Financial Exploitation of The Elderly:
Impact on Medicaid Eligibility
2008 NAELA Advanced Elder Law Institute
By Donald D. Vanarelli, Esq.
III. CASE LAW AND ADMINISTRATIVE DECISIONS
a. Theories of Recovery In Financial Abuse Cases Generally
Unfortunately, there is a dearth of reported case law directly addressing the impact of financial abuse on an elder victim’s Medicaid eligibility. This problem is compounded by limited access to unreported decisions nationwide.
However, the case law that follows, involving general issues relating to financial abuse of the elderly, provides insight into potential theories of recovery in cases of abuse. These cases involve both civil and criminal actions; recoveries on behalf of the elder and on behalf of Medicaid; and restitution awards ordered to be made directly from the perpetrator or from, for example, the bond company holding the surety bond for a wrongdoing guardian.
State v. Lehman, 2001 WL 1673729 (Oh. App. 5 Dist. Dec. 12, 2001), involved an in-home caregiver employed by an agency who, while acting as the caretaker for an elder with dementia, took the elder to her bank on numerous occasions and withdrew $95,752 from the elder’s account over time. The defendant was prosecuted under the Ohio criminal code for violation of R.C. 2913.02, “theft from an elderly person or disabled adult.” She pleaded guilty to a lesser charge and was sentenced to 15 months in prison and ordered to make restitution to the elder in the amount of $94,752. On appeal, the sentence was affirmed, with the court commenting that the elder’s family was attempting to keep her at home rather than in an institution, and that because of the theft she would no longer receive the quality of care that she had received before the theft.Id. at *6. The appellate court approved the trial court’s conclusion that, “if [the defendant] is not punished with a prison term, her actions are likely to be copied by others in her profession who are exposed to gullible, mentally incompetent people.”Id.
In the Florida case of Bernau v. State, 891 So. 2d 1229 (Fla. App. 2d Dist. 2005), discussed supra, although son ultimately was acquitted of charges of financially exploiting his elderly parents by endorsing a $847,000 check to himself, the decision notes that a professional guardian previously had been appointed and had recovered approximately $380,000 of assets in a civil action against the son.
In the Arizona case of Capitol Indemnity Corp. v. Fleming, 203 Ariz. 589, 58 P.3d 965 (Ariz. App. Div. 2, 2003) following the misappropriation of an elder’s assets by her conservator, the conservator was removed by the court and ordered to reimburse the elder’s estate for the amount misappropriated. However, after the conservator was able to only pay a fraction of the misappropriated funds, the court ordered the surety bond company to reimburse the elder’s estate for the remaining amount. The bond company attempted to sue the conservator’s attorney and spouse for those damages based upon theories of negligence, but that suit was unsuccessful. Id.
In Persinger v. Holst, 248 Mich. App. 499, 639 N.W. 2d 594 (Mich. App. 2001), appeal denied, 466 Mich. 893, 649 N.W. 2d 74 (Mich. 2002), the conservator attempted to bring a legal malpractice action against the attorney who prepared a power of attorney on behalf of an elderly widow after the agent under that power of attorney misappropriated funds, claiming that the attorney should have dissuaded the elder from appointing the wrongdoer as her agent, and that the attorney should not have permitted the client to execute the power of attorney because she lacked capacity. The court rejected these theories, however, finding that the attorney owed no duty to insure that a client appoint an appropriate agent, and that the attorney had executed reasonable judgment with regard to the elder’s capacity to execute the document.Id.
In the unpublished decision of State v. Goulet, 2008 WL 2574480 (Wis. App. III Dist. 2008), a son was criminally convicted of theft and abuse of a vulnerable adult, in violation of Wisconsin Statute §§943.20(1)(b), 904.285(2)(a)2, based upon his financial exploitation and failure to care for his elderly mother. During a period in which the mother was actually ineligible for Medicaid benefits because of her son’s improper transfers of the mother’s assets from a trust through a power of attorney, the mother had received Medicaid benefits. At a restitution hearing, the son was ordered to pay the State, which was considered a victim of the son’s theft, for the benefits incorrectly paid to his mother. In affirming the restitution order, the appellate court noted that,
Regardless of where her trust money went, [the mother] would have exhausted the trust and would have received essentially the same care. It is the State–which has paid expenses that rightfully should have been paid by the trust–that has been placed in a worse position as a result of [the son’s] thefts.
Id. at ¶9. See also State v. Huffman, 154 N.H. 678, 918 A.2d 1279 (N.H. 2007) (concerning son’s conviction of “theft by misapplication of property,” where father was found eligible for Medicaid but son diverted $37,345.62 of his father’s income, which was properly payable to the nursing home, for his own use); In re Floyd, 359 B.R. 431 (D. Conn. 2007), reconsideration denied, 2007 WL 1114024 (D. Conn. Apr. 12, 2007) (bankruptcy adversary proceeding by nursing home to except embezzlement debt from bankruptcy discharge, based on debtor/grandson’s alleged embezzlement of Medicaid resident’s funds properly payable to the nursing home).
b. Financial Exploitation In The Context Of Medicaid Eligibility
i. Cases Involving But Not Deciding Medicaid Issues
In a number of cases involving the exploitation of an elder, the issue of Medicaid eligibility is raised but not decided.
In In re Duvall, 178 S.W. 3d 617 (Mo. App. W.D. 2005), the Missouri Court of Appeals affirmed the appointment of the public administrator as guardian of the elderly ward, over the objection of her nephew. Evidence in the record indicated that the nephew, who was the agent under Mrs. Duvall’s power of attorney, had made various transfers of her assets, which put Mrs. Duvall’s Medicaid eligibility in jeopardy. Id. at 620, 630. However, during the pendency of the appeal, Mrs. Duvall died, id. at 621, and the opinion does not address what action, if any, might be taken on Mrs. Duvall’s behalf against the nephew.
In Arndts v. Bonner, 2004 WL 1532274 ( Tenn. Ct. App. July 7, 2004), the daughter/conservator of a Medicaid applicant filed suit to recover assets transferred by the father’s wife prior to her death. The wife had made transfers to her children (the Medicaid applicant’s step-children) prior to her death, and those transfers disqualified the father from Medicaid coverage.Id. at *1.
The Arndts case was decided in the context of Tennessee statutes, including a fraudulent conveyance statute (providing that conveyances made with an intent to defeat a surviving spouse’s elective/distributive share are voidable) and an elder abuse and exploitation statute, Tenn. Code Ann. §71-6-120, which allows for a civil action by or on behalf of an elderly or disabled adult for compensatory damages, punitive damages and attorney’s fees for financial exploitation of the elder, which cause of action is not extinguished upon the death of the elder.Id. at *6.
After reviewing the transfers made, the Arndts court concluded, apparently on the basis of the fraudulent conveyance statute, that certain of the transfers were to be refunded to Mr. Arndts. However, the court also concluded that the transfers had been made by the now-deceased wife “personally, or at her express direction,” and that, because there was no proof that the wife’s children had made transfers “by fraud or otherwise,” there had been no violation of the elder abuse and exploitation statute. Id. at 6. There is no indication as to how the Arndts decision impacted on Mr. Arndts’ Medicaid eligibility, if at all.
In New Jersey, the administrative decision of I.L. v. Division of Medical Assistance and Health Services (“DMAHS”), 2004 WL 47444411 (N.J. Admin. 2004), rev’d, 2005 WL 4684709 (Jan. 27, 2005), rev’d, 389 N.J. Super. 354 (App. Div. 2006), an 87-year old petitioner who suffered from Alzheimer’s disease was twice denied Medicaid eligibility, and those denials were appealed to the Office of Administrative Law and then to the Superior Court, Appellate Division.
The first and second Medicaid applications had been denied because the verification documentation required by Medicaid was not submitted on behalf of the applicant. The third application was denied because the applicant owned insurance policies with cash surrender values.Id. at *1.
After the second application was denied, the nursing home in which the applicant resided, recognizing that the applicant could not assist with the application because of her mental incapacity, began to assemble the verification documents. Id., 2005 WL 4684709 at *2. The facility soon learned that family members, who were not assisting in the Medicaid application process, had transferred $37,000 of the elder’s assets to themselves following the elder’s admission to the nursing care facility.
That transfer, which occurred during the Medicaid look-back period, resulted in the imposition of a penalty period for the applicant. However, the I.L. administrative decision notes that the parties stipulated that a penalty period resulted from that improper transfer, and that the issue was therefore “agreed upon and not before me.” Id., 2005 WL 4684709 at *2. On appeal to the Superior Court, Appellate Division, the court noted that,
[t]he record clearly establishes that [the applicant’s] daughter and granddaughter withdrew the entire balance … and closed the [bank] accounts before [the applicant’s] hospitalization…. The record does not disclose whether any action has been taken to recover those funds, but the Division does not contend that … [Medicaid] eligibility ,… is affected thereby.
389 N.J. Super. at 358 and n. 4.
The Supreme Court of Iowa interpreted that state’s statute permitting the investigation and disposition of cases of “dependent adult abuse” by the Department of Human Services, through its department of inspections and appeals. Mosher v. Department of Inspections and Appeals, 671 N.W. 2d 501 (Iowa 2003). In particular, a former employee of a nursing facility who received various gifts from a facility resident was found to have violated Iowa Code §235B.2, which penalizes financial exploitation of a “dependent adult” by a “caretaker.” In affirming the district court’s reversal of the Department of Inspection and Appeals decision that dependent adult abuse had been committed, the Mosher court determined that the defendant ceased being a “caretaker” when she left the nursing facility in which the elder was a resident, and that, as to gifts made during the period in which she was a caretaker, the elder was not a “dependent adult,” even though he was certified for a licensed health care facility. Id. at 512.
The court stated that the elder in issue “serves as a good example of the distinction between residents receiving public assistance and private-pay residents.” Id. at 513. Although the elder in Mosher was not Medicaid-eligible, the court noted that the certification of need that would be required for an institutionalized Medicaid applicant would support a finding that the elder was a “dependent adult.” However, the elder in Mosher was only certified for a licensed health care facility, which did not necessarily mean that he was a “dependent adult,” and went on to conclude that the elder in Mosher in fact was not a “dependent adult.”Id. at 515-516.
In the context of a guardianship action in which the elder’s relatives were found responsible for “gross misappropriations” of the elder’s assets, the court mentioned in a footnote that Adult Protective Services was directed to apply for “eligible financial benefits” on behalf of the elder; however there is no indication as to the disposition of that issue. Hayes v. Thompson, 952 So. 2d 498, 500 n. 1 ( Fla. 2007).
ii. Cases Deciding Medicaid Issues
Although there are limited administrative decisions or cases regarding this issue, there is support for the position that a Medicaid applicant should not be penalized for the unauthorized transfer of the applicant’s assets.
The most recent reported case involving this issue was decided in Connecticut, where a nursing home sued an elder’s son (and power of attorney) and the attorney who had been appointed as the elder’s conservator, alleging that the son’s acts/omissions resulted in the loss of Medicaid benefits in the amount of $115,639.00. In Glastonbury Healthcare Center, Inc. v. Esposito, 2008 WL 2797003, No. CV-01-0811032 (Conn. Super. June 23, 2008), the court found that the son had filed a Medicaid application on behalf of his mother, an institutionalized elder suffering from Alzheimer’s disease. He listed her sole asset as a $3,400 bond. He then transferred his mother to the plaintiff facility, and signed an Admission Agreement as his mother’s power of attorney. The Agreement named him as the “Responsible Party,” although he did not sign the Agreement in that capacity. Id. at *2. As “Responsible Party” to the Agreement, the son was required to take the necessary steps to ensure his mother’s prompt Medicaid eligibility. However, because the son (and the son’s attorney, who had become the mother’s conservator) failed to reduce the mother’s assets to $1,600 by a certain deadline, her Medicaid application was denied, which denial was upheld upon appeal.Id. at *3. Her Medicaid application was later approved when the conservator/attorney transferred the assets as requested by Medicaid.
The nursing facility settled with the conservator and the case against the son went to trial, alleging breach of contract, negligence, promissory estoppel and fraudulent misrepresentation. Although rejecting the fraudulent misrepresentation count, the court found in favor of the nursing facility on the other counts. It concluded that the son had failed to reduce the mother’s assets, as directed by Medicaid; persistently and unreasonably claimed that a $15,000 bank account was not his mother’s asset; and, as executor of the father’s estate, failed to distribute income to his mother pursuant to his father’s last will and testament. Id. at *5. In sum, the court concluded that the facility lost the Medicaid payments that it would have received absent the son’s actions/inactions, and found the son liable for that loss.Id. at *6.
In New Jersey, the issue of third party transfers and Medicaid eligibility was most recently addressed in the unpublished Superior Court, Appellate Division decision of A.H. v. Division of Medical Assistance and Health Services, 2008 WL 648922 (N.J. App. Div. Mar. 12, 2008), certif. denied, ___ A.2d __ (N.J. June 12, 2008). A.H. addressed transfers by a son of his parents’ assets under a power of attorney, and the effect of those transfers on his parents’ Medicaid eligibility.
In A.H., the son, who was his parents’ agent under a power of attorney, applied for Medicaid benefits for his father. After initially being denied, the denial was appealed and the father was found Medicaid eligible, with a retroactive eligibility date of March 2002.
Shortly thereafter, the son used the power of attorney to mortgage his parents’ condominium. He deposited the mortgage proceeds of $83,355.32 into his parents’ joint bank accounts, and then wrote a $35,000.00 check to himself from those funds. The day after he wrote the check to himself, the son applied for Medicaid on behalf of his mother. In the mother’s Medicaid application, the son failed to disclose her interest in the bank accounts.Id. at *1.
As the A.H. court noted, had the son disclosed the mother’s ownership interest in the accounts, Medicaid would have imposed a penalty period.Id. at *1. Instead, her Medicaid application was granted.
Thereafter, the son wrote checks totaling $24,250 from the parents’ accounts to himself. Medicaid advised him in June 2003 that, because the son had failed to submit a plan to liquidate the parents’ condominium, their benefits would terminate on September 30, 2003. The son appealed and elected to continue Medicaid benefits pending the appeal.Id.
At the hearing, the administrative law judge had concluded that the parents’ total resources exceeded the resource standard, and that a ten-month period of Medicaid ineligibility would be imposed with respect to Medicaid benefits that had been paid on behalf of the parents. The administrative law judge also ordered that the son would be personally liable for the repayment of $67,792.00 in Medicaid benefits. The Director of the New Jersey Division of Medical Assistance and Health Services (“DMAHS”) adopted those findings, and the son appealed to the New Jersey Superior Court, Appellate Division.
The Appellate Division affirmed. Id. The A.H. decision does not directly address whether the parents had knowledge of the transfers, but there is no reference to the parents’ involvement in these transfers, and it is clear that the court held the son responsible for the transfers. It reasoned that New Jersey Medicaid statutes authorize the imposition of liability upon,
a recipient, legally responsible relative, representative payee, or any other party or parties whose action or inaction resulted in the incorrect or illegal payments [or] who received the benefit of the divestiture, or from their respective estates.
Id. at 2 (quoting N.J.S.A. 30:4D-7(i)). The A.H. court concluded that,
[the son’s] active role in dealing with his parents’ assets, in applying for benefits, and in personally benefiting from those assets while, at the same time, ineligible benefits were provided for the benefit of his parents, more than amply triggered [the son’s] personal liability for the repayment.
Id. at *2.
In Probate of Marcus, 199 Conn. 524, 509 A.2d 1 ( Conn. 1986), the Supreme Court of Connecticut addressed a case in which the ward’s conservatrices (her daughters) made unauthorized gifts to themselves and their family. The gifts totally depleted the ward’s estate. The conservatrices then applied for Medicaid on behalf of the ward. Medicaid notified the probate court (which handled the conservatorship) that the gifts had been made, a hearing was held, and the gifts were disallowed by the probate court as unauthorized. Thereafter, Medicaid denied the ward’s pending Medicaid application.
On appeal, the hearing officer held that the probate court’s disallowance of the gifts rendered those funds “available” to the ward.
The Marcus case was further appealed to the Supreme Court of Connecticut, which impliedly held that, because the Medicaid applicant had an enforceable right against her daughters for the improper transfers, the funds would not be considered “available” to the applicant if she could demonstrate that those funds could not be recovered from the daughters (because, for example, the daughters were judgment-proof). The Marcus court found that the effect of the probate court’s disallowance of the gifts was that the conservatrices were personally liable for the return of the gifts. In other words, the ward’s estate had a legally enforceable right against the conservatrices for restitution. However, the court continued that,
[t]he mere fact that the conservatrices are personally liable for the unauthorized dispositions does not necessarily mean that these funds are “available” for purposes of determining eligibility for [Medicaid] …. The state would not be justified in denying benefits in the event that the conservatrices are unable to satisfy a judgment against them, or if for any other reason the funds due the estate are not actually available for the maintenance and support of the ward.
509 A.2d at 5.
The North Dakota Supreme Court in Linser v. Office of Attorney General, 2003 N.D. 195, 672 N.W. 2d 643 (N.D. 2003), considered a Medicaid termination based on a guardian’s improper placement of funds into a special needs trust. The Linser court cited the Marcus case and reasoned that “an asset to which an applicant has a legal entitlement is not unavailable simply because the applicant must initiate legal proceedings to access the asset.” Therefore, it concluded that,
It is appropriate for an agency to find that assets which the applicant has a legal entitlement to are actually available to him where the record fails to demonstrate the applicant would be unsuccessful in exercising a legal right to obtain them.
Id. at 648.3
In a case in which a mother failed to pursue a cause of action against her daughter/power of attorney for “gifts” made under the power of attorney, the transfers resulted in the mother’s Medicaid ineligibility. In the March 20, 2008 North Dakota Supreme Court case of Makedonsky v. North Dakota Dept. of Human Services, 2008 N.D. 49, 746 N.W. 2d 185, 187 (N.D. 2008), a mother was found Medicaid ineligible based upon transfers made by her daughter. Notably, the Makedonsky court began its analysis by noting that, “at all times relevant to her claim for Medicaid benefits, [the Medicaid applicant] was mentally competent and capable of understanding her business affairs.”Id. The transfers were made by the daughter (as attorney-in-fact under the mother’s power of attorney) to the daughter and her sisters. Although the transfers were made prior to the Medicaid “look-back” period, the mother signed a “statement of intention to gift” (stating that the transfers were gifts that she voluntarily made) during the look-back period. Thus, Medicaid eligibility depended upon the effective date of the transfers.
The North Dakota Supreme Court affirmed the administrative law judge’s holding that (1) based upon North Dakota statute, transfers made by a fiduciary that benefit the fiduciary are presumed to be the product of undue influence; (2) therefore, before the mother signed the “statement of intention to gift,” she had a legal cause of action against the daughter to return the “gifts”; (3) under Medicaid law, the mother was required to make a “good-faith effort to pursue available legal actions to have assets made available for purposes of Medicaid eligibility”; and (4) when she later signed the “statement of intention to gift”, she relinquished that legal right to sue for the return of the assets, and at that point made a disqualifying transfer. The date of that “statement of intention to gift” was deemed the transfer date, rendering the mother Medicaid ineligible during the resulting penalty period. Id.
The Makedonsky court cited the Linser decision for the proposition that,
an asset need not be in hand to be “actually available,” and an applicant may be required to initiate appropriate legal action to make the asset available…. If an applicant has a colorable legal action to obtain assets through reasonable legal means, the assets are available and the burden is on the applicant to show a legal action would be unsuccessful.
Medicaid eligibility determinations involving financial exploitation of an applicant / victim will likely involve establishing the following elements during the application or appeal process: (1) the applicant’s knowledge of, or consent to, the transfer(s); (2) the applicant’s relationship to the wrongdoer; (3) the applicant’s competency at the time of the transfer(s); and, (4) the steps taken by or on behalf of the applicant to recoup the transferred funds. Although eligibility determinations will be fact-sensitive, the foregoing legal authority may be used to advocate in favor of eligibility (or in favor of granting a hardship exception, in the event of a Medicaid denial) on behalf of an elderly victim of financial wrongdoing.
Donald D. Vanarelli, Esq., with offices in Westfield NJ, is a Certified Elder Law Attorney (by NAELA, accredited by the ABA) and an Accredited Professional Mediator. Mr. Vanerelli, was selected as a Super Lawyer in 2007, 2008, 2009 and 2010 and is a founding member of the New Jersey Elder Mediation Center For more information, contact Vanarelli & Li, LLC, 908-232-7400 or visit his web site at www.vanarellilaw.com.
1 See http://www.startribune.com/templates/Print_This_Story?sid=18751924
2 See http://www.nj.com/news/index/ssf/2007/11/thieving_caretaker_sentenced_t.html
3 As to the issue of when assets are “available” to an applicant, see also Miranda v. Barnhart, 2002 WL 1492202 (W.D. Tex. 2002), a case not involving financial exploitation of the elderly, which discusses the limits of responsibility to be imposed on an applicant when the attempt to claim one’s rights over property would be economically futile.
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