Financial Exploitation of The Elderly: Impact on Medicaid Eligibility

Financial Exploitation of The Elderly:
Impact on Medicaid Eligibility

2008 NAELA Advanced Elder Law Institute

By Donald D. Vanarelli, Esq.



a. The Issue

It is not uncommon for an elderly or disabled person to entrust his or her finances to a third party. For example, an elder may execute a power of attorney as a simple estate planning tool in order to ensure that his or her affairs are properly handled in the event that the elder is unable to act due to illness, injury, incapacity or other cause. In other cases, an elder who is becoming overwhelmed by day-to-day financial tasks may simply “hand over the checkbook” to a relative or a trusted friend.

But what happens when the person to whom the elder’s affairs are entrusted misuses that authority? As the elder population in the United States continues to increase dramatically, the financial exploitation of the elderly continues to be an increasingly serious problem.

The exploitation may arise in various contexts. The elder’s assets may be misappropriated by a family member or agent under a power of attorney, seee.g.In re Garsoninfra, 793 N.Y.S.2d 397, 17 A.D. 3d 243 (N.Y. App. Div. 1st Dept. 2005); or by the guardian or conservator appointed to handle the elder’s affairs, seeProbate of Marcusinfra, 199 Conn. 524, 509 A.2d 1 (Conn. 1986). The elder may even retain an attorney to file a Medicaid application on her behalf, only to have that attorney misappropriate her assets in the guise of a Medicaid “spend down.” See In re Disciplinary Action Against Peterson,infra, 718 N.W. 2d 849 (Minn. 2006).

But whether elder financial exploitation involves common theft by an outsider or the improper use of a power of attorney by a family member, that financial abuse presents a myriad of issues.

Liability may be clouded by issues of family relationships and trust between the victim and the abuser; ambiguities in powers of attorney or other instruments controlling the fiduciary’s authority; and varying levels of competency of the victim.

Adding to the dilemma of financial exploitation is the issue of Medicaid eligibility, and the impact of the exploitation on the victim’s eligibility for necessary public benefits. In particular, when a third party makes improper transfers of the elder’s property without the elder’s knowledge or consent, will those improper transfers negatively affect the elder’s eligibility for Medicaid?

b. The Medicaid Program

Medicaid is a joint federal and state program created under Title XIX of the Social Security Act of 1965. It provides a source of funding for long-term care to those aged, blind and disabled individuals who qualify financially. 42 U.S.C. §1396 et seq. Eligibility for Medicaid is based upon financial need.

With the enactment of the Deficit Reduction Act of 2005, Medicaid legislation now imposes a 60-month “look-back period,” in which Medicaid officials “look back” from the application date to analyze asset transfers by the applicant.Id. If a Medicaid applicant disposed of assets for less than fair market value within the “look-back” period, the applicant may be subject to a period of Medicaid ineligibility (a “penalty period”), based upon the value of the uncompensated transfer. 42 U.S.C. §1396(p).

In the context of this public benefits program that penalizes transfers of the applicant’s resources for less than fair market value, what is the result when the applicant’s resources are transferred by a wrongdoer without the applicant’s knowledge or consent?

i. Resource Transfer Rules

The Medicaid resource transfer rules provide a logical starting point for the analysis of a financial exploitation case. 42 C.F.R. §410.1201 defines a “resource” as follows:

(a) Resources; defined. For purposes of this subpart L, resources means cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.

(1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).

(b) Liquid resources. Liquid resources are cash or other property which can be converted to cash within 20 days….

(c) Nonliquid resources. (1) Nonliquid resources are property which is not cash and which cannot be converted to cash within 20 days…. Examples of resources that are ordinarily nonliquid are … buildings and land.

20 C.F.R. §416.1201(a)-(c) (1993) (emphasis supplied).

In addition, 20 C.F.R. §416.1246(e) provides that,

Transfer of a resource for less than fair market value is presumed to have been made for the purpose of establishing … Medicaid eligibility unless the individual … provides convincing evidence that the resource was transferred exclusively for some other reason.

(Emphasis supplied).

Pursuant to 42 U.S.C. §1396a(a)(17)(B), a state’s Medicaid plan must include “reasonable standards … for determining eligibility … which provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant…”

State Medicaid regulations, in turn, provide further guidance for the analysis of unauthorized transfers. Although Medicaid regulations vary by state, below is an analysis of New Jersey regulations, by way of example.

New Jersey regulations provide that, “in order to be considered in the determination of eligibility, a resource must be ‘available.'” N.J.A.C. 10:71-4.1. Mirroring 20 C.F.R. §416.1201, the New Jersey regulations provide that a resource is considered “available” if the applicant has “the right, authority, or power to liquidate” the resource.Id.

According to New Jersey regulations, certain categories of resources are “excludable” and are not considered in the Medicaid eligibility determination. The following are among the categories of “excludable resources”:

The value of resources which are not accessible to an individual through no fault of his or her own.

N.J.A.C. 10:71-4.4(b)(6) (emphasis supplied). The New Jersey regulation provides examples of such inaccessible resources, including real property that cannot be sold “because of the refusal of a co-owner to liquidate.”Id.

Practitioners are well-advised to pay particular attention to their state’s Medicaid regulations. In states with Medicaid regulations similar to the aforecited New Jersey regulations, a strong argument can be made that funds or assets that have been improperly transferred by a third party would be a classic example of a resource that is “not accessible … through no fault of [the applicant’s] own.” In fact, such a scenario is arguably more compelling than the example provided in the aforecited New Jersey regulation itself, in which a co-owner refuses to liquidate a property.Id.

An alternate argument could be that, as to the stolen resources, the applicant can rebut the presumption that the resources were transferred to establish Medicaid eligibility. See 20 C.F.R. §416.1246(e); N.J.A.C. 10:71-4.7.

Medicaid Communication No. 88-15 states that, when determining whether an “individual” has transferred resources, the “individual” shall be defined to include the eligible individual, his/her spouse, or “any person acting for and

legally authorized to execute a contract for the eligible individual.” (Emphasis supplied). Of course, an agent’s theft of an individual’s resources falls well outside the scope of a power of attorney’s “legal authority.”

ii. The Hardship Exception

In the event of a Medicaid denial as a result of an unauthorized transfer, another avenue of redress may be available to the applicant. The U.S. Code provides for states to make determinations that the denial of Medicaid eligibility “would work an undue hardship….” 42 U.S.C. §1396p(c)(2)(D). See 20 C.F.R. §416.1246; see also HCFA Transmittal No. 64, §3258.10(C)(4), 5. (“When application of the transfer of assets provisions … would work an undue hardship, those provisions do not apply…. Undue hardship exists when application of the transfer of assets provisions would deprive the individual of medical care such that his/her health or his/her life would be endangered. Undue hardship also exists when application of the transfer of assets provisions would deprive the individual of food, clothing, shelter, or other necessities of life.”)

Again, by way of example, under the New Jersey hardship exception regulation:

Upon imposition of a period of ineligibility for long-term care level services because of an asset transfer,…an applicant may apply for an exception to the transfer of asset penalty if he or she can show that the penalty will cause an undue hardship to him or herself.

N.J.A.C. 10:71-4.10(q). Undue hardship will be found to exist if the Medicaid penalty “would deprive the applicant/beneficiary of medical care such that his or her health or his or her life would be endangered,” or “would deprive the individual of food, clothing, shelter, or other necessities of life.”Id.

In order to prevail in a hardship exception request, the applicant must demonstrate that,

the transferred assets are beyond his or her control and that the assets cannot be recovered. The applicant/beneficiary shall demonstrate that he or she has made good faith efforts, including exhaustion of remedies available at law or in equity, to recover the assets transferred.

Id. (emphasis supplied).

The hardship exception thus places the burden on the applicant, similar to the burden placed on the applicant in Probate of Marcus, 199 Conn. 524, 509 A.2d 1 (Ct. 1986) and Linser v. Office of Attorney General, 2003 N.D. 195, 672 N.W. 2d 643 (N.D. 2003), discussed in Section III(b)(i), infra, to pursue litigation if necessary to recover the transferred assets.

The limited reported New Jersey law on the hardship waiver demonstrates that the requirements for entitlement to the hardship exception are stringently applied. See K.C. v. DMAHS, 2002 WL 31954976 (OAK Dkt. No. HMA 1291-02), rev’d, 2002 WL 32593033 (N.J. Admin. 2002) (reversing the Administrative Law initial decision that the petitioner qualified for a hardship waiver); E.P. v. DMAHS, 2002 WL 31098144 (OAL Dkt. No. HMA 063-02), rev’d, 2002 WL 32552608 (2002) (reversing the Administrative Law initial decision that the petitioner qualified for a hardship waiver); C.P. v. DMAHS, 2003 WL 22700943 (OAK Dkt. No. HMA 6728-03), adopted, 2003 WL 23643608 (2003) (adopting the Administrative Law initial decision that the petitioner did not qualify for a hardship waiver).

It is, however, an alternative strategy that should not be overlooked.

c. Obstacles To Enforcing Elder’s Rights

As mentioned above, cases involving the financial exploitation of the elderly present various unique issues. Liability may be clouded by issues such as family relationships and trust between the victim and the abuser (see Anecdotal Material, Case #2, infra); whether the abuser was “authorized” to transfer the elder’s assets; and varying levels of competency of the victim. Seee.g.Bernau v. State, 891 So. 2d 1229 (Fla. App. 2d Dist. 2005), discussed infra.

i. Competency Issues

If the competency of the victim is compromised, it is vital that this issue be fully addressed by the advocate, in order to ease Medicaid’s (or the court’s) reluctance to give proper weight to the issue.

The competency of the victim may affect the evaluation of issues such as the promptness of the discovery of wrongdoing, or the victim’s “right, authority or power” over the assets in question. See 20 C.F.R. §416.1201.

For example, in Davis v. Monahan, 832 So. 2d 708 (Fla. 2002), the Florida Supreme Court refused to apply the doctrine of delayed discovery in order to permit the suit of an elderly woman suffering from dementia to file suit against family members based upon their alleged misappropriation of assets, despite the elder’s claimed recent discovery of the misappropriations.

In Chalmers v. Shalala, 23 F.3d 752 (3d Cir. 1994), a lower court had affirmed the termination of SSI benefits. The SSI recipient was schizophrenic and “unable to care for herself.” 23 F.3d at 753. After the recipient and her siblings inherited real properties, they formed a partnership to manage the properties and signed an agreement conveying their respective equitable interests in the properties to the partnership. Id. The siblings’ agreement also provided that the partnership “may be dissolved at any time by any of the partners.” Id. at 754. When the recipient appealed the SSI determination that her benefits were being terminated because of her ownership interest in the properties, the administrative law judge held that her interest was a resource, because she “had the power to dispose of her interest in the partnership.” Id. at 754.

On appeal to the district court, the court held that her interest was a resource under 20 C.F.R. §416.1201 because she “had the legal right to liquidate it.”Id. On appeal to the Third Circuit, the court rejected the SSI recipient’s claim that, despite her “right” to liquidate that interest, her disability rendered her without the “power” to do so. Notably, in so doing, the court stated,

although we are sympathetic to [the recipient’s] disability, the record does not establish unequivocally that she cannot effectuate her legal rights. An affidavit filed by her psychiatrist states that it would be “impossible for [the recipient] to retain one attorney and participate in and discuss legal matters,” … but it is also a matter of record that [she] had been represented by an attorney at each stage of these proceedings and that she signed the partnership agreement [in issue].

Id. at 756 (emphasis supplied).

Following the Chalmers v. Shalala decision, a state court in the same circuit relied upon New Jersey Medicaid regulations to find that, when an individual is incapacitated and does not have a guardian in place, the individual’s assets may be “unavailable” because they are not accessible to the individual “through no fault of his or her own.” See I.L. v. Division of Medical Assistance and Health Services (“DMAHS”)infra, 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) (citing N.J.A.C. 10:71-4.4(b)(6)).

I.L. involved an 87-year old nursing home resident with Alzheimer’s disease, who had been twice denied Medicaid eligibility. The first and second Medicaid applications had been denied because the verification documentation required by Medicaid was not submitted. After the nursing home became involved and submitted the verification documents required, the third application was denied because the applicant owned insurance policies with cash surrender values.Id. at *1.

At the administrative level, the judge had found that the applicant lacked the mental capacity to surrender those insurance policies and, relying on New Jersey Medicaid regulation N.J.A.C. 10:71-4.4(b)(6), discussed supra, concluded that the resources were inaccessible through no fault of the applicant, that they were not countable assets for Medicaid purposes, and that, upon the appointment of a guardian, those policies would be surrendered and paid over to DMAHS as reimbursement. Id. at *4.

However, the DMAHS Director had reversed the administrative law decision, concluding that the applicant’s dementia had no effect on her eligibility, and that nothing prevented the nursing facility or someone on the applicant’s behalf from liquidating the insurance policies. It had held that,

the test is whether the individual has the “right, authority or power” to the resource pursuant to N.J.A.C. 10:71-4.1(c). See also 20 C.F.R. §416.1201. While N.J.A.C. 10:71-4.4(b)(6) provides that certain resources are excludable from determining eligibility including “the value of resources which are not accessible to an individual through no fault of his or her own, there is no indication that there was a legal impediment preventing I.L. from accessing the resources…. Moreover, an individual’s mental or physical condition does not extinguish the individual’s right, authority or power to a resource. In Chalmers v. Shalala, 23 F.3d 752 (1994), the Third Circuit found that the phrase “right, authority or power” is disjunctive and refused to interpret the phrase as conjunctive. The court went on to find that the work “power” means not only a “mental or physical ability or aptitude,” but also “the legal authority” to liquidate resources.Id. at 755. Therefore, if the individual has the legal right to receive the money, any mental or physical disability is immaterial to the eligibility determination. Indeed, as the court noted, since many disabled individuals receive benefits, “such an interpretation would render the provision meaningless.Id.

I.L. at *3.

On further appeal, however, that decision was reversed. The Appellate Division in I.L. cited the New Jersey Medicaid regulation that includes, among the categories of “excludable resources,” “the value of resources which are not accessible to an individual through no fault of his or her own.” 389 N.J. Super. at 362 (citing N.J.A.C. 10:71-4.4(b)(6)). Noting that the applicant was incapable of managing her affairs, but that a guardian had not been appointed for her at the time, the court concluded that,

the cash values of her life insurance, while theoretically accessible to I.L. through an appointed guardian, were not in fact accessible until the guardian’s appointment, a circumstance that existed “through no fault of her own.”

389 N.J. Super. at 366.

In a Florida case discussed infra, the state was ultimately unsuccessful in prosecuting a son for financially exploiting his elderly parents by endorsing a $847,000 check to himself. Bernau v. State, 891 So. 2d 1229 ( Fla. App. 2d Dist. 2005). In “reluctantly revers[ing]” the conviction, the court noted that the State’s case had been complicated by the parents’ mental status, finding that, although their mental status had apparently diminished rapidly during the course of events, the State had offered no evidence that they were incompetent.Id. at 1230.

ii. Issues As To Whether Actions Were “Authorized”

Although not involving the issue of Medicaid, the case of State v. Kennedy, 61 N.J. 509 (1972), explores the issue of “legally authorized” transfers, and assists practitioners in interpreting Medicaid Communication No. 88-15.

In Kennedy, the defendant had obtained a power of attorney that was assumed to have been executed by the elderly victim, authorizing the defendant to draw upon the victim’s bank accounts. The defendant withdrew the bulk of the money in the victim’s accounts and then misappropriated the money in those accounts. The New Jersey Supreme Court affirmed a conviction of embezzlement. In so doing, it made the following comments regarding the abuse of a power of attorney:

A power of attorney of course is not an instrument of gift. In itself, it is no more than the term, power of attorney, imports—an authorization to the attorney to act for the principal. Although as between the bank and the principal, the bank was relieved [by the terms of the power of attorney] to inquire as to whether any withdrawal was in the agent’s interest rather than the principal’s, the instrument did not authorize the agent to make off with the principal’s money. In short, the instrument was the means whereby the agent was able to get his hands on the moneys, but when the moneys were thus obtained, the agent received them as agent for the principal, and the fraudulent appropriation of the moneys thus obtained to his own use constituted embezzlement. In other words, it is no defense to embezzlement that the moneys reached the agent with the consent of the principal. On the contrary, such entrusting is the necessary setting for the crime… it is no defense to embezzlement that the victim trusted the culprit.

61 N.J. at 512-513.

iii. Litigation Costs

In addition to the above issues, the practical issue of the cost of litigation may be magnified in this area of practice. Litigation of an elder abuse case may be time-consuming and costly. For example, if the victim of elder abuse had limited assets prior to the exploitation, or has been pauperized by the exploitation, that victim may be left without funds necessary to pursue his or her rights to relief against the perpetrator, or his or her entitlement to Medicaid benefits.

The issue of litigation costs was highlighted in the California Court of Appeals case of Levitt v. Hankin, 93 Cal. App. 4th 544 (Cal. App. 2d Dist. 2001). Levitt involved the appeal of an attorney fee award by attorney Marc B. Hankin, Esq., whom the court identified as “a recognized leader in the field of elder law,” who had represented a professional conservator in two actions involving the financial exploitation of elders. In both cases, the attorney’s requested fee award was reduced based upon the modest size of each of the estates. The attorney had argued that his fees should be paid in full, regardless of the size of the estates, “to encourage attorneys such as himself to take cases of financial elder abuse.”Id. at 546.

As the attorney noted, his intervention in the two cases protected not only the finances but also the health and safety of the elders. During one of the hearings, the court noted that the elder would be able to remain in the nursing facility in which he currently resided even if his estate was depleted, because “payments would be taken over by Medi-Cal.” Despite findings that the hours billed and the rate charged by the attorney were not objectionable, the court in both cases held that, based upon the size of the estate involved, those fees would be reduced. Id . at 547, 548.

On appeal, the court took judicial notice of a September 12, 2000 Los Angeles County Board of Supervisors’ Order No. 14, stating that,

elderly persons with modest estates do not have ready access to legal advice and assistance, which would enable them to effectively redress the exploitation of their assets or obtain properly documented estate planning for their protection… County Counsel … work with the State and County Bar Associations on specific legislative proposals that would help improve access to the justice system for elderly persons with modest incomes who have been victims of financial exploitation or need assistance in estate planning matters.

Id. at 549 n.2.

Nevertheless, the Levitt appellate court affirmed the attorney fee awards, finding that the trial court’s consideration of the modest size of the estates was proper, and that the attorney’s dispute was an argument properly addressed to the Legislature. It concluded that,

We expect that Hankin and other members of the elder abuse bar have coordinated efforts with offices of county counsel, public guardian, and adult protective services to work on specific legislative proposals to improve access to the justice system for victims of elder abuse, as suggested in the order of the Los Angeles County Board of Supervisors…. We commend their efforts.

Id. at 550-551.


The author was informed of an unreported Minnesota case in which an elderly victim of financial exploitation was spared his Medicaid benefits thanks to the efforts of the University of St. Thomas law students’ Elder Law Practice Group. According to a Minneapolis-St. Paul Star Tribune article1, in that case, the elder, Donald Mayne, appointed his daughter as agent under a power of attorney. She reportedly then stole approximately $60,000 from his bank accounts. Moreover, despite the fact that the daughter faced criminal charges of “theft by swindle,” Medicaid authorities attempted to strip the father of his Medicaid benefits, with an administrative law judge having found “no convincing evidence” that the transfer was not simply an attempt to hide Mr. Mayne’s assets and reportedly concluding that “[i]t does not matter that his daughter, who was his attorney-in-fact, made the transfers against his will and outside his control.” However, after that decision was appealed and the Minnesota attorney general’s office became involved in the case, Mr. Mayne’s benefits were restored.

This author recently litigated two different cases in the Superior Court of New Jersey, Union County, each involving the financial exploitation of the elderly. Neither of these two cases, which are discussed below, resulted in a reported decision.

a. Case #1: Exploitation By, And Criminal Judgment Against, The Elder’s “Friend”

In one case, a non-relative “friend” took a frail, elderly widow into her home as a tenant. The elderly widow had no family in New Jersey. The friend acted as caregiver for the elder, and the elder eventually appointed the caregiver as the elder’s agent under a power of attorney.

The caregiver provided the elder with personal care needs and handled all of the elder’s financial affairs. Unfortunately, the caregiver also financially exploited the elder: over the course of about eleven months, the caregiver stole about $166,000 from the elder. Ultimately, the elder was removed from the caregiver’s home by Union County Adult Protective Services and placed in a local nursing home.

The caregiver was indicted, convicted and eventually sentenced to serve 7 years in prison.2 I represented the elder in a civil action against the caregiver, which civil action had been stayed pending resolution of the criminal case. We ultimately obtained a civil judgment of $166,000 against the caregiver, based upon the criminal conviction. The elder, who is still residing in a nursing home, has been unable to recover any of the amount awarded against the caregiver.

b. Case #2: Exploitation By, And Civil Judgment Against, The Elder’s Daughter

In another case, I was appointed by the court as counsel, and later as guardian ad litem, for an elderly woman who had been sued by the nursing home in which she was residing. The woman had lived with her adult daughter in the mother’s home in Elizabeth, New Jersey before the daughter admitted her mother into the local nursing home. The nursing home sued the mother and the daughter after providing care for the mother for several years without receiving payment.

This case presented interesting issues with respect to family relationships and trust between the victim and the abuser. The mother was elderly, blind and hard of hearing, and her understanding of English was limited. When I first became involved, she did not cooperate in the defense of her case, instead remaining silent and deferring to her domineering daughter. She said that she did not want me to represent her because her daughter was representing her interests. Upon advising the court of the mother’s stance, the court removed me as court-appointed counsel, but appointed me as guardian ad litem in the case. Interestingly, at some point in the litigation, the mother began to acknowledge that her daughter had exploited her, and thereafter she participated in the case against her daughter.

As we alleged in our counterclaim against the daughter, after admitting her mother to the nursing home, the daughter improperly used a power of attorney to mortgage her mother’s home and withdraw most of the equity value of the home. She then gave the proceeds to herself and/or family members. We also alleged in the counterclaim that the daughter used her mother’s monthly Social Security and pension checks to pay her own personal bills.

After a trial, the court entered judgment in favor of the nursing home against the mother and the daughter on the main claim for $218,000, but in the cross-claim, the court found that the daughter was liable to her mother in the full amount of the debt owed by the mother to the nursing home.

c. The Impact Of The Exploitation On The Elder’s Medicaid Eligibility

In both cases, I was involved in filing Medicaid applications for the victims of the financial exploitation, with two quite different results.

In the first case involving the non-relative caregiver, Medicaid approved the application. In the second case, Medicaid denied the application based upon the failure to provide information about the stolen funds. However, in neither case was I able to provide Medicaid with concrete information about the disposition of the stolen assets. In my opinion, the criminal conviction in the first case was a motivating factor behind Medicaid’s approval.

These differing results spurred my interest in exploring the effect of financial exploitation on Medicaid eligibility.


Financial Exploitation of The Elderly: Impact on Medicaid Eligibility Continued >