Seek Legal Advice before Gifting Assets

If significant assets are transferred to a child, then there will be a tax and estate planning ramifications from the transaction.  The transfer of funds may prevent the parent from obtaining Medicaid assistance to pay for needed long-term care.

In a decision rendered by the Appellate Division of the New Jersey Supreme Court, a mother transferred $150,000 to her child with the understanding that the mother would live in that child’s house for the rest of her life.  Unfortunately, the mother and her daughter did not sign any legal documents as the time that the sum of $150,000 was transferred to the daughter and son-in-law.

After more than two years of litigation in the courts, the Appellate Division of the New Jersey Superior Court affirmed Cape May County’s denial of Medicaid assistance to the mother because of the transfer of $150,000 to her daughter.  This decision is known as J.M. v. Cape May County Board of Social Services.

In the J.M. case, the 77-year-old mother had lived in Pennsylvania for 45 years with her husband.  In February 2008, she separated from her husband, and they were divorced in July 2008.

Prior to the divorce, the mother, J.M., moved in with her daughter, who lived in a two-story, two-bedroom house in Cape May.  By the end of February 2008, J.M.’s marital home sold, and she received approximately $152,000 from the sale of the property.  In March 2008, J.M. gave a check of $150,000 to her daughter and son-in-law, but she wrote “gift” in the memo section of the check.  In April 2008, the daughter and son-in-law purchased a three-bedroom house from more than $400,000.  They used the check from J.M. of $150,000 as the down payment and obtained a mortgage for the balance.

In March 2009, J.M. was admitted to the Crest Haven Nursing and Rehabilitation Center.  J.M. will require long-term care for the duration of her life.  J.M. applied for Medicaid to help pay for the cost of her nursing home care.  The Cape May County Board of Social Services denied the application because the transfer of $150,000.  J.M. then filed an appeal of this decision to the Office of Administrative Law.

In court, J.M.’s daughter testified that she was provided with a check for $150,000 so that her mother could obtain a “life estate” in a house that would be owned her daughter and son-in-law.  Their intent was to provide J.M. with a life estate so that she would be ensured that she would have a residence with her daughter and son-in-law for the term of her natural life.

Unfortunately, J.M. wrote the word “gift” in the memo section of the check.  Furthermore, no contract, deed, or any type of document was signed by J.M. and her daughter concerning the life estate in March 2008.  Rather, J.M. simply gave a check for $150,000 to her daughter but wrote “gift” in the memo section.

No documents were signed by J.M. and her daughter in March, April, May, and June 2008.  During this period of time, J.M.’s health failed as she suffered from a severe bacterial infection, which resulted in her hospitalization and then rehabilitation at a nursing home facility.

Finally in July 2008, a document was signed that provided a life estate to J.M. for $150,000.  This was not a deed that was prepared by an attorney.  When J.M.’s daughter attempted to file this document with the Clerk of Cape May County, it was rejected by the clerk.  The clerk informed J.M.’s daughter that she would need to have a deed prepared and it would have to be recorded with the Clerk of Cape May County.

On November 7, 2008, eight months after J.M. had provided the check of $150,000 to her daughter, a deed was finally signed that granted a life estate interest in the property to J.M.  Although the deed was signed in November 2008, it referred to the deed being made on April 10, 2008.

After approximately two years of litigation in the courts, the Appellate Division of the New Jersey Superior Court ruled that the transfer of $150,000 by J.M. to her daughter was a “gift.”  Even though the daughter signed a deed that granted a life estate interest in the home to her mother, the Appellate Division ruled that this was a gift.

The Appellate Division relied upon a provision in the Deficit Reduction Act of 2005 that requires that J.M. actually reside in the daughter’s house for at least one year after the date that she purchased the life estate.  In this case, J.M. failed to reside at her daughter’s house for at least one year.

The failure of J.M. to retain a qualified elder law attorney, document the transaction, and proceed in accordance with applicable law resulted in costly litigation for more than two years and the denial of Medicaid assistance to play for her long-term care need for a period of almost two years.