Posts Tagged ‘Iowa Supreme Court’

Two Adult Adoptions Lead to Uncertain Inheritance Outcomes

JANUARY 2, 2017 VOLUME 24 NUMBER 1
You probably know that it’s possible — though state laws vary quite a bit — to adopt an adult. But have you given any thought to what effect the adoption might have on inheritance rights? That’s the sort of problem that gets lawyers (and judges) excited. Two recent appellate decisions for Iowa and Illinois address similar but different adult adoption conundrums.

In Iowa, Marian (we’re just going to use first names here — no disrespect intended) had two adult children, Russell and Marcia. Marian’s sister-in-law Janice had no children. Janice intended to leave her estate to Russell, but under Iowa law that would mean that he had to pay a tax on his inheritance, because he was not her child.

In order to avoid that inheritance tax, Janice adopted her nephew Russell after he became an adult. That worked just fine, and avoided any tax — but what about Russell’s relationship with his biological mother, Marian?

When Marian died in 2014, her will divided her estate between “my children, [Russell] and [Marcia], share and share alike.” But was Russell still Marian’s child? Marcia argued that her brother was really her former brother, and his adoption by Janice effectively disinherited him from her mother’s will.

The Iowa probate court was not impressed with the argument, and neither was the Iowa Supreme Court. Though the adult adoption severed the parent/child relationship between Marian and Russell, Marian’s will specifically named her children. According to the state’s high court, that created a presumption that she meant to include Russell even though he might have been adopted by someone else. Roll v. Newhall, December 23, 2016.

Meanwhile, the Illinois courts were faced with a flip-side problem when Betty adopted her step-son Ron. You see, Ron’s mother and father were divorced when he was three, and he was raised mostly by his mother. His father remarried and Ron did spend considerable time (particularly in high school) with his father and step-mother.

When Ron was 21, his step-mother Betty’s mother died, leaving a trust that would ultimately flow to Betty’s children. A year later Betty asked Ron if he would be willing to let her adopt him. Betty’s father later modified his own will to specifically disinherit Ron, but Betty’s mother’s trust was already in place.

When Betty died fifteen years later, her mother’s trust was set to benefit her children. Was Ron a child for purposes of that trust? That was the question facing the Iowa probate court.

Over the objections of Betty’s other relatives, the probate court determined that the adult adoption was effective. Ron would receive a share of his adopted grandmother’s trust. The Illinois Court of Appeals upheld that ruling.

The key question in Ron’s story was whether the adoption was a “subterfuge.” If the other heirs could show that Betty’s adoption of Ron was solely motivated by her desire to make him a descendant for purposes of her mother’s trust, then they might be able to challenge the adoption.

The other relatives pointed out that Ron was an adult when Betty adopted him, that the timing was suspect (coming just a year after Betty’s mother’s estate was opened), that Ron didn’t even tell his biological mother about the adoption until Betty’s later death, and that Ron himself had acknowledged that Betty was motivated to adopt him for “estate reasons.” On the other hand, evidence showed that Ron had spent considerable time with Betty and his father after they were married, that he lived nearby at the time of the adoption, and that Ron and Betty had a close, coninuing relationship for over thirty years. The effectiveness of the adoption was upheld. In re: Estate and Trust of Weidner, December 20, 2016.

Would the same cases be decided the same way in Arizona? Perhaps not.

First of all, adult adoptions in Arizona are sharply limited. Arizona’s statute on the subject, ARS section 14-8101, permits adult adoptions only when the person being adopted is:

  1. Over age 18 but no older than 21, and
  2. A stepchild, niece, nephew, cousin, grandchild or (sometimes) a foster child of the person adopting.

Under the second test, either Russell or Ron could have been adopted just as they were in Iowa and Illinois. But both of them were over age 21 when adopted, so those adoptions could not have been completed in Arizona.

Assuming, though, that the adoptions were effective in Iowa, Illinois or wherever concluded, Arizona would honor the other state’s (different) rules. If adoptive parents Marian or Betty had moved to Arizona after adopting Russell or Ron, the same legal problems might have arisen.

One other state law difference that might have made the outcome in Marian and Russell’s case: nothing in the adult adoption statutes in Arizona requires that the existing parental relationship be dissolved. Russell could presumably be his aunt Janice’s son AND his mother Marian’s son at the same time. Of course, this outcome is harder to test — Arizona does not have an inheritance tax like Iowa’s, and so it is difficult to think of why the story might play out in the same way.

Lawyer Suspended After Representing Wife as Conservator

JUNE 13, 2011 VOLUME 18 NUMBER 21
Richard J. Murphy was first admitted to practice law in 1964. He was a fixture in local political and legal circles in Osceola, Iowa, for nearly fifty years. He was the attorney for the City of Osceola, and he had been the County Attorney years earlier. His private practice, which he shared with his son, focused on real estate, probate and tax issues.

Helen Doss had been the County Auditor at the same time Mr. Murphy was County Attorney, and their friendship continued after they both left office. Ms. Doss, who had no children, came to rely on Mr. Murphy and his wife for assistance with errands and legal matters. Mr. Murphy prepared her will, which named his wife as executor. He helped her set up bank accounts, including one that named Mrs. Murphy as co-owner. He was named as one of the beneficiaries of her life insurance policy.

When Ms. Doss, at 92, experienced several falls in her home, Mr. Murphy filed a voluntary guardianship and conservatorship petition. Ms. Doss acknowledged that she needed help, and agreed that Mrs. Murphy should be appointed as her guardian and conservator.

For the next four years, Mr. Murphy and his wife took care of Ms. Doss and her finances. He arranged to cash in over $125,000 worth of Series E Bonds, and placed the proceeds in an account jointly held between Ms. Doss and Mrs. Murphy. He arranged the sale of her home and represented his wife at the closing; his son represented the buyers in the transaction. He prepared a new will, naming Mrs. Murphy as executor again.

During the conservatorship, Mr. Murphy prepared annual accountings for his wife to sign and file with the local court. He left off at least one account, one which he said he considered to be Ms. Doss’ own account and not part of the conservatorship. That account named Mrs. Murphy as co-owner, and Mrs. Murphy wrote various checks on it during the conservatorship years — including at least one, for $1,427.96 for a new vacuum cleaner for herself. Other checks on the undisclosed account were for $500 or $1,000 and payable to either Mrs. Murphy or to Mr. Murphy himself.

When Ms. Doss died in 2004, Mr. Murphy represented his wife in filing and administering the probate proceedings. Her will (which he had prepared) left the bulk of her estate to nephews and nieces. However, considering the joint accounts and life insurance proceeds, almost a third of Ms. Doss’ estate went to Mr. and Mrs. Murphy rather than the relatives.

One of the nephews complained, and after negotiations a portion of Ms. Doss’ estate was returned for distribution to family. But the matter did not end there. The Disciplinary Board of the Iowa Supreme Court, which regulates lawyers, got involved.

The Disciplinary Board conducted hearings and ultimately recommended a public reprimand for Mr. Murphy’s multiple violations of legal ethics rules. Mr. Murphy appealed, and the matter was considered again — this time by the Iowa Supreme Court.

In its ruling last month, the Court decided that public reprimand was not the right sanction. Instead, Mr. Murphy was suspended from the practice of law indefinitely, with no ability to reapply for admission for at least eighteen months.

After the fact, violations like Mr. Murphy’s always seem obvious. It is hard to imagine what he thought was defensible about filing a petition against his own client (even with her consent), and then representing the guardian and conservator. It seems even more obviously wrong when the guardian and conservator is his own wife. Add to that the transactions giving an increasing share of Ms. Doss’ estate to his wife, his failure to include all of Ms. Doss’ assets in the conservatorship accountings, and then the multiple representations in the sale of her home.

What was Mr. Murphy’s explanation for his actions? The Iowa Supreme Court characterizes his response as arguing that he was just following Ms. Doss’ instructions. She was strong-willed and had a generous nature, he argued. He denied that he had influenced her in any way in the exercise of her generosity. Supreme Court Attorney Disciplinary Board v. Murphy, May 27, 2011.

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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