The estate argued that the assets held in a trust created by a spouse are not subject to recovery by NJ because these assets are not part of a deceased spouse’s “estate” under 42 U.S.C.A. § 1396(b)(4)(B) and N.J.S.A. 30:4D-7.2(a)(3).
Federal Medicaid law has required participating states like New Jersey to enact certain “estate” recovery provisions as part of their medical assistance plans. See 42 U.S.C.A. § 1396p(b)(1), 42 U.S.C.A. § 1396a(a)(18) and 42 U.S.C.A. § 1396c. States must seek adjustment or recovery [from an individual’s estate] of any medical assistance correctly paid on behalf of the individual under the State plan … [i]n the case of an individual who was 55 years of age or older when the individual received such medical assistance.” 42 U.S.C.A. § 1396p(b)(1)(B).
New Jersey is allowed to recover Medicaid benefits after the death of the recipient’s surviving spouse provided that the Medicaid recipient leaves “no surviving child who is under age 21, or is blind or permanently and totally disabled.” 42 U.S.C.A. § 1396p(b)(2)(A). The states also must establish procedures for the waiver of recovery of Medicaid benefits where recovery would work an “undue hardship.” 42 U.S.C.A. § 1396p(b)(3).
To meet the federal estate recovery requirements, each participating state must define a decedent’s “estate” to include at a minimum “all real and personal property and other assets included within the [recipient’s] estate, as defined for purposes of State probate law.” 42 U.S. C.A. § 1396p(b)(4)(A). In addition, participating states may adopt a broader definition of “estate” and may include:
any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.
[42 U.S.C.A. § 1396p(b)(4)(B).]New Jersey has enacted legislation to comply with the federal estate recovery requirements. Pursuant to N.J.S.A. 30:4D-7.2(a)(2), the state Medicaid agency may file a lien against and seek recovery of the cost of Medicaid assistance from the “estate” of a deceased recipient. “Estate” is defined in N.J.S.A. 30:4D-7.2(a)(3) consistent with federal law. In addition, the Commissioner of Human Services is required by N.J.S.A. 30:4D-7(j) to take all necessary action to recover the cost of Medicaid benefits correctly provided from the estate of a Medicaid recipient.
The Commissioner of Human Services has adopted regulations applicable to these estate recoveries. The Division is authorized by N.J.A.C. 10:49-14.1(d) to “file any claim or lien against an estate … within 90 days after receiving actual written notice from the personal representative of the estate or any other interested party of the death of a Medicaid beneficiary.” The definition of “estate” in N.J.A.C. 10:49-14.1(1)(2) is essentially the same as the definition of that term in N.J.S.A. 30:4D-7.2. The regulations further provide that the term “estate” shall not include:
A testamentary trust established by a third party (including the spouse of the now-deceased Medicaid beneficiary) for the benefit of the now-deceased Medicaid beneficiary, provided that:
- The trust is a discretionary trust, constructed in
such a way that the Medicaid beneficiaries could not
compel distributions of the trust; and
- The trust contains no assets in which the Medicaid beneficiary held any interest within either five years prior to applying for Medicaid benefits, or five years prior to the beneficiary’s death….
A deceased spouse has a right to an elective share of his/her estate equal to one third of the “augmented estate”. Case law in NJ holds that an elective share in a trust under which a deceased spouse only has a life estate in the trust’s income and discretionary distribution of trust principal which pass to a spouse and children upon death is a trust arrangement. By establishing a trust with a deceased spouse’s elective share which limits his/her interest to a life estate in income and discretionary distributions of trust principal, the state considers those assets to be transferred to his/her heirs upon his death.
Such a testamentary trust qualifies as an “arrangement” for the conveyance of the assets of a Medicaid beneficiary within the meaning and intent of 42 U.S.C.A. § 1396p (b)(4)(B). Although created by a third party, rather than the Medicaid recipient, a testamentary trust that effects the transfer of the recipient’s assets to his survivors, heirs or assigns, is similar in purpose and effect to the forms of conveyance mentioned in 42 U.S.C.A. § 1396p (b)(4)(B). Such a trust includes a “life estate” for the Medicaid recipient as well as “survivorship” interests for his heirs. When assets of a Medicaid recipient are conveyed to a survivor, heir or assign by such an “arrangement,” the assets remain part of the recipient’s “estate” pursuant to 42 U.S.C.A. § 1396p (b)(4)(B) and N.J.S.A. 30:4D-7.2(a)(3) and are subject to estate recovery by NJ.
If you are looking for additional details on this topic or if you require advice about your situation, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Medicaid Attorney