posting for

Wednesday, May 12, 2004

 

by:  Bert Rush

brush@firstam.com

 

MEDICAID LIENS/ESTATE RECOVERY LAWS/FRAUDULENT CONVEYANCES/GIFTS

 

A recent decision of the Nevada Supreme Court offers valuable insight into an obscure subject:  Medicaid liens. 

 

Medicaid, as everyone knows, is a federal program providing matching funds to states for state-run assistance programs benefiting poor people who require nursing home care.  Each state has its own Medicaid program, with some differences from state-to-state including different namestyles.

 

Authorized by Congress in the 1960s, Medicaid has always been an expensive and therefore controversial program.  In 1993, after budget analysts warned that a growing population of seniors and higher health care costs could doom the program, Congress amended the Medicaid law to require states to enact estate recovery laws to promote recovery of benefit payments from estates of deceased Medicaid recipients.

 

Most of the states have since enacted estate recovery laws, although enforcement efforts have been uneven and frequently defeated by clever estate planning specialists.

 

One estate recovery tool authorized by Congress is the imposition of a lien against the estate of a Medicaid recipient.  Generally, the definition of “estate” is left to state legislatures in drafting their estate recovery laws.  States are encouraged to pass laws that define the term “estate” broadly enough that, for example, a Medicaid lien may attach to a recipient’s undivided interest in joint tenancy property and survive to affect the property after the recipient’s death.  However, federal law also provides that a Medicaid lien shall not be “imposed” on the recipient’s home if the home is occupied by the recipient’s spouse, a child under 21, or a child who is blind or totally disabled (42 U.S.C. section 1396[p]).  This proviso is to protect a recipient’s surviving spouse and qualified dependents from impoverishment during their lifetimes.

 

Now, the Nevada Supreme Court has held that imposition of a Medicaid lien may be enjoined where language of the lien is overbroad, such that it may have a chilling effect on a surviving spouse’s right to sell or encumber their home.

 

The case is State, Dept. Human Res. v. Estate of Ullmer, 120 Nev. Adv. Op. No. 16 (2004).  Here’s what happened.

 

Harold and Agnes Ullmer owned their home as joint tenants.  Harold became disabled and qualified for Medicaid benefits from the State of Nevada, Department of Human Resources, Welfare Division (“NSWD”).

 

Harold died, and Agnes continued to reside in the home.  Soon, the NSWD filed a legal action and recorded a notice of lis pendens, seeking to place a lien on the home in the amount of $144,475.  The lis pendens did not reflect that the lien would only affect Harold’s interest in the home at the time of his death, nor did it reflect an unwritten policy of NSWD to release its lien whenever a surviving spouse wishes to sell or encumber the liened home.

 

Agnes filed a counterclaim, styled as a class action no less, seeking, among other things, to enjoin the NSWD from placing liens on the homes of surviving spouses of Medicaid recipients.  Prior to class notification, the trial court ruled in favor of Agnes and issued the requested injunctive relief.  NSWD appealed.

 

Noting that the ruling as to the class was premature, because the class notification period had not ended, the Supreme Court nevertheless affirmed the injunction as to Agnes.

 

The Court reasoned that even though imposition of the lien was proper under federal and state statutes, the lis pendens in this case was overbroad because it did not contain recitals of the rights of a surviving spouse (or, presumably, of any other qualifying dependent) to sell or encumber the home during his or her lifetime.  The Court explained that a sale or encumbrance may be necessary to pay the spouse’s living expenses and prevent their impoverishment, yet the probable effect of the lien would be to discourage or “chill” prospective buyers and/or lenders. 

 

In this case, the Court said that upon Harold’s death the State’s right to lien his interest in the home survived, even though title had been held in joint tenancy, under express provisions of Nevada’s estate recovery act.  Likewise, anyone who might acquire title from Agnes through gift or a fraudulent transfer “takes the property subject to the State’s interest granted by the estate recovery statutes.”  But, the Court noted, neither federal nor state statutes address the question of a Medicaid lien’s effect upon a sale or financing of the recipient’s home.

 

Construing the statutes “according to that which ‘reason and public policy would indicate the legislature intended,’” the Court concluded

 

“It is clear that Congress intended that a surviving

spouse be free to utilize the estate property during

the spouse’s lifetime.  This would include a bona

fide sale or financing of the property designed to

provide the spouse with income from equity.  A

state’s interest would be extinguished in such a

transaction.  A state’s interest is not extinguished

when the deceased recipient’s interest in the property

is transferred for less than fair market value.”

 

With that, the Court held

 

“To prevent spousal impoverishment, we conclude

that the notice of lis pendens, lien proceedings, and

the lien itself must provide clear and unequivocal

notice that the government will release the lien upon

the surviving spouse’s demand for any bona fide

transaction and accurately reflect the government’s

interest in the property.”

 

In a concurring and dissenting opinion, two justices argued that the State should not be able to lien property at all during the lifetimes of a surviving spouse or qualified dependent.

 

Comment:  This case provides an excellent explanation of interplay between federal and state Medicaid laws.  It appears to be a case of first impression, and is recommended reading.

 

A disagreement one might have with the dissenting opinion is that it would put the Medicaid lien at unfair disadvantage if recording of any evidence of the lien must be delayed until the death of a surviving spouse and qualified dependents, because during this period other involuntary liens may be recorded that would, presumably, enjoy priority over the Medicaid lien. 

 

So, seems to me, the majority has it right:  Allow notice of the Medicaid lien to be recorded, after the recipient’s death, with language explaining the lien will be released to accommodate the survivor’s sale or encumbrancing of the home.

 

It’ll be interesting to see what, if any, effect this decision may have on estate recovery laws in other states.

 

Questions, comment, argument?  Just press the “reply” button and send your thoughts….