An issue concerning the payment of college tuition arose in a recent case that may be of interest to readers of this blog. In this case, the mother, who is my client, adopted two children later in life. Both children are now attending college. In the past few years, the mother has been paying college tuition and other expenses for both children. Both of the children were minors when many of the tuition payments were made, although one child recently attained her majority. The aged mother now needs nursing home care, and the issue is whether her payments of her minor child’s college expenses would be considered by Medicaid to be uncompensated transfers (gifts), thereby subjecting the applicant to a gift penalty under Medicaid.

There is no exemption in the Medicaid rules for transfers to minor children (as there is for transfers to disabled children). According to N.J.A.C. 10:71-4.10(d)(2), the transfer of the applicant’s home to a child under age 21 is an exempt transfer. Unfortunately, there is no similar provision for transfers of the applicant’s liquid assets. But see A.A. v. DMAHS, 2001 N.J. Agen. LEXIS 1263 (Jan. 10, 2001) (the Director noted that the applicant’s paying of mortgages to her children resulting from sale of home in issue were to children “who were neither minors nor disabled.”).

However, pursuant to N.J.A.C. 10:71-4.10(e), the transfer penalties do not apply when “a satisfactory showing is made, to the State that… the assets were transferred exclusively for a purpose other than to qualify for medical assistance.” To satisfy this showing, Medicaid will likely consider factors such as the age, financial and health status of the mother at the time the transfers were made, the history of her making similar payments over the mother’s lifetime, and the amount of those payments relative to the mother’s financial status and past contributions. In this case, while the child was a minor (and possibly after that, if the child(ren) were not considered “emancipated” until after college graduation), the mother had a duty of support for the child, including education costs.

In In re Franchina, 873 N.Y.S. 2d 511 (Supreme Ct. 2008), a guardian applied to the court to permit gifting to the ward’s adult daughters. The ward was not on Medicaid; she was 88 years of age, with $750,000 in assets and with assisted living expenses of $9,500 per month. Among other things, the guardian sought to transfer over 2 years the sum of $12,000 each to the ward’s two adult daughters, each of whom was faced with a “significant financial emergency.” The court analyzed the “worst case” scenario, in which the gifts would trigger a Medicaid penalty period. However, it permitted the gifts, after finding, [The ward ] has demonstrated a history of concerned support for her two daughters’ financial well-being. Specifically, she has regularly paid their rent, therapy, and utilities bills, as well as miscellaneous living expenses, both before and during her adjudicated incapacity. Such consistent, long-term behavior is precisely the type of substantial evidence required to satisfactorily show a motive for gifting unrelated to Medicaid eligibility.

In contrast to the Franchina case, in an earlier New York case, In re Greenstein, 760 N.Y.S.2d 810 (Supreme Ct. 2003), the ward was the beneficiary of a special needs trust (SNT), and the guardian/trustee applied for permission to gift assets from the trust to the ward’s minor daughter, which the petitioner claimed was consistent with the ward’s wishes and with her obligation of support for the minor child. Although the petitioner asked that the court be guided by the guardianship statutes, the proposed gift was from the ward’s SNT as opposed to an outright gift, which distinction the court found significant. It noted that the terms of the SNT required that it be administered for the ward’s benefit, as opposed to outright transfer of a guardian’s funds, which emphasize effectuating the ward’s wishes. However, it seemed to accept Medicaid’s argument that the transfer could only be made if it was in the ward’s best interests to terminate her own Medicaid eligibility, because “the end of Medicaid eligibility would follow directly from the gift.”

In sum, there is no Medicaid regulation/statute that exempts payments of a child’s college expense from the gift penalties, and no New Jersey case law that interprets those Medicaid rules to exempt payments of college expenses. Therefore, it appears that a Medicaid applicant’s of her minor child’s college expenses would be considered by Medicaid to be uncompensated transfers or gifts, thereby subjecting the applicant to a gift penalty under Medicaid.

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