Top 10 Elder Law Cases of 2011

New Jersey accounted for 30% of the most important court rulings on elder law issues in 2011. The crib notes version?  Stay within the line and intent of the law to get the results that you want. The courts are supporting Medicaid's ability to create a period of denial because of a transfer of assets to family members.  This is in line with one of the core principals of Medicaid eligibility - the state will pay for your long term care if you have a dire financial need, but not if you manufactured that need in the past 5 years by transferring assets to your family. 

The key takeaway - effective plans are put into place well before they are needed and fully conform to the law.

This "Top 10" list comes courtesy of elderlawanswers.com:

1. Medicaid Applicant's Penalty Period Does Not Begin Until Returned Assets Are Spent Down
The U.S. Court of Appeals, Third Circuit, rules that a New Jersey Medicaid applicant who transferred assets and then had some of the transfers returned cannot get credit toward her penalty period for the time before the transfers were returned that she was resource-eligible. Marino v. Velez (U.S. Ct. App., 3rd Cir., No. 10-2324, Jan. 10, 2011).  

What do you need to take away?  If you made a gift in the 5 years before you applied for Medicaid, and you lost the "bet" that you wouldn't need Medicaid for 5 years, the ENTIRE gift needs to be returned, and spent down, before you will qualify for Medicaid.  To be successful, you need to plan early so that you have a greater likelihood of not needing care for 5 years.

2. State Cannot Recover Assets That Were Transferred Before Medicaid Recipient Died
In a case pursued by ElderLawAnswers member attorney Peter C. Sisson, an Idaho district court rules that the state cannot recover assets from the estate of a Medicaid recipient's spouse that were transferred to the spouse before the Medicaid recipient died. In Re: Estate of Perry (Idaho Dist. Ct., 4th Dist., No. CV-IE-2009-05214, March 16, 2011).  

3. Federal Court Rules Ahlborn Does Not Bar Medicaid Recovery From Future Medical Expenses
A federal district court rules that a state Medicaid agency may recover the cost of a beneficiary's medical care from the portion of her personal injury settlement that was allocated to medical expenses, regardless of whether the funds were allocated to past or future medical care. Perez v. Henneberry (D. Colo., No. 09-cv-01681-WJM-MEH, April 26, 2011).  

4. Court Upholds Nursing Home Resident's Eviction Prior to Resolution of Medicaid Appeal
A Kentucky appeals court holds that a nursing home may evict a resident for nonpayment despite a pending Medicaid appeal. King v. Butler Rest Home, Inc. (Ky. Ct. App., No. 2010-CA-001467-MR, June 17, 2011).  

5. Payments to Caregivers of Dementia Patient Are Deductible Medical Expenses
The U.S. Tax Court rules that payments to caregivers of a dementia patient are deductible medical expenses, even though the caregivers were not licensed health care providers. Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011).  

What do you need to take away?  This is a win for caregivers.  Catastrophic medical expenses in excess of 7.5% of your adjusted gross income are deductible. This may offset some of the costs of care.

6. Third Circuit Affirms That N.J. May Count Promissory Notes As Available Resources
In a long-running case that has bounced back and forth between two federal courts, the Third Circuit Court of Appeals rules that New Jersey's Medicaid agency may analyze promissory notes as trust-like devices and count the notes as available resources. Sable v. Velez (U.S. Ct. App., 3rd Cir., No. 10-4647, July 12, 2011). 

What do you need to take away?  While the court specifically advised that this case was not precedential, if you are making loans, they need to be real and fit within the requirements of the law.  They need to be in writing, actually repaid, and consistent with the law.

7. Transfer of Medicaid Applicant's House to Son Falls Within Caregiver Child Exception
A New Jersey appeals court rules that the transfer of a Medicaid applicant's house to her caregiver son is not subject to a Medicaid penalty period because it falls within the caregiver child exception. V.P. v. Dept. of Human Services (N.J. Sup. Ct., App. Div., No. A-2362-09T1, Sept. 2, 2011). To read the full summary, click here.

What do you need to take away?  The Medicaid applicant was successful because the caregiver child was able to prove that he actually provided a high level of care including walking, bathing, and cooking.  In short, he had good facts.  If you are a caregiver child looking to someday keep your home by taking advantage of this exemption, you will also need good facts. Start keeping a log of what you do now.

8. U.S. Court Rules Connecticut Likely Cannot Refuse Spousal Refusal Doctrine
Ruling that a state statute violates federal Medicaid law, a federal district court grants a preliminary injunction preventing Connecticut from denying Medicaid benefits to an applicant seeking to disregard his spouse's assets using the doctrine of spousal refusal. Fortmann v. Starkowski (D. Ct., No 3:10cv1562 (JBA), Sept. 28, 2011).  

9. Medicaid Applicant's Transfer to Daughter Created Trust-Like Device
A federal district court rules that when a Medicaid applicant transferred money to her daughter with the intention that the daughter pay for her care during the resulting penalty period, she created a trust-like device, so the money is still an available resource. Pfeffer v. AHCCCS (U.S. Dist. Ct., D. Ariz., No. CV-11-0891-PHX-GMS, Sept. 29, 2011). 

10. Irrevocable Trust Set Up by Medicaid Applicant's Children Is Available Asset
A Wisconsin appeals court rules that a Medicaid applicant who transferred funds to her children, who then put them in an irrevocable trust for her benefit, is ineligible for Medicaid because the trust is an available asset under state law, even though the transfer occurred 17 years before she applied for Medicaid. Hedlund v. Wisconsin Dept. of Health Services (Wis. Ct. App., No. 2010AP3070, Oct. 13, 2011).  

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Court Can't Create a Special Needs Trust Where There Wasn't a Will

HandicappWhile courts have the power to interpret a person's intent in a Will to create a Special Needs Trust for a disabled beneficiary, even when the Will does not specifically create such trust, the courts can't create a Special Need Trust out of thin air if the person didn't have a Will.  Stacey C. Maiden, Esq., of our Trusts, Estates and Elder Law Department, shares this recently crafted holding from the case of IMO Estate of Margaret A. Flood.

The New Jersey Appellate Court recently considered the unique question as to whether a court could establish a Special Needs Trust in an intestate estate. In this case, the decedent was survived by 4 children. Two of the children were disabled and beneficiaries of supplemental security income (SSI) and Medicaid programs. One of the children received special residential services and other benefits from the division of developmental disability (DDD). The decedent died without a Will, which under the New Jersey intestacy statute distributes her property equally among her four children.

The decedent did consider estate planning in 2004 and according to the certification of her daughter-in-law, she was concerned about protecting the inheritance of her disabled daughters from any obligations to reimburse the governmental entities that provided benefits and services. The decedent did not consult an attorney until March and April of 2008, and she died on May 24, 2008 having never executed a Will or a testamentary trust.

The lower court permitted the establishment and funding of supplemental benefit trusts for the decedents two disable daughters by applying to doctrine at probable intent. The Appellate Court reversed stating that in the absence of a testamentary disposition, the decedent’s estate passed by way of the law of intestesty, and her children’s interests vested immediately upon her death (N. J.S.A. 3B:1-3.)

The Appellate Court stated that the doctrine of probable intent has no application in the absence of a Will. The Court found that the doctrine of probable intent has never been applied to create a testamentary disposition when the decedent failed to execute a Will. “In essence the doctrine of probable of intent is rule of construction or interpretation and therefore, presupposes an existing testamentary disposition.” The court concluded that the existing case law precludes application of the doctrine of probable intent to create a testamentary disposition where none existed.
 

The moral here? You need to be responsible for how your assets are passing to disables beneficiaries in the event of your death by creating a Will that take their disability into account.  For further information, see an in-depth analysis of the case by my colleague told in a rally in his posting Doctrine of Probable Intent Cannot Be Used to Create Special Needs Trusts for Intestate Decedent.

Undue Influence in a Will Contest or Estate Administration

I received a call yesterday similar to many others I have received over the years.  Essentially, Dad died and the client just found out that shortly before his death he named one child beneficiary of lots of accounts, leaving essentially nothing passing under the Will, which had divided everything equally between 3 children.

Lou Ann Anderson, the Bell County Legal News Examiner has an article today about celebrity cases of undue influence.  The stories are similar - shortly before death a new Will is executed or other property transfers done that undo a lifetime of the decedent's intent. These cases include Brooke Astor (her son and attorney were sent to jail for trying to defraud hundreds of millions from charity), Melvin Simon of Simon Shopping Malls fame (his Will months before he died was changed to leave all to his wife, and take out $150 million in bequests to charities), John "Buck" Jones, owner of the Carolina Panthers (his Will was changed a month before his death to leave control of Company to his wife instead of 3 employees as had been his long standing plan).

While these celebrity cases are titillating because of the names and dollar amounts involved, the same situation involves New Jersey families all the time.

There are competing concerns.  First, a person is free to leave their money to whomever they please (other than 1/3 to a spouse) - children do not have a right of inheritance.  Second, a person is not required to leave money equally among a group - many times one child gets more in the Will than others because the parent perceives that child's need or reward to be greater.  

However, it is the person making the gift who is allowed to make these decisions - not the person getting the gift.  The problem of undue influence arises when somebody essentially takes advantage of a person's reduced physical or mental state, or a situation of fear or dependency, and influences them to make an action they would not have otherwise takes.

The issue for a person who is claiming undue influence cases is one of proof.  How do you prove a person was influenced to make a change to their estate plan and it was not an independent decision?  There need to be witnesses and documents.  Do you have to prove the undue influence, or does the person who got the money have to defend the gift?  Kenneth A. Vercammen, Esq. has an excellent summary of the issues in Undue Influence As Defense To Will Or Power Of Attorney (New Jersey).

Generally, the person claiming undue influence (ie, the person getting less) has the burden of proof to show a court there was undue influence.  See Conners v. Murphy, 134 A. 681, 682 (N.J.Err. & App. 1926); Pascale v. Pascale, 549 A.2d 782, 786 (N.J.1988). However, if the the person who benefited from a gift is in a confidential relationship with the person who made the gift (an attorney in fact under a POA, a person who the person who made the gift is dependent upon), then the burden of proof shifts to the person who got the gift to prove that the person making the gift had independent counsel in making the gift.  See Haynes v. First National State Bank of New Jersey, 432 A.2d 890 (N.J. 1981); Pascale v. Pascale.

The presumption of undue influence is easier to raise with lifetime transfer then with transfers in a Will.   Some lessons from this are that  if you think that you were harmed by undue influence, gathering facts and acting quickly is key.  If you plan to disproportionately benefit your heirs, you should seek legal counsel to act to protect that gift from a claim of undue influence.

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