Opinion ID: 1958828
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Heading: Impact of Medicaid Recovery Legislation on Mary Serovy's Joint-Tenancy Interest.

Text: A. The 1994 Medicaid recovery legislation. The controversy now before the court has arisen as the result of an amendment to Iowa Code section 249A.5 in 1994, which expanded the category of assets that can be reached by the Iowa Department of Human Services to satisfy claims filed in decedents' estates for the cost of medical-assistance benefits provided to Medicaid recipients. That legislation contained the following provisions. 2. The provision of medical assistance to an individual who is fifty-five years of age or older, or who is a resident of a nursing facility, . . . who cannot reasonably be expected to be discharged and return to the individual's home, creates a debt due the department from the individual's estate for all medical assistance provided on the individual's behalf, upon the individual's death. . . . . c. For purposes of this section, the estate of a medical assistance recipient, surviving spouse, or surviving child includes any real property, personal property, or other asset in which the recipient, spouse, or child had any legal title or interest at the time of the recipient's, spouse's, or child's death, to the extent of such interests in jointly held property, retained life estates, and interests in trusts. d. For purposes of collection of a debt created by this subsection, all assets included in the estate of a medical assistance recipient, surviving spouse, or surviving child pursuant to paragraph  c  are subject to probate. 1994 Iowa Acts ch. 1120, § 10 (amending Iowa Code § 249A.5). We have previously considered the effect of this legislation in In re Estate of Laughead, 696 N.W.2d 312 (Iowa 2005), and In re Barkema Trust, 690 N.W.2d 50 (Iowa 2004). Our decision in Laughead permitted the recapture of the value of a life estate for satisfaction of a Medicaid-reimbursement claim subsequent to the death of the recipient. Our decision in Barkema allowed a Medicaid recipient's beneficial interest in a discretionary support trust to be subjected to a claim for the cost of Medicaid services, following the death of the recipient, although all interest in the trust was to pass to a named beneficiary upon the recipient's death. In discussing the right to reach the assets in the discretionary-support trust in Barkema, we considered and discussed the situation of joint-tenancy property. As to such property, we observed: [B]esides interests in trusts, the Medicaid recovery statute includes jointly held property in the definition of estate. Under property law, joint tenancy property passes by operation of law to the other joint tenant when one joint tenant dies. If at the time of death meant at the moment of death, the jointly held property would already have passed to the decedent's joint tenant at the time when the decedent's estate is to be defined for purposes of the Medicaid recovery statute. This interpretation of at the time of death would render the legislature's inclusion of jointly held property in the definition of estate meaningless. Id. at 56. Although the discussion of joint-tenancy property in the Barkema case was dictum, we are satisfied that it sets forth an accurate depiction of how the Medicaid recovery legislation affects joint-tenancy interests. The purpose of this legislation was to capture and make available for payment of Medicaid-reimbursement claims certain interests in property that are not ordinarily subject to the payment of a decedent's debts. Because other types of jointly held property, such as tenancy in common, have always been available for the payment of claims in probate, the legislature must have intended the reference to jointly held property in section 249A.5(2)( c ) to embrace joint-tenancy interests. B. Whether the Medicaid recovery legislation impairs the obligation of a contract affecting Allan and Pearl's interest. Allan and Pearl argue that the probate court erred in rejecting their constitutional challenge under the obligation-of-contract clauses of the federal and state constitutions. The federal constitutional provision on which they rely provides [n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts. U.S. Const. art. I, § 10. The Iowa constitutional provision they have invoked provides that [n]o . . . law impairing the obligation of contracts shall ever be passed. Iowa Const. art. I, § 21. In applying these constitutional provisions, we have recognized that the prohibition therein contained is not absolute and must yield to a reasonable exercise of the police power for the public good. Adair Benevolent Soc'y v. State Ins. Div., 489 N.W.2d 1, 5 (Iowa 1992); Amana Soc'y v. Colony Inn, Inc., 315 N.W.2d 101, 112 (Iowa 1982). In Federal Land Bank of Omaha v. Arnold, 426 N.W.2d 153 (Iowa 1988), we adopted a three-step analysis for dealing with constitutional claims alleging abrogation of the obligation of a contract. That analysis is: (1) [I]f the state law operates as a substantial impairment of a contractual relationship, (2) the state must have a significant and legitimate public purpose behind the regulation, which (3) adjusts the contracting parties' rights and responsibilities based on reasonable conditions appropriate to the public purpose. Arnold, 426 N.W.2d at 159. In deciding the constitutional challenge lodged by Allan and Pearl, the probate court went no further than the first step outlined above and concluded that the legislation has caused no impairment of a contractual relationship. We agree with that conclusion and uphold the ruling on that ground. The probate court found that the contract between Mary on the one hand and Allan and Pearl on the other required no more of Mary than her creation of a property interest in which these three individuals owned the property that had been Mary's residence as joint tenants with right of survivorship. The probate court concluded that this obligation on Mary's part was satisfied upon the execution and delivery of a warranty deed establishing the respective property interests on which the parties had agreed. The probate court's interpretation of the agreement appears to us to be consistent with the evidence concerning the intention of the parties. We favor that interpretation of the contract on our de novo review and may affirm the probate court's ruling on that basis. Under that interpretation of the contract, the statute being challenged did not alter what was agreed to among the parties, it simply affected the subject matter of the agreement after it had been fully performed. [1] Allan and Pearl contend that the agreement was not simply to create a joint-tenancy interest in the property for each of the three joint tenants named in the deed, but also included a promise on Mary's part to have her joint interest in the property transferred to Allan and Pearl in fee simple upon her death without impairment or diminution. Even if we accept this interpretation of the agreement, that will not support a finding that the obligation of the parties' agreement has been impaired by the statute. If Mary had contracted to transfer her joint interest in the property to Allan and Pearl in fee simple without encumbrance, the Medicaid recovery legislation did not discharge that obligation. It simply made it impossible for her to perform the contract, but under circumstances in which the impossibility would not discharge the obligation. A promisor is not discharged from a contractual duty on the theory of impossibility if the promisor brought about the occurrence that has prevented performance. Associated Grocers of Iowa Coop., Inc. v. West, 297 N.W.2d 103, 108 (Iowa 1980). The circumstances that prevented Mary from transferring the agreed exchange to Allan and Pearl upon her death were of her own making as a result of her applying for and receiving Medicaid benefits subsequent to the enactment of section 249A.5(2)( c ) and ( d ). The situation is the same as if a judgment creditor had levied on and sold her joint interest in the property during her lifetime. Consequently, even if the agreement was as it has been urged to be by Allan and Pearl, they have a breach-of-contract claim against Mary, the unimpaired obligation of which survived her death, pursuant to Iowa Code section 611.20. See Jackson Sawmill Co. v. United States, 580 F.2d 302, 311-12 (8th Cir.1978) (legislation diluting city's ability to retire revenue bonds resulted in city's breach of contract for acting pursuant to the legislation, but did not impair the obligation of contract in violation of the constitution).