In 2011, which surprisingly was ten years ago, I argued a case before the Third Circuit Court of Appeals, a federal appellate court. The Third Circuit is a very respectable court. It’s the court immediately below the Supreme Court of the United States, so I was honored to argue a case before the Third Circuit.
I actually argued the same case twice before the court. The first time I argued the case, I won the issue. The second time I argued, I lost. It was a complicated case, but in a nutshell, it involved Medicaid planning using promissory notes as a planning technique.
Medicaid is a federal and state health payment plan. If a person qualifies for Medicaid, Medicaid will pay for many of the person’s health needs. Most of my clients live in nursing homes or assisted living residences. These facilities cost upwards of $10,000 a month.
Medicaid is known colloquially as a welfare program, so in order to qualify for Medicaid, an individual must have very limited assets and insufficient income to pay for his or her care. When a person is faced with paying $10,000 a month for the remainder of his life, the prospect of running out of money is very real.
Medicaid planning is a process through which I advise my client’s how to qualify for Medicaid benefits sooner than they would qualify if they failed to plan and to preserve a portion of their assets for their spouse or children. Medicaid planning is perfectly legal. The Supreme Court of New Jersey has stated as much as have several federal courts. When I argued the first time before the Third Circuit Court of Appeals, one of the judges on the three-judge panel—a judge who later was under consideration to be nominated to the Supreme Court of the United States—said that Medicaid planning was perfectly legal and equated Medicaid planning with tax planning.
When I lost the case on my second go-around before the Third Circuit, the court, in my opinion, imposed a requirement that did not exist in the law. There were several provisions of the law governing the Medicaid program that dealt with promissory notes, and not one of those laws imposed the requirement that the court imposed upon my client.
Essentially, the court created a “good faith” test and basically held that my clients were using promissory notes to qualify for Medicaid benefits, so they weren’t acting in good faith when they used the promissory note technique. This holding took me by surprise given how many courts have stated that Medicaid planning is perfectly legal and something that ordinary people would want to engage if presented with the option. It even contradicted what the first panel stated when I presented my arguments before them in the same case.
Recently, the Tenth Circuit Court of Appeals, which handles states in the Mid-West such as Oklahoma, took up a case very similar to my case. In the Tenth Circuit case, the court considered my case from 2011. The Tenth Circuit held that the requirements the Third Circuit imposed upon my clients do not exist in the law and are inappropriate. The Tenth Circuit even held that the Third Circuit’s ruling conflicts with their precedents that “recognized the acceptability of Medicaid planning.”
So, what does this holding mean for my clients from ten years ago? Nothing. But it’s interesting to me to see that another federal appellate court agrees with the arguments I was making ten years ago. It also creates a potential conflict between the circuits.
When the Third Circuit and the Tenth Circuit rule differently on the same issue, that creates a conflict. Such a conflict could lead to a case being heard by the United States Supreme Court, which would then settle the conflict.
Will this happen with this issue? Probably not, but once again, it’s interesting to me to know that a potential case exists.