Court holds that potential heir who signed fee agreement with lawyer may sue for negligence

Carolyn Schmidt claims that she hired Denise M. LaFave Smith to "divest" her father's assets so that he would be eligible for Medicaid.  Divestment is tricky, however, because if it is performed without market value compensation solely to make a person Medicaid-eligible, the agency can deny eligibility and impose a penalty period during which long-term care benefits are suspended. 

Schmidt alleged that she hired Smith before making a Medicaid application and after transferring her father's remaining assets into a bank account in the name of her husband and herself. The Medicaid application was denied and Schmidt sued Smith claiming damages including subsequent attorney fees and long-term care expenses paid out of the new account.  Smith denied that she reviewed the application.  She defended the malpractice claim by arguing that her "real" client was Schmidt''s father who suffered from Alzheimer's Disease and that Schmidt suffered no damages, since she was only a "potential heir" of the father's estate.

The trial judge granted Smith summary disposition, even though the fee agreement she executed with the Schmidts defined husband and wife as the "clients," not the father.  On appeal the Court of Appeals reversed.  It held that even though the father's money was never commingled with the Schmidt's money, it was their property in their bank account and not simply a "potential inheritance."  [Michigan law does not allow potential heirs to sue for loss of an inheritance that occurs prior to the testator's death.] Therefore they had a "property interest" in the money spent to provide long-term care benefits.

The Court also held that the Schmidts were the real "clients" pursuant to the fee agreement with Smith.  The Court noted, however, that the Schmidts will still need to prove that negligence by Smith "caused" them to incur the long-term care benefit expenses:  presumably if Medicaid would have required the "spend down" in any event, the Schmidts will not have suffered injury by any negligence of Smith.