In A.P. v. Division of Medical Assistance and Health Services, the Appellate Division of the New Jersey Superior Court reversed a decision by the Bergen County Board of Social Services (BCBSS) that was affirmed by the Director of the state Medicaid agency, holding that the transfer of a family home to the sibling of two Medicaid applicants was an impermissible transfer for less than fair market value, subject to a penalty, or period of ineligibility for nursing home Medicaid benefits. The Appellate Division remanded the case “for additional determination consistent with our determination”.

Three sisters, identified in the case as A.P., M.P. and A.B., lived in a home for many years which they had inherited from their parents. A.P. and M.P both owned life estates in the home, or the legal right to live in the home for the remainder of their lives. A.P. also owned a contingent remainder interest in the home and A.B. owned the remainder interest. M.P. was developmentally disabled, and A.P. and A.B were her co-guardians.

As the sisters’ aged, both M.P. and A.P. required additional care, The sisters signed a mortgage encumbering their interests in the family home in the amount of $75,000 in favor of A.B., who then sold her own home and used $75,000 of the proceeds to construct an addition to the family home. A.B. lived in the addition since 1985.

After many years, both M.P. and A.P. required nursing home care. They transferred their interests in the family home to A.B. and applied for Medicaid. The BCBSS determined that the transfer of A.P.’s and M.P.’s interests in the family home to A.B. was an impermissible transfer for less than fair market value, and imposed a period of ineligibility for Medicaid. The Director of the state Medicaid agency affirmed the local Medicaid agency’s determination.

A.P. and M.P. appealed, and the Appellate Division reversed. The appellate court held that the Medicaid transfer rules permit applicants to transfer their interests in real estate without penalty to a sibling with an equity interest in the home who has lived in the home for at least one year. The court found that A.B. could be said to have met the requirements of the rule since the mortgage debt may be held to be an equity interest under state law. More importantly, however, the court held that the mortgage debt far exceeded the value of the applicants’ interest in the family home. That is, the value of the property transferred less the mortgage debt reduced the net value of the property transferred to zero, even if the transfer was impermissible. Accordingly, A.P. and M.P. were found to be eligible for Medicaid benefits notwithstanding the transfer.