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's In an Estate Plan - The Wealthy and Wise Episode 2

Check out the second episode of The Wealthy and Wise

In this episode we acknowledge that that estate plans can seem remote, mysterious, complicated and expensive when you don’t know “What makes up an estate plan” and don’t have an overview the information necessary to make informed decisions about your estate.We clear the air on the episode of The Wealthy and Wise as we talk to you about:

What makes up an estate plan?
What happens to your assets if you die without an estate plan?
Determining your net worth from an estate perspective
Sorting out powers of attorney, living wills, health care proxy and advanced directives
Your beneficiaries – who gets your assets, how and when?
Is the government your beneficiary?
How are trusts tools to protect money?
Probate v. Non-Probate assets
And much, much more

The goal of The Wealthy and Wise, as always, is to educate you about how you can take steps in your own life to protect and build your wealth. How’d we do? We’d love your questions and comments, either below or to You may find yourself featured in an upcoming episode or podcast!

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.