Creditor Claims in Minnesota Probate

by Flanders Law Firm LLC on November 1, 2016

creditor-claims-in-minnesota-probateMinnesotas probate statute attempts to clearly delineate the rules for the administration of estates.

The underlying purposes and policies of the probate statute are to simplify and clarify the law concerning the affairs of decedents, missing persons, protected persons, minors, and incapacitated persons, and to promote a speedy and efficient system for liquidating the estate of the decedent. Minn. Stat. 524.1-102(b)(1),(3). Although the goals are laudable, they do not reflect the reality that probate can at times be a messy affair. This is especially true when creditors enter the fray.

Minnesota Probate Procedures

Minnesotas probate procedures arguably give way for unrelated parties to enter probate proceedings. For example, Minnesota permits certain persons from filing a petition for determination of descent in probate court. According to the statute, any interested person may file a petition for determination of descent when a person has 1) been dead for more than three years and 2) has left real property with no will. Minn. Stat. 525.31.

MN Probate Case Law

If a beneficiary or an heir is indebted to an unrelated party, Minnesotas decree of descent can be a vehicle for a creditor to make a claim on the estate. In re Estate of Pawlik, 845 N.W.2d 249 (Minn. Ct. App. 2014) is an example. In Pawlik, the decedents heir owed debts to a creditor who obtain a judgment lien against the heir. Id. at 249. The creditor petitioned the district court in Minnesota for a decree of descent on the estate. Id. The beneficiaries objected, maintaining the judgment creditor did not have standing under Minnesotas probate statute.

Though the district court noted it was uncommon for a judgement creditor to use a decree of descent to seek payment, it was nonetheless proper. Id. at 250. The Court of Appeals upheld the district courts holding. In the opinion, the Court of Appeals noted Minnesotas probate statute defines interested persons, who may file the petition, broadly. Id. at 251. Under the statute, interested persons are heirs, devisees, children, spouses, creditors, beneficiaries, any others having a property right in or claim against the estate of the decedent. Id. (citing Minn. Stat. 524.1-201(32). Even though the creditor held a judgment against the heirs and not the estate, the Court of Appeals determined Minnesota probate statute permitted all creditors from petitioning for decree of descent. Id. at 252.

Dying Without a Will

Even when a person dies without a will, creditors may still initiate a claim to the estate. In In re Estate of Murray, 2016 WL 854724 (Minn. Ct. App., Mar. 7, 2016), a creditor attempted to attach a security interest on property bequeathed to a beneficiary that the beneficiary disclaimed. Although the Court of Appeals upheld the district courts refusal to vacate the disclaimer, the Court of Appeals agreed the creditor had standing to challenge, even in the face of a valid will. Id. at *2. The Court of Appeals noted the probate code offers, wide[] ground on which [the creditor] can establish standing. Id. at *3.

Expected beneficiaries and heirs of an estate must be aware of any debts they may have to outside parties. Pawlik and Murrays holdings suggest Minnesotas probatecode may provide an avenue for creditors to access a persons estate. The probate code is complex, and those considering estate planning issues should contact a helpful Minnesota estate planning attorney for advice.

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Minnesota Special Needs Trusts

by Flanders Law Firm LLC on September 26, 2016

Minnesota Special Needs TrustEstate Planning, Pooled Trusts, and the Intersection of Federal and State Law

Estate planning can take come in a variety of ways. For parents with children with disabilities, the special needs trust (SNT) is a unique estate planning device specifically tailored for beneficiaries with disabilities. The goal of this article is to examine SNTs, its intersection with federal law, and the various complications that may arise when conflict with state law arises. This is a complex area of the law, and for those considering this estate planning device, consultation with an expert Minnesota estate planning attorney is recommended.

Minnesota Special Needs Trust

One type of special needs trust is a special needs pooled trust. A special needs pooled trust is run by a nonprofit organization to administer the trust on behalf of people with disabilities. (Stepehn Elias, Special Needs Trusts, 107 (Nolo 3d. ed. 2009)). The special needs pooled trust flows from the federal Medicaid statute that excludes certain assets from Medicaid eligibility determinations. (Laurie Hanson, Reintroduction to Pooled Trusts, Stetson Univ. Conf. on Special Needs Trusts, Oct. 14-16, 2015).

For purposes of Medicaid exemption, the trust must meet four requirements. The trust must be for the benefit of 1) a disabled person 2) managed by a nonprofit agency 3) that maintains trusts solely for the benefit of disabled person established by that parents, grandparents, or legal guardian, and 4) to the extent amounts are not retained by the trust upon the death of the beneficiary, the trust pays the state the remaining amounts. 42 U.S.C 1396p(d)(4)(C)(i)-(iv). Special needs pooled trusts offer the advantage of the trust with the management experience of a nonprofit.

Medical Assistance and Minnesota Probate Law

As stated above, 42 U.S.C. 1396p(d)(4)(iv) provides states with an avenue to recover expenses paid on behalf of a beneficiary of medical assistance. These scenarios intersect with state law as well. There are examples of this in Minnesota. In In re Estate of Gullberg, the Minnesota Department of Human Services and Dakota County sought reimbursement for medical assistance paid on behalf of the estates husband. In 1983, the decedents husband conveyed their homestead valued at $59,000 to the decedent. The husband thereafter applied for medical assistance and received it from the state. In re Estate of Gullberg, 652 N.W. 2d 709, 711 (Minn. Ct. App. 2002).

Following the death of both the husband and wife, the state filed a claim with the estate for recovery of expenses paid. Id. For purposes of Medicaid, property meant real property to which the decedent had legal title (which the recipient did not have). However, the Minnesota estate recovery law defined property to include any property jointly owned (which applied to the recipient). Id. at 712. The Court of Appeals held the Minnesota estate recovery law [went] beyond what is allowed at federal law. Id. at 714. However, for the Court, the construction allowed for only partial preemption of state law. The Court of Appeals therefore concluded that Minnesotas estate recovery statute allows recovery against a surviving spouses estate only to the extent of the value of the recipients interest . . . at the time of the recipients death. Id.

Although not a special needs pooled trust case, In re Gullberg provides an overview of how estate planning, Medicaid assistance, and state law interact. In sum, utilizing special needs pooled trust while receiving Medicaid can create unforeseen complexities. A helpful Minnesota estate planning attorney can help those considering this estate planning vehicle effectively administer their estate.

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Contact the Flanders Law Firmtoday. The firm offersfree estate planning consultationsto all potential clients. Call(612) 424-0398.

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