Two landmark decisions from the Michigan appellate courts provide important Medicaid planning strategies for elder married couples when one spouse needs nursing home or long-term care. These tools may help the spouse who requires care to become eligible for Medicaid benefits, while protecting the assets and income of the community spouse.
In 2019, the Michigan Supreme Court unanimously ruled in Hegadorn v. Department of Human Services Director that MDHHS erred in denying use of a Sole Benefit Trust to protect assets for a community spouse when a spouse applies for Medicaid coverage of nursing home costs. A previous (and also fairly recent) Michigan Court of Appeals decision, In re Estate of Joseph Vansach, Jr., a case won by BRMM Law’s Don Rosenberg, allows asset protection for married couples through probate court protective orders.
Together, the Hegadorn and Vansach decisions are extremely important in elder law and Medicaid planning for married couples. If one spouse needs nursing or long-term care, the decisions provide tools to protect assets and income for a community spouse when applying for Medicaid benefits. An elder married couple should use these tools only after consulting with an experienced elder law attorney.
An explanation of the Medicaid laws and rules governing Medicaid coverage for nursing home and long-term care for married couples makes the landmark nature of these two decisions apparent.
It is important to remember that Medicaid is a federal program administered by the states. In administering the program, a state cannot be more restrictive than the federal laws. In both these court cases, that is what the State of Michigan attempted to do.
Medicaid sets strict eligibility guidelines for both income and assets. When a single person in a nursing home needs to qualify for Medicaid, their protected assets can consist of a home with equity $585,000 or less (if not titled in a living trust), $2,000 in other assets, one car, personal property, and a funeral plan.
When one spouse of a married couple is in a nursing home and needs to qualify for Medicaid, federal law provides special protection so the healthy spouse (referred to as the community spouse) is not impoverished. Specifically, under federal and Michigan law, in addition to what a single person can keep, the community spouse is entitled to a protected resource (asset) allowance.
The community spousal resource allowance, though extremely complicated, can be generally explained as the community spouse being able to keep 50% of the couple’s countable assets, up to approximately $130,000. All assets above the community spouse’s protected resource allowance are "at risk,” which means they can be counted in determining Medicaid eligibility. (Please Note: This number changes regularly, so please consult with an elder law attorney to determine the accurate amount.) The at-risk assets must be spent down, converted, gifted (but there is a five-year look-back period and penalties), protected by a court order, or placed in a special trust. Michigan courts affirmed the availability of the latter two options in the Hegadorn and Vansach decisions.
For example, consider a married couple with $430,000 in financial assets, plus a home, car, and funeral plan. Since the protected spousal allowance is about $130,000, the couple’s assets are $300,000 in assets above the allowance (as explained earlier, the home, car, and funeral plan are protected already) and at risk.
In the Hegadorn case, the Michigan Supreme Court permitted the community spouse to create a trust for the sole benefit of the community spouse (Sole Benefit Trust) and transfer the at-risk $300,000 into the Sole Benefit Trust. The Court ruled that as long as the trust terms provide for pay-out in a proper manner to the community spouse, the Sole Benefit Trust is not a countable asset for determining Medicaid eligibility.
This Medicaid planning technique is not a taxable event, uses the community spouse's social security number, and can be used with any amount of assets. The only disadvantage of a Sole Benefit Trust is that it does not protect income. In addition, in some circumstances where there are IRAs, those IRAs may have to be liquidated, which is a taxable event.
By allowing Michigan elder married couples to use a Sole Benefit Trust to protect assets and income when one spouse goes into a nursing home, the Hegadorn decision confirms that federal law provides extended protections to the community spouse beyond the minimal resource allowance. That fact makes it a court case of landmark status.
The Vansach case is another very important elder law case. The Michigan Court of Appeals recognized in the opinion that it was a case of first impression. In the decision, the Court ruled that Michigan probate courts have jurisdiction under the state’s Estates and Protected Individuals Code (EPIC) to enter protective orders providing support for a community spouse whose institutionalized spouse receives Medicaid benefits. The Court of Appeals sanctioned the use of support orders for the benefit of the community spouse by increasing the amount of assets or income the community spouse can keep.
The Court of Appeals' recognition of the clear jurisdiction of probate courts in cases involving support of a community spouse when a spouse receives Medicaid benefits has great significance in Michigan elder law. The decision allows the use of support orders to increase the amount of assets or income the community spouse can retain when a spouse applies for Medicaid benefits. In addition to a Sole Benefit Trust permitted under Hegadorn, the Vansach case provides an additional option for protecting a community spouse.
In light of these two Michigan appellate court landmark decisions, a community spouse has alternative strategies to protect assets and income and avoid becoming impoverished to pay for care of their beloved spouse. Whether either strategy is appropriate in a particular situation depends entirely on the circumstances. Consulting with a knowledgeable elder law and Medicaid planning attorney is always the best way to determine how best to protect assets and income when one spouse applies for Medicaid benefits.
Every court in the land has stated that the Medicaid program is governed by a complex web of interlocking statutes, as well as regulations and interpretive documents published by state and federal agencies. The program is extremely difficult to understand. It is imperative that anyone or any family dealing with health challenges, consult with an experienced and well-credentialed elder law attorney, such as the attorneys at BRMM.
At BRMM, we combine our elder law knowledge and experience with a sensitive, compassionate approach to the challenges elders and their families face. If you have a concern involving elder law, Medicaid planning, or estate planning that you would like to discuss with one of our experienced elder law attorneys, we are here to help.Our office is located in Troy, Michigan. We serve clients throughout the Tri-County and Detroit area, as well as in other parts of Michigan. We also represent clients from other states who have an elder loved one in Michigan or an interest in a Michigan estate or trust. Call us at (248) 494-4577 or complete our online form to set up your free, confidential consultation.