Frequently Asked Questions
1. Do I need a will?
Everyone should have a will, even if all assets are believed to be jointly owned with rights of survivorship, in a living trust, and/or payable to designated beneficiaries. Some assets may be overlooked. Some of your assets may be titled differently than you believe. Unanticipated wealth may be received before death, for example, winning the lottery, and not titled so as to avoid probate court activity. All designated beneficiaries of a life insurance contract or retirement benefit may predecease you. [Back to top]
2. Why should I consider a living trust?
A revocable living trust is a time-tested method of avoiding probate court involvement upon the disability and/or the death of the grantor (sometimes called "settlor" or "trustor"), the creator of the trust. In addition to avoiding probate court involvement, historically many married persons used living trusts for federal estate tax minimization or avoidance upon the second death. For almost everyone, this former inducement may never become relevant again because in January 2013 the federal transfer tax applicable exclusion tax amount was established at $5,000,000, subject to COLA adjustments after 2011. In 2013 the applicable exclusion amount is $5,250,000. Whether you are wealthy or not, a living trust can be an excellent solution for families concerned about avoiding probate court involvement upon disability or death. However, also see items 7 and 8. [Back to top]
3. What is a Durable Power of Attorney and for how long will it be effective?
Durable powers of attorney (DPAs) are used by persons to appoint chosen decision-makers during their lives for a variety of purposes, either for immediate use or for use in the future. A common type of durable power of attorney for property and financial matters is a general comprehensive durable power of attorney (GCDPA). In a GCDPA you may wish to authorize your agents to do "everything which I can do", or a lot less than "everything". DPAs can be designed effective immediately or effective upon a determination of disability, or some combination of the two, depending on which of the agent nominees you name acts for you. A GCDPA can be a very powerful tool. While our GCDPA template states the age of the document should not affect its use, as a practical matter third-parties are more likely to honor DPAs recently signed. "Durable" suggests, but does not mean, "forever". We recommend clients replace or ratify their GCDPAs every 3 to 5 years, more often if circumstances significantly change.
There is a new "wrinkle" regarding the use of DPAs in Michigan. All such DPAs executed after 9/30/12 must include or be accompanied by an acknowledgment prepared for the signature of the agent who intends to use the DPA, in which acknowledgment your agent, among other provisions, agrees not to misbehave as your agent, a "pledge of allegiance", if you will. (This acknowledgment requirement does not pertain to patient advocate designations, government authorizations, a parental power of attorney, and DPAs to be used for or in a few sophisticated transactions.) However, anticipate the possible stance of third parties who see DPAs on a repetitive basis, for example, Michigan financial institutions, who may insist on such an acknowledgment for all DPAs presented, regardless of the date of execution of the DPA.
Other DPAs are transaction specific, for example, for the purchase or sale of a residence. The new acknowledgment requirements apply. [Back to top]
4. Who will make health-care treatment decisions for me when I am not able? What about mental health treatment decisions?
A private way of naming such a decision-maker is by executing a health care durable power of attorney, which in Michigan is called a patient advocate designation (PAD). PADs become useable (1) as to physical medical health decisions, upon a determination by your attending physician and by a second physician or a licensed psychologist that you are unable to participate in making physical medical treatment decisions, or (2) as to mental health treatment decisions, upon a determination by a physician and a "mental health practitioner" that you are unable to give informed consent to mental health treatment, if you authorize mental health treatment decision-making in your PAD. In your patient advocate designation you will nominate a preferred decision-maker ("patient advocate") and several backup choices. A PAD usually includes a statement of your treatment desires which may use generic language, language selected by you or written by you, e.g., "no life sustaining treatment if I am in a coma," "take extraordinary measures in all cases," et cetera, or by referencing an attached Medical Directive, which directive may include a grid in which you select desired, and unacceptable, treatment procedures for described medical conditions. [Back to top]
5. I have a durable power of attorney and a patient advocate
designation. What else do I need if I am incapacitated or require
You should also have "patient authorizations" which address the privacy rules of the federal Health Insurance Portability & Accountability Act of 1996 (HIPAA) and which address the Michigan Medical Records Access Act of 2004 (MMRAA). In your patient authorizations you will authorize access by named persons to your protected health information (PHI) and medical records without the need for a determination that you are disabled. As a backup, your GCDPA and PAD should authorize your surrogates (your agents and patient advocate nominees) to act as your "personal representatives" (HIPAA) and "authorized representatives" (MMRAA). Some health care providers, including the health care systems of the University of Michigan and St. Joseph Mercy, have preprinted PHI release forms which, to a limited extent and as to those providers only , address HIPAA and MMRAA. If you are frail, you may want to execute a do-not-resuscitate (DNR) order and display it prominently in your residence, also obtain and wear a DNR bracelet. [Back to top]
6. I recently moved to Michigan from another state where my
lawyer prepared a general comprehensive durable power of attorney and a
health care durable power of attorney. Do I need to replace these
Use of such documents in Michigan is governed by the laws of the state of Michigan. States have different rules regarding such documents. We recommend you execute a Michigan law focused general comprehensive durable power of attorney (GCDPA) and, perhaps more importantly, a patient advocate designation (PAD) as soon as practical.
See items 3 and 4.
A band aid improvement to your health care DPA prepared in another state is to attach to it the acceptance statement required by the Michigan PAD statute and to have your patient advocate nominees sign the statutorily prescribed acceptance statement. A band aid improvement to your DPA for property and financial matters may be in preparing acknowledgments for signing by your agent nominees. Also be aware of the "new wrinkle" about DPAs used in Michigan which DPAs were executed after 9/30/12. See item 3. [Back to top]
7. Will the state take my residence to recoup Medicaid benefits I may receive?
If you receive such benefits while residing in Michigan, the answer is unclear. On 9/30/07 Michigan enacted a program of state estate recovery, by which the state of Michigan may seek to recoup Medicaid benefits from the probate estate of the recipient of benefits who began receiving Medicaid long-term care benefits after 9/30/07. If the federal government approved this program, a single person who is receiving or who might apply for Medicaid benefits could do/should do something proactive with his or her homestead to insulate it from probate court administration and estate recovery. Married couples had more options for protecting their homestead, including transferring it into the well spouse's living trust after Medicaid was awarded for the less well spouse. See item 2.
The Michigan's estate recovery enabling statute (Act 74 of Michigan Public Acts of 2007) suggested there would be some hardship relief for a homestead which is subject to probate court administration, that is, a homestead owned by the recipient alone, and that the state would develop other estate recovery hardship opportunities. On 9/2/08 the federal Center for Medicare and Medicaid Services (CMS) rejected the Michigan estate recovery plan. On 9/29/10 the Michigan Department of Community Health revised its proposal to the federal government. CMS approved a Michigan estate recovery plan on 5/23/11. The Michigan Department of Community Health (MDCH) and the Michigan Department of Human Services (DHS) issued estate recovery guidelines effective 7/1/11 for Medicaid benefits provided, on 7/1/10 and later, although the collection letter which recipients’ families received from MCDH's collection agent HMS following the recipient's demise refers to benefits provided on 9/30/07 and later. In 3/13 MDCH itself began pursuing estate recovery through its Third Party Liability Division. Its letter focuses on the Medicaid recipient’s real estate. It threatens to commence decedent estate proceedings in probate court if the recipient’s family does not. The letter does not note when the recoupable Medicaid benefits began.
On 6/7/11 Michigan State Senator Kahn introduced three bills, including one which would dramatically change Act 74 of 2007, with the purpose of seeking to recoup Medicaid benefits from all property in which the Medicaid recipient had an interest at the time of his or her demise, apparently also from those assets which the Medicaid recipient transferred during life. Those bills did not exempt those recipients who were receiving Medicaid long-term care benefits on the effective date of the legislation or on any earlier date. It was reported that Senator Kahn said that he had not read the bills before introducing them. No action was taken on these bills in the 2011-2012 legislature session, therefore, these bills died at the end of the 2011-2012 legislative session. [Back to top]
8. A friend told me that in order to qualify for Medicaid nursing home benefits I could only have $2,000 . Is that true?
$2,000 continues to be the countable asset limit for unmarried Medicaid applicants/recipients, also for married Medicaid recipients beginning in the 13th month after the Medicaid application which results in an award of Medicaid benefits is processed (or, perhaps instead, in the 13th month after the first month for which benefits are awarded). For married recipients whose spouses are living in the community (called "community spouses"), there are safeguards built into the Medicaid program to protect spouses. In addition to the $2,000 of countable assets which the married Medicaid recipient may retain, the community spouse may retain between $23,184 and $115,920 of countable assets consistent with his / her spouse's Medicaid eligibility ("protected spousal amount"), if the disabled spouse first enters long-term care in 2013. Also, assets such as a homestead owned by the applicant, unless the applicant's equity exceeds $536,000 (this cap is disregarded if the applicant's homestead is occupied by a community spouse, child younger than age 21, or a blind or disabled child unless the homestead is in a living trust, household furnishings regardless of value, one motor vehicle regardless of value, and many prepaid funeral and burial arrangements, including "burial space" arrangements for many relatives regardless of value, are noncountable assets which do not disqualify. [Back to top]
9. I want to set aside more than $13,000 a year for my grandchild. Can I do that without incurring federal gift tax liability?
Yes, opportunities abound. While the $13,000 annual gifts exclusion per recipient ("donee") are available for "present interest transfers" (transfers into some irrevocable trusts are not "present interest transfers"), your spouse, if you are married, also has such $13,000 annual exclusions. Or, your spouse can join in your gift, increasing it up to $26,000 per recipient (a "split gift"). Gifts to a Custodian under UTMA or UGMA qualify for present interest treatment as do transfers into an IRC section 2503 (c) trust, a so-called "minor's trust", which trust by its terms may continue after age 21. Contributions to "qualified tuition programs" / IRC section 529 plans also qualify for present interest treatment. In fact, section 529 encourages donors to contribute in one year five times the current gift tax annual exclusion amount per potential student beneficiary. Payments of tuition directly to tax-exempt educational institutions and payments directly to providers of medical care are ignored for gift tax purposes. Still further, each potential donor has a COL adjusted $5,000,000 lifetime gift tax applicable exclusion amount / "exemption" for transfers beyond the previously discussed safe harbors. Understand that the gift tax applicable exclusion amount consumed decreases the donor's potential federal estate tax applicable exclusion amount. Michigan does not have a state gift tax. [Back to top]
10. I heard I could give away $13,000 per recipient per year
without any adverse federal transfer tax (gift tax and estate tax)
consequences. Is that true?
Yes, but! This was a common misconception for several reasons. $13,000, and whatever it increases to in the future because of COLAs (it was rumored it would become $14,000 on 1/1/13.), was never a legal limit. Rather, the $13,000 per recipient per year guideline (potentially $26,000 in the case of married couple donors) directly relates to the federal gift tax and indirectly relates to the federal estate tax. See item 9especially regarding the increased applicable exclusion amount. Many persons annually gave more than $13,000 or $26,000 per recipient, allocating some of their "applicable exclusion amount" to the excess. For most persons, the present huge applicable exclusion amount (AEA) renders the annual exclusion amount irrelevant as a practical matter.
However, it is likely a bad idea to give anything away if you or your spouse might need Medicaid nursing home benefits, home and community based waiver services, Home Help or Home Health benefits in the 60 months which follow. If you are considering gifting/divestment, and if you or your spouse might apply for Medicaid benefits, seek competent Medicaid eligibility planning advice before transfers are made. [Back to top]
11. My spouse will need nursing home care and does not have long-term care insurance. How may I avoid becoming impoverished?
In addition to the wealth you may retain as a community spouse, some of which are discussed in item 8,
there are permissible wealth relocations in which the relocated wealth
no longer counts for your spouse's Medicaid eligibility. One example is an actuarially sound immediate irrevocable annuity which pays out monthly to you over a period of time which does not exceed your tabled, not your actual, life expectancy. The annuity contract must be tailored to satisfy Michigan Medicaid requirements, which include a payback to states (to all states? only to Michigan?) which provided Medicaid long-term care benefits to the annuitant during his or her life. You should see an elder law attorney familiar with both Medicaid and annuities before you make such a purchase. Another example, often more attractive to community spouses, is to transfer assets (his/her assets, his/her spouse's assets, and their jointly owned assets) which exceed the countable asset limits, into an irrevocable "solely for the benefit of" trust which pays out to the community spouse during his/her life on an annuitized basis. Such annuities and such trusts will name loved ones other than your disabled spouse as final beneficiaries. [Back to top]
12. I live in my residence and my spouse recently moved into a
licensed nursing home. The cost of the nursing home exceeds $7,000 per
month. My spouse does not have long-term care insurance. We have
roughly $200,000 in assets in addition to our residence. What do you
suggest I do to accelerate the point in time when my spouse becomes eligible for
The situation you describe is common. Many community spouses (a term used to describe the spouse who lives in the community/ the "well spouse") have come to us with a similar situation. The community spouse wants to know how to protect what wealth he or she has for his or her benefit and for the benefit of the couple's descendants, yet be able to finance the care of his or her spouse who is in long-term care.
A plan designed to achieve Medicaid eligibility is specific to each family's goals, the age of the potential Medicaid applicant, the health and age of the community spouse and descendants, the types of assets owned by the applicant and his/her spouse, among other things. The amount of information provided in the prompt is not enough to give final advice. However, for simplicity sake I assume that the $200,000 of wealth is accessible by you (for example, you have a useful GCDPA from your spouse who is in long-term care and/or the wealth is in a jointly owned investment which you can access) and the wealth is not in annuities, IRAs or interests in I.R.C. section 401(k) plans. Annuities, IRAs and interests in 401(k) plans require special attention for Medicaid planning purposes.
I might recommend an irrevocable "solely for the benefit of" trust for your exclusive benefit during your life. This type of trust seems "too good to be true" in the sense that assets which are placed in the trust are instantly converted from "countable wealth" to "uncountable wealth" for Medicaid eligibility purposes, with few adverse consequences. The wealth transferred into such a trust could be the countable wealth which exceeds the total of your spouse's $2,000 and the amount of your protected spousal amount. (One adverse consequence is that the assets in such a trust, and income collected by the trustee, are not available to you as the community spouse upon request, but instead are paid out to you in an actuarially sound manner periodically during your life, as provided in the trust instrument, which will reference a DHS life expectancy table. While the design of such an irrevocable trust will be similar to the design of an actuarially sound irrevocable immediate annuity, payout need not be monthly, in fact could be once per year, which could enhance the potential you also might qualify for Medicaid benefits, perhaps Medicaid benefits which enable you to continue to reside in your residence.) The trustee will be someone other than you or your spouse. This type of trust can be very helpful for families with substantial excess assets. There is no limit on how much wealth can be placed in such a trust, thus becoming uncountable for your nursing home resident spouse.
However, another potential adverse consequence is that the wealth in the trust may be a countable asset for you if you later apply for Medicaid benefits.
At first blush it appears that at least your assets transferred to such a trust would not be susceptible to Michigan state estate recovery for Medicaid benefits received by your spouse under state Senator Kahn's bills introduced 6/7/11, which would have rewritten Michigan Public Act 74 of 2007. See items 2, 7 and 8.
If instead of $200,000, you have lots of countable wealth, you may decide to engage in what Medicaid eligibility planners refer to as "reverse half-a-loaf planning". Such planning consists of a combination of (1)immediate gifts to others (this will constitute "disqualifying divestment") and (2) devoting the rest of "excess countable assets" to the purchase of an actuarially sound irrevocable annuity or "investing" in an actuarially sound loan with someone about whom you are confident will repay the loan according to the terms of the unchangeable promissory note.
Other relatively straight-forward opportunities include prepaying funeral and burial costs for yourself and your spouse, purchasing "burial spaces" for many family members, paying for household repairs and/or improvements, paying off debt, and purchasing a replacement vehicle.
Anyone interested in Medicaid eligibility should consult with an experienced Medicaid eligibility lawyer before taking Medicaid eligibility planning measures. Even commonly accepted spenddown or conversion options, such as those mentioned in this item, can adversely affect Medicaid eligibility if not done properly. [Back to top]
13. What is a Lady Bird deed?
It is an increasingly popular transfer-upon-death (TOD) deed often used by a person for his/her homestead. For a long time many thought that Lady Bird Johnson’s name was linked to the development of such a transfer. It was not. The TOD deed names potential ultimate owners of the property as final transferees/grantees. It has many advantages, including (1) the transferor (the grantor in the deed) retains ownership control of the homestead during life, thus can dispose of, rent, or mortgage the premises, (2) the "transfer" does not constitute a completed gift for federal gift tax purposes (this is no longer a concern for most of us) or for Medicaid eligibility purposes (therefore no disqualifying divestment occurs) or for property tax reassessment purposes, (3) the homestead remains an exempt asset for Medicaid qualification purposes,(4) avoidance of probate court estate administration of the homestead upon the transferor's death if the named final grantee(s) survive the grantor, and (5) the premises receive a step-up in income tax cost basis to fair market value upon the death of the transferor. [Back to top]
14. May I transfer real estate to a family member without uncapping the taxable value of the premises for property tax purposes?
Effective 12/31/13 transfers of "residential real property", the definition of which includes some surprising "parcels" of real estate, to a transferee who is related to the transferor by blood (this likely includes "by adoption") or affinity (by reason of marriage) to the first degree (this apparently includes children and parents, may include siblings) does not uncap the taxable value of the transferred property, provided that the "use of the property does not change" following the transfer. Query: how will local municipalities police post-transfer use of the property? ("Residential real property" includes rented premises, provided the parcel is not an apartment building with more than 4 units.) Unfortunately this uncapping exception technically does not apply to a transfer out of a revocable trust or to a transfer from a probate estate. However, the transfer out of trust exception to the exception may be trumped by sequential transfers: (1) transfer out of a revocable trust to the trust settlor/grantor (this is not an uncapping event) and (2) transfer by the deeded-to-settlor/grantor to his/her so-defined family member(s). [Back to top]
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