N.J.A.C. 10:71-4.10(b)(3) provides that income and resources of a Medicaid applicant that he or she is “entitled to but does not receive because of action or inaction by the individual,” including waiver of the right to receive an elective share, are deemed to be asset transfers that can result in the imposition of substantial penalties that can delay qualification for Medicaid benefits.
In response, and based upon N.J.S. 3B:8-17, which values a surviving spouse’s or domestic partner’s elective share in a trust at one-half the value of the trust property, practitioners would often draft a testamentary trust funded with assets valued at the minimum amount required to satisfy the elective share. However, this strategy has been called into question in the case of Estate of Michael DeMartino v. Division of Medical Assistance, et. al.,373 N.J. Super. 210 (App. Div. 2004).
In that case, the Medicaid recipient’s spouse (“Anne”) established a trust under her Will that provided for the payment of all income, along with principal in the sole discretion of the Trustee, to the recipient (“Michael”) during his lifetime and for the distribution of the remaining trust assets upon his death to the children of their marriage. The trust was to be funded at Anne’s death with that portion of her residuary estate required to satisfy the New Jersey elective share.
Anne predeceased Michael and upon his death the Division of Medical Assistance asserted a lien against the trust property for Medicaid benefits paid for the cost of his nursing home care. His estate argued that the Division could not assert a lien against the trust property because at the time of his death he did not possess any “legal title or interest” in the trust assets. It also challenged the validity of N.J.A.C.10:49-14.1(n), which includes in the definition of “estate” for Medicaid recovery purposes assets owned by certain testamentary trusts.
The Appellate Division rejected the estate’s claims, holding that the lien was correctly imposed:
We are satisfied that, under this particular statutory scheme, the assets of the testamentary trust at issue are part of Michael’s ‘estate’ as defined in U.S.C.A. 1396p(b)(4)(B) and N.J.S.A. 30:7.2(a)(3). Here, the testamentary trust was merely a vehicle for the transfer of Michael’s assets to his heirs***But for the trust arrangement, Michael’s elective share would have been part of his own estate***In our view, a testamentary trust of the sort employed here 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).
DeMartino is a cautionary tale for those who believe that the establishment of such trusts will avoid the imposition of a Medicaid lien after the death of the Medicaid recipient spouse.