Summary Judgment Denied In NJ Medicaid Planning Case Involving A Loan / Promissory Note

Cases involving a variety of Medicaid planning strategies in New Jersey are now pending in the Office of Administrative Law (OAL), state and federal courts. A recent decision in response to a motion for summary judgment which I filed in an OAL case entitled M.S. v. Division of Medical Assistance and Health Services and the Middlesex County Board of Social Services, OAL Docket No. HMA 9733-09 reveals the present state of the law involving one Medicaid planning strategy involving a “gift and loan” plan.

In 2007, M.S. gave her daughter C.P. power of attorney over her financial affairs. In 2008, M.S. became eligible for nursing home Medicaid benefits. In 2009, C.P notified respondent, the Middlesex County Board of Social Services (MCBSS), that sold her mother’s home and was in receipt of the proceeds from the sale. On May 26, 2009, the MCBSS advised M.S. that she would no longer be eligible for Medicaid benefits as of June 30, 2009, due to excess resources, i.e., the proceeds from the sale of the home. On June 1, 2009, C.P., on behalf of M.S., and through the power of attorney provided by M.S., entered into a loan agreement with herself. The loan agreement provided that M.P. give C.P. $112,120 in exchange for a promissory note. C.P. also made a gift to herself, and then reapplied for Medicaid benefits on her mother’s behalf.

Respondent MCBSS denied petitioner M.S.’s eligibility for Medicaid benefits due to excess resources. MCBSS determined that the promissory note constituted a “trust-like device” because C.P. had a fiduciary relationship with M.P. that required C.P. to hold and administer the proceeds of the loan she received from M.P. for M.P.’s benefit. Under federal law, 42 U.S.C. §1396p(d), funds used to create a trust or trust-like device must be considered a resource available to an applicant for Medicaid benefits. In response, M.P claimed that C.P.’s promissory note, as a matter of law, was not a trust or trust-like instrument, but rather was only a promise to repay a loan, and, therefore, could not constitute an available resource.

M.S. appealed, and the matter was transmitted to the OAL. M.S. then filed for summary judgment. The parties filed briefs, and Administrative Law Judge (ALJ) Joseph A. Paone (who was recently elevated to a Superior Court judgeship) entered an Order denying summary judgment, as follows:

A loan does not generally create a fiduciary relationship and such a transaction is not generally intrinsically fiduciary. But here, where there is no arms-length transaction, the borrower is acting as the attorney-in-fact for the lender, and a situation is created where a mother may become impoverished if her daughter fails to act in her mother’s best interest, there is an absolute dispute as to whether C.P. is merely holding her mother’s proceeds from the sale of her home in trust for her mother’s benefit. That dispute can only be resolved through a hearing, where an inquiry can be made into the parties understanding at the time the loan was made.

As a result of the ALJ’s ruling, an administrative trial is now scheduled The ALJ’s decision denying summary judgment in the M.S. v. DMAHS case is annexed here – M S v DMAHS, HMA 9733-09