Do-it-Yourself Medicaid Planning Leads to Family Battle

June 1, 2009 | Erin Herbold


Medicaid is the joint federal/state program that funds long-term health care.  To be eligible for benefits under the program, however, an applicant for benefits can have only a very limited amount of income and resources.  So, to avoid having assets and resources “spent down” to become eligible for Medicaid benefits, one strategy is for the person who is anticipating a future need for long-term health care to transfer the assets to family members well in advance of making an application for Medicaid.  Long-term health care planning is complex, but for many people it’s an important part of the overall estate plan.  Unfortunately, in this case a family tried to do some asset protection planning essentially on their own. 

The plaintiffs were an aging farm couple.  They wanted the farmland to pass to their children and be inaccessible to them in the event either of them had to go to a nursing home.  To that end, the attorney drafted a quitclaim deed conveying the farmland in undivided interests to each of their four children, and a family agreement which specified that the income from the farmland would go to the parents for their lifetimes.  Under the family agreement the son that was farming the ground could continue to farm it, and was given an option to buy the farmland upon the parents’ deaths.  The parents signed the deed and two of the children signed the agreement, but the other two children did not sign the agreement.  However, three of the children terminated the brother’s farm lease two years after the deed was recorded and leased the ground to someone else. That move irritated the parents, and they sued to rescind the deed.    The parents claimed that the deed was invalid at the time it was executed because there was a lack of consideration - the children never intended to abide by their parents wishes.

The trial court refused to admit parole evidence as to the portion of the agreement regarding the son's option to purchase.  The court held that given the evidence that the family agreement was a part of the package with the deed and that there had been part performance of part of the family agreement, the two parts of the family agreement should not be segregated for purposes of the parol evidence rule.  On appeal, the appellate court held that the trial court should have considered evidence that the land was subject to a promise to rent and sell the land to the farming son as a part of the conveyance of the property.  So, the appellate court reversed the trial court's ruling and remanded the case to the trial court for the purpose of considering oral testimony as it related to the lease and option of the son who was farming the land. Hansen v. Cupp, No. 9-093/ 08-0588 (Iowa Ct. App., Apr. 22, 2009)