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New Jersey Courts Decide Case Involving Estate Recovery and Elective Share (Part 2)

                Last week I told you about a case that was just decided by a New Jersey court in which a family tried to avoid the impact of New Jersey’s elective share as it relates to Medicaid.  (See 1/30/17 post for an explanation of the elective share and Medicaid estate recovery).  Here are the basic facts.

                Arthur Brown had been receiving Medicaid benefits for almost 5 years until his death in 2013.  Following his death, the State of New Jersey, under Medicaid estate recovery rules sought reimbursement from his estate of $167,000 in benefits it paid out during his lifetime.  The State determined that its lien attached to Arthur’s 1/3 elective share interest in his wife, Mary’s estate.

                Mary had died in 2010.  Before her death she executed a will which left her estate to her 3 children, leaving nothing to Arthur.  When Arthur was approved for Medicaid in 2008, under Community Spouse Resource Allowance rules Mary was able to keep the couple’s home (Arthur transferred his interest to her) and approximately $70,000.  This is essentially what was left in her estate when she died.

                Mary’s son, Thomas as Executor of her estate notified Medicaid of her death and advised the State that Arthur would not be exercising his elective share right, claiming that the law did not apply to him.  In response the State notified him that Arthur’s Medicaid benefits would terminate because his refusal to assert that right subjected him to a Medicaid penalty for transfer of assets.  Thomas filed an appeal but before a final hearing was had Arthur died.  The State then filed the lien against his estate.

                The elective share is not available in cases of divorced spouses or where the couple are separated and “on their way” to obtaining a divorce.  Thomas claimed that his parents fell into that category.  He argued that Arthur and Mary were living separate and apart at the time of Mary’s death and were not living as man and wife under circumstances that gave Mary grounds for divorce, specifically Arthur’s institutionalization for mental illness.  He claimed that Arthur’s dementia and placement in a nursing home fit this exception.

                The court sided with the State.  The judges held that a couple’s separation because one spouse needs to be cared for in a nursing home does not count as the type of separation that would “cut off” a right to an elective share.  There was no evidence that Arthur or Mary ever wanted or contemplated a divorce.  Their separation was due to Arthur’s need for care that could be better provided for in a nursing home.  Moving to a nursing facility is not the type of separation that is grounds for divorce by itself.  Therefore, Arthur had a right to an elective share.

                Reading the facts of this case it is difficult to understand why the Brown family thought they could avoid the elective share.  Mary had actually done everything she could to protect her assets by changing her will but as I always tell clients the State will be entitled to 1/3.  There is no getting around that and the New Jersey Appellate Division has just reinforced that point.