The State of Missouri, like Arizona, and a handful of other states, permits real property owners to sign a “beneficiary deed.” The beneficiary deed works like a beneficiary designation on life insurance policies, bank accounts and annuities (among other assets). On the death of the owner, the property automatically passes to the named beneficiary (or beneficiaries) — no probate or legal proceedings are required.

But as Wallace Jones’ two children learned, Missouri’s beneficiary deed law does not completely protect property from any action. Mr. Jones had signed a beneficiary deed, but the State of Missouri ultimately got to make a claim against his property — to recover the cost of Medicaid long-term care provided before Mr. Jones’ death.

In January of 2000, Mr. Jones signed a beneficiary deed naming his two children to receive his home on his death. The home was his only significant asset; when Mr. Jones entered a nursing home shortly thereafter, Medicaid began to pay a portion of the cost of his care. When he died nearly four years after the beneficiary deed was signed, Medicaid had paid about $24,000 to the nursing home.

Medicaid had paid for the care because Mr. Jones’ home was not counted as an available resource in calculating his eligibility. Federal and state law, however, both mandate that his probate estate would be required to pay back the cost of the care he received. But since no probate was required in order to transfer the home to his children, it appeared that Mr. Jones’ estate would escape liability for his Medicaid costs.

The State of Missouri requested that the probate court order Mr. Jones’ children to open a probate proceeding and seek the return of the home to satisfy the Medicaid claim. After an initial denial, the probate court agreed with the State and ordered Mr. Jones’ children to satisfy the Medicaid recovery claim.

The Missouri Court of Appeals upheld the probate court’s ruling. The result: the children would have to either pay the State’s claim, or sell Mr. Jones’ home to satisfy the estate’s (and the State’s) interest. Estate of Jones v. Knight, January 13, 2009.

Federal law authorizes each state to pass laws expanding the state’s definition of “estate” in order to recover Medicaid payments from assets that would not normally be considered part of a probate estate. Missouri had not taken this extra step, and Mr. Jones’ children argued that the state could not pursue assets not subject to probate. But Missouri law (and Arizona law is similar) allows a proceeding to pull non-probate assets back into the estate to satisfy creditors’ claims. That was the approach taken by the Missouri courts.

Would Arizona courts reach the same result? Perhaps. As in Missouri, Arizona law permits expansion of a probate proceeding to encompass at least some assets transferred to beneficiaries outside the probate itself. Arizona's implementation of that rule, however, is slightly different. And an Arizona court might be more likely to accept another argument made (unsuccessfully) by Mr. Jones' children: that the State was not really a "creditor" until after Mr. Jones' death, since federal law prohibits recovery of properly paid Medicaid benefits in most circumstances.

The beneficiary deed has been favorably received by Arizonans. It is a popular, relatively simple and very inexpensive way to arrange for the avoidance of probate, especially in smaller estates consisting of few assets. But it is not clear that the beneficiary deed will work to prevent Medicaid estate recovery in Arizona; Missouri's case, while not controlling, would certainly be cited by the Arizona Medicaid agency in any attempt to gain access to property transferred by a beneficiary deed.

Would you like to subscribe to Elder Law Issues? Simply provide your e-mail address and name below, and click "Subscribe". At the same time, you may choose to also subscribe to The Voice, the newsletter of the Special Needs Alliance.

Privacy note: We do not ever use your e-mail address or name for any purpose other than to send out our subscription-based newsletter. You can rest assured that we will not sell, trade or share this information with any other person or entity. We have no ancillary or associated companies or entities to which we could provide your e-mail address, either.

© 1993-2009 Fleming & Curti, P.L.C.
330 N. Granada Avenue, Tucson, Arizona 85701
520-622-0400 /  FAX: 520-203-0240