On certification to the Superior Court, Appellate Division.
(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).
H.K. applied for Medicaid assistance and was declared ineligible by the New Jersey Division of Medical Assistance and Health Services (DMAHS) because it determined that H.K. had transferred real property for less than fair market value within thirty-six months of the date that she applied (the "look-back" period). This appeal turns on whether DMAHS was correct as to when the real property transfer was effective for purposes of the look-back.
H.K's father died in 1996, and conveyed property located in Avalon to H.K. in his will. H.K. moved into the Avalon property in 1997 and was diagnosed with Alzheimer's Disease later that year. In July of 1998, H.K.'s children, D.K., T.K., and T.K., met with Ronald Wagenheim, a tax attorney, to explore transferring the Avalon property into the children's names. Wagenheim was retained to provide estate planning assistance to the family. As part of his representation of H.K., Wagenheim conferred with her about transferring the Avalon property, and reviewed her will, her existing power of attorney, and her need for a living will. After this initial consultation with the children, and in order to be sure that H.K. wished to transfer the property to her children, Wagenheim sent a letter to H.K. explaining that he had met with her children and detailing what they had discussed. H.K. signed and returned the letter, stating that she was in agreement that Wagenheim should prepare a deed transferring her ownership in the Avalon property to her three children. Wagenheim also met with H.K. in person, outside the presence of her children, and concluded she truly intended to convey the property to her children and was competent to do so. Wagenheim then prepared for H.K. a new power of attorney, a durable power of attorney, and a living will. Another attorney from his office prepared a deed to convey the Avalon property to H.K.'s children.
On July 30, 1998, H.K. executed the deed conveying the Avalon property as a gift to her children. Wagenheim gave the deed to H.K.'s daughter, D.K., with instructions to coordinate the filing of the H.K. deed with the filing of the deed from L.O's estate that granted the Avalon property to H.K. Wagenheim informed H.K. that the deed had not yet been recorded, but that as a matter of law, the transfer was complete as of July 30, 1998.
In November 1999, when H.K.'s son, T.K., telephoned the County Clerk's Office to inquire about recording the H.K. deed, he was informed that the L.O. deed had not been recorded and that the Avalon property had to be transferred into H.K.'s name before the deed transferring the property to H.K.'s children could be recorded. The children obtained a copy of the deed from their aunt, the executrix of L.O's estate; however, the deed's filing was overlooked. In July 2000, D.K.'s husband came across the L.O. deed between pages of a cookbook. H.K's children had D.K.'s husband bring the deed to the County Clerk's Office for recording only to have it rejected for lack of a proper acknowledgement and an Affidavit of Consideration. They sent the L.O. deed back to the attorney handling L.O.'s estate who in late July 2000, mailed back to D.K.'s husband the signed and acknowledged L.O. deed and an Affidavit of Consideration. With that in hand, D.K.'s husband had both the L.O. deed and the H.K. deed recorded at the Cape May County Clerk's Office in August 2000.
In the meantime, H.K. continued to live in the Avalon home until September or October 2001, when she moved in with D.K. due to her deteriorating condition. As her disease progressed, H.K.'s care became more difficult. On April 12, 2002, D.K. applied for Medicaid assistance on H.K.'s behalf, listing as her disabilities, Alzheimer's Disease, diverticulitis, and H.K.'s use of a pacemaker. The application was submitted nearly forty-five months after the H.K. deed was executed and twenty months after it was recorded. The Atlantic County Department of Human Services rejected the application, stating that "transfer of home has resulted in a 36 month period of ineligibility/penalty period that will expire 7/31/03 at which time you may reapply."
H.K. appealed that denial to DMAHS, which referred the matter to the OAL as a contested case. An Administrative Law Judge (ALJ) issued an initial decision recommending H.K.'s eligibility. The Director of DMAHS rejected the recommendation. The matter was remanded for further fact-finding on whether H.K. intended the children to become the immediate owners of the property and on where H.K. was planning to live after title to the property had transferred. While the matter was pending at the OAL, the parties negotiated a settlement that permitted H.K. to become eligible for Medicaid in July 2003, approximately thirty-six months after the deed was recorded. The ALJ found that the agreement disposed of all the issues and was consistent with law and, therefore, recommended the agreement's approval. The Director of DMAHS rejected the settlement because H.K. would not, in his view, be eligible for Medicaid benefits until February 2004. The Director again remanded to the OAL for further fact-finding on H.K.'s intent when transferring the property.
After the remand, the ALJ concluded that the hearing had not produced any further evidence that contradicted petitioner's intent at the time petitioner's attorney prepared and delivered the deed. The Acting Director of DMAHS again rejected the ALJ's recommendations and again declared H.K. ineligible for Medicaid assistance as of the time of her application. The Appellate Division affirmed.
This Court granted H.K.'s petition for certification.
HELD: The transfer of the Avalon property occurred on July 30, 1998, the date on which the deed to the property was executed, conveyed to H.K.'s heirs, and accepted by them. H.K.'s transfer of the property to her children for less than fair market value did not occur within the look-back period that pertained to her subsequent application for Medicaid assistance.
1. In 2004, in In re Keri, this Court recognized the legitimacy of Medicaid spend-down plans in preparation for Medicaid eligibility. This Court adopted the New York approach to Medicaid planning for use in this State on the ground that a reasonable and competent person would prefer that the costs of his care be paid by the State, as opposed to his family. (pp. 14-15)
2. Property transfer should not be viewed with skepticism and disapproval merely because it may precede Medicaid eligibility. Timely transfer of property, even if done to achieve eligibility status, is permissible. Furthermore, planning for the eventuality that Medicaid assistance may be required one day is not the equivalent of collusion to achieve that to which one is not entitled. Review of an individual's entitlement should not be burdened with the suspicion of such duplicity. (pp. 15-16)
3. Current regulations make an individual ineligible for institutional level services through the Medicaid program if he or she had disposed of assets at less than fair market value at any time during or after the 36 month period immediately before seeking participation in the program. If an individual conveys an asset within the 36-month look-back period for less than fair market value, penalties of ineligibility are to be assessed. A conveyance made during the look-back period raises a rebuttable presumption that the resource was transferred for the purpose of establishing Medicaid eligibility. No period of ineligibility can attach, however, if the resource was transferred prior to the look-back period. (pp. 16-17)
4. Ownership of real property is transferred by deed. Transfer of a real property interest by deed is complete upon execution and delivery of the deed by the grantor, and acceptance of the deed by the grantee. The deed does not need to be recorded in order to pass title. Thus, an unrecorded deed is perfectly efficacious in passing title from grantor to grantee, subject to all subsequent recorded liens against the grantor and subject to potential divestment by a subsequent bona fide grantee without notice. (pp. 19-20)
5. Application of the common law persuades us that H.K. conveyed her property to her children on July 30, 1998, when she executed the H.K. deed to the Avalon property, as was testified to by Wagenheim, D.K. and T.K. The ALJ found those witnesses to be credible and generally it is not for us or the agency head to disturb that credibility determination, made after due consideration of the witnesses' testimony and demeanor during the hearing. Here, there was a simple credibility call made by an ALJ against the backdrop of well-established common law principles of real estate conveyance. Under the proper standard of proof for whether a conveyance occurred upon execution of H.K.'s deed in 1998, the evidence in this record supported the ALJ's findings. (pp. 22-23)
6. The agency head erred by importing the rebuttable presumption that applies within the look-back period to the period of time that preceded that look-back period. No rebuttable presumption applies outside of the look-back period. The initial deed execution must be examined for proof of the common law requirements that made the transfer lawfully complete at the time of execution. (pp. 23-24)
7. At the time that the H.K. deed was executed, which occurred before the look-back period, H.K. could have gifted the Avalon house to her children to be eligible forty-five months later for Medicaid. The gift was a permissible step, as Keri has held. The subterfuge that the Director's office interjects into this family's efforts to address the needs of a woman during her waning years is inconsistent with the Keri approach, under which steps taken to preserve assets for family members and to collaterally enhance one's entitlement for later Medicaid eligibility are entirely appropriate when permitted by law. (pp. 24-25)
8. We conclude that the transfer of the Avalon property occurred on July 30, 1998, the date on which the deed to the property was executed, conveyed to H.K.'s heirs, and accepted by them. H.K.'s transfer of the property to her children for less than fair market value did not occur within the look-back period that pertained in respect of her subsequent application for Medicaid assistance. (p. 26)
The judgment of the Appellate Division is REVERSED and the matter is REMANDED to DMAHS for further action consistent with this opinion.
CHIEF JUSTICE PORITZ and JUSTICES LONG, ZAZZALI, ALBIN, WALLACE and RIVERASOTO join in Justice LaVECCHIA's opinion.
The opinion of the court was delivered by: ...