On appeal from a Final Agency Decision of the Division of Medical Assistance and Health Services, Docket No. HMA 6744-05.
The opinion of the court was delivered by: S.L. Reisner, J.A.D
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges S.L. Reisner, Seltzer and King.
In this case, we consider whether alimony constitutes income received by a Medicaid recipient, where the alimony is paid to a special needs trust created pursuant to a Family Part order as part of divorce proceedings. We conclude it does not. Therefore, the State Medicaid program cannot reduce its contribution to the recipient's nursing home costs by the amount of alimony her ex-husband pays to the special needs trust.
Due to a severe physical disability, petitioner J.P. has been living in a nursing home since November 14, 2000. At the time of the hearing in this matter, she was forty-eight years old. J.P. was approved for Medicaid benefits under the "Medicaid Only Program," effective February 1, 2001. Under the "medically needy" Medicaid nursing home program, J.P. was required to use her income, consisting of her monthly social security benefits, to pay for her nursing home care, and Medicaid paid for the amount not covered by her income.*fn1 J.P. was married at the time she qualified for Medicaid, and there is no dispute that her husband was not required to make any contribution to her nursing home care.
J.P.'s husband filed a divorce complaint on May 27, 2003. As part of the divorce proceedings, J.P. applied to the Family Part for the creation of a supplemental needs trust.*fn2 In her certification in support of the application, J.P. explained her need for supplemental financial support to improve her quality of life:
Despite my physical limitations, I am capable of enjoying an enhanced quality of life if I had the funds to support activities and allow for purchases which would allow me to enrich the quality of my life in [the nursing home] and to actively participate in parenting responsibilities and my daughter's activities.
Many of the residents at [the nursing home] are elderly and have various forms of dementia which severely limits my ability to socialize. My only opportunities for socialization are visits from my family and trips away from [the nursing home].
I would be capable of enjoying such activities as going to a movie, to a theater, shopping at a mall or simply eating out at a restaurant or a family member's home on occasion. . . .
In addition to the examples of the kinds of "quality of life" expenses noted, I need a source of funds to permit me to share parenting responsibilities with the plaintiff and permit me to attend some of my daughter's school and extracurricular activities and to enjoy time with her away from the nursing home.
The Family Part judge ordered that a supplemental needs trust be established for J.P.'s benefit, specifically to protect J.P.'s continued eligibility for Medicaid. The Division of Medical Assistance and Health Services (DMAHS or Division) and the local Board of Social Services received notice of the application to create the trust. DMAHS sent the court a letter declining to participate in the case. The Board of Social Services did not participate in the case either, but sent J.P.'s counsel a letter offering advice on how to set up the trust. The letter also advised that while resources could be placed in the trust without jeopardizing J.P's Medicaid eligibility, income such as alimony could not.
There is no dispute that the terms of the trust met the requirements of the Federal Medicaid statute, 42 U.S.C.A. § 1396p(d)(4)(A). In that section, Congress specifically permitted a Medicaid recipient to shield certain funds from consideration for his or her Medicaid eligibility by creating a supplemental needs trust, provided that after the recipient dies any remaining funds in the trust are paid to the State "up to an amount equal to the total medical assistance paid on behalf of the individual." 42 U.S.C.A. § 1396p(d)(4)(A).
After the supplemental needs trust was created, J.P. and her husband negotiated a Spousal Agreement, which was incorporated in the judgment of divorce dated September 27, 2004. The agreement required J.P.'s husband to pay the trust equitable distribution of $32,669 plus one half the net proceeds from the sale of real estate, and required him to pay $1550 per month in alimony to the trust. Thereafter, however, the Middlesex County Board of Social Services notified J.P. that the alimony paid to the trust was considered to be her income, pursuant to N.J.A.C. 10:71-5.4(a), which defines alimony as "actually received" income that must be counted for Medicaid purposes. Therefore, the Board contended that the alimony must be paid to the nursing home.
Following a hearing, an administrative law judge determined that the alimony was not J.P.'s income for Medicaid purposes, because the trust received the income and J.P. had no legal right to receive it. DMAHS rejected the initial decision, concluding that the alimony was income to J.P. In support of that conclusion, the Division cited a provision of the property agreement making "alimony received by the Wife . . . taxable income to her and deductible to the Husband." The Division also concluded that the trust was a "Miller trust," a type of income trust that is only recognized in states which, unlike New Jersey, have not adopted the medically needy nursing home program. The Division also relied on the State Medicaid Manual (S.M.M.), which it construed as differentiating between resources, which may be placed in a supplemental needs trust without affecting eligibility, and income, which may not. S.M.M. § 3259.7B1; S.M.M. § 3259.7C.
At oral argument, the Division's counsel agreed that funds placed in the trust as equitable distribution would not affect the amount of Medicaid to which J.P. was entitled; accordingly, if J.P. and her ex-husband were to return to the Family Part and re-cast his entire financial obligation to the trust as equitable distribution rather than alimony, J.P. ...