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A recent decision handed down from the New Jersey Supreme Court states that the institutionalized spouse maintains an interest in previously gifted property that has been returned only to the name of the community spouse.
Breaking Down the Case Facts
In a case out of Monmouth County, a married institutionalized applicant was denied Medicaid benefits and assessed a penalty period due to the couple previously gifting funds from the sale of their home to their daughter along with additional cash. With those proceeds, the daughter and her husband purchased a home in which the institutionalized spouse and community spouse also resided. Upon the institutionalized spouse’s entrance into the nursing facility, the daughter transferred the title of the home to the community spouse and returned the additional cash assets, effectively curing the monetary gift that had previously been given to her.
However, the institutionalized spouse was denied benefits and assessed a penalty period by the New Jersey Division of Medical Assistance and Health Services because the newly purchased home—now titled in the name of the community spouse only—did not name the Medicaid applicant’s interest in the property as well. This penalty period, lasting nearly three years in length, would have had a detrimental effect on the community spouse’s ability to support her lifestyle.
The Division contended that because the institutionalized spouse did not receive any interest in the returned property, it could not be considered an excludable resource. Therefore, because the house could not be considered an excludable resource, the Division maintained that the transfer penalty was properly imposed. The family appealed the decision; however, the Division’s application of the penalty period was affirmed. This led the family to appeal again.
Appealing the Penalty Period and Understanding the Court’s Analysis
The State Supreme Court reversed the State court’s decision on the basis that the Medicaid regulations do not differentiate between property owned by either spouse individually or by both spouses together. As such, the return of the property and additional proceeds to the community spouse constitutes a return to the institutionalized spouse as well, regardless of the property’s ownership exclusivity.
Furthermore, the regulations do not attach any significance to the actual ownership of the principal residence in order for the home to be considered excludable, nor is there any citation or legal authority addressing that the returned gift must be in the same form as it was when originally gifted. Rather, the state Medicaid manual explains that “the full market value of the asset must be returned to the transferor, either in cash or another form acceptable to the State.” Therefore, the Court determined that the Division’s refusal to accept this couple’s interspousal transfer of real property to cure the transfer penalty was arbitrary, capricious and unreasonable and, consequently, reversed the lower court’s decision.
For more information on what constitutes a gift and how to handle a Medicaid penalty period, contact our office at [email protected] or (866) 605-7437.