Court Approval for Estate and Medicaid Planning
By Guardians

By Donald D. Vanarelli, Esq.

Introduction

The concept of “Medicaid Planning,” involving the strategic gifting or transfer of assets aimed at accelerating an individual’s eligibility for Medicaid, is generally viewed as a prudent technique by which an individual may preserve assets for his or her loved ones. This technique is one of a variety of possible estate planning options to be considered by elder law attorneys on behalf of their clients.

When an elder’s ability to engage in estate planning is cut short by incapacity, a guardian may be appointed by the court to, inter alia, conduct estate planning on the ward’s behalf. In 1998, the Appellate Division’s decision in In re Labis, 314 N.J. Super. 140 (App. Div. 1998), expressly acknowledged Medicaid planning as an approved estate planning technique to be used by a guardian on an incapacitated person’s behalf.

In the recent Appellate Division decision in In re Keri, 356 N.J. Super. 170 (App. Div. 2002), however, the right of a guardian to engage in Medicaid planning on behalf of an incapacitated person was drastically restricted: while the Keri court acknowledged Medicaid planning as a permissible tool to protect assets from nursing home costs in order to benefit a guardian-spouse, it called into question the continued right of an incapacitated person to engage in Medicaid planning through a non-spouse guardian in order to protect assets for the incapacitated person’s children.

Pre-1998 Case Law:

To evaluate substituted decision-making applications, the New Jersey Supreme Court in In re Conroy, 98 N.J. 321 (1985), endorsed of the concept of a analytical continuum that utilizes the substituted judgment standard as a starting point and resorts to the best interests standard as a fallback position. Utilizing this continuum, the fact that an incapacitated person failed to expressly indicate a preference regarding a personal matter does not foreclose the right of a guardian to conduct substituted decision-making on the ward’s behalf: if there were some evidence of a preference for a certain action, that evidence would be given effect; if there were no such evidence, the application would be evaluated under the best interests standard. There need not be a showing that the alleged incapacitated person actually considered and chose to plan his estate to avail himself of Medicaid planning techniques:

the guardian should be authorized to act as a reasonable and prudent man would act (in the management of his own estate) under the same circumstances, unless there is evidence of any settled intention of the incompetent, formed while sane, to the contrary.

In re Trott, 118 N.J. Super. 435, 441 (Ch. Div. 1972).

The court in Trott authorized the guardian of an incapacitated person to make inter vivos transfers of assets to her heirs to minimize estate taxes:

Under the doctrine of parens patriae the court…may intervene in the management and administration of an incompetent’s estate in a given case for the benefit of the incompetent or of his estate.

Id. at 440. The Trott court went on to identify the following criteria with which to consider a guardian’s proposal to make gifts:

(1) the mental and physical condition of the incompetent are such that the possibility of her restoration to competency is virtually nonexistent; (2) the assets of the estate…; (2) are more than adequate to meet all of her needs…; (3) the donees constitute the natural objects of the bounty of the incompetent…; (4) the transfer will benefit and advantage the estate of the incompetent…; (5) there is no substantial evidence that the incompetent, as a reasonably prudent person, would, if competent, not make the gifts proposed…

Id. at 442-443.

These criteria articulated in Trott had remained the standard by which courts in New Jersey analyzed applications of a guardian to make gifts. See In re Labis, 314 N.J. Super. 140, 147 (App. Div. 1998); In re Cohen, 335 N.J. Super. 13 (App. Div. 2000), certif. denied, 167 N.J. 632 (2001); In re Swett, No. A-4116-99T1 (App. Div. Jan. 18, 2001).

In re Labis:

In the case of Labis, supra, 314 N.J. Super. 140, the New Jersey Appellate Division, for the first time, directly addressed and authorized the use of a ward’s assets for Medicaid planning.

In Labis, the guardian-wife of an incapacitated person appealed from an Order denying her the right to transfer her husband’s interest in the marital home to her for purposes of Medicaid planning.

The Appellate Division found that the lower court had denied the application “on an erroneous view that the proposed interspousal transfer was contrary to public policy, and thereby failed to consider that the interspousal transfer would benefit [the ward] in carrying forth his probable actions if he were competent to address the situation.” Id. at 144. The court concluded that such a transfer should be authorized “provided that [it] complies with the best interest of the ward inclusive of his desire to benefit the natural objects of his bounty.” Id. at 147 (emphasis supplied).

Thus, after applying the above-referenced criteria set forth in Trott, supra, and finding that the interspousal transfer in issue was a reasonable means by which to effectuate Medicaid and estate planning, the Appellate Division granted the Labis guardian’s application, noting:

We can safely assume by his will that if [the incapacitated person] were competent, he would take every lawful and reasonable action to minimize obligations to the State of a nursing home in order to secure the maximum amount available to support his wife of twenty-seven years through the remainder of her life and benefit his children thereafter.

Id. at 148.

In re Keri:

It has been in reliance on the Labis decision that practitioners have advocated Medicaid planning by guardians unless there is evidence of contrary intent by the ward, formed during competency.

However, in sharp contrast to the reasoning of Labis, in December 2002 the Appellate Division in Keritook a dim view of the notion of Medicaid planning in general. Whereas the Labis court had deemed “erroneous” the view that Medicaid planning was contrary to public policy, the Keri court referred to the technique as “troubling” and “nothing other than self-imposed impoverishment to obtain, at taxpayers’ expense, benefits intended for the truly needy.” Citing an increased possibility of conflict of interest where the guardian is the child of the ward, the Keri court was even more critical of the technique when sought by a guardian/child.

In Keri, in conjunction with an application to the trial court for appointment as guardian of his mother, the guardian sought permission to sell his mother’s home and transfer a portion of the proceeds of sale to her two adult sons as a part of a Medicaid spend-down plan. In her will, Mrs. Keri had named her two sons as the beneficiaries of her estate.

Although the Medicaid planning proposal was unopposed (and was, in fact, recommended by the court-appointed counsel for Mrs. Keri), the trial court had denied the application.

On appeal, the Appellate Division distinguished the Keri case from Medicaid planning applications filed by a guardian/spouse of a ward. It articulated a more stringent standard for analyzing Medicaid planning applications filed by a guardian/child, and affirmed the denial of the guardian’s Medicaid planning application.

Under the Keri holding, the presumption in favor of permitting Medicaid planning is reversed where a guardian/child seeks to conduct Medicaid planning: such planning is denied unless there is evidence that the ward, while competent, expressly indicated a preference to engage in Medicaid planning. Unless there is express evidence of a preference to engage in Medicaid planning, the court will presume that Medicaid planning had been considered and rejected by the now-incapacitated person, and will deny the application.

As a result of the Keri decision, the future of Medicaid planning by guardians has been thrown into doubt. Not only is the decision troubling in terms of an incapacitated person’s equal protection rights to self-determination; it is also troubling on a more practical level. The Keri decision requires an elderly, now-incapacitated person to have possessed the foresight and the legal understanding to have reflected upon and expressly indicated a preference to conduct Medicaid planning in order to have a substituted decision-maker carry out such a plan. Requiring a guardian to make such a showing effectively forecloses the guardian from engaging in Medicaid planning in the vast majority of cases.

The New Jersey Supreme Court has granted Certification and agreed to consider In re Keri on the merits. 

For additional information regarding Court Approval for Estate and Medicaid Planning By Guardians, call us at 908-232-7400 or click here to contact us online.