The Effect of Disinheritance of a Medicaid Recipient by a Community Spouse

As stressed in prior posts, Medicaid eligibility may not be permanent. If the requirements for eligibility are not met at the first moment of the first day of a given month, eligibility will be lost. A general discussion of that problem is set forth in Post 21, which discusses loss of eligibility upon the death of another.

The salient development with respect to the community spouse is that the regulations to OBRA '93 (which are still in effect) appear to disqualify an individual from eligibility due to the existing of elective share rights.

Planning considerations for the will of a spouse of an individual who is or may be entering a nursing home are broader than the issue of Medicaid disqualification. However, Medicaid planning must address the possibility that the "healthy spouse" might predecease the potential Medicaid applicant or Medicaid recipient. Lack of planning in this area could undo lifetime Medicaid planning. For purposes of this discussion, the wife is assumed to be the potential Medicaid applicant, and the will under discussion is that of the husband.

Supposed the husband desires to "disinherit" his wife and preserve assets for the next generation if he dies first. See the New Jersey elective share provisions. N.J.S.A. 3B:8-1 et. seq. The regulations and comments would appear to treat the failure of the wife to exercise her elective share rights as a transfer, the amount of which would presumably be one-third the augmented estate of the husband (N.J.S.A. 3B:8-1,3).

Example 1: Husband predeceases wife (nursing home resident, not yet eligible for Medicaid) devising his estate to their children. Assuming elective share rights of $90,000, failure to exercise these rights would result in a period of ineligibility ( see post 15).

Such interpretation violates the federal statute and raises numerous preemption issues.

For a further analysis and the general estate planning issues if a community spouse predeceases The Final Medicaid Regulations (Finally!), 2001, "Estate Planning Issues", by Levin, Mark.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.

Trust for a Disabled Child

Medicaid has insisted that the first remaining beneficiary of all trusts be the State. This concept has been in effect since the institution of OBRA '93 and is based upon a misreading of the federal statute.

The administrative regulations (N.J.A.C. 10:71-4.10 (f) require that in order for a trust for the "sole benefit of" a spouse (subject to the community spouse resource allowance), disabled child or disabled individual under the age of 65 to be exempt, the State must be the first remaining beneficiary. That is, the reimbursement requirement imposed by New Jersey applies to all "sole benefit of" trusts. Response to Comment 33 (of the OBRA '93 regulations) indicates so long as the Medicaid claim is satisfied, the trust can provide for other remainder beneficiaries.


This interpretation that the State be the remainderman is a requirement based upon a misunderstanding of the federal statute.


OBRA '93 requires the State be reimbursed from trusts known as "(d)(4)(A)" trusts (trusts for disabled individuals under 65, Miller Trusts-no longer effective in New Jersey, pooled income trust-trusts for groups of disabled children). These trusts are known as exempt trusts. It is noted that the only "sole benefit of" trust referenced under this federal statute relates to a trust for a disabled individual under the age of 65. The exemption from the transfer rules for transfers for the "sole benefit of" a spouse or for the "sole benefit of" a disabled child is not based upon the aforementioned federal statute dealing with exempt trusts. The exemption for these transfers is based upon the federal statute which sets forth the list of exempt transfers. While the federal statute requires that the remainderman of "(d)(4)(A)" exempt trusts be the State, there is obviously no such requirement in the transfer provisions and Medicaid is being more restrictive that the federal law.

Transfer of an Excludable Resourse

There is a misconception that if an individual transfers an excludable resource that such a transfer is exempt from the transfer rules. This is incorrect.

For example, as indicated by "Real Estate Planning ideas for a Married Couple" - Post 11, the home is an excludable resource whether owned by the applicant, spouse or jointly.

Suppose the house is in the husband's name and he transfers the house to the child. This transfer is subject to the transfer penalty even though the transfer is of an excludable resource. The proper technique with respect to the home is to transfer the home into the sole name of the community spouse (whether owned jointly or by the applicant) at the time of institutionalization (the reason for such transfer are set forth in Post 11).

However, the house can be transferred by the community spouse to the child after the applicant receives Medicaid. This is consistent with the principles set forth in Post 13 that the community spouse is no longer limited to the community spouse resource allowance after the date of eligibility. Similarly, the appropriate time for transfer is at that time and when the house is in the sole name of the community spouse.

Multiple Transfers During the Lookback Period

To understand the effect of multiple transfers during the current 60-month lookback period, a review of the prior law under OBRA '93 would be helpful.

Under the prior law, there are two basics situations with respect to such transfers. One relates to overlapping penalty periods and the other relates to a penalty period expiring prior to the date of the subsequent transfer.

Under OBRA '93, overlapping penalty periods were governed by N.J.A.C.10:71-4.10(m)2., which provides:

" In the case of an asset transfer which occurs during an existing transfer penalty period, the penalty for the subsequent transfer shall not begin until the expiration of the previous penalty period."

The regulations made it clear that if a penalty period expires prior to the date of a subsequent transfer, transfers would not be aggregated ( even if within the 36-moth lookback period). Under OBRA '93, consider the following example:

Individual transfers $24,000 on January 1, 2004 and another $24,000 on February 1, 2004. Individual applies for Medicaid on July 1, 2004. Assume penalty rate of $6,000 and other eligibility requirements have been met. The penalty for the February transfer cannot commence until the penalty for the January transfer expires on May 1. The penalty for the February transfer commences on May 1 and expires on September 1. Application for Medicaid will be denied.

The prior concept regarding multiple transfers have no applicability for multiple transfers under the Deficit Reduction Act. Keep in mind that the key date which triggers the lookback period is the date on which an individual is eligible for Medicaid but for the application of the penalty period ( see post 15 regarding the New Transfer Rules). Therefore, it is logical that any transfer 60 months prior to the new date would deemed to have been made at the date of application (since new rules commence February, 2006, the full 60-month lookback does not occur until February, 2011). Therefore, the new law aggregates all transfers made during the 60-month lookback period at the date of application.

Hopefully, this conundrum would not occur. For example, consideration could be given to a return of the monies transferred and the monies used on exempt resources such as prepaid funeral expenses, back taxes, or improvement of the home. The difficulty of justifying a transfer in most cases is discussed in Post 43. Parenthetically, the State is currently taking the position that any transfers by a resident of an assisted living facility cause permanent ineligibility.