SUPERIOR COURT OF NEW JERSEY
IN THE MATTER OF MANUEL L.
LABIS, an Alleged Mental
Before Judges Landau, Newman and Collester.
On appeal from Superior Court of New Jersey,
Law Division, Morris County.
Donald M. McHugh argued the cause for appellant
Myrna Labis (McHugh and Macri, attorneys; Mr.
McHugh, on the brief).
Michael D. Bolton argued the cause for respondent
Manuel L. Labis.
The opinion of the court was delivered by
COLLESTER, J.A.D. (temporarily assigned)
Myrna R. Labis, hereinafter "Myrna," appeals from an order of
the Law Division denying her the authorization as guardian for her
incompetent husband, Manuel, for an interspousal transfer of his
interest in the marital home held as tenants by the entirety.
On October 3, 1996 Manuel suffered a subarachnoid hemorrhage, a devastating stroke which resulted in permanent brain damage. Now
age sixty-five, his condition is grievous. He is bedridden,
permanently paralyzed on the right side and unable to swallow on
his own. He cannot communicate, follow directions, or answer
questions, and is mentally incompetent.
Until recently, at a cost of $10,000 per month, he was treated
at the Morris Hills Multicare Center where Myrna visited him every
day. She has currently taken leave of her employment so that
Manuel could temporarily return to their East Hanover home. Manuel
requires constant care. There is no question that, barring death,
he will soon require long-term care at a nursing home or
institutional facility and that a Medicaid application will at some
point be filed to pay for the cost of care.
Before his stroke, Manuel and Myrna lived in the marital home
and raised and educated two sons. Both are now emancipated: one,
age twenty-seven, is an architect, and the other, age twenty-five,
is an engineer. Both Manuel and Myrna are certified public
accountants and worked full time. They pooled their earnings, for
purchase in 1977 of their home, and they have jointly maintained
their home as well as paid for the private college and graduate
school education of their children. Myrna's current salary is
about $40,000 when she works full-time. Manuel receives social
security disability of $1,010 per month in addition to a small
early retirement pension. Their joint annual income has been
reduced significantly since Manuel's stroke. Myrna is fifty-seven
and plans to continue working full time as long as she is able.
The joint and individual assets of the marital estate
exclusive of the home total about $100,000. The East Hanover
property has an estimated value of $224,000 less a $46,000 mortgage
and has carrying costs of $16,000 per year inclusive of taxes,
insurance, maintenance and utilities. Manuel and Myrna have
reciprocal wills, leaving his or her assets to the other spouse and
thereafter equally to their children.
On March 27, 1997 Myrna filed a complaint seeking appointment
as guardian for Manuel and in addition, the authority to undertake
Medicaid estate planning measures on behalf of Manuel including the
interspousal transfer of the marital home. The Law Division judge
entered an order declaring Manuel mentally incompetent and
appointing Myrna as his guardian, but he denied the request
authorizing the interspousal transfer, setting forth the following
Myrna contends that both Federal and State Medicaid laws as
well as public policy authorize interspousal transfers, that the
transfer is both appropriate and permissible under the substituted
judgment doctrine applicable to guardians and that the trial
judge's refusal to permit such a transfer discriminates against
Manuel as an incompetent in violation of the equal protection
Counsel appointed to represent the interest of Manuel does not
dispute that interspousal transfers are permitted but argues that,
as Manuel's fiduciary, Myrna should not be permitted to transfer
his interest in the marital home to herself because such a transfer
could benefit the couple's children at the potential cost of the
quality of Manuel's care.
We reverse. The Law Division judge denied the relief sought
on an erroneous view that the proposed interspousal transfer was
contrary to public policy, and thereby failed to consider that the
interspousal transfer would benefit Manuel in carrying forth his
probable actions if he were competent to address the situation.
In order to qualify for Medicaid, fifty percent of Manuel's
estate is deemed for spend down prior to eligibility, which in this
instance would be $50,000 exclusive of his interest in the marital
home. Myrna would have her deemed share of $50,000 and the right
to live in the marital home with responsibility for carrying costs.
Given her actuarial lifetime of 25.31 years, there is no illusion
that this "Community Spouse Resource Allowance" will sustain her
until then. Her economic survival in her declining years is
directly tied to the sale of the marital home.
The Federal Medicaid legislation requires that a state must
provide for a period of Medicaid ineligibility when an
institutionalized individual or spouse disposes of assets for less
than fair market value on or after the look-back date of thirty-six
months before the application for medical assistance. 42 U.S.C.A.
§ 1396p(c)(1)(A); 42 U.S.C.A. § 1396p(c)(1)(B)(i). However,
Medicaid law recognizes that it would be contrary to public policy
to force the "community spouse" to utilize all the combined marital
assets for the support of the institutionalized spouse so as to
result in the impoverishment and public support of both spouses.
42 U.S.C.A. § 1396r-5(d). Accordingly, the "Community Spouse
Resource Allowance" provisions divided spousal property pursuant to
"deeming rules," and there is a "Monthly Maintenance Needs
Allowance" for the community spouse. 42 U.S.C.A. § 1396r-5(f).
There is also no Medicaid lien or claim upon the marital home as
long as the community spouse continues residence. 42 U.S.C.A. §
Significant to this case is the additional spousal protection
provision that there is no ineligibility for Medicaid medical
assistance to an institutionalized person who transfers his or her
equity interest in a home serving as a principal place of residence
to a spouse. 42 U.S.C.A. § 1396p(c)(2)(A)(i); N.J.A.C. 10:71-4.7(d). For this reason transfer of an institutionalized person's
interest in the marital home is a common Medicaid and estate
planning strategy. See generally, Debora C. Fliegelman, Giving
Guardians The Power to do Medicaid Planning, 32 Wake Forrest L.Rev.
341, 361 (1997); see also, In Re Guardianship of Connor, 525 N.E.2d
214, 216 (Ill. App. Ct. 1988) (failure of guardian bank to sell
residential real estate prior to Medicaid application resulting in
loss of medical benefits constituted a breach of fiduciary duty
requiring reimbursement to ward's estate).
Other jurisdictions have held that Medicaid planning can be
effected for an incompetent through substituted judgment exercised
by a guardian. In Re John "XX", 652 N.Y.S.2d 329, 332 (App. Div.
1996), leave to appeal denied, 659 N.Y.S.2d 854 (1997), permitted
a guardian to transfer the assets of an elderly, mentally
incapacitated ward to his adult children in order to qualify the
ward for Medicaid and accomplish estate planning objectives,
stating that the contrary result would deprive incapacitated
persons of the range of legal options available to competent
individuals. See also, In Re Baird, 634 N.Y.S.2d 971, 974 (Sup.
Ct. 1995); In Re Daniels, 618 N.Y.S.2d 499, 500-04 (Sup. Ct. 1994).
A similar analysis was employed by the Wisconsin Supreme Court
in In Re Guardianship of F.E.H., 453 N.W.2d 882, 888 (Wis. 1990) i
which the court considered the issue of whether the co-guardians of
a married ward, one of whom was his wife, could transfer his
interest in the jointly owned marital home to the wife so that if
she pre-deceased her husband the home would be shielded from
recovery for Medicaid payments made on behalf of the ward. The
court concluded that the Wisconsin Legislature had expressed
through its Medicaid statute and regulations that it was "sound
public policy" to forego the possible use of a homestead as an
asset available to pay for or to reimburse the state for the
medical care and maintenance of an institutionalized person in
favor of preserving the homestead for the institutionalized
person's spouse. Id. at 888-89.
The common law equitable doctrine of substituted judgment
encompasses the view that a court has inherent power to deal with
the estate of an incompetent in the same manner as the incompetent
would if able to function at full capacity. It was applied in the
New Jersey decision of In Re Trott, 118 N.J. Super. 436, 442-43
(Ch. Div. 1972) which held that a guardian was permitted to make
gifts to the incompetent's grandchildren to reduce the taxes to be
paid from the incompetent's estate upon her death. Id. at 444.
Noting that the predecessors of the current guardianship statute
did not contain an express grant of such authority, the Trott court
held that courts of this State had the inherent authority to
authorize actions including transfers of property as a reasonable
prudent man would plan to avoid unnecessary state or inheritance
taxes. Id. at 440-41. See also, In Re Guardianship of
Christiansen, 56 Cal. Rptr. 505, 522-23 (Cal. App. 1967). The
court indicated the following criteria to be considered in making
such a decision:
[Id. at 442-44 (footnotes omitted).]
Title 3B of New Jersey Statutes has incorporated the concepts
of Trott. The duties and powers of a guardian of a mentally
incompetent person are set forth in N.J.S.A. 3B:12-57. They
include, without limitation, providing "for the care, comfort and
maintenance of his ward," consenting to or approving medical or
other professional care for the ward, and conserving the excess of
the ward's estate over that which is necessary to provide for the
ward's current support needs. N.J.S.A. 3B:12-57(b), -57(c) and -57(e). Transfer of property and outright gifts are permissible in
the best interests of the ward and consistent with actions he might
have been expected to take. N.J.S.A. 3B:12-49, -50, -57 and -58.
Concepts of equal protection and inherent fairness dictate that an incompetent should be given the same opportunity to use techniques of Medicaid planning and estate planning as others more fortunate. Since Federal and New Jersey Medicaid laws permit interspousal transfers of the marital home, a guardian may effectuate such a transfer provided that complies with the best interest of the ward inclusive of his desire to benefit the natural objects of his bounty.
In the instant case the sad fact is that Manuel suffered
permanent brain damage and that his restoration to competency is
non-existent. Myrna and ultimately the two sons are the natural
and actual objects of Manuel's bounty as evidenced by his will, and
transfer of Manuel's interest in the home to Myrna at this time
will shield it from a Medicaid lien to the ultimate benefit of the
objects of his bounty. Counsel appointed to represent Manuel
raises the concern that the interspousal transfer would deprive him
of private funds that could enable placement in a better nursing
home or a better quality of care. The plan suggested by Myrna
would involve use of $50,000 of personal assets to be paid to a
quality nursing home as a spend-down prior to the implementation of
The request for authority for the interspousal transfer is a
reasonable method to effectuate Medicaid and estate planning in
these circumstances. We can safely assume by his will that if
Manuel were competent, he would take every lawful and reasonable
action to minimize obligations to the State of a nursing home in
order to secure the maximum amount available to support his wife of
twenty-seven years through the remainder of her life and benefit
his children thereafter.
N.J.S.A. 3B:12-49 and 3B:12-50 permit a court to allow a
guardian to exercise powers over the ward's estate which the ward
could and would exercise if not under a disability. We hold that
the request of the guardian is within those enumerated statutory
powers and that the court should authorize the guardian to take
appropriate action that the incompetent would have taken if he were
of sound mind. See Marsch v. Scott, 2 N.J. Super. 240, 246 (Ch.
Reversed and remanded for an order consistent with this
opinion permitting the interspousal transfer of the marital home to
the guardian and the escrowing of $50,000 of the marital estate for
spend-down at a quality nursing home to be selected by the