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In re Keri

December 19, 2002


On appeal from Superior Court of New Jersey, Chancery Division, Probate Part, Middlesex County, Docket No. 197619.

Before Judges Stern, Coburn, and Alley.

The opinion of the court was delivered by: Coburn, J.A.D.


Submitted November 13, 2002

Plaintiff, Richard Keri ("Richard"), sued in the Chancery Division to be appointed guardian of the person and property of his mother, Mildred Keri ("Mildred"), a mental incompetent. Relying on the doctrine of "substituted judgment," he sought permission to engage in "Medicaid planning" on "her" behalf. Mildred's major asset is her home, where she now resides, and where she would like to remain. In essence, Richard's plan was to sell Mildred's home; put her in a nursing home that accepts Medicaid patients; take $92,000 of the proceeds from the sale as a gift (to be shared equally with his brother), and leave her about $78,000, which would be sufficient to pay for her nursing home care during the period of Medicaid ineligibility resulting from the gift. The Chancery judge granted the guardianship application, ordered the sale of Mildred's home and her placement in a nursing home, but refused to authorize the Medicaid plan. We affirm the denial of Medicaid planning, reverse the order requiring sale of the home and nursing home placement, and remand for further proceedings.

The facts were developed in a brief trial: Richard testified, and certifications were submitted from three medical experts attesting to Mildred's permanent, mental incompetence. Richard's brother, Charles, was present and did not object to the proposal. Mildred was "represented" by a court-appointed attorney, who offered no evidence, declined to cross-examine Richard, and supported the application in all respects.

Mildred is eighty-eight years old and lives alone in her own home in New Brunswick. Her home is worth about $170,000; her income, from Social Security and a pension, is $1,575.45 per month. According to the expert certifications, dementia has "impaired her physical and cognitive abilities so that she is no longer able to adequately provide for her own safety and welfare." She is "highly vulnerable to abuse, exploitation, and the adverse health effects of neglect in her current circumstances . . . ." She is entirely dependent on the care provided by her sons, who alternate daily visits. Neither son has any extraordinary need that might be met or ameliorated by receiving a portion of his mother's estate. She has refused her sons' offers to live with either of them, preferring to remain in her own home. Her condition has worsened over time, placing her in increased danger. Her will leaves her estate equally to her two sons. In 1996, she executed a general power of attorney naming Richard as her agent; although that instrument authorized him to apply for Medicaid on her behalf, it did not provide for him to make gifts on her behalf to himself or anyone else, either to qualify her for Medicaid or for any other reason. *fn1 Richard testified that his research of nearby nursing homes showed that the monthly costs would be between $6,000 and $6,500 per month. After taking $92,000 from the sale of Mildred's home as a gift for himself and his brother, about $78,000 would be left, which, together with Mildred's income, would be enough to pay for nursing home care for seventeen months, the period of Medicaid ineligibility resulting from the gifts. He did not explore in-home care under Medicaid or otherwise.

Medicaid "is designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services." Atkins v. Rivera, 477 U.S. 154, 156, 106 S. Ct. 2456, 2458, 91 L. Ed. 2d 131, 137 (1986). The federal government reimburses participating states which comply with federal guidelines. L.M. v. Div. of Med. Assists & Health Serv., 140 N.J. 480, 484 (1995). Medicaid is intended to be a funding of last resort for those in need. N.J.S.A. 30:4D-2. To be eligible for Medicaid in New Jersey based on age, a person must be a resident of this state, at least sixty-five years old, a United States citizen or an eligible alien, and not have available resources beyond $2,000 per month. N.J.A.C. 10:71-3.2, -3.4, -3.0, and -4.5(b). A person's home is excluded as an asset so long as it is the place of principal residence of the applicant or a spouse. N.J.A.C. 10:71-4.4. However, if the person is unlikely to return to the home, the state may impose a lien on the property to obtain reimbursement of benefits provided. 42 U.S.C.A. § 1396a(1)(B).

To discourage applicants from disposing of assets for the sole purpose of becoming eligible for Medicaid, all property transfers for less than fair market value and made within thirty-six months before the application are scrutinized. 42 U.S.C.A. § 1396p(c)(1)(B)(i); N.J.A.C. 10:71-4.10(a). Although such transfers are presumed to be improperly motivated, the presumption is rebuttable. N.J.A.C. 10:71-4.7(h)(2). If the presumption is not rebutted, the person will be ineligible for Medicaid for up to thirty months. N.J.A.C. 10:71-4.7(b)(4). The precise period of ineligibility is calculated by dividing the amount transferred for less than fair market value by the state's average monthly nursing home cost ($5,540 as of May 2000, according to N.J.A.C. 10:71-4.10(m)(1)), but may not exceed thirty months. Ibid. These are commonly referred to as "look-back" rules.

"Medicaid Planning" in this context has been described euphemistically by a New York court as "the transferring of assets to permit an individual to become Medicaid-eligible for the cost of nursing home care while enabling him or her to preserve some of his or her assets for the next generation." In re Daniels, 618 N.Y.S.2d 499, 500 (Sup. Ct. 1994). And New York's Appellate Division, although recognizing "that the Medicaid program was not designed to provide benefits to those who render themselves 'needy' through the use of [such] plans," nonetheless described such planning as "prudent." In re John XX, 652 N.Y.S.2d 329, 331-32 (App. Div. 1996), leave to appeal denied, 681 N.E.2d 1301 (1997).

Putting euphemisms to one side, the plan, if followed by a competent person, is nothing other than self-imposed impoverishment to obtain, at taxpayers' expense, benefits intended for the truly needy. That is why the Supreme Court of Connecticut rejected a similar Medicaid scheme, while observing that its "conclusion reflects the legislative concern that the medicaid program not be used as an estate planning tool. The medicaid program would be at fiscal risk if individuals were permitted to preserve assets for their heirs while receiving medicaid benefits from the state." Forsyth v. Rowe, 629 A.2d 379, 385 (Conn. 1993); accord Williams v. Kansas Dep't of Social and Rehabilitation Servs., 899 P.2d 452 (Kan. 1995); Ronney v. Dept. of Soc. Serv., 532 N.W.2d 910 (Mich. Ct. App. 1995).

Nonetheless, a competent individual may engage in such planning, subject to the penalties described above. The question for us to resolve is whether it should be permitted by a guardian for the benefit of an incompetent's self-sufficient, adult children.

Originally, our jurisdiction to resolve questions of this nature derived from the principle of parens patriae, which requires that courts be "zealous [in] safeguard[ing] the personal and property rights of incompetent parties . . . ." East Paterson v. Karkus, 136 N.J. Eq. 286, 289 (Ch. 1945); accord Johnson v. State, 18 N.J. 422, 430 (1955). Applying that principle, a trial court determined that even without statutory authority, the power to permit a guardian to make gifts on behalf of a ward "inheres in a court of chancery by virtue of its position as protector and general guardian of all persons under disability." In re Trott, 118 N.J. Super. 436, 440 (Ch. Div. 1972). At issue was whether a guardian could make gifts on behalf of a ward to decrease estate tax liability. Such gifts were found to be permissible if they met the following criteria: (1) the mental and physical condition of the incompetent are such that the possibility of her restoration to competency is virtually nonexistent; (2) the assets of the estate of the incompetent remaining after the consummation of the proposed gifts are such that, in the light of her life expectancy and her present condition of health, they are more than adequate to meet all of her needs in the style and comfort in which she now is (and since the onset of her incompetency has been) maintained, giving due consideration to all normal contingencies; (3) the donees constitute the natural objects of the bounty of the incompetent . . . ; (4) the transfer will benefit and advantage the estate of the incompetent by a reduction of death taxes; (5) there is no substantial evidence that the incompetent, as a reasonably prudent person, would, if competent, not make the gifts proposed in order to effectuate a saving of death taxes. [Id. at 442-44.]

More recently, when reviewing an application to make gifts on behalf of an incompetent, we defined the governing principle as the exercise of "substituted judgment," In re Labis, 314 N.J. Super. 140, 146 (App. Div. 1998), and we adopted the Trott criteria as the guiding standards for such determinations, id. at 147. Accord In re Cohen, 335 N.J. Super. 13, 29 (App. Div. 2000). Our authority in this regard has been endorsed by the Legislature, but "only if [the gift] is in the best interests of ...

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