In my years of practicing elder law and guardianship litigation, I’ve become accustomed to meeting with elderly clients and their families who are shocked when I inform them that Medicare, the medical insurance which covers the medical bills of most elderly clients, does not pay for long-term care costs, either at home or in a nursing home. Most other types of insurance which clients own (other than long-term care insurance, which most clients do not own) are similarly deficient in their coverage of long-term care expenses. Actually, Medicare has never covered the cost of long-term care in a nursing home in the history of the program. Another shock to elderly clients facing nursing home admission and their families usually comes when they learn that, in most cases, the only source of payment for the long-term care costs is private payment through savings. In New Jersey, the average cost of long term care in a nursing home is catastrophic, approaching $10,000 per month. As a result, the cost of care for elderly, disabled seniors quickly depletes the life savings of most citizens, leaving them impoverished, with insufficient assets to provide adequately for the healthy spouse and without any legacy for children or other family members.
Medicaid will, of course, cover the costs of care for the impoverished. To qualify for Medicaid benefits, the ill spouse can own no more than $2,000 in resources (although some applicants can retain $4,000, based upon the amount of their income.) All assets above this resource limit must be “spent down” to meet the costs of medical necessities and other long term care costs.
There are a variety of estate planning strategies available to elderly, disabled seniors facing nursing home or other long term care costs by which they can preserve assets by accelerating eligibility for Medicaid and other needs-based public benefits. These Medicaid planning strategies are legal and in compliance with all laws and regulations. Elder law attorneys are often hired by families to assist in preserving an elder’s assets for the benefit of the healthy spouse who will continue to live in the community and the heirs.
Increasingly, courts have produced published decisions in cases involving elderly clients who have engaged in Medicaid planning, applied for benefits, and filed appeals after their claims were denied by the state Medicaid agency. These decisions have been produced by courts at various levels in the appeals process, from administrative law judges to the Appellate Division of the Superior Court to the New Jersey Supreme Court. As cases are decided and decisions are produced, winning Medicaid planning strategies are confirmed by the Courts of this state. Many of these cases also often involve guardianships of elderly parents by adult children.
With that background, the following cases are, in my opinion, the top 10 14 New Jersey elder law / guardianship cases (in random order):
1. In re Keri, 181 N.J. 50 (2004) In a unanimous decision, the New Jersey Supreme Court, for the first time, directly addressed and authorized the use of Medicaid planning by a guardian/child for an incapacitated parent. Reversing the trial court and Appellate Division, the Supreme Court found that “’a competent, reasonable individual … would prefer that his property pass to his child rather than serve as a source of payment for Medicaid and nursing home care bills.” So long as the transfer is in the best interests of the incapacitated person and are such as the ward might have made if competent to do so (which will be presumed absent substantial evidence to the contrary), the Supreme Court held that guardians can transfer assets to non-disabled children with court approval. Further, noting that Medicaid planning is legally permissible under both federal and state Medicaid law, the Court stated that “[f]ew would suggest that it is improper for taxpayers to maximize their deductions under our tax laws to preserve income for themselves and their families-even though they are, by their actions, reducing the amount of money available to government for its public purposes.” I am proud to report that I represented the plaintiff son who was appointed as his mother’s guardian and ultimately permitted to transfer her limited assets to his brother and himself as part of a Medicaid estate plan.
2. Matter of M.R., 135 N.J. 155 (1994) M.R. was a developmentally-disabled woman with Down’s Syndrome who resided with her mother since her parents divorced. As M.R. approached her eighteenth birthday, she expressed a desire to live with her father. Because M.R.’s mother wanted M.R. to continue to live with her, she instituted an action seeking guardianship of M.R. The trial court held that M.R.’s father bore the burden to show that M.R. had the specific capacity to express her preference of residence but had failed to meet that burden, and awarded guardianship to M.R.’s mother. The Appellate Division affirmed. On appeal, the NJ Supreme Court reversed. The Supreme Court held that M.R.’s mother, the person challenging her incompetent daughter’s specific capacity to decide where to live, had the burden of proving that M.R. was not competent to make that choice by clear and convincing evidence. Further, the Court clarified the role of the court-appointed counsel by holding that M.R.’s attorney should advocate M.R.’s choice so long as it does not pose an unreasonable risk for M.R.’s health, safety, and welfare.
3. Matter of Labis, 314 N.J. Super 140 (App. Div. 1998) In Labis, the guardian-wife of her incapacitated husband applied to the court for permission to transfer her husband’s interest in the marital home to her for purposes of Medicaid planning. After concluding that “[a]n effort should be made, in the public interest, to preserve some of [the ward’s] assets, in some way to make it possible to repay a portion of the public expense in supporting the incompetent,” the lower court denied the application. The Appellate Division reversed. The Appellate Division relied upon the substituted judgment doctrine, finding that the lower court had denied the guardian’s application “on an erroneous view that the proposed interspousal transfer was contrary to public policy, and thereby failed to consider that the interspousal transfer would benefit [the ward] in carrying forth his probable actions if he were competent to address the situation.” As the Labis court aptly reasoned, “[c]oncepts of equal protection and inherent fairness dictate that an incompetent should be given the same opportunity to use techniques of Medicaid planning and estate planning as others more fortunate.”
4. J.P. v. Division of Medical Assistance and Health Services, 392 N.J. Super 295 (App. Div. 2007) In this case, a New Jersey appeals court ruled that alimony paid by the healthy spouse directly to a special needs trust established by the disabled spouse pursuant to a marital settlement agreement in a divorce is not countable “income” for Medicaid purposes.
5. L.M. v. Division of Medical Assistance and Health Services, 140 N.J. 480 (1995). In this case, the institutionalized husband was denied Medicaid based upon excess income. Thereafter, he (through his guardian) and his wife divorced and his pension was equitably distributed, pursuant to a separation agreement, to his wife. On appeal, the Supreme Court held that, pursuant to the equitable distribution order, the wife was the sole owner of the pension, and that the pension income could not be considered “available” to the husband for Medicaid eligibility purposes.
6. Following L.M., however, in H.K. v. Cape May County Board of Social Services, 379 N.J. Super 321 (App. Div. 2005), the administrative law judge (ALJ) refused to permit a spousal support order to be used to alter a Medicaid community spouse allowance. In H.K., after a husband entered a nursing home and applied for Medicaid, his wife filed for a Divorce from Bed and Board, which resulted in a property settlement agreement ordering that the husband’s pension income be paid to his wife as support. The ALJ found that the support order did not render the wife entitled to an increased community spouse allowance under Medicaid: “The Divorce Decree that included an alimony payment was not evaluated on the merits by the Superior Court …. The Property Settlement Agreement … is not a determination, on the merits, that is binding upon the Director in terms of the [Medicaid] community spouse allowance calculation.”
7 and 8. Estate of F.K. v. Division of Medical Assistance and Health Services, 374 N.J. Super 126 (App. Div.), certif. den., 184 N.J. 209 (2005) and A.B. v. Division of Medical Assistance and Health Services, 374 N.J. Super 460 (App. Div.), certif. den., 185 N.J. 38 (2005) Both of these cases concern New Jersey Medicaid’s treatment of “actuarially sound” commercial annuities purchased for the benefit of a “community spouse” (the spouse of the Medicaid recipient/applicant). Medicaid’s treatment of these annuities was challenged on three fronts. The first is the Medicaid regulation which defines a commercial annuity purchased for the benefit of a community spouse as a countable “resource” to the extent that its purchase price exceeds the community spouse resource allowance (CSRA). The second is Medicaid’s position that such an annuity is an “available asset” because it is readily marketable on the secondary market. The third is the requirement set forth in Medicaid regulations which mandate that the State of New Jersey be named as the first remainder beneficiary on such annuities. These challenges were successful, and our Appellate Division concluded that Medicaid’s restrictive treatment of these annuities is impermissible. However, the federal law governing annuities changed somewhat in 2006 when the Deficit Reduction Act became effective.
9. Estate of DeMartino v. Division of Medical Assistance and Health Services, 373 N.J. Super 210 (App. Div. 2004). In this case, New Jersey’s appellate court, for the first time, permitted the state Medicaid agency to assert a lien for the recovery of Medicaid benefits against the assets of a testamentary trust established for the benefit of a Medicaid recipient by his late wife.
10. H.K. v. Division of Medical Assistance and Health Services, 184 N.J. 367 (2005) On July 30, 1998, H.K. executed a deed conveying real property in Avalon, NJ to her children as a gift. The deed, given to the children, wasn’t recorded in the county clerk’s office until August 2000. In 2002, H.K. applied for Medicaid benefits. The Medicaid agency considered the transfer of the real property to have occurred in 2000, when the deed was recorded, and denied eligibility because a gift transfer occurred during the look-back period. On appeal, the Appellate Division affirmed. On further appeal, the NJ Supreme Court reversed. The Supreme Court held that the transfer of the Avalon property occurred on July 30, 1998, the date on which the deed to the property was executed, conveyed to H.K.’s heirs, and accepted by them. Therefore, H.K.’s transfer of the property to her children for less than fair market value did not occur within the look-back period, and H.K. was found to be eligible for Medicaid.
11. W.T. v. Division of Medical Assistance and Health Services, 391 N.J. Super. 25, (App. Div. 2007. W.T. and M.T. were married in 1962. W.T. was the primary source of income for the family. After he had retired, he was rendered a permanent quadriplegic, dependent on a respirator to breathe, in chronic pain. His prognosis was grave. M.T. quit her job to care for him. Because of his need for constant nursing care, he became a permanent resident of a nursing home. Concerned about M.T.’s financial future, the parties pursued a divorce. In the property settlement agreement (PSA) they negotiated, M.T. received assets amounting to about 63 percent of the marital estate; W.T. received the remainder.
W.T. filed a petition for Medicaid 16 months later, after his funds had been reduced by payments for nursing home care. The Medicaid agency found that he was eligible for benefits but imposed a transfer penalty, delaying his benefits, after finding that distribution of marital assets to him under the PSA constituted an impermissible transfer for less than full value. At an administrative hearing, M.T. and her attorney testified that the PSA distribution to M.T. of more than 50 percent of the marital estate was not intended to rid W.T. of assets to assist for Medicaid qualification, but to preserve assets that were necessary for her support. A human services specialist from Medicaid testified that the transfer penalty was imposed because of a state policy that any distribution of marital assets to a petitioner’s spouse of more than 50 percent constituted a transfer for less than fair value. She acknowledged that the policy was not codified in any regulation but was an oral policy reflected in minutes of a staff meeting.
The ALJ found that the asset allocation was fair and reasonable. The Director of Medicaid reversed. The applicant appealed. The Appellate Division found in favor of the applicant, holding that an uncodified, unpromulgated and unannounced in-house rule or policy that matrimonial settlements or divorce judgments providing equitable distribution of less than 50 percent of marital assets to an incapacitated spouse require a penalty for an impermissible transfer violated New Jersey administrative and matrimonial law.
12. A.H. v. Division of Medical Assistance and Health Services, 2008 WL 648922 (N.J. App. Div. Mar. 12, 2008), certif. den.,__ N.J.__ (2008). In A.H., plaintiff son, who was his parents’ agent under a power of attorney, applied for Medicaid benefits for his father. After being denied, the son appealed and the father was found Medicaid eligible. Shortly thereafter, the son used the power of attorney to mortgage his parents’ condominium. He deposited the mortgage proceeds of $83,355.32 into his parents’ joint bank accounts, and then wrote a $35,000.00 check to himself from those funds. The day after he wrote the check to himself, the son applied for Medicaid on behalf of his mother. In the mother’s Medicaid application, the son failed to disclose her interest in the bank accounts. As the A.H. court noted, had the son disclosed the mother’s ownership interest in the bank accounts, Medicaid would have imposed a penalty period. Instead, her Medicaid application was granted. Thereafter, the son wrote checks totaling $24,250 from the parents’ accounts to himself. Medicaid later advised him that the parents’ Medicaid benefits would terminate. The son appealed and elected to continue Medicaid benefits pending the appeal. At the hearing, the ALJ concluded that the parents’ total resources exceeded the resource limit, and that a ten-month period of Medicaid ineligibility would be imposed with respect to Medicaid benefits that had been paid on behalf of the parents. The ALJ also ordered that the son would be personally liable for the repayment of the Medicaid benefits paid by the State on the parents’ behalf. The Medicaid Director adopted those findings, and the son appealed to the New Jersey Superior Court, Appellate Division. The Appellate Division affirmed, holding that the son’s role in applying for benefits, and in benefiting from those assets while, at the same time, ineligible benefits were provided for the benefit of his parents, more than amply triggered the son’s personal liability for the repayment.
13. I.L. v. Division of Medical Assistance and Health Services, 2004 WL 47444411 (N.J. Admin. 2004), rev’d, 2005 WL 4684709 (Jan. 27, 2005), rev., 389 N.J. Super. 354 (App. Div. 2006). 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. At the administrative level, the judge had found that the applicant lacked the mental capacity to surrender those insurance policies, 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 NJ as reimbursement. However, the Director of Medicaid reversed, concluding that the applicant’s dementia had no effect on her eligibility. On further appeal, however, that decision was reversed. The Appellate Division 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.
14. Mistrick v. Division of Medical Assistance and Health Services, 151 N.J. 158 (1998) The Mistrick case held that an individual retirement account (IRA) in the name of the husband is an includable resource for the purpose of determining the wife’s Medicaid eligibility when the wife entered the nursing home but the husband remained in the community.
These top 10 14 cases are important decisions in New Jersey and will affect any estate/asset protection plan you and your family may formulate.
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