Daily Development for Monday, April 17, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

JOINT TENANCY; SEVERANCE; MEDICAID ASSET RECOVERY: Application for end of life medicaid assistance will be deemed effectively a severance of a joint tenancy interest, permitting a state asset recovery statute to reach the value of the decedent’s interest even after the surviving joint tenants’ survivorship estate has already commenced.

In re Estate of Serovy, 2006 WL 738713 (3/24/06)

Mary owned a home in fee simple absolute.  She was getting on in years, and needed assistance in every day living.   Her son, Paul, and his wife, Pearl, helped to care for her for some time by driving the seven miles from their home several times a day, but ultimately all parties determined that the better course would be for Paul and Pearl to expand the size of Mary’s house to accommodate them and to live there.  After Paul and Pearl substantially improved Mary’s house with their own investment of money and labor, Mary, in 1988,  transferred the property to herself, Paul and Pearl as joint tenants. 

For nine years, Paul and Pearl cared for Mary in the home, but in 1997 her health deteriorated to the point that Mary relocated to a nursing home, where she died a year later.  Mary received Medicaid benefits during her nursing home stay.  In 1998, Paul filed Mary’s will for probate.  Obviously there was little to probate, as the house had passed to Paul and Pearl as joint tenants. 

But not so fast!!  In 2003, the State of Iowa joined the probate proceeding and filed a claim for $28,700, and accruing interest for the medical care she received in the nursing home.  A “special executor” was appointed, who concluded that the state’s claim was valid and collectible through the sale of the home.  The probate court so ordered. 

Paul and Pearl argued in the probate proceeding that to sell Mary’s interest in the home would result in an unconstitutional impairment of contract, as the home had passed to them by virtue of a joint tenancy created in 1988.

The State’s claim was predicated upon an Iowa statute enacted in 1994, following Congressional legislation in 1993 authorizing states to create “asset recovery programs” to recover from the estates of persons receiving end of life care under Medicaid.  The statute permits the state to make a claim on the joint tenancy interest of a deceased person who has received such care:

“”[T]he estate of a medical assistance recipient, surviving spouse, or surviving child includes any real property, personal property, or other asset in which the recipient, spouse or child had any legal title or interest at the time of the recipient’s spouse’s, or child’s death, to the extent of such interest in jointly held property, retained life estates, and interests in trusts.”

The Iowa Supreme Court, in affirming the probate court’s determination, concluded that the statute clearly was designed to “reopen” the survivorship claim of joint tenants following the death of a joint tenant who was a Medicaid recipient for end of life care.

As to the argument that undoing the property rights formed by a joint tenancy created seven years prior to the enactment of the recovery statute, the Iowa court virtually backhanded the argument away:

“[W]e have recognized that the prohibition [contained in the state and federal Contracts Clauses] is not absolute and must yeild to a reasonable exercise of the police power for the public good.”

It stated that the test of validity of the state conduct impairing contract is whether it “adjusts the contractual parties rights and responsibilities based on reasonable conditions appropriate to the public purpose.” 

The court characterized the rights of Paul and Pearl in survivorship as a contractual expectation that Mary “would have her joint interest in the property transferred to Allen and pearl in fee simple upon her death without impairment or diminution.”  It analogized to a judgment creditor attaching Mary’s interest during her lifetime, which would, or course, have led to a severance that would have terminated the survivorship.  It stated that Mary’s application for Medicaid benefits was a voluntary act on her part that effectively created a severance of the estate at that moment, apparently to the extent of the Medicaid claim.  The court stated that, at best, Paul and Pearl have a breach of contract claim against Mary for breach of her implied contract not to effect a severance of the joint tenancy before she died.

Nevertheless, the court concluded that the state’s special executor had in fact gone to far, notwithstanding the broad sweep of the statute.  The executor had attempted to sell the entire property, including Paul’s and Pearl’s interest, and then to pay to itself one third of that as Mary’s share (up to the amount of the claim.)   Commenting that it was “axiomatic’ that a decedent’s personal representative is only entitled to sell the decedent’s interest in property owned at death to satisfy claims, the court limited the power of the special executor to ask the court to sell Mary’s one-third cotenancy interest.

So it looked like Pearl and Paul salvaged something here, and something significant.  But once again, the court turned the tables on Pearl and Paul.  The probate court had set a “buyout” figure equal to the perceived value of Mary’s property in order for Pearl and Paul to stop the sale.  Instead, the court said, that the figure ought to be the total amount of the State’s claim (which in this case, at least, is presumably higher). 

Comment 1:  Note that only that portion of the joint tenancy estate representing Mary’s interest may be subjected to the State claim (the statute is unclear on the point.)  The court did hold, however, that the statute also authorized charging Mary’s estate with all the costs of collection, including the appointment of the special executor.  Undoubtedly, through all this process, the total cost of the claim will far exceed the cost of her care.  It is also likely that many bureaucratic wheels spun before Paul and Pearl were even aware of the problem. 

Comment 2: Note that the court does not even attempt to characterize the survivorship right as a property right.  Why not.  Joint tenancies date back to the earliest time of the common law, a time when the law  contract rights were vestigial at best.  To the editor’s knowledge, joint tenancy survivorship rights have always been regarded as property rights - conditional upon survival.  It is true that each joint tenant has the right to sever the joint tenancy.  Perhaps one can, by strained argument, maintain that the application for Medicaid was a severance, but to the author this is in fact a very strained interpretation.  Even if there had been a conscious intent to create a lien, not all jurisdictions regard the creation of a lien on a joint tenant’s interest to be a severance.

Comment 3: What about the next shoe to fall - asset recovery statutes vs. tenancies by the entireties?  How to find an implied severance there - in non-severable property?  Maybe this isn’t necessary, since it is likely the surviving spouse has personal liability for the decedent spouse’s medical care.  In fact, Professor Julia Belian, of Creighton, who presented this case at a UMKC faculty seminar yesterday, is of the view that the coming decade will see federal efforts to impose completely costs of parental care upon surviving children, so the entire exercise reported here will be plowed under. 

Comment 4: Iowa adopted its asset recovery statute after being invited to do so in 1993 legislation.  But legislation passed less than a month ago *mandates* that states adopt asset recover programs.  There is no guarantee, of course, that states will adopt the tack taken by Iowa here, but, in light of this statute, you may see the asset recovery wolves moving in on joint tenancies near you. 

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