“I Don’t Have a lot of Assets, Why do I Need an Estate Plan?”

“I don’t have a lot of assets, why do I need an estate plan?” It’s a question we hear all the time. Among the more fundamental reasons (avoiding headache for your loved ones who will have to administer your estate, ensuring that what you have goes where you want it to, etc.), there is another reason: Sometimes those who have the least can be harmed the most without a plan in place. By way of example, consider the case of In re the Estate of Joanne Mary Ecklund, Decedent (A23-0210), published by the Supreme Court of Minnesota just a few weeks ago.

Ms. Ecklund, now deceased, was a Medical Assistance recipient for roughly five years before she died. This program, administered by the Minnesota Department of Human Services (DHS) is Minnesota's implementation of the federal Medicaid program. The way the program works is that DHS - funded partly by federal dollars - pays monthly "capitation payments" to a middle-man (called a managed care organization), and that middle-man arranges for all of the care necessary for the Medical Assistance recipient. The capitated payments are basically an allowance which the middle-man gets to spend on a recipient's care. As you might expect, the middle-man has a "network" of doctors who have agreed to accept deeply discounted rates for their services in order to be "in-network," which makes that allowance go a lot further than it would otherwise.

In the case of Ms. Ecklund, DHS paid roughly $66,000 in capitated payments to a middle-man - Medica. Medica, in turn, paid roughly $8,800 for Ms. Ecklund's services as a result of its negotiated discount rates with its "in-network" providers. During her life, Ms. Ecklund presumably didn't care about this discrepancy, she was getting the care she needed through a program she had paid into, what did it matter to her whether DHS and Medica were being good stewards of taxpayer money (and how would she have known, in the first place)?

Here's the catch, though. When a Medical Assistance recipient dies, federal law requires DHS to seek recovery of the amounts paid for that person's care from their estate - which raises a big, nasty question: Does DHS get to recover the $66,000 it paid to Medica, or just the $8,800 Medica actually paid for Ms. Ecklund's care? Well, we now have an answer... but probably not the one any person with a conscience would hope for. The Supreme Court of Minnesota reversed the lower courts' rulings that DHS was entitled only to the $8,800 representing the value of services Ms. Ecklund actually received, and ruled instead that DHS could recover the entire $66,000 it paid to Medica.

So, what's the upshot? Ms. Ecklund received $8,800 worth of care through Medical Assistance, for which her estate was required to pay $66,000 (nearly ten times the value of the care she received). Medica, on the other hand, got to pocket the roughly $57,000 in excess capitation payments it received from DHS, but never actually spent on Ms. Ecklund's care. Though we have little indication of the extent of Ms. Ecklund’s planning, the patently unfair result in the case of her estate underscores the importance of planning - for estates large and small. Contact us today to see how we can help you avoid a similar result.