Caretaker Child Exemption Granted in Recent New Jersey Case

Earlier this month, a New Jersey appeals court held that a Medicaid applicant’s son qualified for the caretaker child exemption despite working outside the home as a teacher and hiring aides to help him care for his mother. Let’s walk through this case, discuss the reason for the exemption under such unusual circumstances, and contrast it with a 2018 New Jersey case that had an opposing outcome.

A.M. v. Monmouth County Board of Social Services

To set up the recent case, A.M. v. Monmouth County Board of Social Services, A.M. lived with his mother, M.M., but worked outside the home as a teacher. In 2003, M.M. transferred large portions of her home interest to her son, A.M., as well as her daughter. In 2008, M.M. was diagnosed with Alzheimer’s disease, and A.M. was her sole caregiver until 2012 when M.M.’s illness progressed to a point that required A.M. to hire two part-time aides to help him take care of his mother while he was working. A.M. paid the caregivers using M.M.’s funds.

A.M. continued to take on caretaker duties while he was not at work. When M.M.’s illness progressed further, A.M. even rearranged his work schedule and declined a promotion to be able to continue caring for his mother at home. In 2014, M.M. transferred her remaining interest in her home to A.M. and entered a nursing home. Without the care of her son, M.M would have had to move into a nursing home much sooner.

In 2018, M.M. applied for Medicaid benefits but incurred a sizeable penalty period due to the home interest she transferred to A.M in 2014. A.M. requested a fair hearing, contending that this transfer should be exempt from penalty under the child caretaker exemption. At the fair hearing, the administrative law judge (ALJ) ruled that the care A.M. provided went beyond the level of support a child is expected to provide to their parent and, thus, approved the caretake child exemption.

The Medicaid agency reversed the ALJ’s decision because A.M. had hired aides to take care of his mother and paid them using M.M.’s funds. A.M. then appealed. The Medicaid agency’s ruling was reversed by the New Jersey Superior Court, Appellate Division. They argued that the law does not prevent a caretaker child from hiring aides to assist with caretaking, nor does it preclude the child from working outside the home. Additionally, the court found ample evidence that A.M. was providing care that exceeded the normal expectation from a child when he was not at work. The court also determined that limiting a child caregiver to work a certain number of hours outside the home would not make a large enough impact to warrant a limitation. On the contrary, a child who is able to provide a source of income outside the home is more likely to be able to afford to care for a parent who would otherwise be institutionalized.

Read More: Lookback Period vs. Penalty Period

E.B. v. Division of Medical Assistance and Health Services

Now, let’s compare this recent case to a New Jersey appeals court ruling from 2018. In E.B. v. Division of Medical Assistance and Health Services, a Medicaid applicant’s daughter became her full-time caregiver but only began paying herself from her mother’s savings after two years of providing care for free. The Medicaid agency viewed this as an uncompensated transfer of assets and assessed a penalty period of ineligibility for her mother.

To recap the case, E.B. moved in with her daughter, J.W., in 2003 but lived in a separate area of the home. In 2009, E.B. was diagnosed with Lewy Body Dementia, and J.W. left her job to be a full-time companion to her mother. Other family members and loved ones would also help out from time to time. By 2011, E.B. required constant supervision, and J.W. was finding it difficult to make ends meet since she did not have a steady income. Rather than move her mother into a facility or have a third party care for her, J.W. chose to begin paying herself from her mother’s savings.

During this time, J.W. outlined a pay structure but did not keep a record of services or when they were provided. Although there was never an official, documented agreement, J.W. claims E.B. understood and agreed to the arrangement when she was lucid. J.W. intended to care for E.B. for the remainder of E.B.’s life and never planned to move her into a nursing home. However, in 2013, when E.B. fell and was no longer able to communicate, J.W. placed her in a facility.

After E.B. applied for Medicaid, she was assessed a penalty period due to the payments to J.W. At the fair hearing, the ALJ found that the proof of services J.W. provided to E.B. was deficient, and the pay rate J.W. chose was not appropriate for companion services. Additionally, the ALJ noted that J.W. only began receiving wages when it was clear E.B.’s worsening condition would eventually require intensive care and possibly lead to moving her into a nursing home. And lastly, there was no pre-existing written agreement or contract between E.B. and J.W. outlining the services and compensation.

E.B. appealed the ruling, but the decision was affirmed by the New Jersey Superior Court, Appellate Division. J.W. did not provide any arguments as to why she could not find a different caretaker for her mother, allowing her to return to work and be compensated more than she was currently being paid. Additionally, J.W. was unable to provide details about the services she provided during each pay period, which prevented her from being able to prove that assets were transferred for any other reason than to achieve Medicaid eligibility for E.B.

Read More: When Does the Medicaid Penalty Period Begin?

What’s the Difference Between These Cases?

Although these cases both deal with children caring for a parent in the home, there are a few distinctions that led to opposing outcomes.

1. What led to the penalty period?
   In the first case, the payments from M.M.’s funds to the part-time caregivers were of no issue. The penalty period was assessed due to the home interest transfer from M.M. to A.M. In the second case, the payments J.W. made to herself from E.B.’s savings triggered the penalty period.
2. How did timing impact the final ruling?
   In the first case, the timing didn’t have much of an impact, but it’s important to note that A.M. was M.M.’s sole caregiver for four years following her diagnosis, and he continued to provide a high level of care for the following two years. On the other hand, timing played a large role in the second case. Based on the ALJ’s ruling, J.W. only began paying herself when it became clear E.B.’s worsening condition would eventually require more intensive care, such as in a nursing home.
3. What was the level of care provided?
   While A.M. was able to prove that he provided a high level of care to M.M., J.W. was not able to prove the services she provided. As a result, J.W. was unable to provide proof that the transfer was made exclusively for some other purpose than to gain eligibility for benefits.

The Importance of Caregiver Agreements

In the end, the distinction between these cases illustrates how important it is to use written caregiver agreements and keep detailed records, especially when a child or other loved one is caring for an elderly individual in their own home. In many cases, an official contract can be the difference between sustaining a penalty period and achieving immediate eligibility for benefits. Additionally, the recent case affirms the possibility for adult children to continue working while also providing some level of care to their parent, even if that requires them to hire part-time aide.

If you have a client who is receiving care from a loved one, make sure they establish a caregiver agreement ahead of time. Reach out to our team at Krause Financial for more information. If you would like to learn about other planning strategies and tools for your senior clients, contact us today!