In this case, three children were the beneficiaries under the wills of each parent. The parents’ separate wills created a trust for the care of the surviving spouse so long as one of the parents lived. Upon the death of the surviving spouse, the trustee was instructed to divide the residuary funds equally among the surviving children. The father died first, in 1994, followed by the mother, in 2008. (The father’s estate remained open during the mother’s lifetime, because of the fractional ownership of land amongst the parties.) Following the mother’s death, the main asset of the estate, farm property, was sold and 47.5% of the proceeds went to each estate. DHS filed claims for reimbursement for the mother’s care against both estates. During this time, the children, acting as executors of the estate and as beneficiaries, entered into an agreement with Iowa Department of Human Services (DHS) to pay $220,000 in a partial settlement of DHS’s claim against their mother’s estate. They also agreed to withhold the remainder of the money from the farm sale in the trust to settle with DHS regarding their father’s estate.
The trial court voided the settlement agreement and found that no trust was ever actually created, thus the agreement of the children was null and void. The trial court further concluded that when the father died, the mother had an interest in the assets of her spouse. Thus, DHS could reach these amounts to pay the cost of her necessary medical care, support and maintenance. Two of the children appealed the trial court’s ruling.
On appeal, the children argued that none of the parties, including DHS ever asked the trial court to declare their settlement agreement to be void. They contended that even though they mistakenly believed their parents had created a trust, this was merely a “mutual mistake of fact” and made the agreement voidable, no void on its face. The court agreed. DHS simply did not put the parties on notice that they intended to void the contract. The appellate court ordered that the contract should be reinstated.
The children also claimed that the trial court erred in holding that the mother had an interest in the assets of the father’s estate at the moment before her death. They argued that their father’s estate was still open and that the trust was never funded. However, the appellate court disagreed. The legislative intent behind the Medicaid recovery program in Iowa was to satisfy DHS claims with assets that are subject to probate and those that are not. The trust the husband intended to create was a discretionary support trust with standards to benefit his wife. The money was clearly intended to be used for the mother’s reasonable care, health, and maintenance and Medicaid payments were not needed. Thus, the court applied a common-law necessity exception in favor or DHS in this case. In re Estate of Roth, No. 0-441/09-1947 (Iowa Ct. App. Dec. 22, 2010).