Testamentary Trusts
Supporting the State of New Jersey's aggressive efforts to pursue the recovery of Medicaid benefits paid for a nursing home resident following the resident's death, the New Jersey Appellate Division concluded in a November 10, 2004 opinion, Estate of Michael DeMartino v. State of New Jersey, Division of Medical Assistance and Health Services, that the State could assert a lien against a testamentary trust created by Anne DeMartino upon her death for the benefit of her husband, Michael. Although Michael died less than one year later, Anne had given to the trustee authority to distribute the trust funds in limited circumstances for her husband's benefit. The balance remaining in trust after the husband's death was to be distributed to Anne's children. After Michael's death, the State sought to recover from the testamentary trust benefits which were paid by the State for the benefit of Michael - despite the fact that Anne had specifically disallowed the funds to be used in such a manner.
Federal law supports and encourages the states to recover Medicaid benefits paid following a recipient's death from property of the recipient at death, as well as property in which the recipient had a legal interest, specifically described as 'other arrangements' including joint accounts and living trusts. New Jersey has adopted the most aggressive definition of a decedent's estate for recovery purposes, and has expanded the reach of federal law by adopting regulations which permit recovery from third party trusts which contain property in which the recipient had an interest in the previous five years.
Despite the fact that New Jersey laws can be no more restrictive than federal law, the Appellate Court in this case stretched to find that the testamentary trust created by Anne fell into the category of 'other arrangements' which entitled the State to make recovery from it. The judges deemed the testamentary trust to be an arrangement intended to pass assets to Anne's children and avoid estate recovery, focusing on Anne's perceived intent and not on specific laws and regulations.
Three months ago, the New Jersey Supreme Court overturned a similarly reasoned decision of the Appellate Division relating to Medicaid planning, In Re Keri, recognizing that individuals can work within the framework of existing laws and regulations to undertake Medicaid and estate planning. It is expected that the DeMartino decision will be appealed.
My daughter will be 21 in less than a year. She has a trust fund that is held in trust until 21st birthday. Her father is the one in charge of the trust fund which includes a portion of the o=house that he resides in. He said he will not turn her share over to her at 21. She will have to wait for heim to sell the house. He claims that he can do that? She needs the money for college and is not eligible for low interest loans because she has the trust fund.