Transfer of Assets to Disabled Children
by:Â Thomas D. Begley, Jr.
The current federal Medicaid statute has been in effect since 1989.[1] Generally, the statute provides that if an individual makes an uncompensated transfer of resources, the value of those resources are divided by the average monthly cost of a nursing home and the resulting quotient is the number of months during which the applicant will be ineligible for Medicaid benefits.[2] The statute further provides that âan individual shall not be ineligible for medical assistance by reason of [the transfer penalty rules] to the extent thatâŠthe assets were transferred to, or to a trustâŠestablished solely for the benefit of the individualâs child [who is blind or disabled].â[3]
For 20 years New Jersey interpreted that statute to mean that if a parent transferred assets directly to a disabled child, the transfer was exempt from the Medicaid transfer of asset penalty. In 2009, without any change in federal or state statute or regulations New Jersey changed its interpretation and said that if assets are transferred directly to a disabled child, a transfer of asset penalty would be imposed. The stateâs position was that only assets transferred to a trust solely for the benefit of the disabled child were exempt from the imposition of the transfer of asset penalty.
In a recent case, two individual transferred assets directly to their disabled children. The State rejected the Medicaid applications and imposed transfer of asset penalties. The State asserted that only those transfers that were made to an irrevocable trust established for the sole benefit of a disabled child are eligible for an exemption from the transfer penalty rules.
The plaintiffs filed suit in U.S. District Court to obtain a preliminary injunction enjoining the State of New Jersey from treating an outright transfer of assets to a blind or disabled child as a penalized transfer.[4] The District Court held that the plaintiffs are likely to succeed on the merits of their claim and that irreparable harm would result to the plaintiffs in that there is a serious risk of discharge from nursing facilities and an inability to recover improperly withheld benefits after trial on the merits. The court granted the preliminary injunction. In its analysis, the Court said that the relevant statute reads, âAn individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent thatâŠthe assets were transferred to, or to a trust (including a trust described in subsection (d)(4) of this Section) established solely for the benefit of, the individualâs child [who is blind or disabled].â The dispute between the parties concerned the phrase âsolely for the benefit of.â The Medicaid applicants argued that the phrase applies only to transfers made to a trust, while the State insisted that the phrase also applies to transfers made to the individualâs child. The Court held that the Stateâs position was untenable. âThe phrase âsolely for the benefit ofâ follows the words âa trust.â The clause is set off by commas from the rest of the passage, suggesting that the âsolely for the benefitâ language is suppose to apply to the noun that immediately precedes it. Once that clause is set off from the rest of the sentence the passage reads, âAn individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent thatâŠthe assets were transferred to the individualâs child.â The rating is further supported by the fact that the âsolely for the benefit ofâ language appears to be modifying the word âestablished.â The word âestablishedâ must in turn be referring exclusively to âa trust.â In summary, it is syntactically implausible to maintain that the âsolely for the benefitâ language applies to transfers directly to the applicantâs child.â Consequently, the statute has the effect of exempting any transfer of resources made directly to an applicantâs blind or disabled child, regardless of whether the transferor makes special arrangements to ensure that the transfer is for the childâs sole benefit. The Court also noted that the State Medicaid Manual specifically states that the transfer of asset penalty does not apply if âassets wereâŠtransferred to the individualâs child, or to a trust…established solely for the benefit of the individualâs child.â
The result of this case is that transfers of assets made directly to a disabled child are exempt from the Medicaid transfer of asset penalty just as they have been for the past 20 years.
[1] 42 U.S.C. §1396p.
[2] 42 U.S.C. §1396p(c)(1)(A) & (B).
[3] 42 U.S.C. §1396p(c)(2)(B)(iii).
[4] Sorber v. Velez, United States District Court, District of New Jersey, Civ. No. 09-cv-3799 (Oct. 23, 2009).