New Medicaid Planning Strategy Held To Be Valid In New Jersey In An Important New Case

As I reported in a May 22, 2008 blog posting several months ago, I received a denial notice from the Middlesex County welfare agency in a case in which the applicant’s Medicaid eligibility plan involved making a loan to a relative. The borrowing relative signed a promissory note agreeing to repay the note in monthly installments, including interest. The note and underlying loan were bona fide under NJ law. Unfortunately, the agency considered the loan and note to be a gift, resulting in the applicant being incorrectly charged for a penalty period under the Medicaid transfer of resources rules for many months, costing hundreds of thousands of additional dollars to privately pay for care during the penalty period. Most troubling was the reason for the agency’s determination. According to the agency, the loan was determined to be a gift because the loan was made in order to qualify for Medicaid and, under the agency’s incorrect view of the Medicaid law in New Jersey, motivation for making the loan was the principal factor in determining Medicaid eligibility.

I filed an appeal of the denial of Medicaid eligibility. In New Jersey, an appeal of a Medicaid denial leads to a trial, called a Fair Hearing, before an Administrative Law Judge (ALJ). While waiting for a trial date in the administrative forum, I filed a motion for summary judgment on the Medicaid applicant’s behalf, asking that the case be resolved before trial. A summary judgment motion can be granted only when there is no dispute as to the facts in the case, and the party seeking summary judgment is entitled to a decision in his favor as a matter of law. In this case, ALJ Joseph Paone agreed with our position, and granted summary judgment in favor of the Medicaid applicant. The judge held that (1) the motivation for the loan was irrelevant in determining the status of the loan, and (2) the loan was not a gift under federal law. The result of the ALJ’s decision would be that the Medicaid applicant was eligible for nursing home Medicaid benefits. The ALJ’s decision can be found here – aljs-decision.

Middlesex County welfare filed exceptions to the ALJ’s decision. In New Jersey, an ALJ’s decision is subject to plenary review, and can be reversed, by the Director of the State’s Division of Medical Assistance and Health Services, the State Medicaid agency. Happily, I received the Director’s decision today, affirming the ALJ’s decision. The Director’s decision can be found here – gl-v-dmahs.

I have been informed that this administrative law case is the first published opinion in the nation approving a promissory note and loan as an estate planning strategy for Medicaid eligibility.