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: 

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?