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.
|
