Personal Injury Damages and Medicaid Liens - SCOTUS Decides

You have a horrific accident and are looking at a life of extreme medical care.  The accident was caused by another person (drunk truck driver). You get a multi-million dollar award.  Does the state that you live in get a share?

First, personal injury awards are generally free from income tax.  Section 104 of the tax code excludes a personal injury award from income tax, so long it is for physical injury, physical sickness, emotional distress arising from these or for medical expenses.

So, it if's tax free, how does the state get involved?  Because sometimes people who are injured don' t have money to pay for their medical care during the lawsuit.  If so, Medicaid in that state may be forwarding funds for the person's care.  The state then files a Medicaid Lien against the award to recover its assets.

The United States Supreme Court just handed down a new ruling about what Medicaid can lien against a settlement.   Wos v. E.M.A. (U.S., No. 12-98, March 20, 2013).  The issue in this case was that when the parties settled the case, they did not allocate any part of the award to medical expenses.  Per

Under North Carolina law, the state is entitled to a lien on a Medicaid recipient's tort recovery for the lesser of the total cost of medical services provided or one-third of the recovery. Emily Armstrong settled a medical malpractice suit for $2.8 million against the doctor who delivered her -- far less than the cost of her future care. The parties did not stipulate what portion of the settlement represented payment for past or future medical expenses. The state, having already spent close to $2 million for Emily's care, asserted its lien for one-third of the settlement.

Emily objected, claiming that the mandatory lien on one-third of the settlement violated the Supreme Court's decision in Arkansas Department of Health and Human Services, et al. v. Ahlborn that limited the state's recovery from a Medicaid recipient to the funds she received as compensation for medical expenses.

The US Supreme Court agreed with Emily.  The Court found that "[a]n irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act's clear mandate that a State may not demand any portion of a beneficiary's tort recovery except the share that is attributable to medical expenses."

What does this all mean in the scope of personal injury settlements?  First, the state can only assert a lien against the portion of the award designated towards medical expenses.  Before you get too happy and think "OK- we just won't allocate any of the award to medical expenses", remember that that the state is there to protect the taxpayers' dollars.  If there is no allocation of medical expenses in the settlement, or by a judge or jury, the Court noted that the State and award beneficiary could submit the matter to a court for decision.

Smarter move?  Allocate appropriate medical expenses to satisfy the lien so that special needs planning can be done with the balance of the award. 

What does it mean to be "family" with 21st century science?

In law school we learned about the "fertile octogenarian" - a theoretical construct about what would happen to a property distribution scheme in an estate plan  if you had some wacky birth order situation (ie: my great-uncle is 60 years younger than me).  Back in 1995, this was largely theoretical.  Not so today in age of reproductive medicine advances and frozen embryos. It is quite possible in 2012 to have a biological child of yours born 1, 2 or 5 or more years after your death.  Did you mean to provide for this child that you never met in your Will?   You Will likely says "after my spouse dies, everything to my issue".  Your "issue" are your biological descendants, who this after-born child would be.  While this may seem just weird, it is entirely possible in toady's age,

The US Supreme Court actually just considered this issue.  A couple had frozen embryos, and about 9 months after the father died, the embryos were implanted and twins were eventually born.  The mother applied for social security for the twins, and the issue came up of if the children are "children" for the purposes of social security.  While it might seem very harsh to say that the children don't get benefits, when it comes to estate law you also need to bear in mind that an estate must end - it can't be held open forever waiting for heirs to come into being (an issue that didn't really exist 20 or more years ago).

In Astrue v. Capato the Supreme Court ruled that the Social Security Administration must look to state intestacy law to determine if a child would receive benefits under these circumstances.From a planning perspective, you should look to your own estate plan to determine who you think should be your descendants for purposes of distributing your estate, as merely relying on biology has a new meaning in 21st century medicine.

Doctrine of Laches means you are "Out of Time"

In a continuation of our "rosetta stone" of "legalese" to English, Stacey C. Maiden, Esq. of our Estate Planning and Elder Law Department, talks about a recent case that gives life to the dusty doctrine of "laches".  Aren't latches what you use to close a door ?  Not if you are a lawyer - to us "laches" means "too bad, you are out of time", as in, "that door is now locked".

Defendants often raise the “doctrine of laches” as an affirmative defense in answers, but it is seldom applied by the Court. What exactly is laches? The doctrine of laches is based on the maxim that “equity aids the vigilant and not those who slumber on their rights.” (Black’s Law Dictionary). The outcome is that a legal right or claim will not be enforced or allowed if a long delay in asserting the right or claim has prejudiced the adverse party. Elements of laches include knowledge of a claim, unreasonable delay, neglect, which taken together hurt the opponent.

A New Jersey Court recently put the doctrine of laches to use in dismissing claims made by a surviving spouse in an estate matter. In the unpublished case Buie v. Estate of Buie, Chancery Div., Probate Part (Essex Cty.) (Koprowski, J.S.C.), the decedent died testate, leaving his property in Newark to be divided among his six children equally. One week after his death, the plaintiff, his wife, who received non-probate assets of $95,000, left the house in question and returned to South Carolina with co-plaintiff, her son with the decedent.

14 years later [and yes, that is a long time later], the plaintiff/surviving spouse filed an action demanding her intestate share under N.J.S.A. 3B:5-3 as an omitted spouse under 3B:5-15 or an elective share of her husband's estate under 3B:8-1. The court held that the omitted spouse claim was barred by the doctrine of laches since there has been a substantial delay in bringing the action, the plaintiff was the cause of the delay, and defendants have been prejudiced as a result of the delay.

 The court also held that plaintiff’s claim under the Elective Share statute was time-barred and that no good cause existed to extend the time to file. Under New Jersey statute, plaintiffs must file claims for elective share within 6 months of the appointment of a personal representative. (N.J.S.A. §3B:8-12):

What is the take-away from this?  If you have a legal claim, you have to act on it in a timely manner.  While some claims may have to be brought in a specific period because of a statue-of-limitations (like the Elective Share in the example above), all claims must be made in a reasonable time frame from when you knew about the claim.  It is very difficult to have to tell a client while they may have the best case in the world, they aren't able to get relief because they didn't act quickly enough.  Luckily, the Doctrine of Laches is entirely avoidable if you get legal advise from an attorney at the time that you have a legal question.

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Caregiver Child Exception to Transfer of a Home - You need to have good facts

Family HomeA recent appeals court case underscores the importance in New Jersey of being able to factually prove that a child in fact provided care to a parent for the transfer of the home to that child to be an exception to the Medicaid transfer rules.

Generally speaking, a transfer of assets without compensation within 5 years of an application for Medicaid will cause a penalty period to be assessed.   One very important exception to this is the "Caregiver Child Exception". The Caregiver Child Exception basically indicates that if the child has (1) resided in the parent's home for at least 2 years, and (2) provided a level of care to the parent that allows the parent to stay at home and not have to enter into an assisted living or nursing facility, then the transfer of the home to that Caregiver Child does not create a penalty for Medicaid purposes. See N.J.A.C. 10:71-4.10(d).

The recent case of  V.P. v. Dept. of Human Services, decided by the New Jersey Appellate Division September 2, 2011, underscores the importance of being able to prove that the Caregiver Child actually provided assistance to the parent, which allowed the parent to remain at home instead of needing to enter a care facility. In this case, the Caregiver Child brought a variety of witnesses  to testify to the fact that the Caregiver Child actively helped the parent. The key lesson here is that if the family is planning on potentially using the Caregiver Child exemption to allow the caregiver child remain in the home after the parent needs to enter the nursing home, then the family must maintain credible and substantiated evidence of the fact that the child is in fact providing care to the parent. has kindly provided a summary of this important case:

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).

V.P. lived with her son, R.P. Following a stroke, she entered a nursing home, transferred her house to her son and applied for Medicaid benefits. The state determined V.P. impermissibly transferred her home and was subject to a penalty period.

V.P. appealed, arguing her house was not a countable asset because the transfer fell within the caregiver child exception. At a hearing, several family members and V.P.'s doctor testified that R.P. helped V.P. walk, bathe, and cook, among other things. The administrative law judge (ALJ) found the witnesses credible and determined the caregiver child exception applied. However, the state's Medicaid director rejected the ALJ's decision and concluded V.P. needed only normal support services, so the transfer was not eligible for the caregiver child exception. V.P. appealed.

The New Jersey Superior Court, Appellate Division, reverses, holding that V.P. is entitled to Medicaid benefits with no penalty period. The court rules that the director did not demonstrate that the ALJ's findings were arbitrary and capricious. According to the court, "the credible evidence in the record supports the ALJ's finding that V.P needed, and R.P. provided, special care and attention essential to her health and safety."

For the full text of this decision in PDF, go to:


NJ Court Ruling that NJ May Count Promissory Notes as Available Resources

One of the biggest questions in determining Medicaid eligibility for long term care is what are the person's "Available Assets" our "Countable Assets".  The Countable Assets must be spent down to $2000/$4000 for Medicaid eligibility (depending on the program being applied for).  A new case decided today says that New Jersey can look at certain promissory notes as being Countable Assets. reports:

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).

A group of New Jersey residents lent money to close relatives in return for promissory notes. After the individuals applied for Medicaid, the state denied their applications, claiming that the promissory notes were trust-like instruments that qualified as available resources.

The residents filed suit in federal district court seeking to enjoin the state from counting the notes as available resources. The district court denied the request for preliminary injunction, holding that there was nothing in the Medicaid Act or the POMS that prevented the state from analyzing promissory notes as a trust-like device if the situation warranted it. The residents appealed to the U.S. Court of Appeals for the Third Circuit, which vacated and remanded, holding the district court committed legal error when it analyzed the notes as trust-like devices without first determining whether they would be counted as resources under the regular resource-counting rules. The court agreed with the plaintiffs' argument, which was based on the federal statutory requirement that the Medicaid program may not use eligibility rules that are more restrictive than those used by the SSI program (see 42 U.S.C. 1396a(a)(10)(c)(i)(III)).

The district court again denied the preliminary injunction, holding that the relationship of the parties and the terms, amount and timing of the loans indicated that the loans were not bona fide cash loans or promissory notes. The residents appealed.

In a ruling that is "not precedential," the U.S. Court of Appeals for the Third Circuit affirms, holding that the Medicaid applicants are not entitled to a preliminary injunction because they "failed to show that it was more likely than not that their notes would be considered cash loans or promissory notes under the regular SSI resource-counting rules or that their notes should not be considered trust-like devices."

 For the full text of this decision, go to:


Saying that a transfer/gift wasn't intended for Medicaid won't cut it

Thumbs DownIt's not really a surprise, but a recent decision confirmed that trying to prove to New Jersey that a transfer was made within the Medicaid 5 year look back period for reasons "other than qualifying for Medicaid" is an uphill battle with a low probability of success.

Fellow New Jersey elder law attorney John Callinan represented A.M., who transferred $22,103 in September 2006.  A.M. had a sudden onset illness, and applied for Medicaid August 2009.  She was found eligible for Medicaid,but a transfer penalty was imposed due to the the gift. provides details on A.M.'s appeal:

A.M. appealed, claiming that she transferred the money exclusively for reasons other than to qualify for Medicaid. She explained that she gave money equally to all of her children over the years, but she had set aside money for her son because he was addicted to cocaine and going through a divorce, and she transferred the money to him only after he had been rehabilitated. A hearing officer reversed the county's decision, determining A.M. had met her burden of proof. However, the director of the Division of Medical Assistance and Health Services reversed the hearing officer, holding that A.M. had not produced evidence to show why she suddenly transferred more than half her assets to her son. A.M. appealed to court (she died while the appeal was pending).

The New Jersey Superior Court, Appellate Division affirms, holding that A.M. did not establish that the transfer was done exclusively for reasons other than to qualify for Medicaid. The court notes that A.M. "failed to present any evidence as to how [A.M.] was allegedly able to live independently during the period between her substantial gift to her son and her admission to the nursing home."

For the full text of this decision in PDF, go to: 

Top Elder Law Decisions of 2010

2010Courtesy of, below is a roundup of the most influential elder law court decisions of 2010, together with my thoughts as to how those cases might carry into New Jersey. The Medicaid Annuity is still generating decisions across the county, as well as questions as to when a penalty period created by a transfer begins to run.

1. Nursing Home Resident May Not Transfer Assets Beyond the CSRA to Spouse
A U.S. district court holds that under Medicaid law an institutionalized spouse may not transfer assets beyond the CSRA to a community spouse after the Medicaid recipient's eligibility has been determined. Burkholder v. Lumpkin (U.S. Dist. Ct., N.D. Ohio, No. 3:09CV01878, Feb. 9, 2010). To read the full story, click here.

(DWL – this is an unusual factual situation with a Medicaid recipient received inheritance after they were already nursing home and receiving benefits. Essentially, this maintains that the Community Spouse can only keep one half of the couple's assets up to a maximum of approximately hundred and $10,000, the Community Spousal Resource Allowance or “CSRA”)

2. Mass. Court Finds a Contract Transferring House Is Valid / California Court Finds that it is Not
A Massachusetts appeals court finds that a contract in which parents transferred property to their daughter so that they might avoid a Medicaid lien does not fail for lack of consideration because the daughter's promise to sell the property after her parents' death and distribute the proceeds to her sisters constituted valid consideration. Cascio v. D'Arcangelo (Mass. Ct. App., No. 09-P-1039, March 30, 2010). To read the full story, click here.

The Cascio summary is paired with a similar, and also much-read, case from California, Lizaso v. Lizaso.

(DWL – in the Lizaso case the court found the opposite, namely that a contract entered into solely for the purposes of obtaining Medicaid is void.)

3. Medicaid Recipient's Life Estate Is Part of Probate Estate
An Iowa court of appeals finds that a Medicaid recipient's life estate in her house is part of her probate estate for the purposes of satisfying debt, so the house does not pass directly to the remainderman. Escher v. Estate of Escher (Iowa Ct. App., No. 09-1198, April 8, 2010). To read the full story, click here.

(DWL - Here again, this case presents rather unusual factual circumstances in that the remainder person purchased life estate interest; normally, we do have a situation where a person makes a gift of the remainder interest while retaining a life estate. The point here was that the purchaser still needed to pay the agreed upon price for the life estate, which the purchaser has stopped paying upon the Medicaid recipients death)

4. Medicaid Applicant's Penalty Period Begins When Applicant Is Eligible for Medicaid
A federal district court determines that when imposing a penalty on a Medicaid applicant who made uncompensated transfers within the look-back period, the penalty period should begin to run when the applicant was otherwise eligible for Medicaid, not when the applicant is actually receiving benefits. Frugard v. Velez (U.S. Dist. Ct., D. N.J., No. 08-5119 (GEB), April 8, 2010). To read the full story, click here.

(DWL – This is a New Jersey case, and falls squarely within a plain language reading of the Deficit Production Act in that the penalty period begins to run at the later of (1) the date of the uncompensated transfer, or (2) when the applicant would have begun to receive Medicaid benefits if not for the transfer penalty).

5. Penalty Period Does Not Start Until Applicant Has Spent Down Returned Funds
A U.S. district court finds that the penalty period for a New Jersey Medicaid applicant who transferred assets and then had some of the transfers returned does not start running until the applicant has spent down the funds from the returned transfers to below the resource limit. Marino v. Velez (U.S. Dist. Ct., Dist. N.J., No. 10-911 (JAP), May 4, 2010). To read the full story, click here.
(A U.S. appeals court has subsequently affirmed this ruling.)

(DWL - this is another New Jersey case. This is similar to the other case New Jersey case in that it deals with when does the penalty period begins to run when there's been a transfer. Here, some of the money transferred was returned. The court found that plaintiff did not "become otherwise eligible for Medicaid" until she'd spent down the money that was returned her.)

6. Son Is Responsible for Medicaid Overpayment to His Father
A Pennsylvania trial court rules that the state may seek repayment of a Medicaid overpayment from the son of a Medicaid recipient rather than from the Medicaid recipient's estate. Maloy v. Dept. of Public Welfare (Pa. Commw. Ct., No. 1575 C.D. 2009, June 10, 2010). To read the full story, click here.

(DWL - Here, the Medicaid recipient’s son was his Guardian, and after the Medicaid recipient began to receive Medicaid, the son transferred some of Medicaid recipient’s assets to himself. The court found that Pennsylvania could pursue the son not only because it was legally allowed, but it was equitable in that son was the one who made the transfers to himself in the first place, thus making the father no longer eligible for Medicaid).

7. Payments Under Personal Service Agreement Are Compensated Transfers
A New York appeals court "annuls" a Medicaid determination that a nursing home resident's payments to his son pursuant to a personal services agreement were uncompensated transfers. In the Matter of Warren Kerner v. Monroe County Dept. of Human Services (N.Y. App., 4th Dept., No. TP 10-00197, July 2, 2010). To read the full story, click here.

(DWL - this upholds that a personal care contract, if properly drafted and reasonable, provides value to the recipient Medicare in terms of services, and as such is not an uncompensated transfer for Medicaid purposes, which would otherwise create a penalty period.)

8. Assets in Trust Created by Husband Are Available for Purposes of Determining Wife's Medicaid Eligibility
A Massachusetts appeals court holds that a trust created by the husband of a Medicaid applicant independently of his will is a Medicaid qualifying trust even though the bulk of the assets in the trust passed through the husband's will. Victor v. Mass. Executive Office of Health & Human Services (Mass. Ct. App., No. 09-P-1361, July 21, 2010) (unpublished). To read the full story, click here.

(DWL - this case turns on Massachusetts state law as to what is a Medicaid Qualifying Trust and what is not. In New Jersey, generally speaking, a discretionary trust created by a third party, with that third parties own assets for person’s benefit is not a countable asset for Medicaid qualification purposes.)

9. Income Stream from Annuity Is Not Asset for Medicaid Eligibility Purposes
In a case pursued by the ElderLawAnswers member firm of CzepigaDalyDillman, a U.S. district court holds that Connecticut cannot treat the income stream from an annuity as an available asset for the purposes of Medicaid eligibility. Lopes v. Starkowski (U.S. Dist. Ct., Dist. Conn., No. 3:10-CV-307, August 11, 2010). To read the full story, click here.

(DWL - under federal law, income and assets are separated in determining Medicaid eligibility. Here, Connecticut tried to argue that the income stream from annuity was an asset, not income. The court held that the income stream is just that, income."

10. Annuity Purchased Post-Eligibility Determination Is Available Resource
A federal district court rules that an annuity purchased by a Medicaid applicant's husband post-eligibility determination is an available resource. Morris v. Oklahoma Department of Human Services (U.S. Dist. Ct., W.D. Okla., No. CIV-09-1357-C, Sept. 24, 2010). To read the full story, click here.

(DWL - Here, a husband was determined Medicaid ineligible. In order to create eligibility, the wife purchased an annuity, thus transforming what had been his asset into an income stream for herself. The Oklahoma court found that the now annuity should still be treated as an asset, because to do otherwise would make the law required the spend down of assets totally superfluous. The purchase of the annuity would have been a successful transfer had it been done prior to the state determining Medicaid eligibility for the husband.)

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Top 10 Elder Law Decisions of 2009

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. 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 RecoveryProperty 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 MedicaidIrrevocable 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 MedicaidProperty 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 Medicaid10th 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.


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Medicaid Annuity Upheld by Federal Court

Third Circuit Court of Appeals 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. 

New Case Clarifies Transfers to Disabled Children Exeception to Mediciad Penalties

US District Court, Newark, NJGenerally 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?