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Stripped of the legalese, it is clear that when a bank is a guardian for a person in Illinois, the bank has a legal duty to preserve the person’s assets and to make application for Medicaid benefits when legally appropriate.  It takes little imagination to surmise that a bank trustee could be held liable for the dissipation of assets in similar circumstances.

Life Care Planning, Estate Protection, Disability,
VA & Medicaid Assistance Lawyers

Guardians and Medicaid Planning

Guardians and Medicaid Planning


Bank Guardians Could Face Liability for Failure to Do

Medicaid Planning For Their Disable Wards


            In a precedent setting decision issued sixteen years ago, the Appellate Court in Mt. Vernon found a bank liable for monetary damages when it breached its fiduciary duty as guardian for a disabled person.  The Shelby County State Bank was the guardian of Mary Jane Connor, who resided in a nursing home.  The bank essentially used all of Ms. Connor's assets to pay for her care, including assets that were at that time considered "exempt."  The Appellate Court found that the Bank failed to apply for Medicaid benefits for Ms. Connor "in a diligent and orderly manner," resulting in an "unnecessary dissipation of [her] assets."  Guardianship of Connor, 170 Ill.App.3d 759 (5th Dist. 1988).

            Stripped of the legalese, it is clear that when a bank is a guardian for a person in Illinois, the bank has a legal duty to preserve the person's assets and to make application for Medicaid benefits when legally appropriate.  It takes little imagination to surmise that a bank trustee could be held liable for the dissipation of assets in similar circumstances.  This being the case, the courts of Illinois might well extend the ruling in Connor to include all others who serve in any type of fiduciary capacity, including persons who are not professionally trained, but especially those who operate in a fiduciary capacity for fees or for a living.

            A recent case decided by the New Jersey Supreme Court adds weight to the concern, albeit indirectly.   In the Matter of Keri (N.J., No. A-70-02, August 5, 2004).  In that case, the New Jersey Supreme Court held that guardians may engage in Medicaid planning, a principal that is implicit in the Connor decision.  In Connor, the Illinois Appellate Court in effect held that a guardian has a duty to make a timely Medicaid application.  With Keri, it is quite  conceivable that the courts in Illinois could find that fiduciaries have a duty to do Medicaid planning, not simply make timely applications, and to do so sufficiently in advance of the actual need for benefits so that unnecessary spend-down of assets can be avoided or minimized.

            Let's take a closer look at the Keri decision.  In 1996 Mildred Keri signed a general power of attorney naming her son Richard Keri as her agent and authorizing him to apply for Medicaid on her behalf.  Unfortunately, the power of attorney did not include gift-giving authority.  Lacking authority in the power of attorney to make gifts, Richard sought appointment as guardian of his mother.  He also asked the court to allow him to  engage in Medicaid planning on her behalf.

            Mrs. Keri's only asset of consequence was her home.  Richard wanted to sell his mother's home, valued at about $170,000, and gift $92,000 of the proceeds to himself and his brother (who are the beneficiaries of Mrs. Keri's will). He then planned to place Mrs. Keri in a nursing home that accepts Medicaid patients and use the remaining $78,000 from the sale to pay for her nursing home care during the resulting period of Medicaid ineligibility. Richard told the court that if his mother were not so ill she would have approved of and undertaken this strategy to preserve a portion of her assets for her sons.

            After being rebuffed in the trial court, the New Jersey Supreme Court held that Richard's proposed Medicaid spend-down plan should be approved.  The court set forth criteria that  guardians must establish when seeking to make gifts: (1) the chance of restoration of the ward's competency is virtually nonexistent; (2) the assets of the incompetent's estate after the proposed gifts are more than adequate to meet her needs; (3) the donees constitute the natural objects of her bounty; (4) the gifts will benefit her estate by reducing financial burdens; and (5) there is no substantial evidence that the incompetent would, if competent, not make the gifts proposed in order to reduce the burden on her estate.

            The Supreme Court stated  "[ W]hen a Medicaid spend-down plan does not interrupt or diminish a ward's care, involves transfers to the natural objects of a ward's bounty, and does not contravene an expressed prior intent or interest, the plan, a fortiori, provides for the best interests of the ward and satisfies the law's goal to effectuate decisions an incompetent would make if he or she were able to act."

            Finally, the New Jersey Supreme Court held that because  competent persons are legally entitled to reduce the financial burdens on themselves and their estates through tax reduction planning and Medicaid planning, incompetent persons through their guardians should have the right to do the same.

"...Medicaid planning is legally permissible under federal and state Medicaid law... Congress has carefully defined and circumscribed Medicaid planning, as has the State of New Jersey. By its actions, Congress has set the public policy for this program and although some might choose a different course, the law has not.  Few would suggest that it is improper for taxpayers to maximize their deductions under our tax laws to preserve income for themselves and their families--even though they are, by their actions, reducing the amount of money available to government for its public purposes. So long as the law allows competent persons to engage in Medicaid planning, incompetent persons, through their guardians, should have the same right, subject to the legal constraints laid out herein."

            What is unsaid in the Connor decision, but is patently apparent, is the fact the bank failed to seek the assistance of a knowledgeable advisor, someone who could assist them with the intricacies and nuances of the Medicaid laws.  In Keri, the attorney for the guardian aggressively pursued court approval of the guardian's plan to make gifts, and succeeded in securing a very forceful endorsement of Medicaid planning.  By being proactive, the fiduciary in Keri might well have insulated himself from liability from disgruntled relatives even if he had lost the case.

            Richard Habiger is an elder law attorney.  You may contact him at 618-549-4529 or