Archive for March, 2015

Special Needs Trusts: Don’t get them mixed up

Posted on: March 23rd, 2015 by Mark R. Friedman

Today I want to talk about the difference between first and third-party special needs trusts.  It’s a bit technical, but if you have a child or other loved one with special needs, it’s very important not to confuse the two.  Virtually all parents I meet and even many lawyers do not understand the difference.  It lies in where the money comes from.

A third-party special needs trust holds money or property from someone else – money from someone other than the beneficiary (the person with disabilities for whom the trust was established).  Inheritance from parents, gifts from family members, and other payments would go into a third-party special needs trust.

A first-party (aka grantor) special needs trust holds money or property owned by the beneficiary.  For example, let’s say that John, who has disabilities, wins a medical malpractice lawsuit.  Any award or settlement from the lawsuit is compensation to John, and he owns the money.  He can direct that the money go into a special needs trust, but the money is coming from him and not someone else.

The reason this is important is that there are different requirements for first and third-party special needs trusts.  To protect trust assets from disqualifying the beneficiary, a first-party special needs trust has to provide that Medicaid will be repaid from any trust remainder when the trust dissolves or the beneficiary dies.  In other words, when the beneficiary dies, a first-party trust must use any money left to repay Medicaid for all the money it spent on the beneficiary before the trust can pay anyone else.  A third-party special needs trust need not repay Medicaid when the beneficiary dies.  The two are also taxed differently and have different requirements on revocation and other aspects, and first-party trusts must comply with Medicaid requirements that vary from state to state.

For all these reasons, you should work with a lawyer who understands the difference when creating a special needs trust.  If your first-party trust doesn’t meet Medicaid or SSI requirements and your loved one loses benefits, then there wasn’t much point in setting up the trust.  If your third-party trust unnecessarily provides for Medicaid payback, then your other heirs may lose out on any inheritance.

This area of the law is very technical, and mistakes can cost big bucks and have an impact on your loved one’s quality of life.  It pays to work with experienced counsel.

Calculating Executor Commissions in NJ Probate

Posted on: March 10th, 2015 by Mark R. Friedman

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.

Medicare will Change how it Rates Nursing Homes

Posted on: March 3rd, 2015 by Mark R. Friedman

The federal government is changing how it rates nursing homes.

Medicare publishes ratings on every nursing home in the country in a database called Nursing Home Compare.  It makes available a variety of information, and assigns a “star rating” similar to a restaurant or hotel, from one to five stars.

In August 2014, the New York Times reported that many nursing homes had received a five-star rating despite serious complaints about inadequate care at those facilities.  The thrust of the report was that Medicare did not examine nursing homes rigorously enough, and the star ratings could therefore be misleading.

Now, Medicare has released a new version of its database that it calls “Nursing Home Compare 3.0.”  The Centers for Medicare and Medicaid Services (CMS) says that the nursing home ratings will now consider standards on prescribing anti-psychotics, set higher standards for assigning a five-star rating, adjust how it considers staffing levels, and expand the use of targeted surveys to verify information that facilities self-report to CMS.

I applaud these measures, and hope they will make Nursing Home Compare more useful for seniors and their families grappling with the difficult decision on whether and where to enter into a long term care facility.  In particular I applaud the expanded use of surveys.  If CMS follows through on that point, it would go a ways towards addressing the heart of the problem with the nursing home ratings, which is that they rely too heavily on unverified data reported by the facilities themselves.

These developments are particularly welcome since Medicare has announced that it will begin assigning star ratings to hospitals.  Hopefully the standards for hospitals will be more rigorous.

Folks who are researching facilities may find it useful to examine ProPublica’s nursing homes violation database as well (although this is based on CMS data), including its New Jersey chart.

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Homepage photo: Cows grazing at Meadowbrook Farm, Bernardsville, NJ by Siddharth Mallya. October 23, 2012.
Interior photo: Somerset hills pastoral scene by Lawrence Friedman.