Module 4 - Property

 Case Studies:

Transfer of Assets to Guardian/Spouse 

Myrna Labis wanted to be appointed guardian for her husband, Manuel, who was left mentally incompetent after a stroke permanently damaged his brain. Myrna also wanted the authority to undertake Medicaid estate planning for Manuel’s benefit. Manuel is bedridden and paralyzed on the right side. He is unable to swallow, communicate, follow directions, or answer questions. Myrna, if appointed his guardian, wanted an interspousal transfer of his interest in their home as part of Medicaid planning.

Manuel and Myrna purchased their home together and have jointly maintained it. The couple also jointly paid for the education of their two now-adult children. Myrna continues to work full-time, while Manuel receives a Social Security disability pension and a small early retirement pension. Both Manuel and Myra have reciprocal wills with the surviving spouse receiving all the assets and, thereafter, equal allocations to their children.

The Law Division judge appointed Myrna as Manuel’s guardian but denied the interspousal transfer of their home, citing a public interest. The judge believed that the Labis family should preserve some assets to repay a portion of the public expense of supporting Manuel.

The court rules that, “It is not fair to the public to transfer the home to her sole name during the joint lives of the parties free of any interest of the incompetent (and the public). Such a transfer might result in a situation in which she predeceases the incompetent and leaves the house to the parties’ adult children free of the claims of the public.”

Questions for Discussion
  1. The Medicaid planning proposed here would partially benefit Myrna, the guardian, by decreasing the amount she would have to pay for her husband’s health care. Was the judge correct in forbidding it? Were his reasons sound?

  2. What if Myrna did not do Medicaid planning for her husband – but then exhausted their finances, to the extent they needed public assistance?

  3. Is it a conflict of interest for Myrna, as Manuel’s guardian and wife, to perform Medicaid planning?

Gifting to Ward's Intended Heirs (i)  

Mildred Keri, a nursing home resident, had irriversible dementia and was unable to care for herself.  Ms. Keri's two sons helped cared for her.  They would visit her on alternating days and made sure she was well cared for in their absence. 

Ms. Keri’s residence comprised the bulk of her estate; it was valued at $170,000. Her other assets ranged from $17,000 to $40,000, and her monthly income, from Social Security, was $1,575.

Ms. Keri’s will divided her estate equally between her two sons. One son, Richard, was her agent by a general power of attorney. This power allowed him to apply for Medicaid benefits for his mother. However, it did not explicitly authorize him to make gifts on her behalf for any reason, so Richard petitioned for guardianship of his mother.

As his mother’s guardian, Richard wanted to give some of his mother’s assets to himself and his brother. He would leave Ms. Keri with enough assets to pay the nursing home during the period of ineligibility. This plan would allow Richard to give away his mother’s assets to qualify for Medicaid instead of having to spend those assets on his mother’s nursing home care until she became eligible for Medicaid.

The trial court granted the guardianship, authorized the sale of the home, but did not authorize the Medicaid plan. The interim appellate court affirmed in part and reversed in part, and certification to the Supreme Court of New Jersey was granted. The New Jersey Supreme Court held that when certain criteria are met, Medicaid planning is permissible in order to render a decision the ward would have made if competent, and that the Medicaid plan proposed in this case met such criteria, namely:

  • It is not possible to restore the ward to capacity;
  • The assets of the estate remaining after the consummation of the proposed gifts are such that, in light of the ward’s life expectancy and present condition of health, they are more than adequate to meet all of the ward’s needs in the style and comfort in which the ward is currently (and since the onset of incapacity has been) maintained, giving due consideration to all normal contingencies;
  • The recipients of the money must constitute the natural objects of the bounty of the ward;
  • The transfer will benefit and advantage the estate of the ward; and
  • There is no “substantial evidence” that the ward would not have disapproved the plan.
Questions for Discussion (see next case)

Gifting to Ward's Intended Heirs (ii) 

A Florida appellate court reversed a trial court’s denial of a guardian’s petition to implement Medicaid planning on behalf of a ward, based upon the trial court’s failure to conduct an evidentiary hearing to determine whether or not, after the proposed transfer of assets, there would be a period of ineligibility imposed before the ward could qualify for Medicaid benefits and, if so, whether there would be sufficient funds to pay for the ward’s nursing home care during any period of ineligibility.

At the time the petition was brought, the ward was 86 years of age and living in a skilled nursing facility. When the guardianship was established, the ward’s assets were about $78,725, she had a monthly income of $980.97, and a monthly deficit of $4,377.78. The petition alleged that the ward’s life expectancy was 6.2 more years, and that the ward’s assets would be depleted in 10.64 months unless the ward qualified for and obtained Medicaid benefits. The proposed Medicaid plan consisted of gifting the sum of $3,000 per month to the ward’s only daughter, the sole beneficiary named in the ward’s will.

By the date of the hearing on the petition, the guardian had already spent $32,000 on the ward’s care. The court would not conduct an evidentiary hearing but did accept proffers of testimony that the ward and his daughter had a close personal relationship and, from an elder law specialist, that “Medicaid planning is a common tool used to preserve the estate of a ward for intended beneficiaries, as well as a tool for estate and income tax planning.”

The elder law specialist also said that Medicaid planning was legal and that the proposed plan would not result in any penalty to the ward. Despite the proffers, the court found that it was not in the best interest of the ward to allow Medicaid planning. The petition was denied. The appellate court reversed and remanded, holding that the trial court was required to conduct an evidentiary hearing to determining whether after the proposed transfer of the ward's assets there would be a period of ineligibility before the ward could qualify for Medicaid and, if so, whether there would be sufficient funds to pay for the ward's nursing care during that period of ineligibility. The appellate court also held that the appropriate standard to be applied in considering the petition is substituted judgment.

Questions for Discussion 
  1. Does it constitute a conflict of interest for heirs to make gifts to themselves in order to qualify wards for Medicaid?

  2. In general, should one be able to preserve a ward’s estate through gifts rather than “spending down” the estate?

  3. What are key differences between these two cases? Does it matter that in the second case, the guardian was depleting her own financial reserves?

  4. Medicaid planning is a common, albeit sometimes controversial, way to preserve estates. In cases such as the two here, is there an argument to be made that society itself should assume greater responsibility for the care of those determined by courts to be incompetent? What factors should be considered in assessing the ethics of Medicaid planning?

Management of Dystunctional Family 

This case involves a guardianship of the property of a minor who sustained a brain injury in an accident as a young child. There was a large personal injury settlement, which was used to purchase an annuity with a sizable, long-term monthly payout.

The minor ward remains in the custody of his parents and natural guardians, but they were not appointed guardian of the property because of concerns they would mismanage such a large amount of money, invest it inappropriately, and/or use it for their sole benefit and not in the best interest of the child.

As time passes and the guardian becomes familiar with the case, the guardian realizes that the ward’s progressively dangerous behavior is not so much the result of brain injury as it is the result of very poor parenting. No one in the family has attempted to get any services that are appropriate for a brain-injured child. In fact, his parents have been uncooperative with the guardian’s suggestions to do so. Both parents have records of alcohol and drug abuse, his father apparently has a criminal record and only sporadically supports the family, and there is evidence of emotional and physical abuse.

All in all, the ward is in a very bad environment. His behaviors include violent temper tantrums, dropping out of school, flirting with drugs, running away from home, and credit card fraud. His parents then divorced and he was kicked out of his father’s home, his mother’s home, the grandmother’s home and the home of a family friend. He has run out of people to live with and so is currently staying alone, at age 16, in a vacant home purchased with money from the personal injury settlement. This home is the property of the guardianship and the guardian has been advised by her attorney to sell it due to all the usual liability issues surrounding maintaining it and keeping it safe.

The guardian has experience working with dysfunctional families and knows this child needs some stability and structure. The guardian also knows what community resources are available to get the ward back on the path of growth and productivity, and keep him out of what increasingly appears inevitable: jail. The guardian wants to help, but is uncertain of the extent of her authority as guardian of the property under circumstances in which the ward’s parents are the ward’s natural guardians.

  • Anonymous
Questions for Discussion
  1. Special challenges are faced in dealing with dysfunctional families. What approaches should a guardian consider in cases such as this?

  2. Is there any way to incorporate evidence that children are generally better off in the presence of parents?

  3. It is difficult and can be frustrating when a family member retains guardianship of the person and a guardian assumes control over property. At what point, if any, in this case should the guardian in this case seek plenary powers?

Liquidating Assets

Ms. Z, a legally incompetent adult, has assets of about $20 million.  One of her many real estate acquisitions includes a parcel of land that she purchased in 1950 for $10,00; it is now worth approximately $3 million.

She regularly receives offers to buy the property, which is much sought after because of its prime location. Ms. Z. doesn’t have any financial need to sell the property. But the property, a vacant lot, is something of a liability for her because many youths use it as a track to ride dirt bikes.

On the other hand, if Ms. Z. were to sell the property, she would be responsible for paying a significant capital gains tax. There are several named heirs, who eventually will inherit the property.

Ms. Z.’s guardian is a close personal friend of the real estate agent, who will make several hundred thousand dollars in commissions, and who is pressuring her to sell.

  • Anonymous
Questions for Discussion
  1. Where should guardians turn for advice in making ethically optimized investment and liquidation decisions? What special precautions are necessary when very large sums of money are involved?

  2. If you were this guardian, how would you deal with the real estate agent who is pressuring you to sell? What issues are raised by the fact that the agent is a close friend?