In
the Matter of Mildred Keri, a Mentally Incompetent Person
181
N.J. 50, 853 A.2d 909. Decided August 5, 2004
Prior
to 2002, Mildred Keri, almost 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 the 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.
The Court held that 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."
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.
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.
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.
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.
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.
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.
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.
------------------------------------------------------------------
SUPREME COURT OF NEW JERSEY A- 70 September Term 2002
IN
THE MATTER OF MILDRED KERI, A MENTALLY INCOMPETENT PERSON.
Argued
October 20, 2003 – Decided August 5, 2004
On
certification to the Superior Court, Appellate Division, whose opinion is
reported at 356 N.J. Super 170 (2002).
CHIEF
JUSTICE PORITZ delivered the opinion of the Court.
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.
I.
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 lunch to be delivered daily at noon by Meals on Wheels, and
provided her evening meal themselves when they visited with her. In the months
preceding this litigation, Keri became increasingly difficult to care for,
refusing her sons’ requests for her to live with them and neglecting to
maintain her personal hygiene. After finding her house filled with smoke one
day, her sons had the stove disconnected and capped to prevent future harm to
their mother. Her condition deteriorated to the point where Richard and Charles
finally determined that they could no longer avoid placing her in a nursing
home. Keri’s treating physicians certified she suffered from an irreversible
dementia that had so impaired her cognitive abilities that she could no longer
care for herself. They concluded Keri would not experience any significant
improvement in the future even with treatment. In their view, her condition
would render her vulnerable to abuse, exploitation, and neglect.
Financially,
Keri’s unencumbered residence was found to constitute the bulk of her net worth
(at approximately $170,000 according to appraisals requested by the
petitioner), See footnote 1 whereas her pension benefits and Social Security
provided a monthly income of $1,575.45. Although Keri’s will divides her estate
equally between her two sons, petitioner is her agent by a general power of
attorney executed on November 11, 1996. That instrument allowed petitioner to
apply for Medicaid benefits for his mother, but did not authorize him to make
gifts on her behalf for any reason.
On May 10, 2002, pursuant to N.J.S.A.
3B:12-25, petitioner sought guardianship of his mother and her estate. He also
submitted for court approval his proposed Medicaid “spend-down plan.” He sought
authority to sell his mother’s house and transfer a significant 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. See footnote 2
Assuming that his mother’s monthly nursing home expenses would be $6,500 and
that the sale of her house would net $170,000, Richard determined that, after
subtracting her monthly income of $1,575.45, Keri would need $4,924.55 per
month from her savings to cover her stay. Based on those figures, petitioner
sought permission to transfer $92,000 of the proceeds to himself and his
brother in equal shares. According to his calculations, the remaining $78,000
would be sufficient to pay his mother’s nursing home bills during the
sixteen-month period of Medicaid ineligibility triggered by the transfer. See
footnote 3 In other words, seventeen months after the proposed transfer, Keri
would have “spent down” enough of her assets to qualify for Medicaid.
Throughout
the trial below, petitioner maintained that, if not so ill, his mother would
have approved of and undertaken such an estate planning strategy to preserve a
significant portion of her assets for her two sons. His brother, Charles, did
not object to the proposal. As required, Keri’s court-appointed counsel
prepared a Report of a Court Appointed Attorney recommending that the court
approve petitioner’s estate plan, although he did not offer any evidence or
cross-examine Richard.
On June 26, 2002, the trial court granted petitioner’s
guardianship application and ordered the sale of Keri’s residence and her
placement in a nursing home. The trial court denied petitioner authority to
execute the Medicaid spend-down plan, however, refusing to approve strategies
designed to “[pauperize] human beings and citizens in the United States solely
to make them [wards] of the taxpayers.”
The Appellate Division affirmed in
part, reversed in part, and remanded for further proceedings. In re Keri, 356
N.J. Super. 170, 172 (2002). Because the panel would not presume that a
competent and reasonable adult would engage in spend-down Medicaid planning, it
held that courts should employ a purely subjective standard “to protect the
incompetent’s right to self-determination.” Id. at 179. Under that standard,
approval of a spend-down plan proposed by an incompetent’s self-sufficient
adult children should occur only when the incompetent person has indicated that
preference before losing competency. Ibid. Keri had never expressed a
preference, and therefore the Appellate Division found that the trial court
properly rejected petitioner’s proposal. Further, out of concern for Keri’s
wishes and best interests, the Appellate Division reversed and remanded the
matter for reconsideration whether petitioner should be permitted to sell his
mother’s house and place her in a nursing facility, and directed the trial
court to seek intervention of the Public Guardian on Keri’s behalf pursuant to
N.J.S.A. 52:27G-25h. Id. at 180.
We granted Richard’s petition for
certification, In re Keri, 175 N.J. 549 (2003), and, also, the participation of
amici, Office of the Public Guardian for Elderly Adults, New Jersey State Bar
Association, Legal Services of New Jersey, 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. We now reverse.
II.
A. N.J.S.A. 3B:12-49 states, in pertinent part:
The
court has, for the benefit of the ward, his dependents and members of his
household, all the powers over his estate and affairs which he could exercise,
if present and not under a disability, except the power to make a will, and may
confer those powers upon a guardian of his estate. These powers include, but
are not limited to power to convey or release the ward’s present and contingent
and expectant interests in real and personal property, . . . and to renounce
any interest by testate or intestate succession or by inter vivos transfer.
Those
powers are integral to a statutory scheme in which courts and guardians are
authorized to manage the estates of minors and incompetent persons. N.J.S.A.
3B:12-36 to –64. Under that scheme courts may
exercise, or direct the exercise
of, or release the powers of appointment of which the ward is donee, . . .
renounce interests, . . . make gifts in trust or otherwise, or
. . . change
beneficiaries under insurance and annuity policies, only if satisfied, after
notice and hearing, that it is in the best interests of the ward.
[N.J.S.A.
3B:12-50.]
Additionally, [i]f the estate is ample to provide for the purposes
implicit in the distributions authorized by [the statute], a guardian for the
estate of a mental incompetent may apply to the court for authority to make
gifts to charity and other objects as the ward might have been expected to
make.
[N.J.S.A. 3B:12-58.]
In short, 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 ward,” N.J.S.A.
3B:12–50, and that any gifts proposed are such “as the ward might have been
expected to make,” N.J.S.A. 3B:12-58. Together, those statutory provisions
incorporate and reconcile the best interests standard with the common law
equitable doctrine of substituted judgment. Only when the estate contains the
resources necessary for the benefit of the ward (best interests), may the
guardian make gifts “in the same manner as the incompetent would if able to
function at full capacity” (substituted judgment). In re Labis, 314 N.J. Super.
140, 146 (App. Div. 1998).
B.
The concepts found in the statutes governing the powers of courts and guardians
have long been a part of our law. Prior to the enactment of N.J.S.A. 3B:12-36
to -64, our courts relied on the doctrine of parens patriae to “intervene in
the management and administration of an incompetent’s estate in a given case
for the benefit of the incompetent or of his estate.” In re Trott, 118 N.J.
Super. 436, 440 (Ch. Div. 1972). In Trott, the court permitted a guardian to
transfer $100,000 and make yearly gifts of the ward’s estate to her four living
descendants as a means of reducing the ward’s estate tax burden. Id. at 438-39,
444. The court endorsed the principle that in the management of the estate of
[an] incompetent, “the guardian should be authorized to act as a reasonable and
prudent [person] would act [in the management of his own estate] under the same
circumstances, unless there is evidence of any settled intention of the
incompetent, formed while sane, to the contrary.” [Id. at 441 (third alteration
in original) (quoting In re Guardianship of Christiansen, 56 Cal. Rptr. 505,
521 (Ct. App. 1967)).]
In accepting that thesis, the court relied on the
approach of the Supreme Judicial Court of Massachusetts in Strange v. Powers,
wherein that court stated:
We agree with the modern trend of cases both in
England and in the United States. There is no reason why an individual, simply
because he happens to be a ward, should be deprived of the privilege of making
an intelligent commonsense decision in the area of estate planning, and in that
way forced into favoring the taxing authorities over the best interests of his
estate.
[
260 N.E.2d 704, 709 (Mass. 1970).]
To answer in a specific case the question
whether the guardian should be permitted “to make the gifts proposed,” Trott,
supra, requires the guardian to establish five 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 by any
standard . . .; (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.
[118
N.J. Super. at 442-43.]
See also Christiansen, supra, 56 Cal. Rptr. at 523-25
(establishing factors substantially similar to those of Trott). After finding
that the proposed financial plan met those criteria, the Trott court authorized
the guardian to execute the plan. 118 N.J. Super. at 444.
The Trott criteria,
which we now adopt, have been applied by our courts in exercising their
statutory authority to determine whether estate-planning proposals offered by
guardians are in the wards’ best interests and give effect to the wards’ wishes
had they been able to express them. See Labis, supra, 314 N.J. Super. at 147
(observing that relevant provisions of Title 3B “incorporated the concepts of
Trott”); see also In re Conroy, 98 N.J. 321, 360 (1985) (“[T]he goal of
decision-making for incompetent patients should be to determine and effectuate,
insofar as possible, the decision that the patient would have made if
competent.”). In effect, Trott provides a framework consisting of a set of
objective tests (criteria (1), (3) and (4)) for the application of substituted
judgment, taking into account the ward’s best interests (criterion (2)).
Criterion (5), however, introduces a subjective test with a high evidentiary
burden to rebut substituted judgment: that “there is no substantial evidence”
the ward, “if competent,” would not approve a Medicaid spend-down plan.
Thus,
in Labis, supra, a case that in many respects resembles the case at bar, the
Appellate Division reversed an order of the trial court preventing petitioner
(who was her husband’s court-appointed guardian) from carrying out an
interspousal transfer of the marital residence as a Medicaid estate planning
measure. 314 N.J. Super. at 142. Applying the Trott factors, the appellate
court allowed the transfer to proceed because the ward’s wife and two adult
children were the natural objects of his bounty, the transfer would neither
interrupt nor detract from the quality or duration of his medical care, and he
was expected never to regain competency. Id. at 147-48.
Significantly, the
panel dismissed as “erroneous [the] view that the proposed interspousal
transfer was contrary to public policy.” Id. at 144. The trial court had
reasoned that an injustice would arise from the transfer in that the wife, if
she predeceased her husband, could then bequeath the marital home to their
adult children “‘free of the claims of the public.’” Ibid. The Appellate
Division acknowledged the likelihood of that result, but concluded the court
below had “failed to consider that the interspousal transfer would benefit [the
ward] in carrying forth his probable actions if he were competent to address
the situation,” and that federal Medicaid legislation had established
eligibility rules related to such transfers. Ibid. Because the ward had
prepared a will leaving his assets to the petitioner, the court believed it
“[safe to] assume that if . . . competent he would take any lawful and
reasonable action to minimize obligations to the State . . . in order to secure
the maximum amount available to support his wife . . . and benefit his
children.” Id. at 148. Pursuant to N.J.S.A. 3B:12-49 and 3B:12-50, as informed
by the Trott criteria, the Appellate Division approved the guardian’s request.
Ibid.
In Cohen, supra, similar reasoning led the Appellate Division to reject a
settlement proposed by beneficiaries under the will of an incompetent testator
and by her guardian, and approved by the chancery court in the face of
contentions that the parties had never reached agreement. 335 N.J. Super. at
15-16. The product of a complicated series of interfamilial wranglings, the
approved settlement provided for the “division [of the incompetent’s estate] .
. . into equal family shares and the immediate gifting of large portions of the
estate to the beneficiaries under [a prior] trust agreement” executed by the
incompetent when she was of sound mind. Id. at 25. The settlement both revoked
that prior trust, a beneficiary of which was one of the incompetent’s two adult
sons, and authorized a distribution to that son’s second wife, who had been
excluded from the ward’s initial testamentary plan. Id. at 31. The Appellate
Division found that the settlement agreement failed to satisfy three of the
Trott criteria (as had the Labis court, Cohen turned to Trott for guidance in
the exercise of its power under Title 3B). Id. at 29. Specifically, the court
determined that Title 3B permits “sweeping changes to an incompetent’s
testamentary plan” only when the donees are natural objects of the
incompetent’s bounty, the transfer benefits the ward, his family, or his
estate, and there is an absence of substantial evidence indicating contrary
intent. Id. at 32. In Cohen, when she was well, the incompetent had “prepared a
detailed testamentary plan . . . [that] was deliberate[ly] and carefully
crafted” to prevent her son’s second wife from sharing in her estate even
though that result meant higher death and transfer taxes. Id. at 30. By
providing, among other things, a “benefit for [the son’s second wife],” the
settlement agreement “alter[ed] the substance of the will and authorize[d] a
large distribution to someone who [was] not an object of [the ward’s] bounty as
expressed in her will.” Id. at 32. The agreement failed the Trott criteria
because substantial evidence demonstrated that it was “contrary to [the ward’s]
clear testamentary intent.” Id. at 33.
C. The New Jersey cases we have reviewed
support the petitioner’s claim that 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. That approach accords with decisions of the New
York courts addressing the same issues. Under N.Y. Mental Hyg. Law § 81.21(a)
(McKinney 1996), a court may authorize the guardian to exercise those powers
necessary and sufficient . . . to transfer a part of the incapacitated person’s
assets to or for the benefit of another person on the ground that the
incapacitated person would have made the transfer if he or she had the capacity
to act.
Those powers include the power to make gifts of all or part of the
ward’s estate. Id. § 81.21(a)(1). Also, the statute enumerates factors that our
sister state’s courts must consider in determining whether to approve a
guardian’s application to transfer a ward’s assets. Those factors, which the
New York courts have construed as “g[iving] . . . recognition to the common-law
doctrine of ‘substituted judgment[,]’” In re John XX, 652 N.Y.S.2d 329, 332
(App. Div. 1996), appeal denied, 681 N.E.2d 1301 (N.Y. 1997), closely follow
the Trott court’s formulation. See footnote 4 See also In re Shah, 694 N.Y.S.2d
82, 87 (App. Div. 1999) (“The relief granted pursuant to Mental Hygiene Law
article 81 is designed to permit an incapacitated person to do, by way of a
surrogate, those essential things such a person could do but for his or her
incapacity.”), aff’d, 733 N.E.2d 1093 (N.Y. 2000).
When legal guardians have
satisfied the statutory requirements, New York permits them to engage in
Medicaid planning even when the guardians themselves may be the recipients of
transfers from the wards’ assets. In re Shah, 733 N.E.2d 1093, 1098-99 (N.Y.
2000); John XX, supra, 652 N.Y.S. 2d at 332; In re DaRonco, 638 N.Y.S.2d 275,
278 (Sup. Ct. 1995); In re Daniels, 618 N.Y.S.2d 499, 502-504 (Sup. Ct. 1994).
Indeed, 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 care be paid by the State, as opposed to
his family.’” Shah, supra, 733 N.E. 2d at 1099 (quoting Shah, supra, 694 N.Y.S.
2d at 87); see also Daniels, supra, 618 N.Y.S 2d at 504 (noting 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”). We agree with the New York courts. We find, further, that
the Trott criteria impliedly establish a presumption in favor of spend-down
proposals by recognizing the benefit to the ward’s estate of increasing the
amounts available to beneficiaries by reducing payments to the government out
of the estate. Trott, supra, 118 N.J. Super. at 443. Also significant, Trott
requires “substantial evidence that the incompetent, as a reasonably prudent
person, would, if competent, not make the gifts proposed.” Id. at 443-44; see
also John XX, supra, 652 N.Y.S. 2d at 331 (presumption can be overcome with
clear and convincing evidence under N.Y. Mental Hyg. Law § 81.21(e)(3) that
incompetent individual “manifested . . . intention inconsistent with the
proposed transfer”). Thus, under Trott, which we have adopted today, the
presumption can be overcome only with “substantial evidence,” a high threshold
that is consonant with the approach in New York.
III. In this case, we find
that petitioner’s proposed Medicaid spend-down plan meets the Trott criteria
and should be approved. It is undisputed that the first criterion of Trott is
satisfied because Keri suffers from irreversible dementia. “[H]er restoration
to competency is virtually nonexistent.” Trott, supra, 118 N.J. Super. at
442-43. Richard’s spend-down plan is designed to provide adequate funding for
his mother’s nursing home care during the triggered period of Medicaid
ineligibility and therefore meets the second criterion of Trott. The testimony
indicates that Keri needs care twenty-four hours a day and that Richard was
concerned about locating an appropriate facility for her. The trial court found
that placement in a nursing home was necessary. Because both state and federal
law prevent a Medicaid approved facility from transferring a patient based on a
change in pay status, we should not anticipate that when Medicaid assumes
Keri’s financial obligations, the quality of her care will suffer. 42 U.S.C.A.
§ 1396r(c)(4)(A); 42 C.F.R. § 483.12(c)(1); N.J.S.A. 26:2H-12.8j, -12.8p.
Further,
New Jersey statutes do not distinguish nursing homes that participate in
Medicaid or Medicare from those that do not. N.J.S.A. 30:13-5. Regardless of
the source of her payment, in a nursing home Keri will [h]ave the right to a
safe and decent living environment and considerate and respectful care that
recognizes [her] dignity and individuality . . ., including the right to expect
and receive appropriate assessment, management and treatment of pain as an
integral component of [her] care consistent with sound nursing and medical
practices.
[N.J.S.A. 30:13–5j.]
Federal law is no less demanding; Medicaid
funding is conditioned on nursing home compliance with federal standards for
dignified care. 42 U.S.C.A. §1395i-3; 42 U.S.C.A. 1396r; see also 42 C.F.R. §§
483.1 to 483.100 (specifying requirements for states and long-term care
facilities). See footnote 5 The third criterion of Trott, supra, that the
donees of petitioner’s spend-down plan “constitute the natural objects of the
bounty of the incompetent,” unquestionably is met. 118 N.J. Super. at 443.
Richard and Charles are Keri’s sons, and her will leaves her estate in equal
parts to them. See also N.J.S.A. 3B:12-62 (in exercising powers over ward’s
estate, court or guardian must “take into account any known estate plan of the
ward, including his [or her] will”). And, the proposed transfer of assets “will
benefit and advantage the estate of the incompetent,” as required by the fourth
Trott criterion. Trott, supra, 118 N.J. Super. at 443; see also N.J.S.A.
3B:12-49 (granting powers over ward’s estate “for the benefit of the ward, his
dependents and members of his household”). Assuming Keri nets $170,000 from the
sale of her house, the plan proposes to preserve $92,000 of those proceeds for
her sons to share. If Keri spends the remainder of her life in a nursing home
without selling her house, the state would be authorized to impose a lien for
Medicaid cost reimbursement and Richard and Charles likely would get nothing.
42 U.S.C.A. §1396p(a)(1)(B). If Keri sold the house without transferring her
assets, then her entire financial investment would be paid out in less than
three years for nursing home costs, and, again, Richard and Charles likely
would get nothing. Under petitioner’s plan, Keri could preserve approximately
$46,000 from the proceeds of the sale of her home for each of her sons, the
beneficiaries of her will.
Finally, the fifth Trott criterion is satisfied because
there is no evidence in the record indicating that Keri would have disapproved
petitioner’s proposed spend-down plan. The Appellate Division focused on Keri’s
preference to stay in her house, a preference that conflicted with petitioner’s
proposed plan. But, if Keri could not live in her house without twenty-four
hour care, as the trial court found, then she would have to pay for
around-the-clock nursing. The result is a veritable “Catch-22” -- without
selling her house, Keri does not have the funds to maintain in-home care for
more than a short period. See footnote 6 Moreover, because of her dementia Keri
had become difficult at best, suggesting that in-home care would not be
feasible. The question, then, is whether substantial evidence indicates that
Keri would have disapproved petitioner’s Medicaid planning proposal in those
unfortunate circumstances. There simply is nothing in the record to suggest
that disapproval.
We therefore find that petitioner’s spend-down plan
represents a decision that his mother “might have been expected to make,”
N.J.S.A. 3B:12-58, and satisfies both the applicable statutes and the Trott
criteria.
IV. The Public Guardian for the Elderly takes the position that a
child-beneficiary who serves as a guardian should not be permitted to propose a
Medicaid spend-down plan for his or her ward because to do so would be a clear
conflict of interest. He claims that here petitioner “is violating his
fiduciary duty to his mother by self-dealing through Medicaid planning.” The
Appellate Division accepted that position, stating:
Unlike the situation
involving spouses, there is a greater likelihood of conflict of interest when
the gift-beneficiaries are children. As [a] Florida court observed . . . :
“Courts must make room for the possibility that some children may try to
pressure vulnerable parents into divesting themselves of assets so that the
estate is not depleted by the costs of nursing home care.”
[Keri, supra, 356
N.J. Super. at 179 (quoting Rainey v. Guardianship of Mackey, 773 So.2d 118,
122 (Fla. Dist. Ct. App. 2000)).]
There is a fundamental problem with the
approach taken by the Public Guardian and the court below. As in this case, the
natural objects of a ward’s bounty often are the same persons likely to be
chosen by the courts as guardians, i.e., children, spouses, close friends or
relatives. N.J.S.A. 3B:12-25 directs the Superior Court to appoint “the spouse,
if the spouse is living with the incompetent as man and wife at the time the
incompetency arose, or . . . his heirs.” The very statute establishing the
Office of the Public Guardian for Elderly Adults declares that the Public
Guardian’s services may be needed “where there are no willing and responsible
family members or friends to serve as guardian.” N.J.S.A. 52:27G-21; see also
N.J.S.A. 52:27G-26 (using similar language). 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.
In the circumstances presented, we find that adherence to the requirements of
N.J.S.A. 3B:12-36 to -64, informed by the Trott criteria, should provide
adequate protection against self-dealing by a beneficiary/guardian.
Out of an
abundance of caution, the Appellate Division also held that “[a]bsent
extraordinary circumstances, a court faced with an application of this nature
should appoint the Public Guardian to represent the incompetent” pursuant to
the Public Guardian For Elderly Adults Act (the Act), N.J.S.A. 52:27G-20 to
–31. Keri, supra, 356 N.J. Super. at 180. In ordering a remand, the panel
directed the trial court to seek intervention by the Public Guardian on Keri’s
behalf, primarily out of a “concern[] about whether [her] interests [were]
being protected.” Ibid. (internal citations omitted).
First, we take note of
the Public Guardian’s opposition to mandatory participation by his office in
these matters. He points out that the primary purpose of the Act is to provide
guardianship for incompetent elderly adults who do not have private persons
willing to serve in that capacity. N.J.S.A. 52:27G-21. Although the Act
arguably leaves open participation by the Public Guardian in a non-guardian role,
See footnote 7 he argues that the courts must not impose a burden on his office
that would take significant resources away from its important primary function
as specified by the Legislature.
We observe in respect of this issue that
safeguards already exist, apart from the constraints of law, for dealing with
possible conflicts of interest in such cases. When a court orders a hearing on
an application for guardianship, Rule 4:86-4(b) requires the appointment of
counsel for the alleged incompetent. Appointed counsel must 1) personally
interview the alleged incompetent; 2) make inquiry of persons having knowledge
of the alleged incompetent’s circumstances, his or her physical and mental
state and his or her property; [and] 3) make reasonable inquiry to locate any
will, powers of attorney, or health care directives previously executed by the
alleged incompetent or to discover any interests the alleged incompetent may
have as beneficiary of a will or trust.
[R.
4:86-4(b).]
Counsel also must file a report with the court, “making
recommendations concerning the . . . issue of incompetency,” and “stat[ing]
whether the alleged incompetent has expressed dispositional preferences.” Ibid.
Moreover, our court rules provide that “where special circumstances come to the
attention of the court by formal motion or otherwise, a guardian ad litem may,
in addition to counsel, be appointed to evaluate the best interests of the
alleged incompetent and to present that evaluation to the court.” R. 4:86-4(d)
(emphasis added). In light of those safeguards, we do not find it necessary for
the Public Guardian to be involved in this See footnote 8 or any other like
matter. We nonetheless accept the Public Guardian’s offer to intervene when
extraordinary circumstances exist and the expertise of that office would be
helpful. In such cases, the trial courts may wish to call on the Public
Guardian to participate as needed. Finally, the Appellate Division’s
characterization of Medicaid spend-down plans requires a response from this
Court. The panel described such plans as follows:
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.
[ Keri, supra, 356 N.J. Super. at 174.]
Yet,
the panel also acknowledged:
Nonetheless, a competent individual may engage in
such planning. . . . 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.
[Id. at 175.]
As amicus curiae Legal Services and the New
Jersey State Bar Association point out, Medicaid planning is legally
permissible under federal and state Medicaid law. Notwithstanding the Appellate
Division’s laudable purpose to preserve public monies for those who are in
need, Congress has carefully defined and circumscribed Medicaid planning, as
has the State of New Jersey. By its actions, Congress has set the public policy
for this program and although some might choose a different course, the law has
not. Few would suggest that it is improper for taxpayers to maximize their
deductions under our tax laws to preserve income for themselves and their
families -- even though they are, by their actions, reducing the amount of money
available to government for its public purposes. 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
laid out herein.
V. 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
this opinion.
JUSTICES VERNIERO, LaVECCHIA, ZAZZALI, ALBIN, and WALLACE join in
CHIEF JUSTICE PORITZ’s opinion. JUSTICE LONG did not participate.
------------------------------------------------------------------
Footnote:
1 There is some discrepancy in the record as to the value of Keri’s assets. The
trial court stated that she had about $40,000 in liquid assets in addition to
her home, and Richard, in his testimony, affirmed the judge’s estimate.
According to Richard’s certification, however, his mother only had about
$17,000 in other assets -- $500 in jewelry, and the remainder in a checking
account. Estimates of the home’s value also differed. The average value given
by two real estate brokers, whose certifications were attached to the
complaint, was $161,250.00; the average value given by two appraisers, whose
reports were attached to a later certification submitted by petitioner, was
$183,500.00.
------------------------------------------------------------------
Footnote: 2 To qualify for Medicaid in New Jersey based on age, a state
resident must not have available resources exceeding $2,000. N.J.A.C.
10:71-3.1, -3.4, -3.9(a)1, and –4.5(b). Keri’s house would not be considered an
asset for Medicaid-eligibility purposes if it remained her principal residence.
N.J.A.C. 10:71-4.4(b)1. However, petitioner seeks to sell his mother’s
residence and transfer monies to himself and his brother because, under federal
law, the state is authorized to impose a lien on Keri’s house for reimbursement
of Medicaid costs as she is unlikely to return to it. 42 U.S.C.A. §
1396p(a)(1)(B).
------------------------------------------------------------------
Footnote: 3 Congress imposes periods of Medicaid ineligibility for applicants
who give away their assets for less than fair market value within thirty-six
months of their applications. 42 U.S.C.A. § 1396p(c); see N.J.A.C.
10:71-4.10(a) (complying with federal Medicaid requirement by imposing period
of ineligibility). The period of ineligibility, in months, is determined by
dividing the amount divested for less than fair market value by the average
monthly cost of nursing home care in New Jersey. N.J.A.C. 10:71-4.10(m)1.
------------------------------------------------------------------
Footnote: 4 Other state courts also have employed the substituted judgment
approach in guardianship cases. See, e.g., Christiansen, supra, 56 Cal. Rptr.
at 522-23 (holding that guardian may transfer ward’s property for tax purposes
if ward, as “reasonably prudent” person, would have, absent evidence of
contrary intent); Rainey v. Guardianship of Mackey, 773 So. 2d 118, 122 (Fla.
Dist. Ct. App. 2000) (stating court should use substituted judgment standard to
assess Medicaid spend-down proposal).
------------------------------------------------------------------
Footnote: 5 We are informed by amicus curiae, New Jersey Chapter of National
Academy of Elder Law Attorneys, that New Jersey has 358 nursing homes, 320 of
which participate in the Medicaid Program.
------------------------------------------------------------------
Footnote: 6 As noted earlier, supra at ___ n.1 (slip op. at 3), the record is
unclear whether Keri has more than $16,000 in other assets. In any event, those
other assets are limited and would not cover in-home care for very long.
------------------------------------------------------------------
Footnote: 7 The Public Guardian [m]ay intervene in any guardianship or
conservatorship proceeding involving a ward, by appropriate motion by the
court, if the public guardian or the court deems the intervention to be
justified because an appointed guardian or conservator is not fulfilling his
duties, the estate is subject to disproportionate waste because of the costs of
the guardianship or conservatorship, or the best interests of the ward require
intervention. [ N.J.S.A. 52:27G-25h.]
This
provision does not limit expressly the powers and responsibilities of the
Public Guardian to guardianship services. ------------------------------------------------------------------
Footnote: 8 Counsel appointed by the trial court in this case interviewed Keri
and complied with the other requirements of Rule 4:86-4(b), although he did not
offer evidence and declined to cross-examine petitioner. As the Appellate
Division acknowledged, he “supported [petitioner’s] application in all
respects.” Keri, supra, 356 N.J. Super. at 172.
For
more information, go to http://njwillsprobatelaw.com/guardianshipkeri.html?id=461&a=
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