Unorthodox Asset Preservation Strategy

Mother, who received Medicaid for day care during her lifetime, died. While her will states that the house should remain available for any child of hers who cannot afford a place to live, the creditors in a probate estate take priority. The Maryland Medicaid program was the sole creditor, filing a claim in the estate for $65,000 to cover the Medicaid benefits paid for mother’s benefit during her lifetime. Hence, the Medicaid claim took precedence over retaining the house for any of mother’s heirs.

Nevertheless, the personal representative of the estate did not want to pay the claim because one of mother’s daughters, who is not disabled, but is an underemployed single mother making $5,000 per year, cannot afford another place to live. So the personal representative of the estate denied the claim, and Medicaid filed a petition in the Orphan’s Court to have the claim allowed.

Maryland regulations allow the state, in its discretion, to elect not to pursue a claim in cases where a dependent child of a Medicaid recipient is living in the home. However, the state is required to forego the claim only if such child is disabled, and such was not the case in this instance.

Based on the facts, it appeared that the claim would be affirmed. Nevertheless, William M. Gatesman persuaded the Orphan’s Court that the Medicaid department should have given the personal representative an opportunity to appeal. Because it had not, the court reviewed the statutory criteria upon which the state could have forgiven the repayment obligation and concluded that the circumstances warrant letting mother’s adult child live in the house. On that basis, the Orphan’s Court denied the claim.

While the state could have appealed the Orphan’s Court decision and might have argued that no such appeal right existed, it did not do so. Consequently, we were successful in eliminating the $65,000 payment obligation for mother’s estate.

While it is more typical for lawyers to assist clients in asset preservation strategies before death, this case illustrates an unusual circumstance in which intervention by legal counsel resulted in a substantial savings to the client when, at first blush, all appeared lost.