When Daniel's father was diagnosed with Parkinson's disease, Daniel cut back his hours at work and moved into the family home to care for him. He cooked meals, helped his father bathe and dress, drove him to medical appointments, and sat up with him on the bad nights. Every month, his father wrote him a check for $2,000. Nobody in the family thought twice about it. The care was real, the need was obvious, and the payment simply recognized what Daniel was giving up to provide it.
Two years later, Daniel's father entered a nursing home and applied for Medicaid. The county welfare agency pulled five years of bank statements, found $48,000 in checks written to Daniel, and treated every dollar as a gift. The result was a transfer penalty — months of Medicaid ineligibility imposed at the precise moment the family could least afford to pay for care privately.
This is one of the most punishing and most avoidable mistakes in Medicaid planning. New Jersey law does not prohibit paying a family member to provide care. But it does presume — aggressively — that money paid to a relative without a written agreement in place beforehand was a gift, not compensation. Overcoming that presumption after the fact is extraordinarily difficult. This post explains the rule, the presumption, and the written caregiver agreement that solves the problem.
Informal Payments Are Presumed Gifts
The governing New Jersey regulation, N.J.A.C. 10:71-4.10, contains a provision aimed squarely at this situation. It provides that when a transfer is "intended to compensate a friend or relative for care or services provided in the past," any care "provided for free at the time [it was] delivered shall be presumed to have been intended to be delivered without compensation." In plain terms: if no agreement to pay existed when the care was provided, the regulation treats the care as having been provided for free — and treats the later payment as a transfer for no compensation. N.J.A.C. 10:71-4.10(b)(6)(ii).
That presumption can be rebutted, but only with "credible documentary evidence preexisting the delivery of the care or services indicating the type and terms of compensation." Notice what that requires. The documentation must exist before the care begins, and it must spell out what the caregiver will do and what the caregiver will be paid. A handshake understanding, a family consensus, or a written agreement drafted a year into the arrangement does not satisfy this standard.
The regulation adds a second constraint that surprises many families: the compensation "shall not be greater than the prevailing rates for similar care or services in the community," and any amount above the prevailing rate "shall be considered to be uncompensated value." Simply agreeing to paying a daughter $500.00 an hour for companionship and light housekeeping does not make the payment legitimate — the amount above fair market value is treated as a gift regardless of what the family agreed to.
The Legal Framework Behind the Presumption
The federal statute, 42 U.S.C. § 1396p(c)(1)(A), requires state Medicaid plans to impose a period of ineligibility when an institutionalized individual "disposes of assets for less than fair market value" during the 60-month lookback period. New Jersey implements that mandate through N.J.A.C. 10:71-4.10, which adds a procedural feature families need to understand: every transfer within the lookback period is presumed to have been made to obtain earlier Medicaid eligibility than the applicant would otherwise be entitled to. N.J.A.C. 10:71-4.10(i).
The applicant can rebut that presumption, but the standard is demanding — "convincing evidence that the assets were transferred exclusively (that is, solely) for some other purpose." N.J.A.C. 10:71-4.10(j). "Exclusively" is doing heavy work in that sentence. If the county believes even part of the motivation was accelerating Medicaid eligibility, the rebuttal fails.
📊 Example Calculation: Take the $48,000 in undocumented caregiver payments from the opening scenario. Penalty Period = $48,000 ÷ $420.67 (New Jersey's daily penalty divisor, effective April 1, 2026) = approximately 114 days of Medicaid ineligibility. During those 114 days, the applicant must pay for long-term care entirely out of pocket — after already spending down to the $2,000 asset limit.
What a New Jersey Court Did With Documented and Undocumented Caregiver Payments
The distinction between documented compensation and undocumented transfers is not theoretical. In E.C. v. Division of Medical Assistance and Health Services, No. A-0832-17T4 (N.J. Super. Ct. App. Div. Mar. 25, 2019) (unpublished), a 103-year-old Medicaid applicant had paid a caretaker $150 per week in cash — $3,600 total — for housekeeping, meal preparation, bathing, and toileting assistance provided from December 2014 through May 2015. The administrative law judge found the caretaker's testimony about those services credible, and that $3,600 was excluded from the transfer penalty.
Everything else was penalized. Additional amounts the caretaker claimed to have spent on the applicant's behalf — groceries, household items, podiatrist visits — were treated as uncompensated transfers because no receipts were produced at the hearing. An affidavit submitted after the hearing, unsupported by bank records, was rejected as not credible. And $12,510 claimed for caretaking services provided after the applicant entered the nursing home was disallowed. The agency's director adopted the decision, and the Appellate Division affirmed.
The lesson of E.C. is blunt: New Jersey's system rewards documentation and punishes its absence. Credible, specific evidence of services actually performed at a reasonable rate survived. Approximations, after-the-fact affidavits, and payments for care the nursing facility was already providing did not.
A Written Caregiver Agreement
A caregiver agreement — sometimes called a personal care agreement or personal services contract — is a written contract between the person receiving care and the person (who may be a family member) providing it. When properly structured, it converts what the regulation would otherwise presume to be a gift into documented compensation for services at fair market value. The regulation itself tells you what the agreement must contain to survive scrutiny:
It must be in writing and signed before care begins. This is the single most important requirement. The regulation demands documentary evidence "preexisting the delivery of the care or services indicating the type and terms of compensation." An agreement drafted after months of caregiving cannot retroactively recharacterize free care as compensated care.
It must describe the specific services, schedule, and rate. The agreement should state what the caregiver will do (bathing, dressing, meal preparation, medication supervision, transportation, overnight supervision), how many hours per week, and the hourly rate. Vague descriptions invite the county to question whether the services were actually worth the payment.
The rate must not exceed prevailing community rates. The rate of pay cannot exceed fair market value. Whatever the rate agreed upon, it must be supportable — the portion above the prevailing rate is uncompensated value, dollar for dollar.
Payment should track the services as they are performed. Paying the caregiver on a regular schedule — weekly or biweekly, by check or traceable transfer — looks like compensation. A single lump-sum prepayment for years of future care looks like a transfer, and it invites the county to treat it as one.
The services must be real, needed, and documented. A care log recording the dates, hours, and tasks performed each week is the documentary backbone of the arrangement. It is also worth obtaining a physician's written statement that the person needs assistance with daily activities — while the regulation does not expressly require it, it substantially strengthens the "credible documentary evidence" the regulation calls for.
The caregiver should report the income. Payments under a caregiver agreement are generally taxable income to the caregiver. Reporting the income is both a tax obligation and further evidence that the arrangement was genuine compensation rather than a disguised gift. Consult a tax professional for the specifics.
Common Mistakes That Sink Caregiver Agreements
Even families who understand the concept routinely make errors that render their agreements worthless:
Backdating the agreement. An agreement signed today but dated six months ago — or drafted after the Medicaid application is already contemplated — fails the regulation's requirement that the documentation preexist the care. A backdated agreement is not a plan; it is evidence of the problem.
Lump-sum prepayment. Paying $60,000 up front for "three years of future care" asks the county to accept on faith that the services will be performed. Pay as the care is delivered.
Vague duties. "Assist as needed" does not establish what was done or how the payment was calculated. Define the tasks and schedule.
No care logs. A contract proves an agreement existed; it does not prove the caregiver actually performed 30 hours of work in a particular week. Keep contemporaneous records.
Above-market rates. The excess over the prevailing rate is uncompensated value by regulation, no matter what the family agreed to.
Cash with no paper trail. The E.C. case is the cautionary tale: the documented $3,600 survived; the undocumented amounts did not.
Paying for care the facility provides. Once the person is in a nursing home, paying a relative for the same personal care the facility is already delivering will not be treated as fair-market compensation, as E.C. demonstrates.
Final Thoughts
A caregiver agreement is one of the simplest documents in elder law and one of the most consequential. It costs little to prepare and it protects two things at once: it fairly compensates the family member who sacrifices time and income to provide care, and it prevents that compensation from being recharacterized as a gift that triggers months of Medicaid ineligibility. But the protection only exists if the agreement is in place before the first hour of care is delivered. Once the payments have been made without one, the regulation's presumption does the rest.
Many New Jersey families are surprised to learn that qualifying for Medicaid Long-Term Services and Supports (MLTSS) depends not only on income but also on how retirement assets are classified. A pension, IRA, 401(k), 403(b), annuity, or other retirement account can dramatically affect Medicaid eligibility, though not always in the way people expect. Understanding how these assets are treated is critical if you are planning for nursing home care, assisted living, or home-based long-term care through New Jersey's MLTSS program.
Understanding MLTSS Financial Eligibility
MLTSS is New Jersey's Medicaid program that helps pay for long-term care services in nursing homes, assisted living facilities, and at home. To qualify, an applicant must first meet the program's clinical (level-of-care) requirements and then satisfy both an income test and a resource (asset) test. For 2026, a single applicant generally may have no more than $2,982 per month in gross income and no more than $2,000 in countable resources. The income test and the resource test are separate issues and should not be confused with one another.
What Happens If Your Income Is Over the Medicaid Limit?
Medicaid requires applicants to disclose virtually all sources of income, including Social Security retirement benefits, pensions, IRA distributions, annuity payments, employment income, veterans' benefits, and other recurring payments.
Many people assume that earning more than the monthly income limit automatically disqualifies them from Medicaid. In New Jersey, that is not necessarily true. For individuals whose gross monthly income exceeds the limit, eligibility may still be achieved through a Qualified Income Trust (QIT), often called a Miller Trust. A QIT allows excess income to be deposited into a specially drafted trust account each month. As long as the trust is properly established and administered, the income deposited into it is generally not counted against the applicant for eligibility purposes.
This is particularly important for retirees who receive income from multiple sources, such as Social Security, pensions, and Required Minimum Distributions (RMDs) from retirement accounts. In many cases, individuals who appear financially ineligible at first glance can still qualify for MLTSS through proper use of a QIT. Read more about QITs here.
However, qualifying for Medicaid does not mean you keep all of your income. Once approved, most of the recipient's monthly income must generally be contributed toward the cost of care, subject to certain allowances and deductions. This amount is commonly referred to as the beneficiary's cost share or patient pay amount.
Because income calculations can be complex, especially when retirement accounts, spousal income, annuities, or trust distributions are involved, families should have their eligibility reviewed before assuming that excess income prevents them from qualifying.
Understanding the Resource Test
Countable resources generally include the principal balances of:
Checking and savings accounts
Certificates of deposit
Stocks and bonds
Investment accounts
Cash surrender value of certain life insurance policies
Real estate other than the principal residence
Retirement accounts
A second automobile
Some assets are exempt, including:
A primary residence in qualifying circumstances
One vehicle
Personal belongings
Irrevocable prepaid funeral arrangements
Certain burial funds
Are IRAs and 401(k)s in Payout Status Countable for NJ Medicaid?
The short answer is yes. Unlike some other states with more generous rules, New Jersey treats an IRA, 401(k), 403(b), or similar retirement account as a countable resource for Medicaid purposes, even if the account is in payout status. The account will usually have to be liquidated and spent down before eligibility can be established. This comes as a shock to many retirees, who assume these accounts are protected because they receive favorable tax treatment and shelter from certain creditors. That protection does not extend to Medicaid eligibility. Medicaid is a needs-based program, and the State expects applicants to use their own resources to pay for long-term care before the program steps in.
This is a separate issue from the income rules discussed above. Distributions from the account are generally treated as income, while the principal balance is treated as an available resource. As a result, even a single retirement account can affect both the resource limit and the income limit.
How Pensions Are Treated
Defined-benefit pensions are generally treated differently from retirement accounts holding an accumulated balance. A monthly pension payment is typically considered income rather than a resource. For example, if a retired teacher receives a $1,500 monthly pension, Medicaid generally views those payments as income. The pension itself is not an asset that can be liquidated and spent down in the way an IRA or 401(k) can. The same principle applies to Social Security retirement benefits and many government pensions.
Married Couples Receive More Protection
A single Medicaid applicant may have no more than $2,000 in countable resources. The rules are more complicated for married couples. When only one spouse requires long-term care, Medicaid is designed to prevent the healthy spouse, often called the "community spouse," from becoming impoverished. The community spouse is entitled to keep a portion of the couple's countable assets under the Community Spouse Resource Allowance (CSRA).
In 2026, the community spouse may retain up to $162,660 in countable resources, while the spouse applying for Medicaid remains limited to $2,000. Importantly, the CSRA is not based simply on whose name appears on an account. Medicaid looks at the couple's combined countable assets as of a "snapshot date" and then determines how much the community spouse may retain. In general, that amount is one-half of the combined total, subject to a minimum and a maximum that are adjusted annually. We will cover the calculation in more detail in a future post.
In addition to resource protections, the community spouse may be entitled to a portion of the institutionalized spouse's income if needed to meet living expenses. This protection, known as the Minimum Monthly Maintenance Needs Allowance (MMMNA), can be critical when the healthy spouse has limited income of his or her own.
What About Required Minimum Distributions?
Many retirees receive RMDs from their retirement accounts. The fact that an account is paying RMDs does not exempt it from Medicaid in New Jersey. Each distribution is generally counted as income when received, and the remaining account balance is counted as a resource.
Liquidating a retirement account to meet the resource limit can trigger significant income tax consequences. Anyone in this situation should consult an accountant in addition to an attorney before taking action.
The Five-Year Look-Back Period
One of the most common mistakes families make is giving away assets shortly before applying for Medicaid. New Jersey applies a five-year look-back period, during which Medicaid reviews transfers made for less than fair market value.
If Medicaid discovers gifts, transfers to children, or other below-market transfers during the look-back period, it may impose a penalty period. During that time, the applicant may be financially eligible but still unable to receive Medicaid benefits. The look-back applies not only to bank accounts but also to retirement assets and other property interests. Before transferring a retirement account, cashing out a 401(k), gifting IRA assets, or moving funds to family members, it is important to understand the potential consequences. Read more about the 5-Year Lookback here.
Asset Preservation Strategies
The good news is that Medicaid planning is not limited to giving assets away. Many lawful strategies can preserve assets while helping families prepare for future care needs. Depending on the circumstances, planning may include:
Creating irrevocable trusts well in advance of anticipated care needs
The most effective strategy is often early planning. When a family begins planning more than five years before long-term care is needed, significantly more options are usually available. Waiting until a health crisis arises often limits those options and increases financial risk.
The Bottom Line
Retirement accounts do not receive an exemption under New Jersey Medicaid rules. The account balance counts as a resource, and distributions from the account count as income.
An IRA, 401(k), 403(b), pension, annuity, or other retirement assets may affect eligibility differently depending on whether the applicant is single or married and whether distributions are being received. Because retirement assets can affect both the income and resource tests, careful planning is essential. The best time to address Medicaid planning is before a crisis occurs. Families who plan early often have significantly more opportunities to preserve assets, protect spouses, and qualify for the long-term care benefits they may eventually need.
When a nursing home resident applies for Medicaid in New Jersey, someone often needs to help with the application and appeal process. But who can act for the applicant, and when is a Designated Authorized Representative (DAR) form required?
Those questions were at the center of E.B. v. Division of Medical Assistance and Health Services, 431 N.J. Super. 183 (App. Div. 2013), a case that remains highly relevant for Medicaid applicants, nursing facilities, and elder law attorneys today.
The Facts of the Case
The case involved two nursing home residents who had been approved for Medicaid but wished to challenge adverse determinations through fair hearings. Their nursing facilities, acting on their behalf, requested appeals regarding Medicaid penalty periods and other issues.
The nursing homes’ attorney submitted hearing requests. However, the attorney expressly stated that he represented the nursing facilities, not the Medicaid applicants themselves. The Division of Medical Assistance and Health Services (DMAHS) responded by requiring completion of its Medicaid Designation of Authorized Representative (MDAR) form before proceeding with the appeals. The facilities refused and instead submitted their own authorization forms. DMAHS rejected those forms and would not schedule the hearings. The nursing facilities argued that DMAHS could not require use of the MDAR form. The Appellate Division disagreed.
The Court's Holding
The court upheld DMAHS's authority to require a standardized authorized representative form. It found that the MDAR requirement was consistent with federal and state Medicaid law and helped protect applicants by ensuring that the person acting on their behalf was properly authorized. The court specifically held that DMAHS's requirement that Medicaid applicants use the MDAR form did not violate federal law, did not interfere with fair hearing rights, and was a reasonable measure to protect applicants and the integrity of the Medicaid program.
Why the DAR Form Matters
From a practical standpoint, this case highlights a lesson I regularly encounter in Medicaid cases: if someone other than the applicant is acting on the applicant's behalf, a completed DAR form can prevent unnecessary delays. Counties and DMAHS often refuse to discuss eligibility issues, process appeal requests, or release information unless they have proper authorization in their files. When a DAR form is missing, the result can be avoidable delays in an already time-sensitive Medicaid application. This is particularly important in long-term care Medicaid cases, where delays can affect nursing home reimbursement and create significant stress for families.
One of the most significant parts of the decision is something many county welfare agencies improperly overlook or ignore. The attorney in E.B. did not represent the Medicaid applicants. He represented the nursing facilities. That distinction drove the outcome. The court noted that the problem arose because the attorney sought a hearing "on behalf of the respective Facility." The court explained:
Had counsel requested the fair hearings in their capacity as the plaintiffs' legal representative, we suspect that this matter would not have caused the CWA any concern.
The court also discussed DMAHS's proposed rule (which is still not formally adopted), which expressly provided:
Use of the Division's Designation of Authorized Representative Form is not required if the authorized representative is the beneficiary's legal guardian, a relative by blood or marriage, the attorney of the beneficiary hired by the beneficiary to represent the beneficiary, or a person with power of attorney for the beneficiary.
In other words, when an attorney actually represents the Medicaid applicant, a DAR form generally should not be required.
The Real-World Problem: Counties Sometimes Get This Wrong
Despite the language discussed in E.B., I still see situations where county agencies request a DAR form from an attorney who already represents the Medicaid applicant. That request is often unnecessary. An attorney retained by the applicant stands in a different position than a nursing facility, its employees, or another third party attempting to act for the applicant. The entire point of the attorney exception is that counsel already has authority through the attorney-client relationship. Unfortunately, the rules are applied inconsistently. As a result, attorneys sometimes need to explain the distinction and push back.
The Takeaway
The lesson from E.B. v. DMAHS is straightforward: make sure the proper authorization documents are in place before problems arise. If a nursing facility, family member, friend, or other third party will be communicating with the county welfare agency or DMAHS, a completed DAR form can prevent delays and disputes.
At the same time, applicants should understand that attorneys who directly represent the Medicaid applicant are treated differently. The key distinction in E.B. was that the lawyer represented the facility, not the Medicaid applicant. Getting this right can mean the difference between a smooth Medicaid process and months of unnecessary delay.
Many people turning age 65 are surprised to learn about the costs associated with Medicare. Medicare is not free. Most people pay no premium for Medicare Part A, which covers hospital services, but Medicare Part B — which covers doctor visits, outpatient care, and medical equipment — carries a monthly premium. In 2026, the standard Part B premium is $202.90 per month. For people with higher incomes, the premium is higher. If you have both Medicare and Medicaid, however, you may not have to pay that premium at all.
Full Dual Eligibles: SSI, ABD, and MLTSS Medicaid
If you receive full Medicaid coverage — meaning Medicaid pays for your medical services, not just your Medicare premiums — Medicaid will pay your Medicare Part B premium through a process called Medicare “buy-in.” This applies to people receiving SSI-linked Medicaid, ABD Medicaid (Aged, Blind, and Disabled), and NJ MLTSS Medicaid (Managed Long Term Services and Supports), which covers assisted living and nursing facility services.
For SSI recipients, the Medicare buy-in is effective as of the Medicaid enrollment date. For all other full Medicaid recipients, including MLTSS enrollees, the buy-in takes effect two months after enrollment. During that gap, you may still be paying the Part B premium out of pocket. Once the buy-in is processed, Medicaid reimburses you for any out of pocket premiums paid after the two month waiting period, while the buy-in was pending.
Partial Coverage: Medicare Savings Programs
If you do not qualify for full Medicaid but have limited income and resources, you may still be able to get help with your Part B premium through a Medicare Savings Program (MSP). New Jersey offers several levels of coverage:
Qualified Medicare Beneficiary (QMB): Covers the Part B premium, Part A and B deductibles, and coinsurance for people with income at or below 100% of the Federal Poverty Level (FPL).
Specified Low-Income Medicare Beneficiary (SLMB): Covers the Part B premium only, for people with income between 100% and 120% of FPL.
Qualifying Individual (QI / SLMB Q1): Covers part of the Part B premium for people with income between 120% and 135% of FPL.
The New Jersey Appellate Division decision, A.D. v. Essex County Department of Family Services, A-2316-23 (decided May 5, 2025), illustrates how a Medicaid application for long-term care can unravel not because the applicant was ineligible, but because of confusion over income rules and missing paperwork. The case involved a resident of an assisted living facility in West Orange whose application was denied twice by the agency and twice appealed — with the Administrative Law Judge ruling in the applicant's favor both times — before DMAHS rejected those decisions and the Appellate Division affirmed the denial. The court's reasoning touches on several issues that arise regularly in NJ Medicaid applications for long-term care: what counts as income, when a Qualified Income Trust is required, and what happens when you cannot produce exactly the documentation the agency demands.
The Income Limit and the QIT Requirement
To qualify for Managed Long Term Services and Supports (MLTSS), the NJ Medicaid program that covers long-term care benefits an applicant must meet both a resource limit and an income limit. The resource limit is $2,000 in countable assets. The income limit is a gross monthly income cap, which currently stands at $2,982 per month (for year 2026). If your income exceeds that cap, Medicaid will not approve your application unless you establish and fund a Qualified Income Trust, also called a Miller Trust or QIT.
A QIT is a legal arrangement in which the applicant's total source of income above the cap is deposited into a dedicated trust account each month before being used to pay for care. The trust does not eliminate the excess income — it channels it in a way the Medicaid rules permit. If the income is over the cap and no QIT exists, the application will be denied. For more on how this works, see my post on Qualified Income Trusts in New Jersey.
In A.D., the agency determined the applicant's income exceeded the limit and required a QIT. The applicant's representative pushed back, arguing that the VA Aid and Attendance benefit included in the applicant's income is not countable for Medicaid purposes and therefore no QIT was needed. The court rejected this argument — not on the merits of whether Aid and Attendance is countable income, but because the applicant never provided the documentation the agency needed to make that determination in the first place.
The VA Award Letter Problem
This is where the case turns practical. VA pension awards can include several distinct components: a base improved pension, an Aid and Attendance supplement, a Housebound allowance, a surviving spouse award, and others. For Medicaid purposes, different components are treated differently — some are countable income, some are not. The agency cannot make that determination from a letter that shows only a total monthly benefit amount.
New Jersey has addressed this directly in Medicaid Communications 12-09 and 15-08. Under those directives, an applicant receiving VA benefits must provide either a letter that specifically identifies the dollar amount allocated to Aid and Attendance, or documentation showing that the VA has determined the applicant's unreimbursed medical expenses reduce their countable income to zero. A letter showing only a lump-sum benefit amount is not sufficient.
In A.D., the applicant provided a VA award letter that showed a surviving spouse benefit with Aid and Attendance listed, but did not break out what portion of the total was attributable to each category. The agency sent a sample letter showing the format it needed and asked for a compliant document. The applicant's representative responded that the VA does not provide a separate breakdown — and directed the agency back to the letter already on file. The agency denied the application. The court agreed: without the itemized breakdown, the application was incomplete, and the denial was not arbitrary or unreasonable.
The Resource Limit and the Timing Problem
The applicant also sought Medicaid eligibility retroactive to November 1, 2022, arguing that her bank balance on that date was below the $2,000 resource limit because a check written to the nursing facility had cleared and reduced the balance to $335.80. The agency looked at the bank statement for the following month, which showed a balance of $2,696.71. The applicant argued a second check, written in early November, had also cleared by month's end and would have brought the balance below $2,000. The bank statement did not confirm that the check cleared when claimed, and the court found no basis to disturb the agency's finding that the resource limit was not met.
The clinical eligibility piece followed the same pattern. The applicant argued that a Pre-Admission Screening request made in December 2021 should establish her clinical eligibility date, but the regulation is explicit: clinical eligibility begins on the date the screening is completed, not the date it is requested. The record showed the screening was not requested until December 29, 2022 and completed January 9, 2023. The court found no evidence to support an earlier request date.
What This Means If You Are Applying
The A.D. case is a reminder that a Medicaid application for long-term care is a documentation-intensive process with little margin for error. Several things are worth taking from it.
First, if you or a family member receives a VA pension of any kind, obtain the most detailed award letter the VA will provide before filing a Medicaid application. If the letter does not itemize the dollar amount for each benefit category — Aid and Attendance, surviving spouse benefit, Housebound allowance, and any others — request an updated letter from the VA or contact a veterans service organization for help. The agency handling the Medicaid application needs that breakdown. A general award letter will not be enough.
Second, if your gross monthly income exceeds the Medicaid income cap, a QIT must be established and funded before the application is filed. It cannot be set up after a denial and applied retroactively. The income cap and the QIT requirement are not technicalities — they are threshold eligibility conditions.
Third, if you receive a request for information from the County Social Service Agency, respond fully and on time. The agency must give you an opportunity to provide missing documents, but if you cannot supply what is requested ask for more time or provide documentary proof establishing your good faith effort to respond. For more on how to challenge a denial you believe was issued in error, see my post on contesting an arbitrary Medicaid denial in New Jersey.
Finally, be precise about timing. Resource eligibility is determined month by month based on countable assets at the beginning of each month. Pending checks, deposits, and transfers need to be documented with bank statements that actually show what cleared and when. And remember that both financial eligibility and clinical eligibility must be satisfied at the same time — meeting one without the other is not enough.
Medicaid planning for long-term care is not something to approach without preparation. The rules governing income, resources, and documentation are detailed, and mistakes are difficult to correct after the fact. If you are in the five-year lookback period and considering a Medicaid application, see my overview of the five-year lookback rule in New Jersey for background on how prior transfers can affect eligibility.
Applying for Medicaid to cover nursing home care requires disclosing financial information not just for the applicant, but for the applicant’s spouse as well. That requirement makes sense when both spouses are willing to participate. It becomes a serious problem when the spouse living at home — known in Medicaid terms as the “community spouse” — refuses to provide that information, or simply cannot.
A New Jersey appellate decision illustrates exactly how this problem plays out, and what an applicant can do about it.
The Two Spouses in a Medicaid Application
When one spouse needs nursing home care and applies for Medicaid, that spouse is the “institutionalized spouse.” The spouse remaining at home is the “community spouse.” Federal and New Jersey Medicaid rules require the agency to assess both spouses’ combined resources, even though only one spouse is applying for benefits. This is meant to prevent asset-shifting between spouses, but it also means the community spouse’s bank records, income, and other financial information become part of the application.
Most of the time, both spouses cooperate and the process moves forward. But what happens when the community spouse won’t provide that information — whether out of refusal, illness, age, or simply being overwhelmed?
The Spousal Waiver and Spousal Refusal
Federal Medicaid law, 42 U.S.C. § 1396r-5, addresses this exact scenario in two related ways. The first is spousal refusal. Under the statute, if a community spouse refuses to make their income or resources available to the institutionalized spouse, the institutionalized spouse can still be found eligible, provided the institutionalized spouse assigns to the state any right of support from the community spouse. In other words, the applicant transfers to the state whatever legal right they would otherwise have to seek support from their spouse, and the state can then pursue the community spouse directly for reimbursement of the cost of care. The eligibility determination itself proceeds without counting the community spouse’s resources.
Second, and separately, the statute allows the state to waive its resource assessment when denying eligibility would otherwise impose an “undue hardship” on the institutionalized spouse. This is the provision New Jersey’s Division of Medical Assistance and Health Services (DMAHS) has applied in practice when a community spouse is uncooperative, but DMAHS has historically construed this waiver narrowly — generally limiting it to cases involving a documented break in the marriage, an unverifiable death or divorce, or a community spouse whose whereabouts are unknown.
That narrow approach was tested directly in N.S. v. Division of Medical Assistance and Health Services, an unpublished Appellate Division decision from 2019.
What Happened in N.S.
N.S. was an 87-year-old man admitted to a nursing facility. Before his admission, he had lived with his wife, who was 86. His daughter, acting as his authorized representative, applied for Medicaid on his behalf and began the lengthy process of gathering financial documentation — a process that dragged on for months as the county welfare agency made repeated, sometimes inconsistent, requests for records.
The daughter ran into a wall when it came to her stepmother’s financial information. The wife was elderly, in poor health, and became distressed every time she was asked for documents. She told her stepdaughter to stop asking. The nursing facility sent her three separate letters requesting the information; she did not respond to any of them. The county agency sent three more letters directly. Still no response.
The nursing facility’s attorney requested a spousal waiver, arguing that denying benefits because of the wife’s refusal to cooperate would work an undue hardship on N.S. The county agency disagreed, reasoning that because the couple had been living together and there was no evidence of a broken marriage, the waiver did not apply. N.S.’s application was denied. Both spouses died within months of each other — the wife in October 2016, N.S. in November 2016 — before the matter was resolved.
An administrative law judge upheld the denial, and DMAHS adopted that decision. The case went to the Appellate Division.
The Appellate Division’s Ruling
The court reversed. It found that DMAHS had applied an overly narrow standard by treating “estrangement” as essentially the only basis for a hardship waiver, without pointing to any regulation or formal guidance requiring that result. The court noted that DMAHS had never adopted regulations specifically interpreting the undue hardship provision — it was relying on an unwritten internal practice.
More importantly, the court held that an undue hardship determination has to be a fact-sensitive inquiry that considers the totality of the circumstances. In this case, the unrebutted facts were that the wife was elderly, in poor health, had asked her stepdaughter to stop asking for information because it was making her sick, and had not responded to six separate written requests from two different sources. There was no evidence that anyone was gaming the system to shield the wife’s assets. The agency, the court found, ignored all of this and focused exclusively on the fact that the couple had been living together before N.S. entered the nursing home — a single fact that does not, by itself, rule out hardship.
The court also found that the agency’s separate basis for denial — that N.S. himself had failed to provide his own financial records — was not supported by the record. The daughter had, in fact, provided the requested information; the agency’s own correspondence simply failed to track what had already been submitted.
The court reversed the denial and directed the agency to process the application without regard to the wife’s resources.
What This Means If You’re Applying
If you are applying for Medicaid on behalf of a spouse and the community spouse won’t or can’t provide financial information, do not assume the application is doomed. Document everything. Keep copies of every letter and email sent to the community spouse requesting information, and keep records of any response — or lack of one. If the community spouse’s refusal stems from health issues, cognitive decline, or sheer distress, get that documented too, ideally through a treating physician or a written account from someone who witnessed it.
Request a spousal waiver in writing and be explicit about the basis: cite the hardship that denial would create for the institutionalized spouse, not just the community spouse’s general unwillingness. And if the county agency denies the request based solely on the fact that the couple wasn’t estranged, know that DMAHS’s position on this issue has been challenged and rejected by an appellate court.
Spousal refusal and the hardship waiver are both narrow tools, and DMAHS does not apply them generously. An elder law attorney can help determine which approach fits your situation and how to build the record needed to support it.
