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[This article was originally published on August 16, 2004. The links were updated on July 12, 2018.]
The New Jersey Supreme Court has unanimously ruled that a son serving as his mother's guardian may engage in Medicaid planning on her behalf. In the Matter of Keri (N.J., No. A-70-02, Aug. 5, 2004).
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Richard Keri asked the court to make him the guardian of his elderly mother, who was losing the ability to live independently and required nursing home care. At the same time, Richard asked the court for permission to engage in Medicaid planning on his mother's behalf. Mrs. Keri's major asset is her home. What Richard wanted to do was to sell the home, valued at about $170,000, and gift $92,000 of the proceeds to himself and his brother (who are the beneficiaries of Mrs. Keri's will). He would then place Mrs. Keri in a nursing home that accepts Medicaid patients and use the remaining $78,000 from the sale to pay for her nursing home care during the resulting period of Medicaid ineligibility. Richard maintained that, if not so ill, his mother would have done the same thing herself. In fact, in 1996, Mrs. Keri had executed a general power of attorney naming Richard as her agent and authorizing him to apply for Medicaid on her behalf, although the power of attorney did not allow Richard to make gifts.
The trial court granted the guardianship application, ordered the sale of Mrs. Keri's home and her placement in a nursing home, but refused to authorize the Medicaid plan. The state appeals court agreed with the denial of Medicaid planning. The court held that courts should approve such plans proposed by self-sufficient adult children only when the incompetent person says they want this done before losing competency.
In a unanimous decision, the Supreme Court of New Jersey reversed the lower court, ruling that Richard's proposed Medicaid spend-down plan should be approved. The court found that this case is no different from those in which courts allow guardians to make gifts that will reduce a ward's estate taxes. In such cases, the guardian must convince the court that: (1) there is no chance that the incompetent person will regain capacity; (2) the assets of the incompetent's estate after the proposed gifts are more than adequate to meet her needs; (3) the recipients of the gifts are the natural objects of the incompetent person's bounty; (4) the gifts will benefit her estate; and (5) there is no substantial evidence that the incompetent person would, if competent, not make the gifts proposed in order to reduce her estate taxes.
"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," the court wrote. "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."
Editor's note: Five current or former New Jersey members of ElderLawAnswers were involved in this important case. Donald D. Vanarelli represented Richard Keri. Linda S. Ershow-Levenberg argued the case for amicus curiae (friend of the court) New Jersey Chapter of National Academy of Elder Law Attorneys. Janet B. Lurie and Sharon Rivenson Mark submitted briefs for amicus curiae New Jersey State Bar Association, and Ms. Mark and Mary E. WanderPolo submitted briefs on behalf of amici curiae National Academy of Elder Law Attorneys and Guardianship Association of New Jersey, Inc.
To view the full text of this decision, go to: http://njlaw.rutgers.edu/collections/courts/supreme/a-70-02.opn.html.
Medicaid Rules, etc