In the Matter of the Estate of Arnold Melby, Iowa
2014 Iowa Sup. LEXIS 3
| Iowa | 2014Background
- Arnold and Vesta Melby created nearly identical irrevocable trusts in 1991, funding each with a half interest in a family farm; each trust paid the trustor net income during life and directed payment from trust corpus of "expenses of last illness," indebtedness, taxes, and surviving spouse income provisions.
- Vesta received Medicaid beginning 2000 and died in 2002; DHS paid $53,118.62 for her care and initially concluded her trust corpus was not reachable for recovery; her non-trust assets were minimal.
- Arnold received Medicaid beginning 2002 and died in 2009; DHS paid $251,254.14 for his care; his non-trust assets were minimal.
- After administrative review, DHS asserted both trustors had interests in the trust corpora because Medicaid payments created debts payable from the trusts; DHS sought recovery of $321,263.96 from the estates/trust assets; the trustee resisted.
- The district court held DHS could recover only from the trustors’ net income interests and limited recoverable expenses to "medical assistance" as narrowly defined in Iowa Code §249A.2(7); DHS appealed.
Issues
| Issue | Plaintiff's Argument (DHS) | Defendant's Argument (Estate/Trustee) | Held |
|---|---|---|---|
| Whether Medicaid payments create a personal/debt during recipient’s life (allowing recovery from trust corpus) or only a debt of the recipient’s estate at death | Payments create a debt when provided, so trustee’s obligation to pay indebtedness makes corpus reachable | Statute language makes the debt a claim of the recipient’s estate at death; only estate-level debt exists, so corpus not reachable | Court held debt is created when assistance is provided (but collection deferred until death), so trust corpus is reachable to satisfy debts payable by trustor |
| Whether DHS may recover from trust corpus under §249A.5(2)(c) given trust language requiring payment of "any indebtedness owed by the Trustor" | Broad §249A.5(2)(c) definition of "estate" includes interests that allow creditors to reach corpus to pay trustor debts | Trustors’ interest limited to net income; indebtedness clause does not create an interest subject to §249A.5 recovery | Court held the trustors had an interest in payment of indebtedness from corpus at death (because debt was created during life), so DHS may recover from corpus |
| Scope of "medical assistance" recoverable under §249A.5(2): limited to §249A.2(7) definition (mandatory services) or broader | "All medical assistance" in §249A.5(2) covers mandatory, additional, and discretionary services — statute’s purpose and broad usage support broad recovery | Narrow reading: §249A.2(7) limits "medical assistance" to mandatory services; broader recovery would exceed funding and depart from statutory categories | Court construed "all medical assistance" broadly to include additional and discretionary assistance for recovery purposes |
| Sufficiency of DHS evidence of amounts paid and that payments constituted recoverable medical assistance | DHS presented records and exhibits similar to other estate-recovery cases and proved amounts paid | Estate challenged hearsay/foundation for exhibits and sufficiency to distinguish types of assistance paid | Court reversed and remanded for district court to make factual findings about amounts and admissibility consistent with its legal rulings |
Key Cases Cited
- In re Barkema Trust, 690 N.W.2d 50 (Iowa 2004) (analyzing beneficiary availability of trust assets for Medicaid recovery and classifying trusts for recovery purposes)
- In re Estate of Gist, 763 N.W.2d 561 (Iowa 2009) (applying the three-part trust-analysis framework for Medicaid estate recovery)
- In re Estate of Nagel, 580 N.W.2d 810 (Iowa 1998) (holding tort liability arising during settlor’s life could constitute settlor indebtedness payable from trust corpus)
- In re Estate of Laughead, 696 N.W.2d 312 (Iowa 2005) (recognizing Iowa’s broader-than-federal statutory definition of "estate" for Medicaid recovery)
- In re Estate of Serovy, 711 N.W.2d 290 (Iowa 2006) (noting statute’s purpose to capture assets not ordinarily subject to payment of decedent’s debts for Medicaid recoupment)