After being sued by Medicaid applicant in federal court, the Director of New Jersey Medicaid, who had previously denied benefits because the applicant transferred assets to a trust more than 5 years before, instead stated the application was denied because, under the terms of the trust, the trustee was permitted to pay the applicant’s rent. Grace M. Vinci v. Elizabeth Connolly, et al., Civil Action No. 3:17-cv-7709 (D.N.J., 2017)

Grace M. Vinci filed an application for nursing home Medicaid benefits. The caseworker denied the application, concluding that a trust created by the applicant prior to Medicaid’s 5 year look-back period and containing her assets was countable. An appeal was filed. Before a hearing was held, the applicant filed a motion for summary judgment.

After hearing oral argument on the applicant’s summary judgment motion, the administrative law judge (ALJ) found the following facts:

1. In May 2011, the applicant executed the “Grace M. Vinci Income Only Trust,” an irrevocable trust. The trust named the applicant as the grantor and the applicant’s daughter as the trustee.
2. In the first article of the trust, the trustee was required to pay all of the net income from the trust to or for Grace M. Vinci for her lifetime.
3. In the third article of the trust, the trustee, in her sole discretion, was empowered to distribute the principal of the trust to the remainder beneficiaries, but not to the grantor.
4. In the fourth article of the trust, the trustee was empowered to terminate the trust at any time in the trustee’s sole discretion.
5. Two weeks after the trust was executed, the trustee acquired real property, a home that Grace M. Vinci lived in. The trustee was permitted to pay rent and associated household expenses with the trust assets.
6. 62 months after the house was purchased by the trust, the applicant filed for Medicaid.

Based on those facts, the ALJ concluded that the assets in the trust were countable. The ALJ held that, under the Medicaid statute, “resources contained in irrevocable trust funds are excluded (from consideration by Medicaid) only if they are inaccessible to an individual through no fault of his or her own.” Since the petitioner would have had access to the trust assets but for her decision to create a trust over which she had no control, the ALJ held that the trust assets were countable by Medicaid.

The ALJ’s decision was reviewed by the Director of Medicaid. The Director upheld the ALJ’s decision denying Medicaid eligibility in her Final Agency Decision, holding that:

[A] trust containing the assets of the Medicaid applicant is a countable[,] available resource regardless of the purpose for which the trust was established, regardless of whether the trustees have or exercise discretion under the trust, regardless of any restrictions on when or whether distributions may be made from the trust, and regardless of any restrictions on the use of distributions from the trust. Any funds that individual places in his or her own trust are still counted as that person’s resources even when they are in a trust.

The applicant then filed a complaint in federal district court in New Jersey seeking a judgment prohibiting Medicaid from denying eligibility based upon the reasoning in the Director’s Final Agency Decision, i.e., that assets transferred by a Medicaid applicant to an irrevocable trust are countable no matter how long ago the transfer was made. Initially, plaintiff sought a preliminary injunction. A hearing on the preliminary injunction application was held on October 25, 2017 in federal court. At the conclusion of the argument, the Court denied plaintiff’s preliminary injunction application.

Soon thereafter, the parties settled the lawsuit. Under the Consent Order settling the case, the Director indicated that plaintiff’s Medicaid application was not denied because plaintiff transferred her assets to a trust, but rather because, under the terms of the trust, the trustee was permitted to pay plaintiff’s rent.

ORDERED that [Medicaid] adopted the denial of plaintiff Grace M. Vinci’s application for Medicaid benefits in a Final Agency Decision … because [the] Director…  found that the Trust permits the Trustee of the Trust to pay the rent of plaintiff Grace M. Vinci; and it is further ORDERED that [the] Director … concurred in the result of the Initial Agency Decision …, not the reasoning of the Initial Agency Decision; instead [the] Director[’s] … decision is premised on federal law as applied to the above referenced finding regarding the payment of rent from the Trust…

As a result, the very broad language used by the Director in her Final Agency Decision, holding countable all assets transferred by a Medicaid applicant to a trust at any time, was reversed.

The Consent Order entered in the Grace M. Vinci v. Elizabeth Connolly, et al. case is annexed here –  Grace M. Vinci v. Elizabeth Connolly, et al.

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