Iowa Allows Medicaid Recovery Against Joint Tenancy Property

APRIL 10, 2006  VOLUME 13, NUMBER 41

As many states have become more aggressive about recovering the costs of Medicaid care from the estates of deceased beneficiaries, one issue has appeared to be insoluble. Federal law permits states to make a claim against property held in joint tenancy at the time of a Medicaid recipient’s death. Property law principles in place for centuries, however, make it clear that a deceased joint tenant has no interest in the property. A recent case from the Iowa Supreme Court unsettles that long-standing concept.

Mary Serovy, a widow living in the family home where she and her late husband had raised their children, found that she could no longer get along on her own. She made a deal with her son and daughter-in-law; the younger couple would pay to build an addition on the house where they could live, and Ms. Serovy would transfer the property into joint tenancy with them. That way, all three of them figured, Ms. Serovy would have some help to allow her to stay at home, and the property would transfer to her son and daughter-in-law automatically at death.

The multi-generational arrangement worked well for almost a decade, but eventually Ms. Serovy could not stay at home any longer. She moved into a nursing home and, since she owned practically no assets other than her home, she quickly became eligible for Medicaid assistance. When she died less than a year later, in 1998, the Iowa Medicaid agency had paid $28,707.54 toward her care. Since her only asset—the house—transferred automatically on her death, no probate proceeding was required.

Five years later, the Medicaid agency decided it was time to make its claim against Ms. Serovy’s estate. It petitioned for appointment of an executor and asserted its right to sell the home and recover up to one-third of the proceeds. The probate court agreed with the agency, and ordered the home sold.

The Iowa Supreme Court reversed the sale order, but approved the claim against Ms. Serovy’s home. According to the justices, Iowa state law permits its Medicaid agency to assert a claim against joint tenancy property. If that authority is meaningless because a joint tenant’s interest is extinguished at death, then the Iowa statute would be meaningless. Since the courts assume that legislatures would not pass meaningless laws, the Iowa statute must mean that the state can claim the interest Ms. Serovy had just before her death.

Ms. Serovy’s son and daughter-in-law also made another argument. They insisted that the Iowa law should be ruled invalid because it would impair the contract entered into between them and Ms. Serovy. Not so, said the court—the contract only required Ms. Serovy to transfer the home into joint tenancy, and she had accomplished her part of that agreement even before the law went into effect. Nothing in her agreement with the younger couple required her to ensure that they receive the house outright at her death.

The probate court did err by ordering the sale of the property too quickly, however. The Supreme Court justices agreed that the Medicaid agency can take Ms. Serovy’s one-third interest in the property, but it must file a separate action to force sale of the home to satisfy its claim. Estate of Serovy, March 24, 2006.

Although this may be the first instance in which a state statute authorizing Medicaid recovery against joint tenancy property has been approved by any state’s highest court, it raises more questions than it answers. Why didn’t Ms. Serovy’s son and daughter-in-law qualify to receive the house outright under the federal provision permitting transfers of homes to a child who lives with the Medicaid recipient for two years prior to entry into the nursing home, and provides care that delays nursing home placement? Doesn’t Iowa’s hardship provision (mandated by federal law) afford Ms. Serovy’s son and daughter-in-law an opportunity to argue that sale of the residence would effectively throw them out of their own home? Why isn’t the state’s claim barred for its failure to pursue the matter for five years after Ms. Serovy’s death? All of these arguments may have been made in her case, but the Iowa Supreme Court holding does not address them.

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