Medicaid Lien Enforceable Against Trust Assets

April 16, 2009 | Roger McEowen


Medicaid is the joint federal-state program that provides taxpayer-funded support for long-term health care.  To be eligible for Medicaid, a person can have only a very limited amount of income and resources available.  Excess amounts must be spent down to a prescribed level before Medicaid eligibility is achieved.  An entire area of legal practice has emerged in recent years focusing on techniques that can be used to achieve Medicaid eligibility and preserve assets.  One of those techniques may involve the use of a trust.  But, can a state assert its right to enforce a lien for Medicaid benefits paid to a person during life in the person’s estate upon death against assets contained in a trust?  That was the issue involved in this case.

The decedent died in 2006, but had received Medicaid benefits since 1995.  The decedent was the beneficiary of a trust which became effective upon the death of the last of her parents to die in 1983.  Upon the decedent’s death, the state Medicaid agency (Iowa Department of Human Services) filed a claim in the estate for the amount of Medicaid benefits that the decedent had received - $396,570.20.  State law (Iowa Code Sec. 249A.5) allows the state to recover from an estate Medicaid benefits paid to the decedent during the decedent’s life.  The estate denied the claim, but the probate court ruled that the trust was subject to the state’s claim.  The estate appealed.

On appeal, the court noted that “estate” includes interests contained in trusts.  In addition, the court determined that the trust was a discretionary trust with standards and fell within the definition of a trust covered by Iowa Code Sec. 249A.5(2)(c).  Likewise, the spendthrift provision of the trust did not protect the trust assets from the state’s lien – Iowa law does not contain an exception to a spendthrift provision for services or supplies provided for necessities.  Thus, because the state provided the decedent with necessary goods and services, (which the trustee did not have the discretion to withhold), the state’s lien applied to the trust’s assets.  The court also noted that it was immaterial that while the trust assets would not be counted as an available resource for Medicaid eligibility purposes, they could still be subject to the state’s right for reimbursement from the estate post-death.  In re Estate of Gist,763 N.W.2d 561 (Iowa Sup. Ct. 2009).