Case Title: In the Matter of Mildred Keri

Citation: 

Docket Number: a-70-02

State: new-jersey

Court: New Jersey Supreme Court

Date: 2004-08-05T00:00:00Z

Document:
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Financially, Keri's residence constituted the bulk of her net worth (the house was appraised at approximately $170,000; the estimates of other assets varied from $17,000 to $40,000). Her pension and Social Security benefits provided a monthly income of $1,575.45. Although Keri's will divides her estate equally between her two sons, Richard is her agent by a general power of attorney executed on November 11, 1996. The instrument authorized Richard to apply for Medicaid benefits for his mother, but did not explicitly authorize him to make gifts on her behalf for any reason. On May 10, 2002, Richard filed an action seeking a statutory guardianship in respect of his mother. He also sought court approval for a proposed Medicaid "spend-down" plan. Specifically, Richard wished to sell his mother's house and transfer a portion of the proceeds to himself and his brother in equal shares as a means of spending down her assets to accelerate her Medicaid eligibility. Based on an assumed value of $170,000 for the house and a monthly cost of $6,500 for nursing home expenses, Richard determined that after deducting his mother's monthly income, they would need $78,000 to pay the nursing home bills during the statutory sixteen-month Medicaid ineligibility period that would be triggered by the asset transfer. Richard and Charles would each receive $48,000. At trial, Richard maintained that his mother would have undertaken the same estate planning strategy had she been competent to act on her own behalf. Charles did not object to the proposal. Keri's court-appointed attorney recommended that the plan be approved. On June 26, 2002, the trial court granted the guardianship application and ordered the sale of Keri's house and her placement in a nursing home. The court denied Richard's request to implement a "spend-down" plan, however. On appeal, the Appellate Division affirmed in part, reversed in part, and remanded the case for further proceedings. It held that approval of a spend-down plan proposed by an incompetent's self-sufficient adult children should occur only when the incompetent person has expressed that preference before losing competency. Because Keri had never expressed a preference, the Appellate Division found that the trial court properly rejected Richard's proposal. The court went on to direct the intervention of the Office of Public Guardian on Keri's behalf. Richard petitioned the Supreme Court for certification, which the Court granted. Amicus curiae status was granted to the Office of the Public Guardian for Elderly Adults, the New Jersey State Bar Association, Legal Services of New Jersey, Inc., the New Jersey Chapter of the National Academy of Elder Law Attorneys, and the National Academy of Elder Law Attorneys and Guardianship Association of New Jersey. HELD: When a Medicaid spend-down plan does not interrupt or diminish an incompetent person's care, involves transfers to the natural objects of the person's bounty, and does not contravene an expressed prior intent or interest, the plan clearly provides for the best interests of the incompetent person and satisfies the law's goal to effectuate decisions an incompetent would make if he or she were able to act. 1. New Jersey statutes provide that when managing the estates of incompetent persons, including the exercise of the power to make gifts, our courts must find that the proposed action is in the best interests of the incompetent person and that any proposed gifts are such as he or she might have been expected to make. The statutory provisions blend the best interests standard with the common law equitable doctrine of "substituted judgment." (pp. 7-9) 2. The concepts found in the statutes governing the powers of courts and guardians have long been a part of our case law. In 1972, a Chancery Division court required a guardian to establish five criteria before being allowed to make proposed gifts. (In re Trott). The criteria included the following: The possibility of restoration to competency has to be virtually nonexistent; After making the proposed gifts, the assets of the estate must be such that in light of the condition and life expectancy of the incompetent, the assets are more than adequate to meet his or her needs in the style and comfort in which he or she has been maintained since the onset of the incompetency; The recipients of the gifts constitute the natural objects of the gifts under any standard; The transfer will benefit and advantage the estate of the incompetent by a reduction in death taxes; and There is no substantial evidence that the incompetent, as a reasonably prudent person would, if competent, not make the gifts proposed to effectuate a saving in death taxes. The Trott criteria, which the Court is adopting, have been applied by the courts to determine whether estate-planning proposals offered by guardians are in the incompetents' best interests and give effect to the incompetents' wishes had they been able to express them. In effect, the criteria provide a framework that consists of objective and subjective tests. (pp. 9-14) 3. New Jersey case law is consistent with decisions by the New York courts under similar statutory provisions. As part of its decisional law, New York has established a presumption in favor of approving Medicaid spend-down proposals on the ground that a reasonable and competent person would prefer that the costs of his or her care be paid by the State as opposed to the family. The Court agrees with New York and finds further that the Trott criteria impliedly establish a presumption in favor of spend-down proposals by recognizing the benefit to an incompetent person's estate when increasing the amounts available to beneficiaries by reducing payments to the government out of the estate. That presumption can be overcome only with "substantial evidence," a high threshold that is consistent with New York's approach. (pp. 15-17) 4. Richard Keri's proposed Medicaid spend-down plan meets both the applicable statutes and the Trott criteria and should be approved. Because both federal and state law prevent a Medicaid-approved facility from transferring a patient based on a change in pay status, it should not be anticipated that when Medicaid assumes Keri's financial obligations that the quality of her care will suffer. (pp. 18-21) 5. The Court disagrees with the position of the Public Guardian for the Elderly that a child-beneficiary who serves as a guardian should not be permitted to propose a Medicaid spend-down plan because to do so would be a clear conflict of interest. Disqualifying such persons from the receipt of asset transfers on conflict of interest grounds prevents the use of substituted judgment in the majority of cases because, if not disabled, incompetent persons most likely would transfer their assets to their guardian. The existing statutory protections, viewed in the context of the Trott criteria, should provide adequate protection against self-dealing by a beneficiary/guardian. (pp. 21-23) 6. The Court notes the opposition of the Public Guardian to mandatory participation by his office in these matters. In light of the use of counsel for the incompetent and the court's ability to appoint a guardian ad litem, the Court does not find it necessary to involve the Public Guardian in this case or others like it except in extraordinary circumstances. (pp. 23-26) 7. The Court disagrees with the Appellate Division's characterization of Medicaid spend-down plans as "self-imposed impoverishment to obtain, at taxpayers' expense, benefits intended for the truly needy." As Legal Service of New Jersey and the New Jersey State Bar Association pointed out, Medicaid planning is legally permissible under federal and state Medicaid law. 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 set forth in the Court's opinion. (pp. 26-27) The judgment of the Appellate Division is REVERSED, and the matter is REMANDED to the trial court for the entry of an order consistent with the Court's opinion. JUSTICES VERNIERO, LaVECCHIA, ZAZZALI, ALBIN, and WALLACE join in CHIEF JUSTICE PORITZ's opinion. JUSTICE LONG did not participate. Argued October 20, 2003 Decided August 5, 2004 On certification to the Superior Court, Appellate Division, whose opinion is reported at 356 N.J. Super 170 (2002). Donald D. Vanarelli argued the cause for appellant, Richard Keri (Mr. Vanarelli, attorney; Mr. Vanarelli and Whitney W. Bremer, on the brief). Linda S. Ershow-Levenberg argued the cause for amicus curiae New Jersey Chapter of National Academy of Elder Law Attorneys (Fink, Rosner, Ershow-Levenberg, attorneys). Gwen E. Orlowski argued the cause for amicus curiae Legal Services of New Jersey (Melville D. Miller, Jr., President, attorney; Mr. Miller and Ms. Orlowski on the brief). Peggy Sheahan Knee argued the cause for amicus curiae New Jersey State Bar Association (Karol Corbin Walker, President, attorney; Ms. Sheahan Knee, Sharon A. Balsamo, Janet B. Lurie, Sharon Rivenson Mark and Shirley B. Whitenack on the brief). Edward H. Tetelman, Acting Public Guardian, argued the cause for amicus curiae Office of the Public Guardian for Elderly Adults (Mr. Tetelman, attorney; Mr. Tetelman, Joseph A. Fontana and Helen Dodick, on the briefs). Daniel J. Jurkovic submitted a brief on behalf of amici curiae National Academy of Elder Law Attorneys and Guardianship Association of New Jersey, Inc. (Mr. Jurkovic, attorney; Mr. Jurkovic, Sharon Rivenson Mark and Mary E. WanderPolo, on the brief). CHIEF JUSTICE PORITZ delivered the opinion of the Court. This case presents the question whether self-sufficient adult children who serve as their incompetent parents legal guardians may transfer to themselves all or part of their parents assets in order to hasten their parents eligibility for Medicaid benefits. We hold that when certain criteria are satisfied, they may, in order to effectuate a decision their parents would have made if competent. The court has, for the benefit of the ward, his dependents and members of his household, all the powers over his estate and affairs which he could exercise, if present and not under a disability, except the power to make a will, and may confer those powers upon a guardian of his estate. These powers include, but are not limited to power to convey or release the ward s present and contingent and expectant interests in real and personal property, . . . and to renounce any interest by testate or intestate succession or by inter vivos transfer. Those powers are integral to a statutory scheme in which courts and guardians are authorized to manage the estates of minors and incompetent persons. N.J.S.A. 3B:12-36 to 64. Under that scheme courts may exercise, or direct the exercise of, or release the powers of appointment of which the ward is donee, . . . renounce interests, . . . make gifts in trust or otherwise, or . . . change beneficiaries under insurance and annuity policies, only if satisfied, after notice and hearing, that it is in the best interests of the ward. [i]f the estate is ample to provide for the purposes implicit in the distributions authorized by [the statute], a guardian for the estate of a mental incompetent may apply to the court for authority to make gifts to charity and other objects as the ward might have been expected to make. in the management of the estate of [an] incompetent, the guardian should be authorized to act as a reasonable and prudent [person] would act [in the management of his own estate] under the same circumstances, unless there is evidence of any settled intention of the incompetent, formed while sane, to the contrary. [Id. at 441 (third alteration in original) (quoting In re Guardianship of Christiansen, 56 Cal. Rptr. 505, 521 (Ct. App. 1967)).] In accepting that thesis, the court relied on the approach of the Supreme Judicial Court of Massachusetts in Strange v. Powers, wherein that court stated: We agree with the modern trend of cases both in England and in the United States. There is no reason why an individual, simply because he happens to be a ward, should be deprived of the privilege of making an intelligent commonsense decision in the area of estate planning, and in that way forced into favoring the taxing authorities over the best interests of his estate. [ 260 N.E.2d 704, 709 (Mass. 1970).] To answer in a specific case the question whether the guardian should be permitted to make the gifts proposed, Trott, supra, requires the guardian to establish five criteria: (1) the mental and physical condition of the incompetent are such that the possibility of her restoration to competency is virtually nonexistent; (2) the assets of the estate of the incompetent remaining after the consummation of the proposed gifts are such that, in the light of her life expectancy and her present condition of health, they are more than adequate to meet all of her needs in the style and comfort in which she now is (and since the onset of her incompetency has been) maintained, giving due consideration to all normal contingencies; (3) the donees constitute the natural objects of the bounty of the incompetent by any standard . . .; (4) the transfer will benefit and advantage the estate of the incompetent by a reduction of death taxes; (5) there is no substantial evidence that the incompetent, as a reasonably prudent person, would, if competent, not make the gifts proposed in order to effectuate a saving of death taxes. court may authorize the guardian to exercise those powers necessary and sufficient . . . to transfer a part of the incapacitated person s assets to or for the benefit of another person on the ground that the incapacitated person would have made the transfer if he or she had the capacity to act. Those powers include the power to make gifts of all or part of the ward s estate. Id. 81.21(a)(1). Also, the statute enumerates factors that our sister state s courts must consider in determining whether to approve a guardian s application to transfer a ward s assets. Those factors, which the New York courts have construed as g[iving] . . . recognition to the common-law doctrine of substituted judgment[,] In re John XX, 652 N.Y.S.2d 329, 332 (App. Div. 1996), appeal denied, 681 N.E.2d 1301 (N.Y. 1997), closely follow the Trott court s formulation. See footnote 4 See also In re Shah, 694 N.Y.S.2d 82, 87 (App. Div. 1999) ( The relief granted pursuant to Mental Hygiene Law article 81 is designed to permit an incapacitated person to do, by way of a surrogate, those essential things such a person could do but for his or her incapacity. ), aff d, 733 N.E.2d 1093 (N.Y. 2000). When legal guardians have satisfied the statutory requirements, New York permits them to engage in Medicaid planning even when the guardians themselves may be the recipients of transfers from the wards assets. In re Shah, 733 N.E.2d 1093, 1098-99 (N.Y. 2000); John XX, supra, 652 N.Y.S.2d at 332; In re DaRonco, 638 N.Y.S.2d 275, 278 (Sup. Ct. 1995); In re Daniels, 618 N.Y.S.2d 499, 502-504 (Sup. Ct. 1994). Indeed, New York has established a presumption in favor of approving Medicaid spend-down proposals on the ground that a reasonable and competent person would prefer that the costs of his care be paid by the State, as opposed to his family. Shah, supra, 733 N.E.2d at 1099 (quoting Shah, supra, 694 N.Y.S. 2d at 87); see also Daniels, supra, 618 N.Y.S 2d at 504 (noting that a competent, reasonable individual . . . would prefer that his property pass to his child rather than serve as a source of payment for Medicaid and nursing home care bills ). We agree with the New York courts. We find, further, that the Trott criteria impliedly establish a presumption in favor of spend-down proposals by recognizing the benefit to the ward s estate of increasing the amounts available to beneficiaries by reducing payments to the government out of the estate. Trott, supra, 118 N.J. Super. at 443. Also significant, Trott requires substantial evidence that the incompetent, as a reasonably prudent person, would, if competent, not make the gifts proposed. Id. at 443-44; see also John XX, supra, 652 N.Y.S.2d at 331 (presumption can be overcome with clear and convincing evidence under N.Y. Mental Hyg. Law 81.21(e)(3) that incompetent individual manifested . . . intention inconsistent with the proposed transfer ). Thus, under Trott, which we have adopted today, the presumption can be overcome only with substantial evidence, a high threshold that is consonant with the approach in New York. Unlike the situation involving spouses, there is a greater likelihood of conflict of interest when the gift-beneficiaries are children. As [a] Florida court observed . . . : Courts must make room for the possibility that some children may try to pressure vulnerable parents into divesting themselves of assets so that the estate is not depleted by the costs of nursing home care. [Keri, supra, 356 N.J. Super. at 179 (quoting Rainey v. Guardianship of Mackey, 773 So. 2d 118, 122 (Fla. Dist. Ct. App. 2000)).] There is a fundamental problem with the approach taken by the Public Guardian and the court below. As in this case, the natural objects of a ward s bounty often are the same persons likely to be chosen by the courts as guardians, i.e., children, spouses, close friends or relatives. N.J.S.A. 3B:12-25 directs the Superior Court to appoint the spouse, if the spouse is living with the incompetent as man and wife at the time the incompetency arose, or . . . his heirs. The very statute establishing the Office of the Public Guardian for Elderly Adults declares that the Public Guardian s services may be needed where there are no willing and responsible family members or friends to serve as guardian. N.J.S.A. 52:27G-21; see also N.J.S.A. 52:27G-26 (using similar language). Disqualifying those individuals from receipt of asset transfers on conflict of interest grounds prevents the use of substituted judgment in the majority of cases because, if not disabled, incompetent persons most likely would transfer their assets to their guardians. In the circumstances presented, we find that adherence to the requirements of N.J.S.A. 3B:12-36 to -64, informed by the Trott criteria, should provide adequate protection against self-dealing by a beneficiary/guardian. Out of an abundance of caution, the Appellate Division also held that [a]bsent extraordinary circumstances, a court faced with an application of this nature should appoint the Public Guardian to represent the incompetent pursuant to the Public Guardian For Elderly Adults Act (the Act), N.J.S.A. 52:27G-20 to 31. Keri, supra, 356 N.J. Super. at 180. In ordering a remand, the panel directed the trial court to seek intervention by the Public Guardian on Keri s behalf, primarily out of a concern[] about whether [her] interests [were] being protected. Ibid. (internal citations omitted). First, we take note of the Public Guardian s opposition to mandatory participation by his office in these matters. He points out that the primary purpose of the Act is to provide guardianship for incompetent elderly adults who do not have private persons willing to serve in that capacity. N.J.S.A. 52:27G-21. Although the Act arguably leaves open participation by the Public Guardian in a non-guardian role, See footnote 7 he argues that the courts must not impose a burden on his office that would take significant resources away from its important primary function as specified by the Legislature. We observe in respect of this issue that safeguards already exist, apart from the constraints of law, for dealing with possible conflicts of interest in such cases. When a court orders a hearing on an application for guardianship, Rule 4:86-4(b) requires the appointment of counsel for the alleged incompetent. Appointed counsel must 1) personally interview the alleged incompetent; 2) make inquiry of persons having knowledge of the alleged incompetent s circumstances, his or her physical and mental state and his or her property; [and] 3) make reasonable inquiry to locate any will, powers of attorney, or health care directives previously executed by the alleged incompetent or to discover any interests the alleged incompetent may have as beneficiary of a will or trust. [R. 4:86-4(b).] Counsel also must file a report with the court, making recommendations concerning the . . . issue of incompetency, and stat[ing] whether the alleged incompetent has expressed dispositional preferences. Ibid. Moreover, our court rules provide that where special circumstances come to the attention of the court by formal motion or otherwise, a guardian ad litem may, in addition to counsel, be appointed to evaluate the best interests of the alleged incompetent and to present that evaluation to the court. R. 4:86-4(d) (emphasis added). In light of those safeguards, we do not find it necessary for the Public Guardian to be involved in this See footnote 8 or any other like matter. We nonetheless accept the Public Guardian s offer to intervene when extraordinary circumstances exist and the expertise of that office would be helpful. In such cases, the trial courts may wish to call on the Public Guardian to participate as needed. Finally, the Appellate Division s characterization of Medicaid spend-down plans requires a response from this Court. The panel described such plans as follows: Putting euphemisms to one side, the plan, if followed by a competent person, is nothing other than self-imposed impoverishment to obtain, at taxpayers expense, benefits intended for the truly needy. IN THE MATTER OF MILDRED KERI, A MENTALLY INCOMPETENT PERSON. DECIDED August 5, 2004 Chief Justice Poritz PRESIDING OPINION BY Chief Justice Poritz CONCURRING/DISSENTING OPINIONS BY DISSENTING OPINION BY [m]ay intervene in any guardianship or conservatorship proceeding involving a ward, by appropriate motion by the court, if the public guardian or the court deems the intervention to be justified because an appointed guardian or conservator is not fulfilling his duties, the estate is subject to disproportionate waste because of the costs of the guardianship or conservatorship, or the best interests of the ward require intervention.