges in Wayne County Probate Court.  In each case, an assistant attorney general appeared and objected to the petition.  Although the issues were nearly identical and the assets in question were relatively small, one judge granted all the relief requested and the other completely denied the petition.

The state has variously claimed that the probate court lacks jurisdiction to issue support orders, that the petitioner must file a probate petition before applying for Medicaid, and, paradoxically, that the petitioner must exhaust administrative remedies by requesting a hearing before an administrative law judge.  However, these objections have been overruled by trial judges or the court of appeals.

Filing a petition in probate court for a support order is now a viable means for protecting a community spouse from having to spend half or more of the marital assets before the institutionalized spouse will be approved for Medicaid.  The state’s jurisdictional challenges to support orders for community spouses have largely failed, but the attorney-general’s office continues to object to petitions based on the amount requested or on public policy grounds.

Many elder law attorneys are protecting the financial security of community spouses through probate spousal-support orders, but success depends on which judge hears the case.  Some judges are more concerned about the state treasury than about the financially-strapped citizen requesting relief.  At this time, in Michigan, as in Pennsylvania, an immediate, irrevocable, actuarially-sound annuity is the easiest and least risky way to preserve additional assets for the community spouse.

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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