A recent New Jersey court of appeals case illustrates some of the pitfalls of the Medicaid rules and the problems that can result without proper planning. See S.L. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., App. Div., No. A-3520-11T4, Sept. 2, 2014). In December 2009, “S.L.” was a 95 year old woman who moved into a skilled nursing facility following a bad fall preceded by several mild strokes. When she filed for Medicaid benefits, the Essex County Board of Social Services determined that a 5.7 month “penalty period” would be assessed before her benefits would commence. The premise for the Board’s decision was that S.L. had made a total of 4 gifts in the total amount of $40,000 to her children between 2007 and 2009. S.L. then petitioned the appeals court to overturn the Board’s decision but her appeal was denied.
There are two important planning lessons to be learned from S.L.’s case. First, the Medicaid rules set forth a firm presumption that any transfers made by a Medicaid applicant within five years of applying for benefits were made to establish Medicaid eligibility. To put it another way, a Medicaid applicant has a very difficult burden of proving that any such transfers were made for some purpose other than trying to become Medicaid eligible.
S.L.’s testimony reported that during the time period she made the gifts she was “completely lucid and managed her own affairs” and that apart from slightly deteriorated vision she was suffering from no physically debilitating conditions and had been diagnosed with no chronic or long term illness. One of the $10,000 gifts was a down payment for her son to purchase a car that was needed primarily to drive S.L. around. She explained she would have purchased it herself except she saw no sense in that since she no longer had a valid driver’s license.
S.L. testified “[w]hen I gave my children the gifts I anticipated living in Florida with my son for the rest of my life. I wanted to give these monies to my children while I was alive in order to see them enjoy the money. I emphatically deny that these gifts were given to my children because I was anticipating going into a nursing home and giving away my assets to become eligible for Medicaid.” In characterizing her monetary gestures towards her children as “gifts,” S.L. elaborated that her purpose was simply a realization that “I had the money and I thought how nice it would be to see them spend it. . . . Well I thought it would be nice to see them enjoy the money that I had. I had everything I wanted.” S.L.’s lawyers asked her directly:
Q. When you gave them the money, the first money, did you think, "Well I have to give them this money because I am going to go into a nursing home," or anything like that?
A. No, we never discussed nursing home. I was always the type of person I did everything myself [sic].
The testimony then adds that following the gifts S.L. retained sufficient funds for herself. That is to say, her gifting in and of itself was not enough divestment of assets to render her Medicaid qualified. After she moved into the skilled nursing facility, S.L. paid privately for some 10 months before she applied for Medicaid benefits. The judicial decision does not state the exact amount she privately paid but we can estimate she had over $70,000 in funds when she first moved into the nursing home.
Despite all of the above evidence to the contrary, the appeals court was not persuaded! The court ruled that there was insufficient evidence to overcome the presumption mandated by the Medicaid rules. The bottom line for planning is that the Medicaid gifting presumption is a very high burden for any Medicaid applicant to overcome. Even when abundant evidence is presented to show that gifts were made long before nursing care was contemplated and for various purposes other than seeking Medicaid eligibility, the presumption will almost always lead to a Medicaid penalty being applied. That is why it is crucial to do pre-Medicaid planning long before there may be a need to start receiving skilled nursing care.
A second planning point to be learned from the case of S.L. is the lost opportunity to have implemented a family care contract. In describing the circumstances of S.L’s son moving in with her in 2002, she explained that her son helped her perform daily tasks of living, took her to her medical appointments, helped her with shopping, and helped her with many other errands. Those are precisely the sorts of tasks for which a family member could validly be compensated as a caregiver in a formalized Medicaid compliant care contract. If the funds S.L.’s son received could have been properly characterized as compensation for services provided to her rather than as gifts, then the Board would have had no grounds to assess a Medicaid penalty.