MICHAEL J. RANKIN reports on a recent case dealing with the validity of a priority lien that the Division of Medical Assistance and Health Services (DMAHS) filed against a decedent’s estate for reimbursement of Medicaid benefits the decedent received. DMAHS determined the lien attached to all assets in the estate, including the decedent’s one-third elective share against the augmented estate of his wife that included the proceeds from the sale of the couple’s former marital home.
In this case, the decedent and his spouse lived together in their jointly-owned condominium before he began living in an assisted living facility in April 2007. On July 18, 2007, decedent’s spouse executed her Last Will and Testament disinheriting the decedent and naming their children as the sole beneficiaries of her estate.
On February 6, 2008, decedent and his spouse executed a deed transferring his interest in the condominium to his spouse. On April 7, 2008, decedent was admitted into a nursing home, suffering from Alzheimer’s disease, and soon thereafter applied for institutional level Medicaid benefits.
The condominium was deemed by DMAHS as an exempt resource for purposes of establishing decedent’s Medicaid eligibility. Specifically, decedent transferred his interest in the condominium to his spouse as a Medicaid planning technique to maximize resources for her. Because the decedent and his spouse held themselves out to DMAHS as a married couple, decedent’s spouse was permitted to retain the condominium as well as other assets (example, an automobile) as her “community spousal resource allowance” consistent with Medicaid and New Jersey law. After spending down his share of the couple’s resources, decedent became eligible for Medicaid benefits.
Decedent’s spouse passed away in September 2010. The assets in her estate included the proceeds from the sale of the condominium. The local county welfare agency (CWA) responsible for evaluating Medicaid eligibility notified the decedent that his Medicaid benefits would terminate claiming that decedent’s waiver of the spousal elective share amounted to a transfer of an available asset that subjected him to a penalty period of ineligibility. Upon decedent’s death, DMAHS filed a priority lien claim against his estate for reimbursement of $166,981.25 of Medicaid benefits he received from July 1, 2008 to the date of his death.
The decedent’s son, as next-of-kin, filed a complaint in the Chancery Division, Probate Part, for judgment discharging the lien because, amongst other things, his parents had been living separate and apart at the time of his mother’s death and the couple ceased to cohabit as man and wife under circumstances that gave his mother a cause of action for divorce under N.J.S.A. 2A:34-2(d) (separation for at least eighteen months), or N.J.S.A. 2A:34-2(f) (institutionalization for mental illness for a period of twenty-four or more consecutive months). The trial judge found these arguments to lack merit, and the decedent’s son appealed the trial judge’s decision.
As way of background, a surviving spouse is entitled to an elective share of one-third of the deceased spouse’s augmented estate provided at the time of the decedent’s death the couple “had not been living separate and apart in different habitations or had not ceased to cohabit as man and wife, either as the result of judgment of divorce . . . or under circumstances which would have given rise to a cause of action for divorce.” N.J.S.A. 3B:8-1. Generally, an “augmented estate” means the deceased spouse’s gross estate reduced by funeral and certain administration expenses, plus the value of property transferred by the deceased spouse during marriage under certain circumstances.
In this case, the Appellate Division explained that N.J.S.A. 3B:8-1 prevents a spouse, if divorced, from claiming the right to share in the decedent’s estate, and also prevents a spouse from such entitlement if the parties no longer live together and were embarked on a divorce action with good cause prior to the spouse’s death. Thus, a separation without divorce can disqualify a spouse from being entitled to an elective share. However, there must be evidence, beyond mere separation, of a cause of action for divorce to disqualify a surviving spouse from elective share rights.
Here, although living separate and apart for approximately three years at the time of the decedent spouse’s death, the couple’s relationship was not sufficiently removed from the normally thought of state of matrimony that would preclude the decedent from claiming an elective share of his spouse’s estate. The Appellate Division explained that the decedent and his spouse were married for approximately fifty-nine years and there was nothing suggesting that the decedent’s spouse was seeking or even considering a divorce because she and the decedent were separated. Rather, the only reason for the couple’s physical separation was the unfortunate circumstances of the decedent’s Alzheimer’s disease. Thus, this situation involved nothing more than the couple’s mere separation, which is not enough under New Jersey law to prevent the decedent’s estate from claiming an elective share over decedent’s spouse’s augmented estate.
The Appellate Division found the decedent’s share of his spouse’s augmented estate was an asset in which he had legal title or interest to at the time of his death, and it was an asset that was available to him during his lifetime. Accordingly, the Appellate Division held the trial judge correctly found that the elective share was part of the decedent’s estate and subject to the Medicaid lien.
Please contact Michael J. Rankin if you have any questions or need any assistance in connection with this subject.