Matter of Labis

314 N.J. Super. 140, 714 A.2d 335 (App. Div. 1998)
  • Opinion Date: July 21, 1998

GUARDIANSHIP; PERMITTED TRANSFERS—A court appointed guardian is allowed to make the same choices that the incompetent could have made. Therefore, if an incompetent can transfer property in a way that would avoid a Medicaid lien, the guardian also can do so.

A sixty-five year old man suffered a debilitating stroke which resulted in permanent brain damage. In addition, he became bedridden, permanently paralyzed on the right side, and unable to swallow on his own. He was also mentally incompetent. Before the stroke, he and his wife lived in their marital home and raised and educated two sons, now emancipated. They pooled their money in order to purchase the house in question in 1977. The Law Division declared the husband to be incompetent and appointed his wife as guardian. The Court, however, refused to transfer his interest in the house to the guardian because of what it believed to be the public interest. It felt that some of his assets should be preserved in order to repay a portion of the public expense in supporting an incompetent. The Appellate Division reversed.

The Appellate Division interpreted the Medicaid laws as recognizing that it would be against public policy to force the “community spouse” to utilize all the combined marital income for the support of the institutionalized spouse so as to result in the impoverishment of, and public support of, both spouses. It pointed out that there is no ineligibility for Medicaid medical assistance of an institutionalized person who transfers his or her equity in a home serving as a principal place of residence. Because of this, the transfer of an institutionalized person’s interest in the marital home is a common Medicaid and estate planning strategy. The Court recognized the doctrine of substituted judgment which gives a court the power to deal with the estate of an incompetent in the same manner as if the incompetent could function at full capacity. It cited an earlier case that held that a guardian was permitted to make gifts to an incompetent’s grandchildren to reduce the taxes to be paid from the incompetent’s estate upon her death. The Court also cited N.J.S. 3B:12-57 which requires a guardian of a mental incompetent to provide care of the ward and conserve the ward’s estate. Lastly, it cited N.J.S. 3B:12-49 and 3B:12-50 as permitting a guardian to exercise powers that the ward could, and would, exercise if not under disability.

Applying case law and the statutes cited above, the Court found that the guardian had not acted improperly. Public policy dictates that an incompetent have the same estate planning opportunities and privileges as a competent person. The doctrine of substituted judgment allows a guardian to make the same choices that the incompetent would make. In this case, the incompetent’s will clearly illustrated the incompetent’s intent to have his family benefit from his accumulated wealth. Since this transfer would have been permissible were he competent, no Medicaid law had been violated.