New Jersey Estate Planning & Elder Law Blog : New Jersey Estate Planning Lawyer & Attorney : Deirdre Wheatley-Liss : Fein Such Kahn & Shepard Law Firm : Elder Law, Tax Planning

The most important Elder Law decisions from around the country are summarized here.  Each case is relevant to New Jersey as elder law often involves Medicaid, which is subject to "supposedly uniform" federal regulation as jointly funded and administered by the federal and state governments. As a result, treatment of a question about Medicaid in one state may eventually become the law of the land in all states.  

Elderlawanswers.com has created this top 10 list from the popularity of the cases on its website - I have added topic heading and notes about what impact these cases might have in New Jersey.

1. Estate Recovery - State That Has Not Expanded Definition of Estate May Still Recover Non-Probate Asset

   A Missouri appeals court finds that the state may use an accounting statute to recover Medicaid benefits from a decedent's estate even though the only asset is a non-probate asset and Missouri has not expanded its definition of estate to include non-probate assets. In Re Estate of Jones (Mo. Ct. App., W.D., No. 69310, Jan. 13, 2009).  Note that NJ has an expanded estate recovery statute so that Medicaid can have a lien against assets passing by joint ownership or a beneficiary designation when a person dies.

2. Medicaid Annuity - Annuity Purchased to Benefit Community Spouse Is Available Resource

   A New Jersey appeals court holds that under the Deficit Reduction Act of 2005 (DRA) a state may consider the value of an annuity purchased for the sole benefit of the community spouse in determining whether the Medicaid applicant is eligible. N.M. v. Div. Medical Assistance and Health Servs. (N.J. Sup. Ct., App. Div., No. A-0828-07T1, Feb. 26, 2009). See prior posting for a full discussion of New Jersey treatment of Medicaid Annuities.

3. Promissory Note - Non-Saleable Promissory Note Is Improper Transfer

   The Ohio Court of Appeals finds that a non-saleable promissory note is a prohibited asset transfer for Medicaid eligibility purposes because the interest was deferred and it wasn't clear the note barred cancellation upon the loaner's death. Brown v. Ohio Dept. of Job & Family Servs. (Ohio Ct. App., 8th Dist., No. 92008, March 12, 2009). There is a current pending case on the question of the use of promissory notes in New Jersey.

4. Trusts as Countable Assets for Medicaid - Trust Is an Available Resource Despite Discretionary Language

   The Minnesota Court of Appeals finds that a trust's principal and income are both available resources for Medicaid purposes even though the trust's language requires only payments of income to the beneficiary and gives discretion to the trustee to distribute principal. In The Matter of the Stephanie L. Wilcox Trust (Minn. Ct. App., No. A08-1458, May 19, 2009).  The lesson here?  Trusts must clearly specify if the assets are not available to satisfy long term care needs.

5. Estate Recovery - Property Owned in Joint Tenancy Falls Under Estate Recovery Rules

   A Minnesota appeals court rules that the state may assert an estate recovery claim against property that was owned in joint tenancy at the time of a Medicaid recipient's death and that flowed into her surviving spouse's estate. In re the Estate of Grote (Minn. Ct. App., No. A08-1691, June 2, 2009).  Again, New Jersey has an expanded estate recovery statute, so Medicaid can recoup money it expended against joint assets when a person dies.

6. Trusts as Countable Assets for Medicaid - Irrevocable Trust Forbidding Distribution of Corpus Is Still Countable by Medicaid

   The Massachusetts appeals court finds that although an irrevocable, income-only trust expressly prohibits distributions of principal, other provisions in the trust could conceivably permit the trustees to invade trust assets, and thus the trust is countable for Medicaid purposes. Doherty v. Director of the Office of Medicaid (Mass. App. Ct., Essex, No. 08-P-939, June 18, 2009). Again - trusts must clearly specify if the assets are not available to satisfy long term care needs.

7. Trusts as Countable Assets for Medicaid - Property of Trust That Bars Distributions That Interfere With Medicaid Eligibility Is Available Asset

   An Illinois appeals court finds that a trust that prevented the trustee from making distributions if it would interfere with public assistance is an available asset for Medicaid eligibility purposes. Vincent v. Dept. of Human Services (Ill. Ct. App., 3rd Dist., No. 3-08-0096, June 18, 2009). Seeing a theme here? Trusts must clearly specify if the assets are not available to satisfy long term care needs.

8. Medicaid Annuity - Community Spouse's Post-DRA Annuity Purchase Is Not an Improper Transfer

   An Ohio appeals court holds that the purchase of a post-DRA annuity by a community spouse is not an improper transfer of assets. Vieth v. Ohio Dept. of Job & Family Services (Ohio Ct. App., 10th Dist., No. 08AP-635, July 30, 2009). I expanded on this case and how it might apply in New Jersey in a prior post.

9. Trusts as Countable Assets for Medicaid - 10th Circuit Reiterates: States Need Not Exempt (d)(4) Trusts From Asset Calculations

   Confirming an earlier decision, the 10th Circuit Court of Appeals rules that Congress left states free to count (d)(4)(A) and (d)(4)(C) trusts as available resources for Medicaid purposes. Hobbs v. Zenderman (10th Cir., No. 08-2099, Sept. 1, 2009). New Jersey considers so called (d)(4)(A) trust as non-countable assets so long as the State is the primary beneficiary upon death.

10. Medicaid Annuity - Annuity Purchase by Community Spouse Upheld in Federal Appeals Court Decision

    In a much-anticipated decision, the Third Circuit Court of Appeals affirms a U.S. district court ruling allowing a community spouse to purchase a DRA-compliant annuity to protect savings from the costs of her husband's nursing home care. Weatherbee v. Richman (3d Cir., No. 09-1399, Nov. 12, 2009). I blogged about this excited development in an earlier post as New Jersey is in the Third Circuit so this case applies to our clients.

      

Image: Salvatore Vuono / FreeDigitalPhotos.net

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 Elderlawanswers.com reports today that:

In a much-anticipated decision, the Third Circuit Court of Appeals has affirmed a U.S. district court ruling allowing a community spouse to purchase a DRA-compliant annuity to protect savings from the costs of her husband's nursing home care. Weatherbee v. Richman (3d Cir., No. 09-1399, Nov. 12, 2009)."

This is an incredibly important ruling.  New Jersey is in the 3rd Circuit, so this ruling may have application to New Jersey Medicaid cases.

The Deficit Reduction Act or "DRA" states that a purchase of a Medicaid Compliant Annuity is not a transfer of assets that creates a penalty period under Medicaid.  As I discussed at "Annuity Purchased by Spouse Tarnished in NJ - But is There Light from Other State's Analysis" New Jersey has not enforced the federal law. Instead New Jersey, like Pennsylvania (the state at issue in the case) took the position that a purchase of an annuity by a community spouse is a transfer that results in a penalty period - essentially, even though you used $200,000 to purchase an annuity that can only give you $3500 a month, you are still treated as owning the $200,000 and then penalized for not having it liquid to spend on nursing home care.

In the Weatherbee case, Mrs. Weatherbee purchased a Medicaid compliant annuity for $400,000, which paid her $4,423 a month.  Pennsylvania took the position that the $4,423 a month was an "available resource" that she could sell (i.e.: she could sell the income stream, get a lump sum amount, and spend that amount on care). Normally, an annuity payment is deemed income, and not an asset (assets have to be spent down for Medicaid, but income of the spouse not in the nursing home is not considered).

Pennsylvania's approach (which is similar to New Jersey's) was soundly rejected.  The Third Circuit Court of Appeals confirmed that "treating the income from an otherwise compliant annuity as an available resource is inconsistent with the treatment of annuities under the Medicaid Act."

My colleague Don Vanarelli has a lengthy post  at his blog on the Weatherbee case with some great insight into how it might be effective in New Jersey.   The issue is that while NJ is in the Third Circuit, there are issues of deference and authority between state and federal laws and courts. 

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Generally speaking, a transfer of assets from a parent to a child within 5 years of making an application for Medicaid for long term care benefits creates a "Penalty Period".  During the Penalty Period, the parent will not receive Medicaid under the basic theory that if the parent had not transferred their assets, they would still have them and would not need Medicaid.

If anyone remembers the TV show Ed, the premise was that the main character was fired from his job at a big law firm because of where a comma was - this is much the same case.  (Only attorneys could argue so much about a comma, but the legislature should do a better job of how they write laws).

At issue is the "Disabled Child Exemption" to the transfer penalty rule.  Transfers to a disabled child are exempt from creating a transfer penalty period.  New Jersey took the position that transfer to a disabled child were exempt ONLY IF the transfer was made to a trust for the sole benefit of disabled child.  The plaintiff/Medicaid applicant had made the transfer outright to their disabled child, and not in trust, and argued that that the transfer should not create a penalty period, whether made to a trust for the disabled child, or to the child directly.

In Sorber v. Velez, the US District Court the District of New Jersey agreed with the plaintiff/Medicaid applicant that that a transfer to a disabled child does not have to be in trust to qualify for the exemption from the transfer penalties.

The problem in the case arises from a section of the Medicaid statutes that the court correctly describes as "not a model of legislative draftsmanship".  The statute (42 U.S.C. § 1396p(c)(2)(B)(iii)) reads in relevant part:

“An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that . . . the assets were transferred to, or to a trust (including a trust described in subsection (d)(4) of this section) established solely for the benefit of, the individual’s child [who is blind or disabled].”

So, does "established solely for the benefit of" describe the "trust" or "assets transferred to". The court found it described the trust, so that the trust the assets were transferred to needs to be "solely for the benefit of" the disabled child, not that a transfer must be in a trust.

I have to say that the court's analysis seems just plain common sense from the reading (the words "trust" and "solely for the benefit of" are in the same sub-phase set aside by commas - thank you Ed again for showing the world how important commas can be).  So, as a taxpayer I have to ask why Health and Human Services would expend the dollars to fund the time and energy of a legal battle when a plain reading of the language, giving the commas the proper weight, seems to answer the issue?

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