Saturday, May 11, 2019

DHHS policy on sole benefit trusts is overturned

On May 9, 2019, the Michigan Supreme Court issued its decision in the case of Hegadorn v Dept. of Human Services Director, overruling the policy adopted by the Department of Health and Human Services in August 2014, and holding that a sole benefit trust (SBO trust) intended for the benefit of a community spouse can shelter a couple’s assets and make them non-countable for the purpose of qualifying the institutionalized spouse for Medicaid benefits for long-term care.

James Steward and Angela Hentkowski of Steward & Sheridan, Ishpeming, were the lead attorneys for the plaintiffs challenging the policy and should be congratulated for an excellent win.

Prior to August 2014, an SBO trust was a common tool that was available to use to avoid spousal impoverishment under the statutes and regulations requiring that a person seeking Medicaid coverage for long-term care must spend down all countable assets to a maximum of $2,000.

The requirements were:
  • The transfer to the SBO trust must be irrevocable.
  • The distributions or payments from the trust must be made solely for the benefit of the community spouse; 
  • The distributions to the community spouse must be made on an actuarially sound basis over his or her the projected lifetime; 
  • There may not be any conditions or circumstances under which either principal or income could be distributed to or used for the benefit of the institutionalized spouse. 
The Hegadorn ruling involved three consolidated cases, each following the same fact pattern. The essential ruling by the Court was that the DHHS had improperly interpreted the provisions of the Federal Medicaid law with respect to a trust whose assets may be made available under any circumstances. The Federal law provides that such a trust would be countable if its assets may be used “for the individual” under any circumstances. The DHHS interpretation was that the word “individual” would apply to both the institutionalized spouse and the community spouse. The Supreme Court disagreed. The statutory language, it ruled, applies only to the institutionalized spouse, the person for whom Medicaid benefits are sought.

Under the Medicaid statute, the definitions that apply are found at 42 USC 1396d. There is no definition of the word “individual” in that section, but it is important to note that that word appears in section 1396d a total of 72 times, and each time it is used it is clear that it refers to the institutionalized person, the person receiving Medicaid benefits, and not to his or her spouse.

Chief Justice Bridget McCormack, concurring in the decision, wrote separately to say that, in her opinion, the transfer of assets by the community spouse into the trust would be regarded as a “divestment” which would trigger a period of disqualification for Medicaid benefits under the divestment rules. She observed that that was not an issue involved in the case before the Court and thus did not require consideration.

We believe that the Chief Justice is probably wrong on this point. At page 9 of the Bridges Eligibility Manual, section 405 (divestment), the DHHS says that:
It is not divestment to transfer resources from the client to:
The client’s spouse.
Another [person] SOLELY FOR THE BENEFIT OF the client’s spouse. Transfers from the client’s spouse to another SOLELY FOR THE BENEFIT OF the client’s spouse are not divestment.
And this DHHS policy statement is based on the Federal Medicaid statute, 42 USC 1396p-c-2-B-i:
(2) An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that—
* * *
(B) the assets—
(i) were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse,
(ii) were transferred from the individual’s spouse to another for the sole benefit of the individual’s spouse,
(iii) were transferred to, or to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of, the individual’s child described in subparagraph (A)(ii)(II), or
(iv) were transferred to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of an individual under 65 years of age who is disabled (as defined in section 1382c(a)(3) of this title)

Friday, February 1, 2019

Updated probate limits

The Michigan Treasurer has certified the following as the amounts for spousal share, statutory allowances, etc. for persons dying in 2019:

Tuesday, October 30, 2018

IRS prevails in a tax collection case

On October 3, 2018, the Sixth Circuit released its opinion in United States v Estate of Albert Chicorel, in which it held that the United States, seeking to enforce a claim for unpaid taxes, may perfect its claim after timely submitting a notice of claim to the personal representative of the Estate by filing a collection proceeding in Federal Court, even though the Federal court proceeding was filed more than ten years after the assessment of the tax.

The tax was first assessed by the IRS in September 2005. Chicorel did not pay before he died in the fall of 2006. An estate was opened and the four-month notice to creditors was published in May 2007. The IRS was not notified, despite the fact that it was a known creditor. The United States filed a proof of claim in the probate court in January 2009. It later filed its collection action in March 2016.

26 USC 6502-a requires that any tax assessment may be collected "by levy or by a proceeding in court" if the proceeding is begun within ten years of assessment. The issue presented, given the fact that the lawsuit was filed more than ten years after the assessment, was whether the filing of the notice of claim was a "proceeding in court."

The court found that it was. The filing of a notice of claim requires action by the personal representative, and has significant legal consequences for the creditor and for the estate.

What the court did not tell us is what the personal representative did with the notice - it must be disallowed if the PR does not believe it is properly payable - or why the United States took another seven years to file the lawsuit against the estate. Under the Sixth Circuit's analysis, once the notice of claim was submitted to the personal representative within the ten-year period, the United States could wait as long as it wished to file the collection action.

United States v Estate of Albert Chicorel (PDF)

Saturday, October 20, 2018

The effects of this year's tax cut

Newsweek has published an article entitled "Trump's tax cuts benefit rich Americans, not middle-class families, voters say by two-to-one margin in new poll."

If that that is what most people believe, it is because they have accepted claims made by politicians, because the assertion is simply untrue. Doing a direct financial analysis of the effects of the Tax Cuts and Jobs Act of 2017 tells another story entirely.

We have done the calculations for two hypothetical taxpayers, a single person with one child earning $70,000 per year and another single person with one child making $135,000 per year. The result of our calculation, comparing the 2017 tax year to the 2018 tax year, the first year the cuts go into effect, shows:

The 70K worker will have a 22.3% lower tax bill for 2018
The 135K worker will have a 15% lower tax bill for 2018

We show our work. We have posted the calculation at

So you can believe the fictions disseminated by politicians, or you can believe the result of an actual calculation and comparison.

You can argue about whether the country can "afford" a cut in personal income taxes. You can argue about whether the taxes paid by those taxpayers who earn more than you do should be higher than they are. But you cannot deny that most middle-income Americans will have a lower tax bill next spring as a result of the TCJA.

Saturday, October 6, 2018

Unexpected information from SSA

When you apply for Social Security benefits, the Social Security Administration will review the reports that it has received from former employers. If it finds information about a pension plan that you participated in during a period of employment, SSA will notify you of that plan and the fact that you might be entitled to benefits. One client of ours learned that she was entitled to $235 per month that she did not know about, in addition to her Social Security benefit.

Tuesday, June 26, 2018

In re Mardigian Estate

The Michigan Supreme Court has been considering this case for a long time. On June 21, 2018, it came down with its long-awaited decision. Except it was. . . a non-decision. The Court split by a 3-3 vote, resulting in an affirmance. The reason that all seven members did not rule is that Justice Wilder, one of the newer members of the Court, was on the Court of Appeals panel which ruled on the case earlier.

Mark Papazian drafted a will for a friend, Robert Mardigian. The will was remarkable because it left "the bulk of" his estate to Papazian and his children.

Rule 1.8-c of the Michigan Rules of Professional Responsibility prohibits an attorney from preparing a will or other instrument for his client if it gives him or his close family a "substantial" gift. But the Michigan Rules of Professional Responsibility provide a basis for attorney discipline, not for interpretation or application of the instrument.

The issue at all levels was whether (1) the will was automatically invalidated based on the violation of the rule and (2) whether the attorney-client relationship and the friendship between the two gave rise to a presumption of undue influence, requiring Papazian to produce evidence that there was no such undue influence. (Of interest, the presumption does not apply substantively, shifting the burden of proof at the time of the hearing. It applies only to the burden of production of evidence.)

Three members of the court (Markman, Zahra, and Clement) would find that the will was not invalidated, and that the presumption would apply. The other three (McCormack, Viviano, and Bernstein) would create and apply a new "per se" rule automatically invalidating the will.

The position of the Markman group was based on an earlier case, In re Powers Estate, 375 Mich 150 (1965), which had likewise allowed the application of a will in which the attorney's wife was a major beneficiary. The Powers rationale was encapsulated in the following: "the focus of the will contest is to determine the decedent’s intention and not to judge and discipline the attorney’s conduct."

This 3-3 split is very unfortunate. It permits the Court to escape making a definitive decision on this important point, to the detriment of the public's perception of the legal profession. This case will not have any precedential effect, but the 1965 decision in Powers will continue to apply as the controlling rule on this issue.

Tuesday, May 1, 2018

DHHS policy on sole benefit trusts is overturned

On May 9, 2019, the Michigan Supreme Court issued its decision in the case of Hegadorn v Dept. of Human Services Director , overruling the p...