Category

How Tax Reform hurts People on Medicaid

Not to get political here, but…

I’ve been following President Trump and Republicans’ proposed tax reform with interest.  If you’re also interested, you can read all about it elsewhere, including  how it affects the estate tax, state and local tax deductions for people in high-tax states like New Jersey, etc.  But there’s one provision that should be of particular concern to our clients – the medical expenses deduction.

The tax reform bill eliminates the deduction for medical expenses.  That’s a big deal for people in nursing homes, especially people in nursing homes on Medicaid with relatively high incomes.

That is because once you go on Medicaid, your income must be spent according to Medicaid rules.  When you apply for Medicaid, the agency gives you a breakdown at the end that shows how you have to spend your income each month.  For people without a spouse, usually all of your income must go to pay the nursing home or assisted living facility, with perhaps a small amount allowed to pay for health insurance.

There is no allowance to pay for taxes.

Usually that’s not an issue, because Medicaid beneficiaries typically have low income.  And if their income is not low, usually their medical expenses (which are almost all of their income) are high enough that the medical expense deduction is high enough to result in no tax.

But if the medical expense deduction goes away, people in nursing homes with high incomes may end up owing tax.  In that case, they would be in a very difficult situation.  They would owe money to the IRS, but also owe money to the nursing home.  They would have to decide whether to follow tax law, or Medicaid rules.  Either way, they could end up with obligations that they cannot pay.

I hope that lawmakers will take this into account as tax reform progresses.

Medicaid Gifts, Look Back Period, and Nursing Home & Assisted Living Long Term Care

Long term care can be provided in a nursing home, assisted living facility, or at home with aides.  While each setting has its advantages and drawbacks, they all have high cost in common.  With care often costing over $10,000 per month long term care could wipe out your life savings.  However, we often help clients qualify for Medicaid to fund care in all three settings without going broke.

While New Jersey Medicaid can fund long term care in all three settings, qualifying for Medicaid is not easy.  Because eligibility is governed by complex rules that sometimes defy common sense, individuals who don’t work with an elder law attorney are not likely to protect much.  Fortunately, FriedmanLaw’s elder law team can help you use gifts, prepaid funerals, qualified income trusts, annuities, and other tools to qualify for Medicaid without impoverishing your family.

You may have heard that once you need long term care it is too late for Medicaid planning, but that simply is not true.  Even though Medicaid may impose penalties for most gifts made within five years before applying for Medicaid, in many cases, gifts, annuities, maximizing family allowances, and other Medicaid planning techniques can save a lot despite the five year look back period.  However, planning must take account of complicated Medicaid laws and regulations.  Gifting too much or too little or applying for Medicaid too soon can be very costly.

For Medicaid purposes, a gift is any transfer for less than market value to friend, family, charity, religious organization, school, etc.  Most gifts (whether or not taxable) made within five years of applying for Medicaid trigger a penalty period that delays Medicaid eligibility.  However, some gifts are exempt– such as certain gifts for a spouse or disabled person and some gifts of a home– provided the gift meets various technicalities.  For instance, a gift of mom’s house to a child avoids penalties where the child qualifies as a caregiver child but may trigger penalties otherwise.

Perhaps the biggest Medicaid planning issue is timing.  To minimize the impact of Medicaid gift penalties, it usually is important to start the penalty period as soon as possible unless gifts are extremely large.  For instance, your $120,000 gift to your grandchildren in January 2017 would trigger a roughly 12 month penalty period so you might assumes the penalty would end January 2018.  However because a penalty doesn’t start until you otherwise are eligible for Medicaid and apply, the penalty period might not even begin until 2018 or later unless you work with elder law attorneys like FriedmanLaw to accelerate the penalty start date.

Sometimes we help clients protect assets by funding long term care in a nursing home, assisted living facility, or at home without incurring a Medicaid penalty period.  This may involve gifts to or in trust for a disabled child, spousal annuities, prepaid funeral accounts or other techniques.  Yet savings won’t occur unless these techniques follow Medicaid law, which can be tricky.  In addition, unless wills and powers of attorney are coordinated with Medicaid planning, anticipated savings may never arise.  Therefore, like other elder law attorneys, FriedmanLaw strongly advises against do it yourself Medicaid planning especially since technicalities and exceptions apply to all the planning techniques discussed in this post.

Other complex issues that can arise in Medicaid planning include minimizing estate recovery, maximizing spousal allowances, qualifying as a caregiver child, placing excess income in a qualified income trust (also called Miller Trust), and using special needs trusts to protect settlements and inheritances.  Space limitations prevent us from addressing these topics here but  we do discuss them in other blog posts or elsewhere on SpecialNeedsNJ.com, and check our blog frequently for more timely articles on Medicaid planning.

Planning Now Can Yield Dramatic Savings inTax and Long Term Care Costs Later

It’s not often that you can save a great deal later by spending a little now.  Yet that is the case when it comes to wills, trusts, and estate and long term care planning.  To understand why, you need to know a few basic concepts.

Estate Planning

Your estate will generate tax when you pass away if the net estate exceeds a threshold estate tax exemption.  A net estate equals a decedent’s assets less debts and deductions like charitable contributions, allowable estate settlement costs, and marital deduction.  The estate tax exemption or threshold shelters from tax net estates smaller than the exemption.

While the federal estate tax threshold is greater than $5,000,000, New Jersey estate tax applies to net estates of more than $675,000.  However, the Legislature and Governor just agreed to raise New Jersey’s estate tax exemption to $2,000,000 in 2017 and eliminate the estate tax in 2018.

Nevertheless, New Jersey retains a hefty inheritance tax for many recipients of transfers at or after death other than certain non-profits, grandparents, parents, spouses, civil union or domestic partners, step children, and descendants.  Inheritance tax rates and exemptions vary depending on the amount of a gratuitous transfer at death and the relationship of the recipient to the decedent.

As New Jersey inheritance tax rates can be as high as 16%, we at FriedmanLaw work hard to help our estate planning clients minimize or avoid inheritance tax.  We do so by drafting wills that include disclaimer trusts and other tax planning provisions, and counseling clients on gift planning and other options.  However, it is important to take into account the impact of inheritance tax and other estate planning on future capital gains.

Because capital gain tax rates far exceed inheritance tax rates, faulty inheritance tax planning actually can increase over all taxes.  Thus, sometimes it is better to pay a modest inheritance tax now to minimize future capital gain tax.

New York doesn’t have an inheritance tax, but its estate tax is far more complex than New Jersey’s.  New York’s estate tax exemption will rise to $5,250,000 in spring 2017 but only for estates that don’t exceed the exemption.  The $5,250,000 exemption quickly phases out so that many estates that exceed the $5,250,000 threshold by a modest amount will get little or no exemption and instead will face a large New York estate tax bill.  Thus, New York estate tax planning can yield astronomical savings (even after taking account of legal fees and other planning costs).

Many couples have simple estate plans that leave everything to the surviving spouse.  While that may be appropriate for modest estates, it can cause wealthier couples to incur otherwise avoidable tax.  Therefore, FriedmanLaw typically employs various more sophisticated estate planning techniques to minimize our clients’ tax exposures.  In many cases, sophisticated estate planning can save substantial tax with little or no down side.

Long Term Care Planning

Long term care can cost well over $100,000 per year.  That’s a lot of money so it’s worth taking some simple steps now that may save substantial amounts later.

In many cases, this involves qualifying for Medicaid.  Medicare pays for up to 100 days of rehabilitation (with co-payments after 20 days), but doesn’t fund long term care costs like assisted living, nursing home, and home health aide chronic care.  Thus, Medicaid often is essential.

Various techniques that are both lawful and ethical are available to shelter some savings when seeking Medicaid.  These range from gifts to annuity planning and even home improvements or purchases.  In depth discussion is beyond the scope of a blog post, but FriedmanLaw can develop detailed advice based on your particular circumstances.

An important point is that the sooner you start, the more you potentially can protect and sometimes waiting can foreclose planning opportunities.  For instance, some trusts can be created only while under age 65.  New wills and powers of attorney often are needed to maximize savings but they can be adopted only while competent.  Thus, it pays to start sooner than later.

At FriedmanLaw, we look forward to guiding you through the estate/inheritance and long term care planning mazes.  First and foremost, we try to meet your realistic goals.  Typically, we will discuss your circumstances with you and then develop detailed options based on your situation.  We understand that tax planning is important but it must be compatible with your overall goals.  Finally, we will work with you to help you reach your realistic goals.  We hope to hear from you.

What Questions will your Estate Planning Attorney Ask?

We try to make our clients as comfortable as possible (just ask our mascot dog, Pebbles), but nonetheless, meeting an attorney for the first time can be intimidating. Often, people don’t know what to expect. So, in this post, I’ll set forth a few questions that we might ask you if you’re interested in working with us to create an estate plan. I previously did a post like this for elder law / Medicaid planning. So, without further ado, here are questions we typically ask our estate planning clients:

Your Family
Are you married? Is it a first marriage for you? For your spouse? Do you have children? Do you have any children from a prior marriage? Does your spouse have any children from a prior marriage? Are your children married? Do they have children? Are you on good terms with all of your children? Is your spouse? Do your children get along with each other?

Your Wishes
After you die, how do you want your property distributed? To whom should it go? If they aren’t around to receive your property, is there anyone else you would want instead? What are your wishes regarding medical care? Artificial life support?

Agents and Fiduciaries
Who should manage your estate after you die? If you have minor or disabled children, who do you want to be their guardian? If you were unconscious or unable to make decisions, who do you want to make medical decisions for you? Is there anyone you want to make financial decisions for you?

Pre-Existing Documents
Have you ever made a will in the past? How about a healthcare directive (aka living will) or power of attorney? How long ago? Were the documents drafted by an attorney? Have your wishes changed since then? (If possible, please bring any pre-existing documents when you meet with us)

Inheritance Issues
Is there a reason why any of your heirs (spouse, children, grandchildren or anyone else who might inherit from your estate) shouldn’t get his or her inheritance outright? Are any of your heirs disabled? Do any have issues with alcohol, drugs or gambling? Are any facing a major liability, like a lawsuit or divorce?

Estate and Tax Issues
What is the total value of your assets? Do you own property jointly with anyone else? Do any of your assets have a named beneficiary (e.g., retirement accounts and life insurance), to whom the asset goes automatically when you die? If so, does that affect how you want to distribute your other property? Do you have any debts?

There are many more specific questions we’ll ask in particular situations, but these are some basics to give you a sense of what you should think about when working with an attorney on your estate plan.  If you’re interested in creating a will, power of attorney or healthcare directive, or other estate planning, please feel free to call or email FriedmanLaw today.

Dying while Divorcing in New Jersey: the “Black Hole”

New Jersey has laws meant to protect a person from becoming impoverished if his or her spouse is no longer in the picture.

New Jersey’s elective share law protects a spouse from being disinherited when the other spouse dies. For example, imagine a man writes a will leaving his entire estate to his siblings and nothing to his wife. If he dies, his wife still has the right to take a minimum “elective share” from his estate, equal to roughly one-third of the estate (with many caveats). The law is meant to protect the surviving spouse from becoming impoverished.

New Jersey’s divorce law also provides for equitable distribution to divorcing spouses. With equitable distribution, the marital assets are divided between spouses in a manner that is supposed to provide fairly for the financial future of both spouses.

But what happens when one spouse dies in the middle of divorce proceedings? After the divorce papers are filed in court, but before the divorce is finalized (which can take years).

Currenty, New Jersey law (N.J.S. 2A:34-23(h)) provides for equitable distribution only upon a judgment of divorce. So if one spouse dies in the middle, equitable distribution may be off the table. At the same time, the elective share law (N.J.S. 3B:8-1) states that a spouse does not have a right to an elective share if the spouses were living in circumstances that would give rise to a divorce.

In other words, under current law, where spouses are divorcing, and one spouse dies in the middle, the other spouse can fall into a “black hole” where neither an elective share or equitable distribution are available. The surviving spouse may be completely locked out of the dying spouse’s assets and may become completely impoverished, when that’s the opposite of what the law intended.

The New Jersey State Bar Association has put forth a proposal to remedy the “black hole” problem. This proposed legislation would change the law so that, where one spouse dies in the middle of a divorce, no elective share can be claimed, but equitable distribution can still be made. This would remove ambiguity in the law, and solve an unfair problem that can leave surviving spouses with a very raw deal.

If you’re getting divorced, you should make sure you have estate planning documents in place that reflect your wishes.  If you’re interested in creating a custom-tailored estate plan, FriedmanLaw is available to help

Do You Need an ABLE Account or a Special Needs Trust [a.k.a. Supplemental Needs Trust]?

As a parent or other loved one of a person with special needs you probably have heard of ABLE, but maybe you aren’t sure how it affects you.  The ABLE (Achieving a Better Life Experience) Act passed Congress in 2014 while New Jersey enacted ABLE implementing legislation January 11, 2016.  So, what does the ABLE Act do anyway? [For more detail on the ABLE Act, see our blog posts of January 11, 2016 and July 27, 2015.]

 

Essentially, the ABLE Act permits a disabled person or his/her friends and loved ones to set aside amounts for the disabled person without knocking the disabled person off Supplemental Security Income (“SSI”) and Medicaid.  But, a special needs trust [also called supplemental needs trust] (“SNT”) can do the same thing.  [For more detail on SNTs, see the Special Needs tab and Articles tab at the top of this page].  So, which is right for you– an ABLE account or an SNT?

 

Let’s start with ABLE’s virtues.  When properly funded and administered, an ABLE account can be tax free and avoid disqualifying the disabled beneficiary for SSI and Medicaid.  A well drawn and managed SNT also avoids disqualifying the disabled beneficiary for SSI and Medicaid, but it isn’t tax exempt.

 

So far ABLE sounds like the clear winner, right?  Well, wait until you see the fine print.  Like most government programs, ABLE has limitations and traps for the unwary.

 

Why might you be better off with an SNT than an ABLE account?  Only $14,000 per year (subject to inflation adjustment after 2016) may be contributed to an ABLE account.  This makes ABLE accounts impractical in many situations such as to preserve benefits when settling a personal injury claim or in a divorce.  By the same token, ABLE’s limitation that each individual may be beneficiary of only one ABLE account can spell trouble if more than one person wants to provide for a person with special needs.  Of similar concern, only the first $100,000 in an ABLE account doesn’t count against SSI resource limits (although the entire ABLE account is Medicaid exempt).  And possibly most troubling, an ABLE account must repay Medicaid when the disabled beneficiary dies.  In contrast, an SNT that doesn’t contain the beneficiary’s own money isn’t subject to Medicaid payback.  Also a properly drafted SNT is not Medicaid or SSI countable even if it exceeds $100,000.  However, establishing an SNT will entail legal fees while an ABLE account might avoid them.

 

What is the bottom line?  ABLE accounts are great where a friend or loved one wants to give a disabled person less than $14,000, whether by lifetime gift or via a will.  In that case, the contribution limit won’t be an issue and Medicaid payback is likely to be only a minor concern.  ABLE accounts also can be useful when a disabled person is disqualified from Medicaid or SSI due to less than $14,000 in excess savings.  However, that’s about it.  Where more than $14,000 must be sheltered, an SNT is the way to go.  SNTs face no contribution limits and don’t have to repay Medicaid unless funded by the beneficiary (such as via a personal injury claim).

 

How do you establish an ABLE account?  Once state programs are up and running, you should be able to enroll in similar manner to a 529 plan.  FriedmanLaw can help you establish an SNT whether in conjunction with wills and estate planning, guardianship, or settlement of a personal injury claim.

Pre-Mortem Probate may be coming to New Jersey

The idea is being floated that New Jersey create a mechanism for “pre-mortem probate” – a court approving your will before you die.

When an individual dies, their will must be probated, or approved by a court, before the assets under their will can be distributed. Usually probate is a smooth and easy process, but occasionally there is a dispute regarding the will. This sometimes happens when the testator (the person whose will is being probated) had an estranged child, or a new spouse and children from a prior marriage, or left money to close friends instead of distant relatives.

When someone brings a will contest, challenging the validity of a will, the court has to determine whether the will really reflects the testator’s intent, or whether someone unduly influenced the testator, or the testator lacked capacity, or other cause exists to invalidate the will. The problem is, these questions revolve around the testator’s state of mind, and the testator is no longer around to ask.

Pre-mortem probate allows a testator to submit a will to court for approval before he dies. That way, the judge can ask the testator delicate questions about undue influence and capacity while he’s still alive, instead of relying on extrinsic evidence. The idea is to prevent will contests and ensure that the testator’s wishes are carried out.

This idea has its flaws, but all in all, I’m in favor of it. Occasionally we have clients who are concerned a relative will challenge their will. We’re able to offer our clients some options to head off will contests, but none are as bulletproof as having a court probate the will in advance. Pre-mortem probate would give people a new way to ensure that their wishes are carried out, and have the peace of mind that comes with that certainty.

Five states, including New Hampshire, have passed laws allowing pre-mortem probate. New Jersey may eventually join that list.

For specific advice on wills, probate or estate administration, call or email us.

NJ ABLE Act becomes Law

The New Jersey ABLE Act became law today.

Under the ABLE program, persons who became disabled before age 26 can open an ABLE account, and become the beneficiary of that account.

The beneficiary and their family or friends can contribute up to the amount of the annual gift tax exclusion to an ABLE account (currently $14,000 per year). The ABLE account holds that money, and is managed and invested by the state. Any growth on the money in the ABLE account is tax-free, provided it is spent on “qualified disability expenses” for the beneficiary. Qualified disability expenses are defined broadly, and include things like education, healthcare and professional services.

An ABLE account can hold up to $100,000 per year without disqualifying the beneficiary from Supplemental Security Income (SSI), and an unlimited amount without disqualifying the beneficiary from Medicaid. When the beneficiary dies, any remainder in the ABLE account has to be used to repay Medicaid for the amount it spent on the beneficiary.

ABLE is a welcome tool for people with disabilities and there families. But an ABLE account is not a replacement for a special needs trust. For large inheritances or lawsuit awards, the $14,000 annual contribution limit and $100,000 total limit would be problematic. Moreover, third-party special needs trusts have no obligation to repay Medicaid, while ABLE accounts do.

There remain a number of open questions on ABLE – how will New Jersey administer accounts, how will the money be invested, how will beneficiaries make withdrawals and how will the state decide whether withdrawals are qualified disability expenses, among other questions. It looks like ABLE won’t take effect until October 2016, so hopefully these questions will be resolved before then.

Happy new year!

Happy New Year!  Welcome to 2016.  It’s the season for new year resolutions, and in addition to losing weight and quitting smoking, we have a suggestion: getting your legal affairs in order.

That could mean creating an estate plan for the first time.  Having a quality will, power of attorney and healthcare directive is important, and makes things much easier for your family if something happens to you in the coming year.  It might also mean updating an old estate plan.  We suggest that clients update their estate plan once every ten years or so.  It may also be wise to update documents when circumstances change – for example a marriage, birth or death in the family, or if a loved one becomes disabled or contracts a serious illness.

It could also mean considering long term care planning.  A lot of people try to delay unpleasant matters until after the holidays.  Perhaps while your family was gathered, it became clear that an elderly parent might soon be unable to care for herself independently.  If that’s the case, now would be a good time to consider options for long term care, such as home care aides, an assisted living facility or a nursing home.

If long term care may be on the horizon, then it’s also a good time to think about how to pay for it.  With nursing home costs in New Jersey around $10,000 per month, long term care is exceedingly expensive.  But with Medicaid and long term care planning, we can often help people pay for long term care without impoverishing family members.

Perhaps you have a child with disabilities who is growing up.  At age 18, every child becomes an adult and has the legal authority to make decisions for himself, regardless of whether he’s disabled or lives with his parents.  Banks, hospitals, schools, government agencies and other institutions have to listen to your child’s instructions instead of yours.  If you want to continue caring for your child after age 18, it’s important to apply for guardianship.

Now is the perfect time to get your legal affairs in order, and FriedmanLaw is here to help.  If you’re interested in knowing more about any of the above or other legal matters, call or email us.

NJ Medicaid may soon Pay for Advance Care Planning

Following the federal government’s lead, New Jersey may soon allow Medicaid to cover advance care planning.

Medicare recently announced that it would pay for beneficiaries to have conversations with their doctors regarding their wishes for end of life care (called advance care planning in medical / legal parlance).   Following suit, the New New Jersey Senate passed a bill that provides for Medicaid to cover advance care planning (see the underlined language on page 4 of the linked PDF).  The bill still must be passed by the assembly and signed by the governor, but I’m optimistic that will happen.

To clarify, Medicare and Medicaid are both government programs that cover healthcare, but have different requirements for to qualify.  Medicare is a federal program that requires beneficiaries to have worked a certain number of years and paid into Social Security; Medicaid is a state-federal program that requires beneficiaries to have modest assets and income.

Allowing New Jerseyans on Medicaid to access advance care planning is a big step in the right direction, one which I applaud.  I’ve written about this before, and it bears repeating.

We all have to die eventually, and most Americans say they want to do so at home, in their bed, surrounded by family and friends.  Yet in reality, many Americans die in a hospital bed surrounded by doctors and nurses, often being poked and prodded or hooked up to machines.

One of the most intimate decisions in life is how it should end, yet far too many people never get the chance to make it.  The law offers all of us the opportunity to express our wishes regarding end-of-life care, with an advance directive for health care, as well as physician orders for life sustaining treatment (POLST).  Everyone should have a healthcare directive, and providing New Jerseyans on Medicaid with access to advance care planning will help make that so.

If you want to create a healthcare directive for yourself, or a will or power of attorney, or other elements of an estate plan, contact FriedmanLaw to discuss your goals and options.

Don’t Become a Victim of Financial Scams or Abuse

Seniors (and some disabled people) are a natural target for people up to financial no-good.  Seniors and disabled people may be more dependent on others, which can make them easy targets.

 

Some defenses are just a matter of common sense.  Don’t disclose passwords or account personal identification numbers/words and don’t make them easy to guess.  Thus, you never should use your name or birthday as your password.  Be skeptical.  If it sounds too good to be true it probably is.  Are you really very likely to have won a sweepstakes you don’t remember entering and never even heard of?  Why would a stranger contact you out of the blue to give you millions of dollars?  If an email claims to be from a major company, check whether it comes from that company’s website or one with only a similar name.

 

Don’t sign a contract until a lawyer has reviewed it.  It’s particularly risky to sign a care facility contract for a relative.  As discussed in other entries on this blog, signing a care facility agreement can make you liable for bills if the facility doesn’t get paid.  Sure there are defenses to such claims, but do you really want that headache?  Besides, at the end of the day, you could be found liable despite your defenses.

 

Finally, protect yourself against financial abuse.  Only give power of attorney to loved ones who are trustworthy.  An unrelated caregiver never should have control of your finances.  Authorize your financial institutions to share information with trustworthy loved ones.  Current privacy laws can preclude a bank or brokerage firm from sharing information about your finances with your family or even anti-abuse watchdogs.  While proposed regulations may lessen such limitations, at this point, it is up to you to be proactive.

 

While anyone can become a victim of financial abuse, there are steps you can take to protect yourself.  FriedmanLaw is here to help you get your legal affairs in order.  We look forward to hearing from you.

 

Protect Your Loved One with Special Needs

Over the 30+ years I’ve represented families of people with serious disabilities, many clients have asked how how to make gifts or leave an estate for a child/grandchild/other loved one with special needs without disqualifying the child for Supplemental Security Income, Medicaid, and other means tested government programs.  If an individual with Medicaid or other means tested aid receives more than nominal amounts directly, she probably will be disqualified.  While we often can help restore benefits eventually, there could be a substantial cost such as eventual Medicaid payback or loss of benefits for several months or more.

 

Obviously, therefore, outright gifts/inheritances are not an attractive option to benefit a loved one with special needs.  A far better choice is to provide in will, payable on death designations, IRA/401 plan beneficiary forms, and other gift and estate plans that amounts to benefit a child with special needs shall be paid into a special needs trust (also called supplemental needs trust or SNT).  Extensive discussions of SNTs appear under the Special Needs drop down menu tab above and throughout SpecialNeedsNJ.com.  To summarize, a properly drafted SNT can supplement many kinds of means tested benefits without risking disqualificatiion.

 

Sometimes parents won’t do SNT planning because they think they can reach the same result at lower cost by giving a child who isn’t disabled a gift or inheritance intended to benefit a special needs child.  The Wisconsin Court of Appeals’ Sept. 3, 2015 decision in Robins v. Foseid and Walters illustrates the risk.  A parent’s estate plan left a double share to not disabled child A and no share to disabled child B.  While the parent’s intent likely was that A would spend the second share for B, the court ruled that A had no such obligation and could spend the share as A chooses.

 

Even if you are convinced that your child would always look out for a disabled sibling, it still is risky to leave a disabled child’s share to a sibling rather than an SNT.  The not disabled child could surprise you and keep the money and creditor issues, divorce, college funding and other circumstances could prevent the money from benefiting your disabled child.  In short, a special needs trust usually is the best way to provide for a loved one with a serious disability

 

Medicare to Pay for Advance Care Planning come January

Medicare as of January 1, 2016 will start paying for patients to have conversations with their doctors about how they would like to die.

In a thought-provoking New York Times article, Pulitzer Prize-winning journalist Tina Rosenberg makes a powerful argument for why people should take advantage of this new provision.

I’ve written about advance care planning before, and it bears repeating. We all have to die eventually, and most people say they want to do it at home, in their own bed surrounded by friends and family. Yet in reality, most Americans die in a hospital bed surrounded by doctors and nurses, often being poked and prodded with machines.

One of the most intimate decisions in life is how it should end, yet far too many people never get the chance to make it.

The law does offer all of us the chance to have some input into how we die, by creating an advance directive for health care. A healthcare directive is a legal document in which you can appoint an agent to make health care decisions when you’re unable to. You can also set forth your wishes regarding medical treatment, including end of life care, which healthcare providers must follow.

However, Rosenberg argues that creating a healthcare directive is only the start of advance care planning, and I agree with her. People on Medicare should take advantage of the new program and talk to their doctors about what end-of-life care really entails. (Insurers will probably start paying for these conversations as well, so soon everyone will be able to talk to their doctors about end-of-life care.)

Most importantly, everyone should talk to their family about their wishes regarding end-of-life care. The conversation may be daunting or seem morbid, but if your family has to make a decision for you, it will be vastly easier for them to make peace with that decision if they can follow your wishes, instead of wondering ever after what your wishes were.

What to Do if your Spouse needs Long Term Care

If your spouse is losing the ability to care for himself / herself and needs long term care, in a nursing home, assisted living facility or with home care aides, there are a lot of steps to take, like Medicaid planning and changing your estate plan.  We’ve written extensively about those steps on this blog, and today I want to focus on one particular and often overlooked step:  changing title to joint property.

For many people, the only way to pay for the high costs of long term care is through Medicaid.  If your spouse is on Medicaid and you are not, it’s very important that you don’t own assets jointly with your spouse, for two reasons.

First, when someone is on Medicaid, they can’t have more than $2,000 worth of assets (Resources).  If they have more than $2,000 in any month, they lose Medicaid.  If you own property jointly with your spouse, and you die, the property passes entirely to your spouse, and he will lose Medicaid.  Instead, in many cases that property could go to your children or other family members without causing your spouse to lose Medicaid.

Second, people over age 55 who receive Medicaid (called “beneficiaries”) are subject to Medicaid estate recovery.  That means that when a Medicaid beneficiary dies, any property they own goes to the government, in order to repay the government for the Medicaid assistance it provided to the beneficiary.  If you own property jointly with your spouse (or parent, child, sibling, etc.) on Medicaid, and your spouse dies, that joint property may become subject to Medicaid estate recovery and may have to be sold to repay the government.

If your spouse needs long term care and will go on Medicaid, it may be wise to change title to joint property.  That may involve doing a new deed to your house, changing bank account ownership, designating new beneficiaries for life insurance or retirement accounts, etc.

To learn more about what to do if your spouse is going on Medicaid, call or email FriedmanLaw.

Medicaid and Elective Share Claims in New Jersey

In New Jersey, if your spouse dies, you have a legal right to take what is called an “elective share” from his estate.

The elective share is the minimal amount that a spouse is entitled to by law.  It’s meant to prevent someone from disinheriting his or her spouse and leaving the spouse destitute.  For example, the elective share would prevent a man in a second marriage from leaving everything to his children from a prior marriage, and leaving his second wife bereft.

The amount of the elective share is determined through a complicated formula, per N.J.S.A. 3B:8-1 et seq.  Essentially, the elective share is equal to one-third of the deceased spouse’s estate, plus certain property the decedent gave away while he was alive, minus the property the surviving spouse owns.

In short, the elective share is the minimum that one spouse can leave to the other when he or she dies.  This is great for scorned spouses, but not as good for Medicaid beneficiaries.

To qualify for Medicaid, you generally must have less than $2,000 in assets.  So if you are on Medicaid, and your spouse isn’t, and your spouse dies and leaves an elective share to you, then that property will disqualify you from Medicaid until it’s spent down (or otherwise disposed).  If you’re receiving long term care Medicaid, that property will likely be lost to long term care costs.

However that’s a lot better than the alternative.  Most people in first marriages leave all of their property to their spouses, not just the elective share.  That means all the property will be lost to long term care costs.  Instead, if your spouse is on Medicaid and you aren’t, you can create a new estate plan that leaves the minimum elective share to your spouse, and the rest of your property to your children, siblings or other heirs.

For information about your specific circumstances, call or email FriedmanLaw today.

Key Considerations in Settling an Estate

Administering an estate can be a daunting task.  Where the decedent leaves a will, the person(s) named as executor(s) must probate the will and fulfill the duties of the estate personal representative.   Where there is no will, the Surrogate’s Court appoints an administrator to fulfill these obligations.  Either way, the executor/administrator must settle the decedent’s debts and obligations, safeguard income and assets, file required tax returns, address guardianships/trusts for minors and beneficiaries with special needs, and distribute the estate according to law.  It can be a lot of work– even more so if trusts are involved.

Although New Jersey has some of the country’s most user friendly will and estate laws, the process is anything but intuitive.  For instance, an executor/administrator can have personal liability if he distributes before the creditor claim limitation period runs and even, thereafter, if distributions aren’t wholly correct.

New Jersey law requires an executor/administrator to obtain and file a refunding bond before distributing.  The executor/administrator also must obtain a qualifying child support judgment search and resolve any child support judgments that turn up.  An executor/administrator who ignores these obligations risks substantial personal liability.  In addition, to foreclose claims down the road, the executor/administrator should obtain releases from beneficiaries or settle an account in court.

Depending on estate beneficiaries, assets, income, deductions, and tax deposits, the executor/administrator of an estate may be liable to pay tax and file estate tax returns and/or inheritance tax returns as well as final income tax returns for year in which decedent died and fiduciary income tax return thereafter.  As estate attorneys, we normally prepare our clients’ estate tax returns and inheritance tax returns and determine tax. Where appropriate, we can suggest strategies [such as disclaimers] that can reduce tax.

Federal tax laws require IRAs and many other retirement plans [401(k), pension, profit sharing, SEP. government plans, and other benefit arrangements] to distribute required minimum distributions (RMD) once an individual reaches age 70.5 and thereafter. Thus, unless a decedent has taken the full RMD, an estate may have to take RMDs for the year in which a decedent dies. Beneficiaries may face RMDs thereafter. When RMDs aren’t made, expensive tax penalties can arise.

While I could go on and on about tasks that must be performed to administer an estate properly, the point of this article is to show that what may first appear to be a simple task carries with it many less obvious obligations.  At FriedmanLaw, we apply our years of experience in trust and estate law to guide executors/administrators through the steps needed to settle an estate.  We also take obligations (such tax compliance) off our clients’ hands.

In short, if you may become an executor/administrator, we would look forward to working with you to settle the estate correctly and limit your workload.

My spouse has Alzheimer’s – Now what?

An Alzheimer’s diagnosis is a difficult thing. If your husband or wife has just received one, you may be feeling overwhelming and lost, wondering what to do next.

When someone has early or mid-stage Alzheimer’s, there is a good chance they will need long term care in the near future. With most NJ nursing homes costing $10,000 / month or more, it’s very important for the spouse to take measures to protect himself / herself from long term care costs.

If your spouse has early Alzheimer’s, you should immediately make sure he has a good Power of Attorney document. That is because protecting against long term care costs often involves transferring assets, selling property or making purchases. Having a Power of Attorney means that someone else can manage your spouse’s property if he loses the mental capacity to manage it himself, which often happens as Alzheimer’s disease progresses. Once your spouse loses capacity to understand what he is signing, he can no longer create a Power of Attorney, so it’s important to do it now.

It is also usually a wise idea to update your will, to leave the smallest amount possible to your spouse. Likewise, joint property and beneficiary designations should be changed accordingly. That is because if your spouse is getting long term care, any property that goes to him when you die will be eaten up by long term care costs. Most people prefer that when they die, their property go to their children instead of their spouse’s nursing home, so it is wise to update your estate plan.

Beyond those immediate steps, after an Alzheimer’s diagnosis, it’s a good idea to consider long term care planning. That involves qualifying for Medicaid to pay for your spouse’s long term care, while preserving as much of your assets and income as possible. Long term care planning can be the difference between maintaining your lifestyle and becoming impoverished, and typically, the earlier you start planning, the more you can save.

An Alzheimer’s diagnosis can be difficult and overwhelming, but FriedmanLaw is here to make things slightly easier. Call or email us today.

How to Change your Will

Life is unpredictable.

People get married, and divorced. Family members pass away, and new family members are born. Kids grow up. Some become wildly successful, some develop disabilities, and some become estranged.

The above are all reasons why you might want to change your existing estate plan. I’ve spent a lot of time on this website explaining why you should have a good estate plan, but how do you go about changing it?

If circumstances change and you need to change your Will to correspond, you can execute a codicil. A codicil is a legal document in which you amend your Will. You can use it to appoint someone different as executor, trustee or guardian for your children. Or change who you leave your property to when you pass away, or how your property is allocated. You can direct that property go into a trust, to protect against divorce or lawsuit costs or protect disability benefits.

If you’re making complicated changes to your Will, then it may be better to create a new Will. The execution requirements are the same for a Will or a codicil. For a healthcare directive or power of attorney, it is usually more economical to create new documents than to amend old ones. In general, it’s wise to update your documents every decade or so, since laws and family circumstances change.

You should not assume that your documents will automatically conform to changes in your life, and it’s wise to review your documents if a major life change occurs. For example, imagine that a married couple create Wills when they have no children. The Wills provide that their property will go to siblings and other relatives. If the couple later has children and doesn’t update their documents, the kids would be cut out and inherit nothing unless the documents provide otherwise.

The one exception is for divorce. An appointment of a spouse as executor, and a bequest of property left to a spouse, are both revoked on divorce per N.J.S.A. 3B:3-14. Likewise, appointment of a spouse in a healthcare directive is also revoked on divorce per NJSA 26:2H-57. However, these revocations are made only when the divorce is finalized, not when it’s started. That can lead to some awkward situations. After you’ve filed for divorce, you’d probably prefer that your spouse doesn’t retain the right to pull the plug on you.

It’s important to update your documents when major life changes occur, and FriedmanLaw is here to help.

Calculating Executor Commissions in NJ Probate

If you’re an executor to an estate, you can take a commission – to pay yourself out of the estate for the hard work that being an executor entails.  An executor doesn’t have to take a commission, but is entitled to do so.  (This also applies to an administrator managing an intestate estate.)

The amount of the commission is proscribed by law in N.J.S.A. 3B:18-13 – 16.  The executor can take commission on both the income the estate earns, and the “corpus” of the estate – the assets that the estate holds.  The amount of each is calculated differently.

The executor is allowed to take a 6% commission on any income the estate earns (that the executor manages).  For example, if the estate has investments that earn $10,000 in dividends, the executor can take $600 in income commission.

For the corpus, the executor can take a commission based on the value of the assets he manages for the estate.  The formula is:

5% on the first $200,000 of all corpus received by the fiduciary;

3.5% on the excess over $200,000 up to $1,000,000;

2% on the excess over $1,000,000

So if the executor received assets of $2 million for the estate, then the corpus commission would be $58,000 – $10k on the first $200k, $28k on the next $800k, and $20k on the final million.  If there are multiple c0-executors, an additional commission of 1% can be taken, and a court can set commission higher for extraordinary services.

As you can see, executor commissions can get quite hefty.  If you’re an executor managing a large estate, the commission might be higher than your annual salary.  That said, in many cases the executor should abstain from taking a commission.  That is because an executor commission is taxable income – it gets reported and taxed like wages from your employer.  An inheritance is not income tax, although it may be subject to estate or inheritance tax.  So if the executors of the estate are also the sole beneficiaries (which often happens when folks leave everything to their spouse or children), it may be advantageous to leave the money in the estate, and take it as an inheritance instead of a commission.

FriedmanLaw is here to offer guidance on executor commissions and other probate and fiduciary matters.  If you have had a loved one pass away and must administer their estate, call or email us today.

Medicaid should Cover Advance Care Planning

New Jersey State Senator (and former Governor) Richard Codey has proposed that NJ Medicaid reimburse doctors and nurses for advanced care planning. That is, meeting with a patient to discuss what sort of medical treatment she wants at the end of her life, and setting forth those preferences in legal and medical documents like advanced healthcare directives and POLST orders.

Sen. Codey also introduced a resolution urging the federal government to allow Medicare to reimburse medical professionals nation-wide for advanced care planning. That idea was initially proposed in 2010 as part of the Affordable Care Act, but was nixed when political figures began heralding the creation of “death panels.”

In my opinion, this proposal should be welcome to anyone who thinks that Americans should have more control over how they die. Most people say they want to die peaceful and comfortable deaths, in their homes surrounded by family. Yet far too many people die protracted deaths in hospitals, hooked up to life support, after undergoing multiple surgeries with little chance of success. And despite medical advances and a push for hospice, a recent study by the Institute of Medicine shows that end-of-life suffering has become more common in the past decade, not less.

Healthcare directives, POLST orders and other advanced care planning allow patients to state whether they would want artificial life support, heroic surgeries, palliative care, etc., so that medical professionals can follow these instructions if the patient cannot communicate. Hopefully by putting more control into patients’ hands, the reality of end-of-life care will become more in line with what people say they want for themselves.

It is hard to imagine a moment in life more intimate than its end. Patients should be able to set forth their wishes for end of life care, and know that those wishes will be honored.

White House proposes Same-Sex Social Security Spousal Benefits

President Obama’s 2016 budget proposes extending Social Security spousal benefits to married same-sex couples, regardless of whether same-sex marriage is recognized in the state in which they live.

Under current law, same-sex couples can only obtain spousal benefits if they live in a state that recognizes their marriage.  “This means that for a couple that marries in one state where same-sex marriage is recognized and then moves to another state where it is not, the protection that Social Security spousal benefits provides to families is unavailable,” says the budget proposal.  “Under this proposal, such married couples would have access to these benefits.”

While same-sex marriage is recognized in New Jersey, New York, Pennsylvania and 36 other states, it remains illegal in 14 more.  Extending spousal benefits to same-sex couples in these states would provide greater financial security to thousands of Americans.

This proposal must still be approved by Congress to take effect.  However the issue could become moot soon.  The U.S. Supreme Court is set to take up same-sex marriage later this year, and if the Court approves nation-wide same-sex marriage, then presumably Social Security spousal benefits would be available to all regardless of what Congress does.

With Social Security spousal benefits, your spouse may be able to receive Social Security or a higher payment based on your work history.  Your spouse can also get survivors benefits if you pass away, which potentially includes monthly income or a lump sum.

For more information on Social Security or same-sex estate planning, call or email us today.

 

What’s your New Years Resolution?

Happy New Year!  This is the time of year when people make resolutions, and a good one for 2015 may be to get your legal affairs in order.

The could mean creating an estate plan, or updating an old one.  Having a quality will, power of attorney and healthcare directive in place is important in case something happens to you in the coming year.  And having a well-crafted estate plan can bring you a certain peace of mind knowing that if something happens, your family will be protected.

A lot of people delay unpleasant things until after the holidays.  Perhaps you have a parent whose mental capacity or ability to care for herself is starting to slip.  Maybe that became clear when you visited for the holidays.

If a loved one may soon need long term care, now is right time to start planning for it.  We can help you figure out how to obtain proper care and how to pay for it.  With nursing home costs in New Jersey around $10,000 per month, long term care is exceedingly expensive.  But with Medicaid planning we can help you avoid impoverishment and keep assets within the family instead of losing them to care costs.

Perhaps you have a child with disabilities who is growing up.  At age 18, every child becomes an adult and has the legal authority to make decisions for himself, regardless of whether he’s disabled or lives with his parents.  Banks, hospitals, schools, government agencies and other institutions have to listen to your child’s instructions instead of yours.  If you want to continue caring for your child after age 18, it’s important to apply for guardianship.

Now is the perfect time to get your legal affairs in order, and FriedmanLaw is here to help.  If you’re interested in knowing more about any of the above or other legal matters, call or email us.

Can You be Paid to Care for Your Parent?

A parent who becomes frail or starts to develop dementia rarely can be alone full time even if not yet ready for long term care in a facility. While an elder law attorney may arrange for Medicaid to fund some care at home, an adult child may need to care for [and possibly live with] the parent. Should that child be paid, and if so, how?

There is no one size fits all answer because both needs and services vary from family to family. Where the parent only needs light assistance, the child may be able to continue to work and socialize, but in other situations, a child may give up career and social life to take care of mom or dad. So what should families do?

It may prove fair to base parent- child financial arrangements on what the child gives up to care for mom or dad. Thus, a child who just helps with shopping and paying bills might be reimbursed for out of pocket costs or receive a small stipend. Parents who need substantial care may give the caregiver child an hourly or weekly fee or an extra share under their wills.

Sometimes payment involves funding an addition to a child’s home or the child coming to live with mom. These kinds of arrangements can alleviate many concerns and save a lot of money but they require counsel to address tax concerns and head off major issues if a parent seeks Medicaid later. For instance, in paying for an addition to a child’s home or transferring dad’s home to a child, dad makes a valuable gift that can lead to Medicaid gift penalties. In contrast, an elder law attorney may avoid Medicaid gift penalties by designing the arrangement as a caregiver child transfer or purchase of a life estate. These kind of techniques likely will elude a lay person because they involve complex rules rather than common sense.

Like so many family situations, it is best for parents to discuss the options with all of the children and come to an agreement before embarking on the new arrangement. Reaching agreement on long term care compensation is just the first step. To avoid misunderstandings, arguments, and even law suits down the road, the agreement should be put to paper in language that will hold up in court. Care arrangements can impact tax and Medicaid planning. An elder law attorney also can help families develop defenses that will stand up in court should a disgruntled child later attack a care arrangement as unfair; improper; or the product of undue influence, over reaching, or even fraud.

What about taxes? When a child is paid and provides services to a parent, the payments can constitute either income or gifts.

Payments tied directly to the services [such as hourly or weekly pay] probably are taxable income to the child and subject to payroll tax and withholding. Unfortunately, the parent doesn’t get a corresponding deduction because individuals generally can’t deduct payments for personal services. This increases the after tax cost. However, not treating payments as taxable income can prove even more costly.

I’m often asked why families shouldn’t just ignore taxes; who would even know? First and foremost, the law requires compensation to be reported as taxable income and tax evasion can lead to criminal charges and civil penalties. In addition, payments from parent to child that aren’t income must be gifts.

Medicaid authorities typically treat as gifts payments from parent to child that parent and child don’t report as taxable income. As discussed throughout www.SpecialNeedsNJ.com, most gifts made within the Medicaid look-back period trigger a penalty period, which depends on the amount given. The look-back period goes forward starting sixty months before applying for Medicaid. However, because the penalty doesn’t start until the donor applies for Medicaid and satisfies Medicaid income cap and resource cap, an application that isn’t timed correctly can delay the start of a penalty for years longer than necessary. Therefore, whenever gifts may occur it is essential to consult an elder law attorney before applying for Medicaid. This brings us back to the question why pay taxes on compensation from parent to child?

As unpleasant as taxes may be, it can be far cheaper for a child to pay tax on a parent’s compensation than for mom to incur Medicaid gift penalties. If the child doesn’t work beyond caring for mom, the tax rate probably will be modest. In addition, the child may be able to deduct expenditures to provide care, and possibly even take a home depreciation deduction. However, it is best to get legal advice on what may and may not be deductible.

Even if the family treats payments from parent to child as taxable income, Medicaid regulations may impose gift penalties unless the payments are pursuant to a legally binding written agreement. A well designed care compensation arrangement can dovetail nicely with traditional planning to qualify for Medicaid if dad eventually needs care in a nursing home or assisted living facility or home health aides. Payments per a binding care agreement should reduce resources toward Medicaid limits without triggering gift penalties. In addition, careful planning may even allow a parent to transfer a valuable home to a caregiver child but avoid Medicaid penalties.

Families should work with an elder law attorney to ensure smooth implementation of a family care agreement and take advantage of Medicaid planning opportunities. In addition to a written care agreement, a new will, trust, deed, or power of attorney may prove important to implement the agreement and allow for potential Medicaid planning. For instance, without a power of attorney that authorizes Medicaid planning, an expensive guardianship proceeding may be your only option whereas our firm often helps clients accomplish their goals with no need for guardianship.

If a family care arrangement in your future we’d be happy to help you “get it right.” Please call or email us today.

Will You Be Liable for Your Parent’s Nursing Home Bill?

Will you be liable for your parent’s nursing home, assisted living, long term care, or other health care costs?  You probably are thinking, “No way!”  And that may be true if you work proactively with a good elder law attorney to plan in advance.  But if you aren’t careful filial responsibility laws or even ordinary care facility contracts could make you liable for a parent’s care.

How can that be?  While it’s one thing to charge a parent for a minor children’s health care costs, children don’t expect to be hit with charges for a parent’s care.  However, 29 states have filial responsibility laws on the books that make a child in decent financial shape cover essential costs for an indigent parent.  Since health care is a necessity, filial responsibility laws can ensnare children in states that have filial responsibility laws. While filial responsibility laws traditionally have been something of a paper tiger, that may be changing.

In 2012, a court held that Pennsylvania’s filial responsibility law required a son to pay his mother’s $93,000 nursing home bill even though the son said he couldn’t afford to pay.  Health Care & Retirement Corporation of America v. Pittas (Pa. Super. Ct., No. 536 EDA 2011, May 7, 2012). To make matters worse, the son bore full responsibility because his initial response to the lawsuit didn’t raise claims against other family members who could have shared the obligation.  While the case occurred in Pennsylvania, it may have repercussions throughout the country.

Even children in states without filial responsibility laws can take on liability by signing a care facility agreement without fully understanding the effect. Although nursing homes can’t require a child to guaranty a parent’s bill, courts can enforce a guaranty that is considered voluntary.  This can be a major issue where a child signs documents to admit a parent to a care facility without consulting a lawyer.

A lawyer also can make sure a child doesn’t agree to other unfavorable contract terms that are hard to understand or even notice. In Cook Willow Health Center v. Andrian (Conn. Super. Ct., No. CV116008672, Sept. 28, 2012), the court held that a child can be liable to ensure a nursing home is paid if the child signs a care facility admission contract as “responsible party.”  Because the child signed the agreement without counsel, she didn’t understand that she was taking on this obligation.

How can children avoid liability?  Simple, follow two golden rules.  Don’t sign any admission papers or care contract until it has been reviewed by an elder law attorney. Since filial liability only kicks in when a parent is indigent, work with an elder law attorney to qualify the parent for Medicaid if the parent becomes indigent. FriedmanLaw often helps clients understand facility agreements and negotiate more favorable terms. We also help people qualify for Medicaid to pay for care instead of leaving children saddled with their parents; nursing home bills.

The moral of these cases  is pretty simple: consulting elder law counsel early on can yield major savings down the road.

Protecting Children from a Previous Marriage with a QTIP Trust

If you’ve ever been divorced, you may be wondering how to provide for both your new spouse, and your children from a prior marriage.

When it comes to estate planning, you’re right to wonder. If your will leaves everything to your new wife or husband, then when you pass away, your spouse could disinherit your children and leave all your money to his or her own children instead. Or give all your money away, or spend it, or lose it to medical costs or a scam or lawsuit. Either way, your children lose.

It’s natural to want to provide for your spouse, but it’s also natural to want to protect your children. Fortunately the law offers a way to do both, with a QTIP trust.

With a QTIP (Qualified Terminable Interest Property) trust, you set aside money when you die, under the control of a trustee and for the benefit of your spouse. The trustee must pay all trust income to your spouse (e.g., investment income), and you may also allow payment of principal (i.e., the money in the trust) to meet your spouse’s needs. However, your spouse has no right to access or take money from the trust. When your spouse dies, the remainder left in the trust is distributed to your children.

A QTIP trust offers a way to provide income to your spouse for life, while ensuring that your estate will go to your children. It also protects your estate from your spouse’s creditors, in case your spouse is a spendthrift, or runs up big medical bills, or gets sued or targeted by fraudsters. A QTIP trust is a valuable estate planning tool. To discuss including one in your will, call or email us today.

Do you need a special needs trust?

If you are unable to work due to a long-term disability, then you may be eligible for subsidized healthcare (Medicaid), cash assistance (SSI), and other benefits.  (For people with developmental disabilities, Medicaid is especially important, as New Jersey’s Division of Developmental Disabilities (DDD) now requires people to be on Medicaid for residential services.)
However, these programs have very strict financial limits, and applicants must have minimal assets to qualify.  If you have nearly any money at all in your possession, Medicaid will quickly show you the door.

Fortunately the government created a way to set aside private funds to help a person with disabilities, without affecting the person’s eligibility for benefits – the special needs trust.

A special needs trust is a legal arrangement in which money is set aside under the control of a trustee, who uses it to buy things that benefit a person with disabilities.  Because the person with disabilities doesn’t own the money, the person is still eligible for benefits like Medicaid and SSI, even though the money can only be used to help the person with disabilities.

The idea is that money for a person with disabilities should supplement government benefits, not replace them.  Benefits meet the person’s basic needs, and the trust pays for special needs.

We usually help clients establish a special needs trust in two scenarios.  First, if a parent has a child with a disability (or sibling, spouse, etc.), then the parent’s will should include a special needs trust, so that any inheritance will be protected.  Second, if a person with disabilities recovers money in a lawsuit (often for medical malpractice), then the money should be set aside in a special needs trust in order to maximize its value.

If you or a loved one is unable to work due to a long-term disability, then it may be advisable for you to consider a special needs trust.  Please see our Q&A’s and Articles, or call us today at (908) 704-1900 for advice specific to your situation.

The Trouble with Legal Forms

E-commerce is seeping into everything these days, including estate planning.  Online for-profit companies offer to generate a Power of Attorney document for you, using pre-fabricated forms that you plug your information into without ever consulting an attorney.

On the non-profit side, hospitals and other providers offer form Healthcare Directive documents that you write your information into, at no cost.  The State of New Jersey even offers a free form online.
This is all fine, until it isn’t.  The problem is that form power of attorney (POA) and healthcare directive documents often are inadequate when you really need them.

A POA and healthcare directive allow your loved ones to manage your affairs if you lose mental capacity, due for example to progressive dementia, Alzheimer’s or a stroke or coma.  Once you lose capacity, it’s too late to make a new POA or healthcare directive, so it’s very important to get it right the first time.

Yet most generic form documents I see don’t include important provisions.  New Jersey’s proxy directive says nothing about HIPAA privacy rights or visitation rights, which could leave loved ones with no right to access patient information or visit the patient.  And I’ve yet to see a POA form document that includes the provisions necessary to do Medicaid planning.  In other words, if you use a form POA and lose capacity, your loved ones couldn’t use the POA to preserve your nest egg from long term care costs, which is an important goal for many of our clients.

Everyone should have a healthcare directive and consider a POA, and form documents are better than nothing.  But if you lose capacity, then your family will rely on these documents to make things easier during a very difficult time.  For something that important, in my view it’s worth consulting an expert who can make sure your goals are met.  I wouldn’t trust it to a form.

Visiting your Grandchildren after a Divorce

The relationship between a grandchild and grandparent can be very special, but when the child’s parents divorce or die, tension can arise between the grandparents and surviving parent or other decision maker. In that case, an NJ senior may want to seek visitation rights to preserve a relationship with a grandchild. While New Jersey law provides for grandparent visitation, obtaining such rights is not so simple.

Visitation rights can only be granted in a court order. However, because competent parents have a due process right to decide how to raise their child, a grandparent who applies for visitation can be seen as meddling. Thus seniors must tread lightly when seeking grandchild visitation rights. A senior seeking grandparent visitation should be prepared to convince a judge that the child could be harmed if the grandparent doesn’t visit but court mandated visitation will not impair the relationship between parent and child. A delicate balance should be the order of the day.

The New Jersey Supreme Court is currently considering the issues inherent when a New Jersey senior seeks grandparent visitation rights and should rule this term.

Special Needs Trusts to protect a loved one with Disabilities

If you are unable to work due to a long-term disability, then you may be eligible for subsidized healthcare (Medicaid), cash assistance (SSI), and other benefits.  (For people with developmental disabilities, Medicaid is especially important, as New Jersey’s Division of Developmental Disabilities (DDD) now requires folks to be on Medicaid to receive adult services.)

However, these programs have very strict financial limits, and applicants must have minimal assets to qualify.  If you have nearly any money at all in your possession, Medicaid will quickly show you the door.

It is a difficult dilemma.  On the one hand, at a maximum rate of $740 dollars per month, SSI benefits do not pay enough to live on.  But on the other hand, foregoing benefits is usually not an option.  People who are unable to work due to a disability often have complex special needs, and even with savings in your name, without Medicaid and other benefits the money will run out.

Fortunately the government recognized this dilemma and created a way to set aside private funds to help a person with disabilities, without affecting the person’s eligibility for benefits – the special needs trust.

A special needs trust is a legal arrangement in which money is set aside under the control of a trustee, who uses it to buy things that benefit a person with disabilities.  Because the person with disabilities doesn’t own the money, the person is still eligible for benefits like Medicaid and SSI, even though the money can only be used to help the person with disabilities.

We usually help clients establish a special needs trust in two scenarios.  First, if a parent has a child with a disability (or sibling, spouse, etc.), then the parent’s will should include a special needs trust, so that any inheritance will be protected.  Second, if a person with disabilities recovers money in a lawsuit (often for medical malpractice), then the money should be set aside in a special needs trust in order to maximize its value.

If you or a loved one is unable to work due to a long-term disability, we are happy to help you create a special needs trust.  Please see our Q&A’s and Articles, or call us today at (908) 704-1900 to make an appointment.

Power of Attorney, Capacity and Dementia

After watching the film Amour, about an elderly gentleman who becomes caretaker to his wife after a stroke, I feel compelled to share some information on powers of attorney.

A power of attorney is a legal document in which you give someone power to manage your financial affairs. The person you appoint is called your attorney-in-fact. You can give your attorney-in-fact broad or limited powers, over all your assets or just a portion, and starting immediately or only after a certain condition (such as a stroke).

Together with an advance directive for healthcare, a power of attorney is how you appoint a loved one to manage your affairs if you become disabled. The trouble is, you can only create a power of attorney or healthcare directive if you still have mental capacity to understand serious decisions. If a person has suffered a stroke or is in later stages of Alzheimer’s or dementia, it is often too late to make a power of attorney.

Without a power of attorney and healthcare directive, then the only way anyone can manage your affairs is to apply for guardianship, a process that is often expensive and emotionally painful.

In addition, with a power of attorney and healthcare directive, you appoint an agent to act on your behalf. You can give or withhold from your agent whatever powers you want, and provide advance instructions to your agent on how you want your affairs managed. A guardian’s powers, on the other hand, are set by the court, with far less control by you. With an agent you appoint by power of attorney or healthcare directive, you have power over your agent. But a guardian has power over you.

With diseases like dementia and Alzheimer’s, mental capacity often seeps away over time. That is why it’s important to put these documents into place while you are healthy. In addition, if you may need long term care in the future (e.g., in a nursing home), then it is important to include provisions in your power of attorney related to Medicaid planning.  At FriedmanLaw, we will work with you to create a thorough power of attorney. Call us today at (908) 704-1900 to make an appointment.

End-of-Life Care in America

A committee appointed by the National Academy of Sciences found that the U.S. healthcare system is poorly designed to meet the needs of patients near the end of life, the New York Times reported.

For people at the end of their life, our healthcare system provides incentives for doctors to perform complex, invasive, expensive procedures in the hospital, when what most dying people really want is pain relief and care at home, the committee reportedly found.

In surveys of doctors about their own end-of-life preferences, “a vast majority want to be at home and as free of pain as possible, and yet that’s not what doctors practice,” said Dr. Phillip Pizzo, a committee co-chairman.

The committee made recommendations on aligning the healthcare system closer to end-of-life patients’ goals, including changes to what Medicare and Medicaid pay for.  Many of the recommendations involve making palliative care more affordable and accessible.  Palliative care is healthcare that seeks to relieve the patient’s pain, rather than cure the patient’s illness.

The committee also stressed the importance of advance healthcare planning, and recommended that Medicare pay doctors to discuss advance planning with patients.  At FriedmanLaw, we also believe in the importance of planning, including having an advance directive for healthcare.

Why Everyone should have a Healthcare Directive

On a warm Florida night in February 1990, Terri Schiavo collapsed in her hallway.  The 26-year-old had suffered a cardiac arrest and fallen into a permanent coma.  When it became clear she would never recover, her husband sought to terminate life support, while her parents sought to keep her alive artificially.  This disagreement sparked a furious legal battle and a national debate on religion, morality, mortality, autonomy and the right to die.

It also showed why everyone should have an advance directive for healthcare (ADH) that makes their own wishes clear.

An ADH is a document that takes effect if you are no longer able to communicate your healthcare wishes.  For example, if you were unconscious in a coma, unable to understand decisions due to dementia, or unable to speak or write after a stroke.

An ADH contains an instruction directive and proxy directive.  Your instruction directive (a.k.a. living will) sets forth your medical wishes.  It should make clear your wishes regarding artificial life support if you were unconscious in a permanent vegetative state, or the final stages of a terminal illness.  It should also set forth your wishes on experimental treatments, addictive pain therapies, any religious objections to treatment, etc.

In a proxy directive, you can appoint someone to be your healthcare representative, who can make medical decisions for you when you are unable.  You should also grant your healthcare representative access to your protected patient information in the ADH.  Otherwise, doctors may refuse to provide any information to your representative, citing HIPAA.  If you have any family tension, you may also want to designate someone to manage who can visit you in the hospital.

Medical care is one of the most important and personal issues most people will ever face.  With an advance directive, you can ensure your wishes regarding your medical care will be heeded.  At FriedmanLaw, we will work with you to craft an advance directive that thoroughly implements your wishes.  Call us today at (908) 704-1900 to make an appointment.

New Jersey Supreme Court’s Saccone Opinion Creates Special Needs Trust Opportunities and Pitfalls

To qualify for Supplemental Security Income (SSI) from the Social Security Administration (SSA), Medicaid, and other government disability benefits, an individual’s income must be within program limits. Pensions and most other payments typically throw a disabled person’s income over SSI and Medicaid income caps. However, pensions and other payments don’t count against income caps for SSI, Medicaid, and various other benefits when paid into a special needs trust under 42 U.S.C. 1396p(d)(4)(A), (commonly called d4A special needs trust or d4A SNT). These d4A special needs trusts are further explained in the Practice Area and Q&A pages of www.SpecialNeedsNJ.com.

New Jersey provides survivor pensions to surviving spouse and children of police officers and fire fighters. A retired New Jersey fire fighter sought to ensure that the benefit for his disabled son would be paid into a special needs trust under 42 U.S.C. 1396p(d)(4)(A), commonly called d4A special needs trust or d4A SNT. When pension administrators rejected his request that any survivor benefit for the disabled son be paid into a d4A special needs trust, the retired New Jersey fire fighter appealed.

In Saccone v. Board of Trustees of the Police and Firemen’s Retirement System (__ NJ __, Sept. 11, 2014), the New Jersey Supreme Court ruled that the benefit could be paid into a d4A special needs trust for the disabled child. The New Jersey Supreme Court cited New Jersey’s strong public policy favoring special needs trusts as reflected in New Jersey Statutes 3B:11-36 & 37, which were authored by FriedmanLaw attorney Lawrence A. Friedman on behalf of the New Jersey State Bar Association.

The New Jersey Supreme Court further held that a d4A SNT is “the equivalent of” the d4A SNT beneficiary– and therein could lie an unintended can of worms. The Supreme Court says New Jersey law now provides that a d4A special needs trust is the equivalent of the beneficiary. Therefore, one has to wonder whether the Social Security Administration and perhaps Medicaid will take the next logical step and claim amounts in a d4A SNT should be considered resources of the trust beneficiary. If so, the d4A SNT would cause the beneficiary’s resources as well as income to exceed SSI and Medicaid limits. While that would seem contrary to the Court’s goal in Saccone, it could be a logical consequence– especially since SSA is not obligated to further goals of the New Jersey Supreme Court.

Finally, since the Supreme Court holds that the firefighter himself can’t designate a beneficiary for his pension survivor benefit, the surviving spouse or child must ask that the spouse or child survivor benefit be paid to a d4A special needs trust or SNT. However, court approval is required to transfer assets of a minor or incapacitated disabled person into a d4A special needs trust. Therefore, court approval should be required to cause a survivor’s benefit to be paid into a d4A SNT where the surviving spouse or child lacks capacity and didn’t give appropriate power of attorney (POA) while the surviving spouse or child had capacity.

While the concerns noted above may never arise, they could wreck havoc with special needs planning if they do. Stay tuned; it should be interesting.

Further information on special needs, estate planning, long term care, and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on the “Subscribe to RSS” button at the top left of this page and then click on “subscribe to this feed.”

New Jersey Estate Tax vs. Inheritance Tax

Since the only certainties in life are death and taxes, today I’ll cover New Jersey’s death taxes.  If you die in New Jersey, you face two potential taxes – estate tax, and inheritance tax.  Most states only have one or the other, but New Jersey residents are subject to both.  What is the difference between the two?

Estate tax is a tax on your estate – on what property you own when you die.  It is determined by looking at how much you own on the date of death.  If your total assets exceed $675,000 (after deducting expenses like funeral costs and legal fees), then you owe New Jersey estate tax.

(Note that New Jersey estate tax is different from federal estate tax, which is imposed on estates above $5.34 million and has a much higher tax rate.)

Inheritance tax is a tax on your heirs.  It is determined by looking at to whom you leave your property.  Whether by will or intestacy, if any of your property passes to anyone other than your spouse, child, grandchild, parent or step-child, then you owe inheritance tax.  You should be aware of inheritance tax if you are considering leaving property to a sibling, cousin, nephew, niece, unmarried romantic partner or friend.

A simple way to distinguish these taxes is that estate tax is on property (your estate), while inheritance tax is on people (your heirs).  Estate tax applies to your whole estate, while inheritance tax is imposed only on specific transfers to certain people.

At FriedmanLaw we can help your craft an estate plan that minimizes both estate and inheritance tax.  Please see our Practice Areas and Q&A sections for more info, or call us today at (908) 704-1900 to make an appointment.

Pennsylvania Legalizes Same-sex Marriage

This week, New Jersey’s neighbor Pennsylvania became the 19th state to legalize same-sex marriage.

On May 20, 2014, federal Judge John E. Jones III of the Middle District of Pennsylvania threw out the state’s ban on same-sex marriage, writing that, “We are a better people than what these laws represent, and it is time to discard them into the ash heap of history.”

On May 21, 2014, Governor Tom Corbett of Pennsylvania said he would not appeal Judge Jones’s decision. How same-sex marriage played out in Pennsylvania bears some similarity to New Jersey, where same-sex marriage also was legalized by a judicial decision and made more concrete when a Republican governor decided not to pursue an appeal.

While the implications of this decision are not yet fully clear, we hope it means that married same-sex couples in New Jersey can now cross the Delaware River without fear of losing their rights under state law.

Marriage has an impact on taxes, estate planning, guardianship, Medicaid, long-term care planning, healthcare and many other areas of concern to our clients. For more information on legal concerns for same-sex couples, please see Mark Friedman’s article Estate Planning for Same-sex Couples.

IRS Resolves the “Key West Dilemma” by Recognizing Same Sex Marriages Throughout the U.S.

The IRS announced today that they would treat same-sex couples as legally married based upon the couple’s state of ceremony, not their state of residence.

In June, the Supreme Court struck down Section 3 of the Defense of Marriage Act, meaning married same-sex couples could now enjoy the same privileges under federal law as heterosexual couples. However, same-sex marriage is permitted in only a small patchwork of states. Uncertainty remained over whether the government would define marriage based on where the couple was married, or where they lived.

For example, if a same-sex couple got married in New York, but lived in Florida where the marriage is not recognized (the “Key West Dilemma”), would the feds recognize the marriage?

The IRS today said yes, legal marriages will be recognized regardless of where the couples lives. This means that all same-sex couples can now benefit from filing joint tax returns, using the estate tax marital deduction, and more.

A plethora of other important government agencies have yet to chime in over whether marriage will be recognized based on state of residence or ceremony.

Plan Your Estate to Benefit Your Loved Ones– Not the Taxman

[The following article is by guest blogger Julie Donald, a freelance writer with a strong background is finance.  Julie obviously knows her stuff and FriedmanLaw/SpecialNeedsNJ.com are proud to feature her work.]

While we’ve come a long way since The Beatles sang about the 95% tax rate England then charged certain high earners, Estate tax planning still is an important part of financial planning. Since New Jersey has an inheritance tax as well as a separate estate tax, understanding when these taxes apply is an important step toward minimizing the amount you will have to pay when a loved one dies. Estates with a value of $675,000.00 or more are subject to the estate tax. The inheritance tax applies to any estate. The rate depends on the relationship of the beneficiary to the person who has passed away.

When an Estate Tax Return is Required

When a New Jersey resident leaves an estate with a gross value of $675,000.00 or more, the executor of the estate must file an estate tax return. Federal estate tax returns are only required if the estate is worth more than $5.25 million (inflation adjusted after 2013). New Jersey estates of non-residents are not subject to the NJ estate tax.

The gross value of the estate is calculated by adding up all the assets a person owned as of the date of his or her death, including the following:

  • New Jersey real estate
  • Funds held in bank accounts or certificates of deposit
  • Investment accounts and securities
  • Funds from retirement accounts
  • Cars, trucks, and personal property
  • Any small business interests (small corporation, sole proprietorship, limited liability company)

Tax is based on the total assets less most property that is left to a spouse or civil union partner, debts, and certain expenses.

Proceeds from life insurance policies may be taxable even if the decedent did not own the policy. By the same token assets that pass outside probate may be subject to New Jersey inheritance and estate tax. However, FriedmanLaw can help you develop an estate plan that avoids or minimizes tax on life insurance and other assets.

Paying Estate Tax

If a New Jersey estate tax return is required, it must be filed within nine months after the date of a person’s death.  While the filing date can be extended, if the estate tax isn’t fully paid within the nine-month period, interest will be charged at the rate of 10 percent per year from the nine month anniversary of the date of death until the amount is paid. The Director can choose to extend the time for filing the estate tax return but not the time for paying the tax. Rather than having the amount of the estate reduced by the amount of the estate tax, some people may choose to fund a financial product which will pay this amount on their death. A separate life insurance policy could be bought and the proceeds used toward the estate taxes.  However, these life insurance and other tax funding products will generate additional tax unless properly designed.  Therefore, it is advisable to get legal advice before making a purchase.

New Jersey Inheritance Tax

Under state law, close relatives are exempt from the inheritance tax. They are classified as Class A. The following people are included in this group:

  • Spouse, civil union or domestic partner
  • Parent or grandparent
  • Child (includes biological or adopted) or other descendant stepchild

Class B was eliminated when the law was updated.

Class C includes the following:

  • Brother or sister
  • Spouse or civil union partner of the deceased’s child
  • Surviving spouse or civil union partner of the deceased person’s child

For Class C relatives, the first $25,000.00 in property is not taxable. For amounts over $25,000.00, the tax rates are as follows:

  • Next $1,075,000: 11%
  • Next $300,000: 13%
  • Next $300,000: 14%
  • Over $1,700,000: 16%

Anyone else is placed in the Class D category, for which there are no special exemptions. The tax rates are 15 percent on the first $700,000.00 and 16 percent on any amounts higher than that.

Gifts Made During a Person’s Lifetime

Any gifts transferred in the three years before a person’s death are presumed subject to the state’s inheritance tax unless the recipient is exempt from having to pay. The gifts will not be taxed if it can be shown that the person did not transfer the money or property “in contemplation of death.”

Since New Jersey inheritance tax laws and estate planning matters can be very complicated, you should consider options very carefully to avoid leaving your beneficiaries with a large tax bill.  FriedmanLaw has years of experience helping families plan estates to minimize tax and accomplish non-tax goals.  We look forward to working with you.

Social Security Amends POMS Governing Special/Supplemental Needs Trust Expenditures

People with serious disabilities often qualify for government benefits like Supplemental Security Income (SSI) and Medicaid that limit eligibility based on finances.  Thus personal injury recoveries attributable to a disabled person often are placed in trust to minimize benefit reduction.  However, federal and state law provide that trusts containing assets of the disabled beneficiary or the beneficiary’s spouse may be disqualifying unless the trust satisfies a safe-harbor exception.

Social Security Administration (SSA) Program Operations Manual System (POMS) SI 01120.201 says that to satisfy a safe-harbor exception, a trust must be for the exclusive benefit of the trust’s disabled beneficiary.  While a safe-harbor trust may pay reasonable amounts for goods and services routinely provided to the disabled beneficiary, other trust payments can prove suspicious.  For instance, where a trust pays family to provide services to the beneficiary, the trust should be prepared to prove the payments are reasonable and have a sole purpose to benefit the trust’s disabled beneficiary rather than family.

New POMS provisions issued in 2011, caused an uproar among the disabilities community and families with special needs trusts by dramatically tightening the exclusive benefit rule.  The 2011 POMS provided that a trust violates the exclusive benefit requirement if the trust authorizes payments for the beneficiary’s family to visit the disabled beneficiary because trust payments of travel costs benefit the family.  Compounding the concern, SSA staff orally stated that payments to family to care for a trust’s disabled beneficiary also may be disqualifying in common situations.

While SSA’s goal to guard against diversion of trusts that should be administered to benefit a disabled trust beneficiary, the SSA pronouncements triggered great concern and impeded trust flexibility to provide legitimate benefits to disabled people..  Reacting to these undesirable side effects, SSA withdrew the travel provision from the POMS, agreed to study the exclusive benefit rule, and invited the disabilities community to work with SSA to resolve the issue.

On May 15, 2013, SSA announced a series of POMS changes designed to ensure that safe-harbor trusts operate for the sole benefit of the trust’s disabled beneficiary without unduly precluding legitimate expenditures to aide the disabled beneficiary that also impart incidental benefits to family or others.  The POMS now provide that when a trust purchases durable goods like a car or house, the trust or beneficiary must receive appropriate equity interest.  It is unclear whether this requirement will be triggered where a trust funds accessibility improvements that don’t increase value.  The POMS also now permit a trust to pay a third person’s travel costs when necessary for the trust’s disabled beneficiary to get medical treatment or to visit the trust beneficiary in a long term care facility, group home or other supported living arrangement in which persons other than family are paid to provide or oversee the living arrangement and the travel is to ensure safety or health.  While the POMS don’t say trust payment of third party travel costs in all other situations will be disqualifying, that is a major risk and generally should be avoided unless facts are extremely favorable.

The new POMS go a long way to protecting rather than hampering disabled trust beneficiaries.  While they still leave questions open, they are a major improvement over the POMS issued in 2011.

Further information on special needs planning, elder law, long term care, wills, trusts, and estates is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Lawrence A. Friedman’s Special Needs Article is Featured in Law School Textbook

“Special Needs Estate Planning” has been included in the new law school textbook Teaching Materials on Estate Planning by Gerry Beyer, Professor of Law at Texas Tech University School of Law. Originally written by attorney Lawrence A. Friedman for N.J. Lawyer magazine, the article explains how to plan your estate to protect your child or other loved one with disabilities. The article isn’t just for legal professionals and can help anyone concerned about a person with disabilities as the article discusses how government benefit programs, special needs trusts, and other estate planning techniques can further the welfare of a loved one with disabilities. To read this and many other articles on the topics of special needs, elder law, wills, trusts, estates, and tax click the Articles tab onthis website.

Signing a Care Facility Contract Without Counsel Costs Wife Big Bucks

While it always is dangerous to sign any contract without first consulting a lawyer, it is especially risky to sign papers provided by a nursing home, assisted living facility, or other care center upon a loved one’s admission.  First, you likely will be under substantial stress and not in a frame of mind to give the contract the deliberate attention needed.  Second, care facility contracts typically contain jargon foreign to lay persons.   I can almost guaranty that you’d be surprised to learn all the obligations you undertake when signing as ”responsible party” for a nursing home or assisted living resident.

What can go wrong if you sign on the dotted line as ”responsible party?”  Plenty!  For instance, do you really want to risk your own house and savings if the facility doesn’t get paid and you haven’t promptly and properly applied for Medicaid [a daunting task on its own]?  I didn’t think so, but, nevertheless, you may incur personal liability if you you don’t obtain legal advice before agreeing to be “responsible party.”

Care facilities may not require you to guaranty a parent’s bill but courts have been known to enforce a so-called “voluntary” guaranty.  When you sign as “responsible party” are you voluntarily guarantying your loved one’s bills?  I would argue not, but wouldn’t you rather avoid the risk entirely by having us negotiate more favoarable contract terms before you sign.

Our Oct. 29, 2012 blog entry illustrates the risks of signing a care facility agreement without counsel.  Cook Willow Health Center v. Andrian (Conn. Super. Ct., No. CV116008672, Sept. 28, 2012).  In signing as “responsible party” the resident’s daughter agreed to arrange payment to the facility from the resident’s assets or Medicaid, but apparently the daughter didn’t follow through.  Since the daughter signed the admission agreement, the daughter is obligated to take the actions to which she agreed as “responsible party” and the nursing home could sue the daughter for the unpaid bills.

Even more recently the New York courts held a wife liable for her husband’s nursing home costs in Sunshine Care Corp. v. Warrick (N.Y. Sup. Ct., App. Div., 2nd Dept., No. 2011-02193, Nov. 28, 2012).  In signing the admission agreement as “designated representative” for her husband in a nursing home, the wife agreed to pay the facility from her husband’s resources and be personally liable if the nursing home wasn’t paid due to the wife’s actions or omissions.  The court held that the contract obligates the wife for her husband’s unpaid bills because she had access to her husband’s funds but didn’t pay the nursing home.

As the cases referenced above show, signing a care facility agreement without counsel can be very costly.  In addition to leading to personal responsibility for a loved one’s bills, signing an unfavorable agreement can force you to spend on your loved one’s care costs amounts you otherwise lawfully could preserve through Medicaid planning.  While many facilities routinely include in a care contract terms that may frustrate Medicaid planning, I typically negotiate out those provisions before my clients sign a contract.

So, what should you do when a loved one needs long term care?  Consult an elder law attorney BEFORE signing anything.  Thousands of dollars [or more] may be at stake.  FriedmanLaw frequently helps clients understand complex care facility contracts and negotiate away unfavorable provisions.

Further information on finances, elder law, funding long term care without going broke and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Is a Reverse Mortgage Right for You

Reverse mortgages can provide income to cash-strapped older homeowners, but they aren’t a panacea.  They can be a quick source of cash but come with a price.  To determine whether a reverse mortgage can help you meet your goals, consider the plusses and minuses.

How reverse mortgages work

Meant for homeowners age 62 and older, reverse mortgages are a special type of loan because the lender pays the homeowner while the homeowner continues to live in their home. The two main types of reverse mortgages are the Home Equity Conversion Mortgages (HECM) offered by the federal Department of Housing and Urban Development (HUD), and Proprietary Reverse Mortgages offered by some banks, credit unions, and other financial companies for higher value homes. (About 95% of the the reverse mortgages out there are HECM loans.) The HECM program offers two types of reverse mortgages: the traditional HECM Standard loan, and the HECM Saver loan which has lower upfront charges but also lower payouts.

The amount of the loan is determined by factors such as the borrower’s age; the amount of equity in the home; and in the case of HECM loans, a national limit imposed by HUD. Payments may be taken as a lump sum; line of credit; fixed monthly payments – for a specific period, or for as long as the borrower lives in the house; or a combination of payment options.

The loan must be repaid in full when the homeowner no longer lives in the home as the principal residence or fails to meet the obligations of the mortgage.

What reverse mortgages cost

A primary negative to reverse mortgages can be comparatively high costs.  Reverse mortgages have closing costs just like traditional mortgage loans, but they can prove more costly. These expenses can include: an origination fee, an appraisal, a title search and insurance, surveys, inspections, and recording fees. HECM Standard loan borrowers must also pay a mortgage insurance premium up to 2% of the value of the home. Total fees are limited by federal regulations, but they can still add up. The HECM origination fee is capped at $6,000, and the minimum fee is $2500. Most of these costs, however, can be paid as part of the reverse mortgage loan.

 

Benefits of reverse mortgages

A reverse mortgage is a way to tap home equity but remain in the home.  As such it gives up future access to value (and perhaps the children’s inheritance) in exchange for cash now.  The cash from the reverse mortgage can help seniors remain in their homes by paying for extra help with their daily living or medical needs. It can be used to pay off the existing mortgage or other debts, or it can supplement the homeowner’s monthly income for a more comfortable lifestyle or to fund emergencies.  However, since there aren’t limitations on how a borrower uses reverse mortgage proceeds, they also are available for less weighty purchases such as a trip, home modernization, new car, etc.

Reverse mortgages can be part of a sound financial plan for older homeowners, but must be carefully considered. Before using this device, which draws on the built-up equity in the home, homeowners should explore other programs which supplement a limited income. Many public and private benefits exist to help with expenses like property taxes, home energy, meals, and medications. The National Council on Aging (NCOA), a nonprofit advocacy organization for seniors, provides tools, information, and counseling on reverse mortgages and alternative options on their website ncoa.org/HomeEquity.  Additional information about reverse mortgages appears at our Aug. 30, 2012 entry on this blog.

A big thankyou to FriedmanLaw’s paralegal Nancy Hochenberger for contributing to this article.

 

To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Don’t Become Liable for Your Parent’s Long Term Care Costs

Nursing homes may not require a child to guaranty a parent’s bill although some courts  may enforce a so-called “voluntary” guaranty.  Of course, in the stress filled admission of a parent to a care facility, a child may not realize that he/she is agreeing to a “voluntary” guaranty.  Care facility contracts frequently have other unfavorable provisions that can be difficult to understand or even notice.  Nevertheless, courts often enforce contracts against an individual who later claims he/she didn’t realize that the contract imposes undesirable obligations.

A recent case illustrates what can go wrong when a child signs a care agreement without fully understanding its terms and their ramifications.  Cook Willow Health Center v. Andrian (Conn. Super. Ct., No. CV116008672, Sept. 28, 2012).  The care facility alleged that a resident’s daughter signed an admission contract in which she agreed to take steps to pay the facility with her mother’s assets or qualify the mother for Medicaid.  Apparently the daughter didn’t follow through, as the nursing home sued the daughter for its unpaid bill.  The daughter tried to side step liability citing the prohibition of guaranty requirements, but the court held that there was no guaranty.  Instead, the court said in signing the admission contract as “responsible party”the daughter  had voluntarily committed to certain actions that should get the nursing home paid and the facility had a right to rely on that undertaking and sue the daughter for breach of contract.

How could the daughter have avoided liability?  A child doesn’t normally have an obligation to spend a parent’s money or apply for Medicaid– but see our May 8, 2012 blog post regarding state laws that may make a child liable for a parent’s health care costs.  Therefore, the daughter shouldn’t have agreed to these obligations unless  she was prepared to honor them.  Of course, the facility may have refused to admit the parent without a contract and the obligations weren’t inherently unreasonable.

Thus, it is crucial to consult a lawyer before signing any care facility agreement (or other contract).  A lawyer should explain the ramifications of a proposed contract and possibly recommend changes.  For instance, FriedmanLaw often helps clients understand facility agreements and negotiate more favorable terms.  Since ignorance of contract terms doesn’t excuse their breach, it is risky to sign any contract without first consulting a lawyer.

To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

IRS Cracks Down on IRAs

While IRAs can be a great way to build up savings tax deferred, they also are fraught with traps for the unwary.  Penalties apply when an individual contributes to an IRA more than the Internal Revenue Code permits or fails to take the required minimum distribution.  IRS is turning its attention to IRAs that are out of compliance and should be paying penalties.

IRAs vary between traditional, Roth, and those funded with individual contributions vs. IRAs that contain roll overs of tax qualified employee retirement plan distributions.  Each type of IRA is subject to its own rules.

The Internal Revenue Code caps maximum contributions to IRAs.  For instance, this year the maximum contribution (other than roll over contributions) is $6,000.  However, depending on income, age, and marital status, your contribution limit could be less.  In addition, while all  IRA contributions were tax deductible at one time, they are not anymore.  If you or your spouse participates in a tax qualified retirement plan through work, you may not deduct all or some of your IRA contributions unless total income is no more than moderate.  In 2012, at least some IRA contributions are not deductible when income exceeds $58,000 for single taxpayers and $92,000 for married people who file jointly, but only $10,000 for married individuals who file separately.

Where an IRA contribution will not be deductible, savings can be increased by employing a Roth rather than traditional IRA.  Earnings on Roth IRAs aren’t taxable.  However, you can contribute to a Roth IRA only if your income is within statutory limits.  Different rules apply to conversions of traditional IRAs to Roth IRAs and roll overs of qualified plans to traditional and Roth IRAs.

If you contribute to an IRA more than is allowed, you may be subject to a penalty of 6% for each year the excess contribution stays in the IRA.  However, if you fail to take minimum required distributions from an IRA, a 50% penalty can apply to the amount you should have withdrawn.  Determination of required minimum distributions is complex and since the stakes are so high, it can be worth the cost for professional advice.

Increase in Income Can Lead to Loss of Medicaid

A recent ruling by New Jersey’s Superior Court Appellate Division could cause people who realize increases in income to lose Medicaid unexpectedly.  Because the decision in S.J. v. Div. Medical Assistance (45-2-6607) has been approved for publication, it stands as precedent in New Jersey.

In S.J. v. Div. Medical Assistance, adults whose income rose above the limit for the family care Medicaid they had been receiving sought to transition seamlessly to another Medicaid program that didn’t have similar income limits.  Instead,  the Court held that an individual who loses Medicaid must apply anew when seeking benefits under another Medicaid program.

While Medicaid is the common moniker for several different programs that subsidize health care for people in need, Medicaid actually consists of several distinct programs with somewhat different elilgibility requirements and benefits.  For instance, to participate in New Jersey’s Medicaid Only program an individual’s countable income must be within strict limits.  Even one dollar of excess income is disqualifying.  However, New Jersey’s Medically Needy Medicaid program provides many of the same benefits as Medicaid Only but has far less retrictive income limits.  Nevertheless, both because Medicaid Only provides broader benefits and due to program technicalities people with incomes below the Medicaid Only cap normally receive Medicaid Only even though they also satisfy Medically Needy Medicaid eligibility requirements.  As a result, a Medicaid participant who receives Medicaid Only (perhaps in a nursing home) might become ineligible when a pension kicks in.  Under S.J. v. Div. Medical Assistance, the individual would have to apply for Medically Needy Medicaid, which could prove difficult and costly.

In light of  S.J. v. Div. Medical Assistance, it is important to plan ahead when a Medicaid participant’s income, resources, or circumstances may change.  FriedmanLaw often helps families qualify for Medicaid.

Further information on funding long term care without going broke and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

Poorly Designed Medicaid & Estate Plans Can Harm Divorced Children

Recent New Jersey cases illustrate that poorly drawn Medicaid planning and estate planning gifts actuallly can harm divorced children at times.  In New Jersey, New York, and other states, spouses’ rights to receive or pay alimony and child support depend in part on relative income and assets.  Thus, the custodial parent’s child support might fall if his/her income rises while the non-custodial parent may have to pay more if his/her income rises.  By the same token increases in income may lead to correspondng changes in alimony rights and obligations.  Therefore, estate and Medicaid planning should take a child’s divorce or shaky marriage into account.

The New Jersey Appellate Division just ruled that a family court must consider whether the ex-wife’s alimonly and child support should be cut due to her mother’s Medicaid planning gift of the mother’s home.  Maybury v. Maybury (unpublished A4338-10, May 25, 2012).  The former husband argued that an unencumbered home is a valuable asset that should lead to income being imputed to the former wife.  Although the Appellate Division remanded the case for further fact finding, they agreed with the husband’s argument that receipt of a high value gift like an unencumbered home can be taken into account in fixing alimony and child support obligations.  The Appellate Division also directed the family court to consider whether the transfer satisfied Medicaid requirements in evaluating the divorce impact.  Thus, from a divorce perspective, it would have been desirable for the Medicaid planning gifts to leave the former wife off the list of donees.

A New Jersey Supreme Court decision late last year similarly confirms that estate planning gifts can impact a divorced spouse’s  alimony and child support rights and obligations.  Tannen v. Tannen, 208 N.J. 409 (2011).   Here, the husband sought to limit his child support and alimony obligation to take account of income the ex-wife could expect to receive from a trust established by the former wife’s parents.  The Court ultimately held that the trust at issue shouldn’t impact divorce rights and obligations because the trust didn’t give the ex-wife any right to force the trust to distribute.  However, it is equally clear that a trust that does give a spouse distribution rights could be taken into account in fixing alimony and child support.

In a slightly different vein, Medicaid or estate planning gifts also can impact a recipient’s higher education obligations and financial aid.  In short, when developing and drafting Medicaid and estate plans, it is important to keep the overall picture in mind and avoid tunnel vision.

Don’t Fall Victim to a Social Media Scam

As more of us use social media as an investment tool, scammers are coming up with innovative ways to separate us from our money, and some of these scams target seniors directly.  How can you avoid becoming a victim of fraud?  The first step is to exercise the same kind of caution you would if a stranger asked you for money.

Deals that sound too good to be true usually are.  Legitimate investment offers rarely require an immediate decision.  Just as you likely would be skeptical of door to door sales, unsolicited offers over the internet should prompt caution.  Some scams target affinity groups while other hucksters may play fast and loose with the truth when claiming an arrangement is endorsed by or benefits a well known affinity group or charity.

To keep from sharing personal information that might prove useful to perpetrate identity theft, it’s important to manage your profile and privacy settings wisely on sites like Facebook.  Exhibiting healthy skepticism toward unfamiliar credentials can help safeguard your money.  For instance, to become Certified as an Elder Law Attorney by the National Elder Law Foundation, I had to pass a full day exam and meet stringent requirements regarding ethics, malpractice, continuing legal education, and experience with elder and special needs law, but some fancy sounding titles can be obtained over the internet just by paying a fee.

Your strongest defense against becoming a victim of fraud is your own common sense. Ask questions until you are sure you understand an offer, and it’s worth repeating… if it sounds too good to be true, it probably is.

To bolster your defenses further, see the Securities and Exchange Commission’s bulletin Social Media and Investing Tips for Seniors at http://www.sec.gov/investor/alerts/social_media_seniors.pdf

The internet can be a wonderful tool, but like most other facets of life, it’s important to exercise common sense.

New Case Supports Medicaid Annuity Planning

To qualify husband or wife for Medicaid, a couple must reduce [“spend down” in Medicaid parlance] money and most other valuables (not counting principal residence, a vehicle, and certain jewelry) owned by either spouse to the smaller of about $110,000 or half the total countable assets of husband and wife. However, rather than spend down all excess resources for long term care, families often can protect excess resources through various Medicaid planning techniques discussed in greater detail in the articles and practice area tabs of SpecialNeedsNJ.com. [CAUTION- because Medicaid planning is complex and often counter-intuitive, do it yourself Medicaid planning can waste opportunities to save assets and delay the start of Medicaid.]

Medicaid qualified annuities are sometimes used to preserve excess resources by providing additional income to a spouse who doesn’t need long term care. However, annuity planning is not the best approach for all situations and isn’t favored by some Medicaid administrators. Nevertheless, a recent ruling from North Dakota lends support to Medicaid annuity planning.

In Geston v. Olson (U.S. Dist. Ct. N.D., No. 1:11-cv-044, April 24, 2012), the United States District Court for the District of North Dakota, Southwestern Division precludes the state from limiting the size of permissible annuities. In discussing Medicaid annuity planning, the Court says, “If there is a ‘loophole’ under federal law as to the treatment of irrevocable and nonassignable annuities under the Medicaid program, “the closing of that ‘loophole’ is best left for Congress to address.”

While a United States District Court ruling from North Dakota isn’t binding in New Jersey or New York, the Court’s logic accords with various similar rulings in other states. Thus, it may prove persuasive toward supporting Medicaid annuity planning outside North Dakota, which bodes well for families that employ Medicaid planning annuities in our area.

Lawrence Friedman to Moderate New Jersey State Bar Foundation’s Senior Citizens Law Day Conference

For the sixteenth consecutive year, attorney Lawrence Friedman will moderate the New Jersey State Bar Foundation’s Senior Citizens Law Day conference. He also will speak on will, trust, and long term care planning. With nursing homes charging around $10,000 per month for a decidedly institutional setting, care may suffer and families face impoverishment unless they explore all options when long term care is needed, particularly in light of recent changes to Medicaid. The conference will be held 10:00 a.m. on May 10, 2012 at the New Jersey Law Center in New Brunswick. Register for free at www.njsbf.org or call 1-800-FREE-LAW

Letter of Intent to Meet the Needs of Your Special Needs Child

EDITOR’S NOTE- This article is by guest blogger Stephanie Lopez of HomeInsurance.org, and FriedmanLaw thanks Stephanie for taking the time to address this important topic.

If you have a special needs child, you should take the time to prepare a letter of intent for your child. This will help any caregivers your child may have determined how to properly care for your child, and will remove confusion about your child’s specific needs. Rather than waiting to prepare a letter of intent, make it a priority to prepare one now.

Letter of Intent Definition

For a special needs child, a letter of intent provides guidance for anyone acting as a caretaker for your child in the future. Although you probably wish that you could be there to attend to your child’s specific needs, there will be times when someone not as familiar with your child will need to take over your role as caretaker.

A letter of intent typically includes information about your child’s medical history and education. If your child receives Supplemental Security Income (SSI) or Medicaid because of his or her disability, outline the nature of these benefits in the letter of intent. The final purpose of a letter of intent for your special needs child is explaining your goals for your child. Do you feel that your child will eventually be able to live alone? Do you hope that your child finds employment after completing school? Talk about these hopes candidly in the letter.

Special Needs Attorneys

To draw up a letter of intent for your special needs child, you may want to consult a special needs attorney such as Lawrence A. Friedman of FriedmanLaw. A special needs attorney can help you with estate planning as well as special needs concerns. The letter of intent for your special needs child would be included in this planning.

However, since a letter of intent is not a formal document, you will need to draft one on your own if you do not want to go through the process of estate planning. While a letter of intent is not a formal legal document, it will be used to discover more about your child’s needs and assure that your desires pertaining your child’s future are taken into consideration.

Letter Details

The letter of intent will start by talking about what kind of special needs your child has because of his or her medical condition. Below is more detailed information about the content that should be contained in the letter of intent.

Medical Information

This includes the name of your child’s condition and any relevant information pertaining to this condition that a potential caretaker would not know. Include medical history and any unique symptoms your child may have.

Education

Write not only about your child’s past education, but also about any future plans you have for your child’s education. Discuss learning disabilities and which teaching methods work for your child.

Finances

Government assistance and savings put aside for your child should be mentioned.

Family Beliefs

Make your family’s beliefs clear so that caretakers can do their best to reflect these beliefs when taking care of your special needs child. This guide can help you draft a letter of intent.
Caring for your special needs child can be complicated. To prepare for the future when you may not be able to care for your child, write a letter of intent to guide your child’s caretakers.

Getting Started

A letter of intent is most effective when coordinated with special needs planning as wills and trusts may be important tools to implement your intent. FriedmanLaw stands ready to help develop an effective plan to carry out your wishes and meet the needs of your loved one with special needs.

About the Author: Stephanie Lopez’s passion for people and the environment has lead her to pursue a career in writing. At this time, Stephanie is working as a part-time writer for HomeInsurance.org specializing in home insurance.

$aving Estate Tax Through Portability

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 exempts from federal estate tax the first $5 million of a decedent’s taxable estate. In 2012, inflation adjustments increased the exemption to $5,120,000. However, the exemption is scheduled to drop to $1 million after 2012 unless Congress intervenes.

Because each decedent has his/her own exemption, couples can leave twice the individual exemption (i.e. $10 million if the individual exemption is $5 million) to children or other beneficiaries without federal estate tax. However, the exemption of the spouse who dies first typically will be wasted without careful tax planning. To take advantage of both spouses’ federal estate tax exemptions, couples can leave the first spouse’s exemption to persons other than the surviving spouse or a trust that isn’t includible in the surviving spouse’s estate (often called a credit shelter trust). Credit shelter trusts are a popular estate planning technique because they can save state as well as federal estate tax and serve as a rainy day fund for a surviving spouse. Still, some couples prefer to leave amounts to the surviving spouse outright.

Until the 2010 tax act, amounts left to a surviving spouse outright would forfeit the first spouse’s exemption. After the 2010 act, the unused federal estate tax exemption of the spouse who dies first may be used by the surviving spouse provided portability applies. For instance if a husband dying in 2011 leaves a $4 million estate and his wife dies with a $7 million estate at a time when the federal estate tax exemption is $5 million, the wife’s estate would pay tax on $2 million without portability but only $1 million if portability applies.

Portability is available to a surviving spouse only if the estate of the spouse who dies first elects it on a properly filed federal estate tax return. Estate tax returns are due nine months from the date of death but an extension can be taken to extend the filing date an additional six months. IRS has granted estates of decedents who died during the first six months of 2011 an extension to elect portability provided the estate files IRS Form 4768 requesting an extension no later than fifteen months after the decedent’s date of death.

Portability can save substantial potential federal estate tax when the second spouse dies. Therefore, it usually will be desirable for the estate of a first spouse to die to elect portability. However, this would entail the expense to prepare and file a federal estate tax return, which may not be required otherwise.

While portability is beneficial for sure, it isn’t a panacea. For instance, portability won’t save state estate tax unless so provided in state law. Thus, a portability election may reduce potential federal estate tax when a second spouse dies but as of this writing it won’t protect against New Jersey estate tax. To minimize New Jersey estate tax as well as federal estate tax, couples should execute credit shelter trust wills while both are able and elect portability when the first spouse dies. In addition, most people should have powers of attorney and health care advance directives to avoid the need for guardianship down the road. Once the first spouse dies, it is too late to engage in credit shelter trust will planning.

Estate tax planning is complicated, and one size fits all estate plans rarely serve users well. At FriedmanLaw, we seek to develop effective estate plans to meet your non-tax goals and reduce potential tax. Contact us if you’d like to discuss your particular situation.

Further information on this and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updates, click on “Subscribe to this Blog” in the Meta box to the left and then click on “subscribe to this feed.”

logo
As this website provides general information and isn’t tailored to your particular situation, it doesn’t constitute legal advice and may not take into account rules and exceptions that affect you. Although updated from time to time, this website may not take account of recent legal developments or differences in laws from state to state. For safety sake, obtain individual legal advice before you act! You assume all risk of acting on information contained in this website. This website doesn’t constitute legal advice, and no attorney-client relationship exists unless FriedmanLaw and you execute a written engagement agreement. Please contact us at 908-704-1900 to discuss engaging FriedmanLaw to help resolve your legal concerns.
Homepage photo: Cows grazing at Meadowbrook Farm, Bernardsville, NJ by Siddharth Mallya. October 23, 2012. http://en.wikipedia.org/wiki/File:Autumn_Leaves_13.jpg.
Interior photo: Somerset hills pastoral scene by Lawrence Friedman.