posting for

Thursday, June 1, 2006

 

by:  Bert Rush

brush@firstam.com

 

MEDICAID LIENS/MEDICAID REIMBURSEMENT CLAIMS/ESTATE RECOVERY LAWS/CONTRACTS/SILENT LIEN

 

Two years ago, in our posting for 5/12/04, we discussed the federal Medicaid program, related state programs, and estate recovery laws enacted by the states since 1993.  Of particular interest, then and now, is the potential effect of Medicaid reimbursement claims on titles to lands formerly owned by Medicaid recipients.

 

Now, the Iowa Supreme Court has held that a recipient’s interest in land may be subject to the state’s Medicaid reimbursement claim; even though the land was held by the recipient in joint tenancy pursuant to a support agreement prior to the recipient’s death, and the claim was asserted after death.

 

The case is In the Matter of the Estate of Mary H. Serovy, 711 N.W.2d 290 (Iowa 2006).  Here’s what happened.

 

Frank and Mary Serovy owned their home in Solon, Iowa, as joint tenants.

 

In 1966, Frank died and Mary became sole owner as the surviving joint tenant.

 

By the mid-1980s, Mary’s health had deteriorated and it became necessary for her son, Allan, and daughter-in-law, Pearl, to visit her several times each week and help with her care. 

 

Mary wanted to continue to live at home as long as possible, so in 1988 she agreed with Allan and Pearl that they would build an addition to the home, at their expense, and live there to provide full-time assistance and care.  In consideration for this Mary agreed to execute a warranty deed conveying the home to herself, Allan and Pearl, as joint tenants with right of survivorship.  The addition was completed and Allan and Pearl, together with their daughter, moved in during 1989.

 

Allan and Pearl cared for Mary in the home until 1997, when Mary’s condition worsened and she entered a nursing home.  While in the nursing home Mary received care paid through the Medicaid program (Title XIX of the federal Social Security Act).  Mary died on October 11, 1998.

 

On November 30, 1998, Allan filed a petition for probate of Mary’s will without formal administration.  Apparently, Allan assumed formal administration would not be needed since the home would pass outside of probate to him and Pearl as surviving joint tenants, and there were no other assets of substantial value to distribute.

 

But in April 2003, representatives of Iowa’s Estate Recovery Program of Health Management Systems (under the state Department of Human Services) filed a claim against Mary’s estate for reimbursement of Medicaid payments of $28,707, plus interest.  This claim was based on Iowa’s estate recovery act, amending Iowa Code section 249A.5, passed by the legislature in 1994.  At the same time, the state petitioned for probate of Mary’s will with administration, and an independent executor was appointed by the probate court.  Then a special executor was appointed to review the Medicaid reimbursement claim.

 

The special executor recommended the claim for payment, and the executor filed a motion for authorization to sell the home to satisfy the Medicaid claim.  Allan and Pearl opposed the motion, but the probate court ruled in favor of the executor.  Allan and Pearl appealed.

 

The Iowa Supreme Court considered four issues on appeal:  (1) whether section 249A.5 permits Medicaid claims against property formerly held by a decedent in joint tenancy with right of survivorship; (2) whether under the facts of this case enforcement of the Medicaid claim would violate constitutional protections against laws impairing the obligation of contracts; (3) whether the probate court erred in allowing the Medicaid claim to include costs and expenses of administration of Mary’s estate in probate; and (4) whether the probate court erred in ordering sale of the entire property to satisfy claims against Mary’s one-third interest.

 

As to the first issue, the Supremes readily concluded that the claim against Mary’s former joint tenancy interest was proper.  Quoting section 249A.5, as amended, the Court noted the legislature intended to make Medicaid claims enforceable against the recipient’s entire estate, including interests in “jointly held property,” as of the date of death.  In this connection, the Court cited its holdings in In re Estate of Laughead, 696 N.W.2d 312 (Iowa Sup. Ct. 2005), permitting “recapture” of the value of a life estate interest to reimburse a Medicaid claim subsequent to the death of the recipient; and In re Barkema Trust, 690 N.W.2d 50 (Iowa Sup. Ct. 2004), allowing enforcement of a Medicaid claim against a trust created for lifetime support of the recipient even though enforcement occurred after the recipient’s death.  Said the Court:

 

     “The purpose of this legislation was to capture and

     make available for payment of Medicaid-reimbursement

     claims certain interests in property that are not ordinarily

     subject to the payment of a decedent’s debts.  Because

     other types of jointly held property, such as tenancy in

     common, have always been available for the payment of

     claims in probate, the legislature must have intended the

     reference to ‘jointly held property’ in section 249A.5(2)( c )

     to embrace joint-tenancy interests.” 

 

With respect to the second issue, the Court held the probate court order did not create an unconstitutional impairment of a contractual relationship, because Mary had performed her obligations under the support agreement when she delivered the joint tenancy deed in 1989.  Instead, enforcement of the Medicaid claim was the result of a new obligation created by Mary when she sought and received public assistance prior to her death.  If anything, the Court said, Allan and Pearl would have a breach of contract claim against Mary’s estate.

 

As for the third issue, the Supremes held the Medicaid claim could include costs and expenses related to administration of Mary’s estate in probate (such as executors’ fees), again relying on language of section 249A.5 and legislative intent.

 

Finally, the Court held the probate court exceeded its power by ordering sale of Allan and Pearl’s interests “at this stage.”  Instead, the Court modified the order “to limit the property that may be sold by the personal representative to the one-third joint interest owned by Mary immediately prior to her death.”

 

“Affirmed as modified.”

 

Comment:  Us title folk have always been wary of the “silent lien,” created by federal law, which attaches to a decedent’s real property to secure payment of federal estate taxes.  We’ve called it a “silent lien” because it attaches to land without anything being recorded in the land records, and generally lasts ten years from death of the taxpayer.  Fortunately, we have not encountered federal estate tax liabilities often, because smaller estates are not required to file returns or pay a tax.  (For decedents dying in 2004 and 2005, estates valued at $1,500,000 or less are excluded from estate tax liability; for decedents dying in 2006, 2007 and 2008, estates valued at $2,000,000 or less are excluded.  See 26 U.S.C. sections 2010 and 6018.)

 

But now this Serovy case suggests risks for another demographic:  Decedents whose estates were so small that they received public assistance for medical and nursing home care.  Whoa, Nelly!  And, again, this is a “silent lien” in the sense it may be enforced against a recipient’s real property after death and without anything having been recorded in the land records.

 

On the other hand, what about the Serovy case?  Was it correctly decided?  Are we likely to see similar cases elsewhere?

 

Insofar as it’s based on interpretation of section 249A.5, I think we have to acknowledge the state high court has the final say.  But, insofar as the decision rejects the constitutional argument (“No State shall…pass any…Law impairing the Obligation of Contracts.”  U.S. Constitution Article I, section 10), there may be room for further review by federal courts.

 

And, get this:  Just as Serovy was being decided a contrary decision was issued by the Illinois Supreme Court in Hines v. Dept. of Public Aid, 2006 Ill. LEXIS 621 (opinion filed 5/18/06, but not final until expiration of 21 day petition for rehearing period).  As with Serovy, the Hines case is decided mainly on interpretation of a state statute; but in Hines the Illinois Supremes conclude that the latest amendment to state law does not permit the Medicaid claim to attach to a recipient’s former joint tenancy interest which ceases to exist upon death.

 

I guess the moral of the story is we should all get familiar with our state’s Medicaid estate recovery laws, and maybe think about seeking releases from the appropriate government agency (agencies?) when asked to insure title to land after the death of a former owner.

 

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

 

 

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