On certification to the Superior Court, Appellate Division, whose opinion is reported at 356 N.J. Super. 170 (2002).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Prior to 2002, Mildred Keri, who is now ninety, lived alone in her New Brunswick home. Since 1995 she had been dependent exclusively on the care of her two sons, Richard and Charles. Both men visited her regularly on alternating days and made numerous arrangements for her care in their absence. In the months preceding this litigation, Keri's treating physicians certified that she suffered from an irreversible dementia and that she could no longer take care of herself.
Financially, Keri's residence constituted the bulk of her net worth (the house was appraised at approximately $170,000; the estimates of other assets varied from $17,000 to $40,000). Her pension and Social Security benefits provided a monthly income of $1,575.45. Although Keri's will divides her estate equally between her two sons, Richard is her agent by a general power of attorney executed on November 11, 1996. The instrument authorized Richard to apply for Medicaid benefits for his mother, but did not explicitly authorize him to make gifts on her behalf for any reason.
On May 10, 2002, Richard filed an action seeking a statutory guardianship in respect of his mother. He also sought court approval for a proposed Medicaid"spend-down" plan. Specifically, Richard wished to sell his mother's house and transfer a portion of the proceeds to himself and his brother in equal shares as a means of spending down her assets to accelerate her Medicaid eligibility. Based on an assumed value of $170,000 for the house and a monthly cost of $6,500 for nursing home expenses, Richard determined that after deducting his mother's monthly income, they would need $78,000 to pay the nursing home bills during the statutory sixteen-month Medicaid ineligibility period that would be triggered by the asset transfer. Richard and Charles would each receive $48,000.
At trial, Richard maintained that his mother would have undertaken the same estate planning strategy had she been competent to act on her own behalf. Charles did not object to the proposal. Keri's court-appointed attorney recommended that the plan be approved.
On June 26, 2002, the trial court granted the guardianship application and ordered the sale of Keri's house and her placement in a nursing home. The court denied Richard's request to implement a"spend-down" plan, however. On appeal, the Appellate Division affirmed in part, reversed in part, and remanded the case for further proceedings. It held that approval of a spend-down plan proposed by an incompetent's self-sufficient adult children should occur only when the incompetent person has expressed that preference before losing competency. Because Keri had never expressed a preference, the Appellate Division found that the trial court properly rejected Richard's proposal. The court went on to direct the intervention of the Office of Public Guardian on Keri's behalf.
Richard petitioned the Supreme Court for certification, which the Court granted. Amicus curiae status was granted to the Office of the Public Guardian for Elderly Adults, the New Jersey State Bar Association, Legal Services of New Jersey, Inc., the New Jersey Chapter of the National Academy of Elder Law Attorneys, and the National Academy of Elder Law Attorneys and Guardianship Association of New Jersey.
When a Medicaid spend-down plan does not interrupt or diminish an incompetent person's care, involves transfers to the natural objects of the person's bounty, and does not contravene an expressed prior intent or interest, the plan clearly provides for the best interests of the incompetent person and satisfies the law's goal to effectuate decisions an incompetent would make if he or she were able to act.
1. New Jersey statutes provide that when managing the estates of incompetent persons, including the exercise of the power to make gifts, our courts must find that the proposed action is in the best interests of the incompetent person and that any proposed gifts are such as he or she might have been expected to make. The statutory provisions blend the best interests standard with the common law equitable doctrine of"substituted judgment." (pp. 7-9)
2. The concepts found in the statutes governing the powers of courts and guardians have long been a part of our case law. In 1972, a Chancery Division court required a guardian to establish five criteria before being allowed to make proposed gifts. (In re Trott). The criteria included the following:
• The possibility of restoration to competency has to be virtually nonexistent;
• After making the proposed gifts, the assets of the estate must be such that in light of the condition and life expectancy of the incompetent, the assets are more than adequate to meet his or her needs in the style and comfort in which he or she has been maintained since the onset of the incompetency;
• The recipients of the gifts constitute the natural objects of the gifts under any standard;
• The transfer will benefit and advantage the estate of the incompetent by a reduction in death taxes; and
• There is no substantial evidence that the incompetent, as a reasonably prudent person would, if competent, not make the gifts proposed to effectuate a saving in death taxes.
The Trott criteria, which the Court is adopting, have been applied by the courts to determine whether estate-planning proposals offered by guardians are in the incompetents' best interests and give effect to the incompetents' wishes had they been able to express them. In effect, the criteria provide a framework that consists of objective and subjective tests. (pp. 9-14)
3. New Jersey case law is consistent with decisions by the New York courts under similar statutory provisions. As part of its decisional law, New York has established a presumption in favor of approving Medicaid spend-down proposals on the ground that a reasonable and competent person would prefer that the costs of his or her care be paid by the State as opposed to the family. The Court agrees with New York and finds further that the Trott criteria impliedly establish a presumption in favor of spend-down proposals by recognizing the benefit to an incompetent person's estate when increasing the amounts available to beneficiaries by reducing payments to the government out of the estate. That presumption can be overcome only with"substantial evidence," a high threshold that is consistent with New York's approach. (pp. 15-17)
4. Richard Keri's proposed Medicaid spend-down plan meets both the applicable statutes and the Trott criteria and should be approved. Because both federal and state law prevent a Medicaid-approved facility from transferring a patient based on a change in pay status, it should not be anticipated that when Medicaid assumes Keri's financial obligations that the quality of her care will suffer. (pp. 18-21)
5. The Court disagrees with the position of the Public Guardian for the Elderly that a child-beneficiary who serves as a guardian should not be permitted to propose a Medicaid spend-down plan because to do so would be a clear conflict of interest. Disqualifying such persons from the receipt of asset transfers on conflict of interest grounds prevents the use of substituted judgment in the majority of cases because, if not disabled, incompetent persons most likely would transfer their assets to their guardian. The existing statutory protections, viewed in the context of the Trott criteria, should provide adequate protection against self-dealing by a beneficiary/guardian. (pp. 21-23)
6. The Court notes the opposition of the Public Guardian to mandatory participation by his office in these matters. In light of the use of counsel for the incompetent and the court's ability to appoint a guardian ad litem, the Court does not find it necessary to involve the Public Guardian in this case or others like it except in extraordinary circumstances. (pp. 23-26)
7. The Court disagrees with the Appellate Division's characterization of Medicaid spend-down plans as"self-imposed impoverishment to obtain, at taxpayers' expense, benefits intended for the truly needy." As Legal Service of New Jersey and the New Jersey State Bar Association pointed out, Medicaid planning is legally permissible under federal and state Medicaid law. So long as the law allows competent persons to engage in Medicaid planning, incompetent persons, through their guardians, should have the same right, subject to the legal constraints set forth in the Court's opinion. (pp. 26-27)
The judgment of the Appellate Division is REVERSED, and the matter is REMANDED to the trial court for the entry of an order consistent with the Court's opinion.
JUSTICES VERNIERO, LaVECCHIA, ZAZZALI, ALBIN, and WALLACE join in CHIEF JUSTICE PORITZ's opinion. JUSTICE LONG did not participate.
The opinion of the court was delivered by: Chief Justice Poritz
This case presents the question whether self-sufficient adult children who serve as their incompetent parents' legal guardians may transfer to themselves all or part of their parents' assets in order to hasten their parents' eligibility for Medicaid benefits. We hold that when certain criteria are satisfied, they may, in order to effectuate a decision their parents would have made if competent.
When this litigation commenced two years ago, Mildred Keri (Keri), now ninety years old, lived alone in her New Brunswick home. Since 1995, she had been dependent exclusively on the care of her two sons, Richard Keri (Richard or petitioner) and Charles Keri (Charles). To forestall placing her in a nursing home, both men visited her regularly on alternating days and made numerous arrangements for their mother's care in their absence. Among other things, they arranged for Keri's ...