In re Keri, 181 N.J. 50 (2004)
The
In the case of In re Keri, 181 N.J. 50 (2004), the
New Jersey Supreme Court, for the first time, directly addressed and authorized
the use of “Medicaid planning” by a guardian/child for an incapacitated parent.
Medicaid planning is the strategic transfer of assets aimed at accelerating an
individual’s eligibility for Medicaid and/or preserving a portion of the
individual’s assets for the ultimate beneficiaries of his/her estate.
The Keri case involved 88-year old Mildred
Keri, who lived alone in her home in
In his proposed Medicaid plan to the court, Richard Keri
sought permission to sell Mildred’s home (her only significant asset) and
transfer a portion of the sales proceeds to himself and his brother equally. A
Medicaid penalty period would result. The remaining funds in Mrs. Keri’s name
would be used to pay for her nursing home care during the Medicaid
ineligibility period, after which Mildred’s assets would be spent down and she
would be eligible for Medicaid. The result of the Medicaid plan would be that a
portion of Mrs. Keri’s assets would be preserved for her children.
The Superior Court, Chancery Division had rejected the Keri
Medicaid plan. On appeal to the Superior Court, Appellate Division, the
Chancery Division’s decision was upheld, with the Appellate Division
characterizing Medicaid planning as “self-imposed impoverishment to obtain, at
taxpayers’ expense, benefits intended for the truly needy.” On further appeal,
the Supreme Court reversed the courts below, and permitted the Medicaid plan as
requested.
Whereas the
Appellate Division had refused to presume that a reasonable competent person
would engage in Medicaid planning (and instead directed that subjective proof
of a ward’s preference to engage in Medicaid planning be demonstrated), the
Supreme Court agreed with New York’s presumption in favor of Medicaid planning,
finding that “’a competent, reasonable individual … would prefer that his
property pass to his child rather than serve as a source of payment for
Medicaid and nursing home care bills.’”
The high court
recognized Medicaid planning as a legally permissible estate planning tool for
which Congress has established the public policy, and found that, “so long as
the law allows competent persons to engage in Medicaid planning, incompetent
persons, through their guardians, should have the same right….”
Our Supreme
Court found that the lower court decision in In re Trott, 118 N.J.
Super. 436 (Ch. Div. 1972), “impliedly established” the presumption in favor of
Medicaid planning by recognizing that maximizing funds available to a ward’s
beneficiaries (by reducing amounts owing to the state) is in the best interests
of the ward’s estate. As Chief Justice Poritz recognized,
when a Medicaid spend-down plan does
not interrupt or diminish a ward’s care, involves transfers to the natural
objects of a ward’s bounty, and does not contravene an expressed prior intent
or interest, the plan, a fortiori,
provides for the best interests of the ward and satisfies the law’s goal to
effectuate decisions an incompetent would make if he or she were able to act.
Thus, instead
of barring Medicaid planning by a guardian unless there is evidence that the
ward, while competent, expressly indicated a preference to engage in Medicaid
planning, our Supreme Court adopted the framework established in the Trott
decision, whereby it is presumed that Medicaid planning is in the ward’s best
interests unless there is “substantial evidence that the incompetent, as
a reasonably prudent person, would, if competent, not make the gifts
proposed….”
The Trott
criteria, which was established by a chancery court in 1972 and often relied
upon by courts in the years that followed, allows gifting by a guardian if the
following five criteria are met:
(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 by any standard…;
(4) the transfer will benefit and
advantage the estate of the incompetent …;
(5) there is no substantial evidence
that the incompetent, as a reasonably prudent person, would, if competent, not
make the gifts proposed….”
In addition to
adopting the clearly articulated standards set forth in Trott, Chief
Justice Poritz provided a careful analysis of those criteria as they applied to
Keri. After concluding that Mrs. Keri’s mental status satisfied the
first criterion, the Court found that the second criterion was met, given the
proposed spend-down plan, coupled with the fact that nursing home placement was
necessary and that federal and state law prohibits discrimination of nursing
home residents on the basis of Medicaid pay status. The Court found that the
proposed donees of the spend-down plan were the objects of the ward’s bounty,
thus satisfying criterion three. Because the proposed plan would benefit the
ward’s estate, criterion four was met.
The Court also
found that the guardian had satisfied the fifth criterion. Although it recognized
Mrs. Keri’s preference to remain in her home, rather than a nursing home, the
fact that the only source to pay for in-home care was the house itself resulted
in “a veritable ‘Catch-22’.” Moreover, because her dementia had resulted in
increasingly difficult behavior, the Court noted that in-home care might not
have been feasible. The Supreme Court concluded that there is “simply nothing
in the record to suggest” that Mrs. Keri would have disapproved of the Medicaid
planning proposal.
Finally, the
Court rejected the notion that Medicaid planning by a guardian/child is a
conflict of interest, reasoning that “the natural objects of a ward’s bounty
often are the same persons likely to be chosen by the courts as guardians,” and
citing the statutory preference for appointing a spouse or heirs as guardians:
Disqualifying those individuals from 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 guardians.