I am posting this blog to give you an important update about a recent Michigan Court of Appeals decision that affects a specific nursing home asset protection strategy. Whether you are a client of our firm, a friend or a professional who works with seniors, you should understand how this decision affects you and the people you care about.
You may have recently seen an excellent article about this court opinion by Lisa Roose-Church in the Livingston Daily titled: “COA: Couples can’t draw Medicaid and protect assets in trust”. If you haven’t seen this article, you can click here to read it. We have received dozens of calls and emails from clients and people in the senior services industry who are concerned about whether this court decision will affect them. This update is intended to summarize the change, let you know whether the change may affect you, and give you some peace of mind that the “sky is not falling” when you need to deal with Medicaid or long-term care planning. There are still plenty of great planning options.
Let’s take this in three steps. First, what is the change? Second, who does it affect? And third, what are your options when it comes to Medicaid and other long-term care planning?
What is the change?
Here is a little history to help you understand the issue. About 20 years ago, the Department of Health and Human Services (DHS) started permitting the use of what is known as a “solely for the benefit of trust” (SBO Trust) to allow assets to be protected for the spouse of a nursing home resident. So, for example, if a husband was entering the nursing home, his wife could set up a special type of trust (the SBO Trust) and protect all of their assets so they would be available to the wife.
In August of 2014, without notice to the public or elder law attorneys, DHS stopped allowing SBO Trusts. There was no change in the Medicaid law. There was no change in the Medicaid policy or rules. DHS just said they were changing the way they were interpreting an existing policy. In other words, they said they had it wrong for all of those years. The recent decision by the Michigan Court of Appeals upheld DHS’s interpretation of disallowing the use of SBO trusts.
What you need to understand is that the SBO Trust is just one small area of Medicaid planning, long-term care planning and elder law. The change only affects planning with SBO Trusts.
Who does the change affect?
Here is a list of those affected and not affected:
- The change affects married couples only who may seek Medicaid to pay for nursing home care. It does not affect single people or planning for single people.
- The change does not affect other great planning options for married couples which are still available.
- The change affects “crisis” planning only. This means it affects married couples who are seeking to apply for Medicaid and one spouse is already in the nursing home or will be in the near future. It does not affect pre-planning for asset protection (that is, planning ahead of Medicaid’s five-year lookback period).
What are your remaining planning options?
To me, this is the critical question. We can yell that the sky is falling and take the doom and gloom approach. But that’s not how we operate. We want to make sure that you understand what you can do to protect your life savings, not what you can’t do. Here is a short summary of the wonderful planning techniques available if you or your loved ones need nursing home care or other long-term care:
- Planning for married couples: The SBO strategy disallowed by the Michigan Court of Appeals decision was only one of many asset protection strategies available to married couples. If you are married, there are still great strategies available to protect 100% of your assets and apply for Medicaid. I will say it again so there is no misunderstanding. Even after this Court of Appeals decision, the healthy spouse outside the nursing home can generally protect 100% of his or her assets and the spouse in the nursing home can qualify for Medicaid benefits.
- Planning for single people: If you are single, you can use certain gifting and spend-down strategies that will allow you to qualify for Medicaid. We can generally save between 60% and 75% of a single person’s assets (many times more) and get them qualified for nursing home Medicaid.
- Pre-planning for nursing home benefits: There are many types of “asset protection trusts” that can be used to pre-plan for asset protection. Each person’s assets and circumstances are different, but in most circumstances we tailor a specific plan that allows you to protect your assets with the most flexibility to maintain your current lifestyle. These asset protection trusts are available to both single persons and married couples.
- Veterans’ Benefits: Short of the nursing home (for example, home care or assisted living), there are benefits available to “wartime Veterans” who served in World War II, the Korean War, the Vietnam War and certain other periods. Benefits are also available to surviving spouses of wartime Veterans who need help at home or in an assisted living community. These are terrific benefits to add to the income of a Veteran or surviving spouse who needs care. The amounts are up to $2,127 per month for a married Veteran, $1,794 per month for a single Veteran and $1,153 per month for the surviving spouse of a Veteran. These benefits are income tax free, for life.
- Long-Term Care Insurance: This may be a good fit for some. The two main problems I hear from my clients about long-term care insurance are: (1) “it’s really expensive and the premiums keep going up as I get older”; and (2) “if I pay premiums for all those years and never use the insurance, I’ve wasted my money.” Even with those problems in mind, it makes sense to look at long-term care insurance, especially with some relatively new hybrid products out there. These hybrid products are a combination of life insurance and long-term care. If you need the benefits for long-term care, you can use them. If not, the insurance pays a death benefit to your beneficiaries (spouse, kids, etc.). The best thing about these hybrid polices? The premiums never increase. That is because it’s a life insurance policy with long-term care benefits. Once the policy is paid for, there are no more premiums.
In short, the recent Court of Appeals decision has created a wave of alarm, fear and uncertainty, and that is understandable. Mark Twain once said “The reports of my death have been greatly exaggerated.” In the same way, I would say that those who have read the Court of Appeals’ decision and claim that “Medicaid planning is dead”, are mistaken. Long-term care planning is not dead, it is alive and thriving.
The recent decision by the Court of Appeals is being appealed to the next level. I will keep you posted as the appeal moves forward, so stay tuned and I will make sure you have the most recent information as it comes out.
In the meantime, I want you to understand that Medicaid and long-term care planning options are still available and, as always, we are here to help if the need arises. We would welcome any questions or comments on this topic.
Glenn Matecun is a partner with the law firm of Matecun, Thomas & Olson in Howell. He is one of only 19 Certified Elder Law Attorneys in the State of Michigan and his law practice focuses on estate planning, elder law, Medicaid planning, asset protection and senior Veterans’ benefits. Listen to Glenn on Senior Law Radio, WMUZ 103.5 FM, every Saturday from 8 a.m. to 9 a.m. For a personal response, you can email Glenn at [email protected] or call him at (517) 548-7400. Visit us at www.MichiganEstatePlans.com to learn more.