New Jersey appeals court ruled that a Chancery court’s order holding that certain trust expenditures “shall not” act to deprive the beneficiary of any Medicaid benefits should a Medicaid application be made, exceeded the court’s subject-matter jurisdiction because New Jersey’s Medicaid agency, the Division of Medical Assistance and Health Services (DMAHS), was the single state agency responsible for administering New Jersey’s Medicaid program.  In the Matter of A.N., a Minor, Docket No, A-5657-10T3 (App. Div. 2013), approved for publication, April 16, 2013.

A.N., who was seventeen years old at the time the case was decided, suffers from quadriplegic cerebral palsy and is fully dependent on others. In 2000, A.N.’s parents created a self-settled special needs trust pursuant to 42 U.S.C. §1396p(d)(4)(A)  to hold an award of money damages resulting from litigation filed on A.N.’s behalf. A.N. is the sole beneficiary of the trust. A.N.’s parents are co-trustees, along with the Bank of America, a corporate co-trustee.

A.N. lived in the family home in Elmwood Park, NJ. The home was renovated to accommodate A.N.’s special needs. Because of family financial difficulties, the home was threatened with foreclosure. As a result, the special needs trust began assuming the mortgage payments and carrying costs. A.N.’s parents wanted the trust to purchase the home for their A.N.’s benefit. They also sought to receive compensation from the trust for the care they provided.

In January 2010, in accordance with the wishes of A.N.’s parents, the corporate co-trustee filed a verified complaint in the Chancery Division, Probate Part, seeking instructions pertaining to the trust’s proposed purchase of the home and approval of prior and future payments related to the maintenance of the home and for A.N.’s care. The complaint also sought instructions regarding rent by occupants of the property and as to the scope of parental support provided to A.N. by her parents. As to each of these items, the complaint also sought instructions regarding the “impact on the Trust beneficiary’s Medicaid eligibility.”

An order to show cause was issued. DMAHS was served with the pleadings as an interested party. The agency promptly notified the court and counsel for all parties that it took no position regarding the relief requested. However, it also expressed its position that, although the court could provide guidance on the effect of the plaintiffs’ proposed transactions on the beneficiary’s possible future Medicaid eligibility, the court lacked jurisdiction to “make administrative determinations with regard to a person’s future Medicaid eligibility or make determinations about the evaluation of transactions under Medicaid rules.” Therefore, DMAHS stated that if the beneficiary should ever apply for Medicaid benefits, it did not waive any right to review at that time all transactions and resources, and only it could make a Medicaid eligibility determination.

On the return date of the order to show cause, the court conducted a plenary hearing. At the conclusion of the hearing, the court approved acquisition of the property, ratified past expenditures, and approved anticipated future expenditures. The court determined that the acquisition and expenditures were for the “sole benefit” of the beneficiary and that they “shall not act to deprive [the beneficiary] of any government funds or benefits, including, but not limited to, Medicaid. An appropriate order was entered. The State of New Jersey then filed a motion for reconsideration, objecting to the language in the court order which might “preclude the Medicaid agency from reviewing the trust under Federal and State rules, which cannot be done in the Chancery Division.” As a result, the State’s motion for reconsideration was denied.

DMAHS appealed. The Superior Court, Appellate Division, reversed. The appeals court held as follows:

[I]n cases … in which potential Medicaid impact is an appropriate consideration, the court can, based upon all of the information presented and a review of current Medicaid statutes and regulations, provide advice that the proposed transaction is consistent with those statutes and regulations and is unlikely to adversely affect Medicaid eligibility. [But the ruling] can have no binding effect in the future on DMAHS in rendering a Medicaid eligibility determination.

Therefore, based on a ruling that “only the designated Medicaid agency is authorized to determine Medicaid eligibility,” the court concluded that the Chancery Division’s order stating that various transactions “shall not deprive [A.N.] of any government funds or benefits, including, but not limited to, Medicaid,” exceeded the court’s jurisdiction and must be deleted.

The case is annexed here – In the Matter of A.N., a Minor

Updated on 5/9/13: One litigation strategy which was not tried by the trustees in the A.N. case but may work is to ask the Court to review the Medicaid  statutes and regulations as well as the statutes and regulations governing special needs trusts and make findings on whether the actions contemplated by the trustees were authorized by the statutes and regulations, without making an ultimate determination on Medicaid eligibility.