Recovering MA Funds in Probate

I. How the probate process works

Probate is a legal process to settle the estate of a person who died (a “decedent”). In probate, a court appoints a personal representative to administer the decedent’s estate. The personal representative has the same powers over the decedent's property that an owner of the property would have, but the representative also has a duty to distribute the estate property to parties with an interest in the estate as appropriate under the law. Accordingly, a personal representative may hire an attorney to help administer the estate and then pay the attorney out of the estate’s assets.

A. Basics

1. What is a probate estate?

Generally, a probate estate is the total of all interests that a decedent had in real and personal property at the time of his or her death. These interests are often called “probate assets.”

Some assets that a decedent had before death may not fall into this category because the assets either were jointly owned with another person or were designated by contract to another person upon the decedent’s death. These interests are often called “nonprobate assets” and are usually not considered part of the probate estate.

Importantly, Minnesota law expands the definition of “estate” for Medical Assistance (MA) estate recovery. This allows a local agency to make an MA claim against a decedent’s probate assets and, in certain circumstances, against what would otherwise be considered nonprobate assets.

a. Probate assets

“Probate assets” are assets of the decedent that require a court, or a court process, to be transferred to a new owner at death. They can include a variety of assets, such as the following:

· Real estate

· Bank accounts

· Brokerage and investment accounts

· Promissory notes  

· Business interests

· Contracts for deed

· Stocks and bonds

· Vehicles and boats

· Life insurance or retirement assets payable to a decedent's estate

b. Nonprobate assets

“Nonprobate assets” are either (1) assets a decedent had at death that were designated to someone other than the estate or the personal representative of the estate, or (2) assets the decedent jointly owned with another person. Nonprobate assets can include the following assets of a decedent:

· Assets owned as a joint tenant with right of survivorship

· Accounts established with “payable-on-death” (POD) or “transfer-on-death” (TOD) arrangements

· Life insurance and retirement assets in which a beneficiary (other than the estate of the personal representative) is designated

· Assets in which the decedent held a life estate

c. Expanded definition of “estate” for MA claims

You can assert an MA claim against more than just the probate assets when an estate goes through probate. Minnesota law allows MA claims against what would otherwise be considered nonprobate assets. Minnesota’s current expanded definition of “estate” permits you to claim against the following:

· The decedent's probate estate

· Joint tenancy and life estate interests created on or after August 1, 2003, and owned by the decedent at time of death

· Securities the decedent owned as a beneficiary at time of death, to the extent the interests, or proceeds of those interests, become part of the probate estate under Minnesota Statutes, section 524.6-307

· Joint accounts, multiple-party accounts, and POD accounts; brokerage accounts; investment accounts; and the proceeds of those accounts at the time of death, to the extent the interests become part of the probate estate under Minnesota Statutes, section 524.6-207

· Assets conveyed to a survivor, heir, or assign of the decedent through survivorship, living trust, or “other arrangements”

· An “other arrangement” is any other means by which title to all or any part of the jointly owned property or marital property or interest passed from one person or spouse to another.

· Other arrangements include, but are not limited to, transfers between spouses that are permitted, prohibited, or penalized under MA.

· Claims against marital property may be limited to claims against MA members who died on or after July 1, 2009.

See Minnesota Statutes, section 256B.15, subdivision 1a, paragraph (b).

2. Where is probate initiated?

Probate is initiated in the court of the county where the decedent resided at time of death. Or, if the decedent did not reside in Minnesota at death, probate is initiated in the court of any county where property of the decedent was located at time of death.

3. Does there need to be a will to probate an estate?

A decedent does not need a will for his or her estate to go through probate. A will is a legal document that directs part or all of an estate’s assets. A person who dies with a valid will is said to die “testate.” A person who dies without a valid will dies “intestate.” Both formal and informal probate can administer testate or intestate estates. Normally, the decedent’s assets are applied to MA estate recovery before the rest of the assets are distributed according to the terms of the will.

4. Formal and informal probate

The two main types of probate are formal probate and informal probate. In both processes, a court appoints a personal representative who is responsible for settling the decedent’s estate, but formal and informal probate differ in important respects. You can recover on an MA claim in either formal or informal probate.

a. Formal probate

Formal probate is a traditional court proceeding to settle an estate. It tends to be more costly and time consuming than informal probate. Formal probate is often chosen to address issues that would best be addressed with a judge’s oversight. Reasons to initiate formal probate may include the following:

· Real property is included in the estate.

· Interested parties disagree.

· The will includes ambiguous or impossible provisions.

· The interests of vulnerable parties (for example, minors or creditors) need protection.

· Interested parties have questions about the validity of the will.

· Complex administration procedures require supervision.

· Proceeds of the estate require different distribution than the terms of the will provide.

b. Informal probate

Informal probate is a process in which a personal representative acts independently to distribute an estate’s assets, with minor oversight by a court registrar instead of a judge. In general, when no complicating factors exist, informal probate is easier and less expensive than formal probate. Most probate proceedings in Minnesota are informal.

If you initiate probate as an interested party in the estate, you must initiate formal probate, not informal probate.

B. How formal probate begins

If you assert an MA claim in probate, the claim could occur in either formal or informal probate. Formal probate begins with a petition to the court, followed by notice, an initial hearing, and a court order that sets the parameters of formal administration.

1. Court petition for appointment of a personal representative

Formal probate begins when a party with an interest in the estate, including a personal representative named in the decedent’s will, files a petition for formal probate with the appropriate court. The petition asks the court to appoint a personal representative for the estate and may ask the court to address specific issues involving the estate. A petition can be filed any time after 120 hours (five days) from the time of a decedent's death. Note: If you are initiating probate as a local agency to ensure payment of your MA claim, you must wait until 45 days after the decedent's death.

2. Notice of initial hearing

After the petition is filed, the court schedules a time and place for an initial hearing and then issues an order for the hearing. The party who filed the petition must then send notice of the initial hearing’s time and place to all parties with an interest in the estate. For methods of giving notice and publication, see Minnesota Statutes, section 524.1-401.

3. Court hearing to appoint a personal representative

Once notice is given, the court holds the initial hearing, at which the person seeking appointment of a personal representative testifies in support of the petition. The court considers any issues about the estate’s administration raised in the petition. Alternatively, if interested parties have no objection to a verified petition, the court can accept the petition and waive the requirement to testify.

4. Supervised or unsupervised administration

The court also decides whether the estate will go through supervised or unsupervised administration. Both administrations are a type of formal probate. In a supervised administration, the personal representative of the estate acts under court supervision and needs a court order to distribute probate assets. In an unsupervised administration, the personal representative can distribute estate assets without a court order.

a. Supervised administration

A supervised administration is a probate proceeding in which the court exercises ongoing supervision and authority over all aspects of the estate's administration, until the court (1) orders final distribution of the estate and discharges the personal representative or (2) terminates the proceeding for any other reason.

In a supervised administration, the court has jurisdiction over the decedent's probate assets. Consequently, the personal representative must get the court's approval before taking actions that may affect the interests of the decedent's beneficiaries. In addition, the personal representative may be required to take a certain action based on the court's own motion or on the motion of an interested party.

b. Unsupervised administration

In an unsupervised administration, the personal representative acts with less court oversight. The personal representative distributes estate assets without a court order. Court action generally occurs only upon petition of an interested party or upon the personal representative’s own petition. The personal representative may petition the court to resolve a conflict between interested parties or to approve any action or decision the personal representative proposes to make. An unsupervised administration remains open until one year after the personal representative files the closing statement. Unsupervised administration is the more common administration of formal probate.

5. Court order on the petition

After the hearing, the court issues an order determining the matters raised by the petition: who the personal representative is, what issues the probate will settle, and whether the administration will be supervised or unsupervised. The court order binds all interested parties. The named personal representative then proceeds to administer the estate.

C. How informal probate begins

Informal probate begins with an application to a probate registrar, followed by the probate registrar’s review of the application, notice of informal probate, and a nonjudicial order by the probate registrar appointing the personal representative and opening the estate.

1. Application to the probate registrar for appointment of personal representative

Unlike with formal probate, the party seeking appointment of a personal representative for informal probate must file an application with a probate registrar, not the court, though probate registrars are often located at the courthouse and work with the court.

2. Probate registrar’s decision whether to grant application

After getting the application, the probate registrar reviews the documents and decides whether to grant informal probate. Minnesota law gives a probate registrar the authority to reject any application for informal probate.

If there is an issue that might require judicial supervision, the registrar usually denies informal probate. Generally, an application for informal probate will not be accepted if one of these conditions applies:

· The estate is insolvent.

· The decedent has unknown heirs.

· The original will cannot be found.

· Heirs or beneficiaries disagree.

· There are minor heirs or beneficiaries.

3. Notice

If the probate registrar reviews the application and grants informal probate, the party seeking appointment as personal representative must give notice of informal probate to all interested parties by mail, and to the public in general by publication.

4. Appointment of personal representative

Once notice of informal probate has been given, the probate registrar may appoint the personal representative by issuing notice of appointment to all interested parties. The probate registrar then oversees the opening of the estate on behalf of the court. Informal administration of the estate begins.