Decedent’s Life Estate Interest Subject to DHS Claim

April 23, 2010 | Erin Herbold

A year before her death, a woman entered into a real estate installment contract with her sister-in-law to sell her home, retaining a life estate in the property. The woman executed a will that provided for the payments of her “just debts” from her estate upon her death. The remainder of her property was to go to her sister-in-law. At the time of her death, she owed several thousand dollars to health care entities for medical assistance.  Upon discovering this outstanding balance, the Iowa Department of Human Services (DHS) filed a claim against the estate pursuant to Iowa Code § 249.5(2). That provision allows DHS to be reimbursed for medical expenses from a decedent’s estate. The probate court ordered that DHS be reimbursed.

Meanwhile, the sister-in-law attempted to separate the real estate from the estate proceedings, asserting her ownership rights. The probate court appointed a special executor to determine the status of the property. The special executor asked the court to forfeit the real estate contract, because the sister-in-law had not made any payments on the contract since the decedent’s death. The sister-in-law filed a separate action asking the court to execute a deed conveying the property to her.

The trial court found that DHS’ statutory lien under Iowa Code §249.5(2) had priority over the sister-in-law’s inheritance. According to the Iowa Probate Code §633.350, “property passes to a person under a decedent’s will at the time of the decedent’s death, but the property is still subject to possession by the personal representative to pay the decedents debts.”  The sister-in-law appealed, but the appellate court affirmed.  Under Iowa Code §249A.5 there was a debt due from the estate for medical assistance.  The life estate retained by the decedent was included in the probate estate for the purpose of satisfying that debt, regardless of the real estate contract with the sister-in-law. Thus, the life estate was subject to claim by DHS to cover the decedent’s medical expenses.  In re Estate of Escher, No. 9-1068/09-1198, 2010 Iowa App. LEXIS 255 (Iowa Ct. App., Apr. 8, 2010).