Top New Jersey Elder Law Cases Decided In 2008

There were 6 significant cases decided in New Jersey in 2008 in the area of elder law, the majority of which came out of the administrative arena. That is, 5 of the following 6 cases were issued by the Office of Administrative Law. All of the cases involved elderly clients who engaged in Medicaid estate planning, applied for benefits, and filed appeals after their claims were denied by the state Medicaid agency. The cases are particularly important because they are among the first group of cases in which Medicaid estate planning strategies developed after the passage of the Deficit Reduction Act of 2005 were considered by the courts of this state. A number of winning estate planning strategies for accelerating Medicaid eligibility were approved by judges in the cases discussed below. I am particularly proud of the decision in the G.L. v. DMAHS case, mentioned below, in which I represented the petitioner, a Medicaid applicant. G.L. v. DMAHS was the first case in New Jersey in which a court approved a new Medicaid estate planning strategy involving a gift and promissory note / loan plan. The top 6 New Jersey elder law cases in 2008 were:

1. james-ex-rel-james-v-richmond, 465 F.Supp.2d 395 (M.D. Pa., Nov 21, 2006), aff’d, james-v-richman, — F.3d —- (3rd Cir.(Pa.) Nov 12, 2008) (NO. 06-5092). In this case, an institutionalized spouse who was a nursing home resident brought a lawsuit against the Pennsylvania Department of Public Welfare (DPW) alleging that the DPW’s decision to deny his eligibility for Medicaid benefits violated the federal regulations governing annuities under the Medicaid Act. The DPW based its denial of benefits on the grounds that the annuity purchased by the institutional spouse’s wife who was living in the community in an amount exceeding the community spouse’s resource allowance permitted under the Medicaid program was an available resource to be counted in determining the institutionalized spouse’s Medicaid eligibility. The parties filed cross-motions for summary judgment. The federal district court granted the plaintiff institutional spouse’s motion, and denied the DPW’s motion. The DPW filed an appeal. On appeal, the United States Court of Appeals for the Third Judicial Circuit affirmed the decision of the district court. The appellate court ruled that an annuity, purchased by the institutional spouse’s wife in an amount exceeding the wife’s resource allowance allowed under the Medicaid law, may not be treated by the DPW as an available resource in calculating the institutional spouse’s eligibility for Medicaid benefits. New Jersey, like Pennsylvania, is within the Third Judicial Circuit, and therefore this case is controlling law in New Jersey. As a result, the James v. Richman case appears to significantly change the law in New Jersey concerning the use of annuities to help elderly residents of New Jersey remain in their homes. It now appears that annuities may be a new estate planning tool which may be used by married New Jersey residents to achieve Medicaid eligibility.

2. gl-v-division-of-medical-assistance-and-health-services, OAL DKT. NO. HMA 5080-08 (Middlesex County October 23, 2008). Here, G.L., a nursing home resident, made a loan to her son in the amount of $86,000. The loan is evidenced bya promissory note, which is non-negotiable, non-assignable, non-transferable, and must be repaid by G.L.’s son within G.L.’s life expectancy, making it actuarially sound. The loan is not cancelable upon G.L.’s death. The monthly payments range from $7,003.01 to $7,331.74 for twelve months with no deferral of payment and no balloon payment. Soon after making the loan, G.L. applied for nursing home Medicaid benefits with the Division of Medical Assistance and Health Services (DMAHS), the state Medicaid agency, was denied and appealed. On motion for summary judgment, the administrative law judge (ALJ) found in favor of G.L., granting Medicaid eligibility. The ALJ held that a Medicaid applicant’s transfer of money to her son in exchange for an unsecured and non-negotiable promissory note met the statutaory requirements set forth in the Deficit Reduction Act of 2005 (DRA), and therefore neither constituted a transfer of assets for less than fair market value, nor subjected the applicant to the imposition of a penalty period. The Director of Medicaid affirmed the decision – gl-v-dmahs.

3. ob-v-dmahs, Docket No. HMA-6519-07 (Consolidated Cases). In these consolidated cases,  applicants from various counties sought home- or community-based coverage under a Medicaid waiver program, but had made transfers during the look-back period. Medicaid argued that, pursuant to the DRA, the penalty period for waiver applicants cannot start until the applicant is actually receiving services, because only then would the applicant be considered an ‘institutionalized individual” under the law. (Medicaid’s argument in support of what has been referred to as the “Never Ending Penalty Period” is that the penalty period for an individual who has made a transfer of assets within 60 months of applying for benefits under a home or community-based program cannot start until the applicant is receiving services under the Medicaid program. The ALJ ruled in favor of the applicants, stating that the state’s “interpretation would actually encourage placement in a nursing facility over less-costly waiver services and undermine the impetus for the DRA’s enactment.” Medicaid appealed. The Director of the Division of Medical Assistance and Health Services reversed the ALJ’s decision – ob-final-agency-decision. A federal court case was filed and is pending.

4. es-v-dmahs, Docket No. HMA 14-08 (Monmouth County Sept. 30, 2008). The issue in this case was: To what extent can the Medicaid penalty period be reduced based upon the return of gifted assets? Here, a nursing home resident transferred $42,053 to her son after paying the nursing home privately for two years. She then applied for Medicaid. DMAHS imposed a 6 month and 9 day penalty period as a result of the gift. During the penalty period, the petitioner’s son paid $30,488 of the nursing home’s monthly bills using the gifted assets. Both the petitioner and DMAHS agreed that the payments made by petitioner’s son to the nursing home for petitioner’s care were considered to be a “returned gift” under the Medicaid rules, resulting in a proportional reduction in the penalty period. The remaining funds ($11,605) were treated as the remaining gift, resulting in a reduced penalty period of 1 month and 9 days of ineligibility for Medicaid. When DMAHS and petitioner disagreed about the start date of the reduced penalty period, petitioner appealed. The ALJ held that both petitioner and DMAHS misinterpreted the law regarding “returned gifts” under Medicaid: the ALJ concluded that no reduction in the penalty period can occur if assets are returned after an application for Medicaid benefits has been filed, and the original 6 month and 9 day penalty period should not have been reduced. The AU also held that the returned gifts were available to the petitioner because the nursing home was paid by the son in advance, one month before each payment was due, and, therefore, the petitioner was ineligible for Medicaid due to excess resources. The Director of DMAHS affirmed.

5. cs-v-dmahs, Docket No. HMA 1036-08 (Consolidated cases). The issue in these cases was: Is the Medicaid applicant’s prepayment for personal care services provided by a family member under a life care contract a transfer for less than fair market value? Each petitioner in this trio of consolidated cases entered into a written contract with a relative which obligated the relative to provide life care services in exchange for a prepaid fee based on the actuarial life expectancy of that petitioner. Petitioners asserted that the contracts were evidence that the payments made for services to be provided in the future were born fide. Medicaid determined that each petitioner’s payment to a relative under the contract constituted an uncompensated transfer of assets, subjecting each petitioner to a penalty period. The ALJ ruled that a Medicaid applicant’s prepayment for personal care services by a family member under a life care contract constituted a transfer of assets for less than fair market value, subjecting the applicant to the imposition of a penalty period under the Medicaid program.

6. kr-v-dmahs, O.A.L Docket No. HMA 12343-07 (Somerset County Aug. 25, 2008). In this case, New Jersey’s Office of Administrative Law ruled that an account titled to a Medicaid applicant “or” another person is not disqualifying if the applicant can demonstrate that he did not contribute to the account and the other account holder did not intend to make a gift to the applicant in funding the account. For many years, K.R. relied on his brother A.R. to meet his care and financial needs. A.R. established a bank account titled “K.R. or A.R.” to make funds available for K.R. should A.R. die suddenly. To lessen tax, the account used K.R.’s Social Security number. The Somerset County Board of Social Services determined that the account disqualified K.R. from Medicaid until closed, and that A.R.’s closure of the account triggered uncompensated transfer or “gift” penalties that disqualified K.R. from Medicaid for another year. K.R. requested a fair hearing. On appeal, however, the ALJ held that New Jersey could not automatically treat every “or” account as Medicaid disqualifying because Supplemental Security Income (SSI) rules permit an applicant to show that he doesn’t own such an account in his name, and federal law prohibits state Medicaid eligibility methodology from being more restrictive than Social Security Administration practices in evaluating SSI eligibility. Since A.R. fully funded the account without intending to make a gift to K.R., the judge determined that the account was not owned by or available to K.R., and that A.R.’s closure of the account did not trigger Medicaid “gift” penalties.

You should discuss these important decisions with your elder law attorney when formulating your estate/asset protection plan. If you already have an estate/asset protection plan in place, you should be aware that the 2008 cases might affect your plan.