Lawrence A. Friedman, Friedman Law

New Case Supports Medicaid Annuity Planning

Posted on: April 26th, 2012 by Lawrence A. Friedman

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

Posted on: April 19th, 2012 by Lawrence A. Friedman

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

Delaying Medicare Enrollment Can Prove Costly

Posted on: April 16th, 2012 by Lawrence A. Friedman

Originally, Medicare had two parts: Part A covered hospitalizations and related services while Part B covered phsysician and other services. Later on, Part C Medicare Advantage was added to permit private all in one plans as an alternative to Parts A and B. Finally, a few years ago, Congress added Part D to Medicare to cover some prescription costs, although some Medicare Advantage plans are bundled with prescription coverage.

Medicare Part A is provided without a premium beyond the Medicare payroll tax but persons who enroll in Medicare Parts B, C, and D, must pay additional premiums. For this reason, some folks are tempted to save some premium dollars and wait until they are older and sicker to sign up for Medicare Parts B and D or a Part C Medicare Advantage plan. However, this strategy can backfire severely.

In the first place if you get sick, you could be hit with major medical and drug bills, and nobody can be certain that an unexpected illness or accident won’t strike.

To prevent people from unduly shifting health care costs to Medicare, Medicare charges an additional premium or penalty when an individual enrolls in Part B, C, or D after first becoming eligible unless an exception applies. The Part B penalty is 10% for each year Part B enrollment is delayed. The Part D penalty is based on the base Part D premium in effect each year increases for each month a Medicare participant goes without drug coverage. For instance, a Medicare participant who delays enrolling in Part D for three and a half years might have a roughly $14.00 penalty added to each month’s Part D premium when she finally does enroll. Part C penalties depend on the particular Medicare Advantage plan.

Exceptions to the penalties apply when an individual has alternate coverage recognized by Medicare. This can arise as a result of certain employer or union medical and prescription plans. However, not all plans will avoid Medicare penalties and the rules may vary depending on whether the Medicare participant or spouse is employed.

In addition to premium penalties, persons who are eligible for Medicare but don’t enroll may find employer coverage limited as a result. For instance, an employer plan may refuse to cover costs that Medicare would fund if the employee or employee’s spouse had elected full Medicare coverage.

In short, Medicare rules are quite complicated and errors and misunderstandings can prove costly. Therefore, before deciding to forego any Medicare Part, it is important to understand the penalties that may arise. FriedmanLaw helps clients navigate the maze of government benefit programs and make sense of their options.

Should You Follow Mitt Romney’s Lead and Reject Medicare at Age 65?

Posted on: March 19th, 2012 by Lawrence A. Friedman

When Mitt Romney turned 65 on March 12, 2012, he joined nearly all Americans in becoming eligible for Medicare, but Romney declined to enroll. Was this a smart move aside from any political advantage?

You can apply for Medicare three months before turning age 65. If you receive Social Security, you should automatically be enrolled in Medicare Part A (which covers hospitalizations and certain less common care) and Part B (which funds most Medicare covered acute and preventive care other than hospitalizations) unless you elect not to take Part B coverage to avoid the premium or you choose a Medicare Part C comprehensive plan in lieu of Parts A and B. In addition to Medicare Parts A and B or Medicare Part C, many Medicare participants opt for Medicare Part D prescription coverage. Some Medicare Part C plans include Medicare Part D drug coverage.

Since Romney isn’t on Social Security, he must apply in order to obtain Medicare and Romney hasn’t done so. Instead he is relying on private health insurance. Aside from possibly incurring higher health care costs than charged for Medicare, Romney may face a late enrollment penalty if he later opts for Medicare.

Where health coverage is part of a group retiree plan offered by a former employer, no penalty is charged when a retiree later enrolls in Medicare Part B. However, most other folks face a stiff late enrollment penalty [10% premium increase for each year of enrollment delay] for turning down Medicare Part B when first eligible [unless, of course, a Part C plan was purchased in place of signing up for Part B].

Because Medicare is complicated, it is important to consider your options early. As health needs change, it can prove beneficial to change from one plan to another. However, Medicare enrollment options are limited except during the short term annual open enrollment period.

FriedmanLaw can help you evaluate Medicare options to make choices that best serve your needs.

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

Posted on: March 8th, 2012 by Lawrence A. Friedman

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

Posted on: February 17th, 2012 by Lawrence A. Friedman

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.”

Should You Buy Long Term Care Insurance?

Posted on: February 2nd, 2012 by Lawrence A. Friedman

There is no easy answer to this deceptively simple question. Like other insurance, long term care insurance (“LTCI”) comes with many options and can prove surprisingly complex. For instance, many consumers are uncertain what their LTCI does and doesn’t cover.

First, it’s important to understand that medical insurance rarely covers long term care, and LTCI doesn’t cover routine medical costs. Thus, while Medicare may pay for preventive care and to treat illnesses, it won’t cover long term care in a nursing home or other setting. Neither will most employee and other health insurance. Therefore, if you need long term care, you must look to private resources, Medicaid, or LTCI.

Medicaid’s coverage and availability of facilities varies widely from state to state. In addition, choices of care settings and amenities can be more limited for Medicaid patients than for individuals with quality LTCI. Articles https://specialneedsnj.com/articles.php and Q&As https://specialneedsnj.com/elder_law.php throughout SpecialNeedsNJ.com, further explain Medicaid eligibility requirements and planning options. FriedmanLaw frequently helps families qualify for Medicaid without exhausting life savings.

Second, you should recognize that LTCI only covers care within the policy terms. LTCI usually pays a fixed daily benefit for a limited period of time after the insured has been unable to care for him/herself for a set period of time. Once the insured satisfies the elimination period, LTCI pays the daily rate toward long term care costs. For instance, LTCI with a $100 daily benefit and 90 day elimination period would pay up to $100 per day for long term care once the insured has met the policy’s benefit criteria (typically needing assistance with enumerated activities of daily living) for 90 days. The greater the daily benefit and maximum benefit term and the shorter the elimination period, the greater the LTCI premium. However with New Jersey nursing homes often charging over $10,000 per month, LTCI will be of little use unless it is sufficient to cover monthly LTCI costs less Social Security and other available private funds.

LTCI boosters tout the peace of mind that can come with knowing your care costs should be covered. But, the operative word is “should” because depending on the policy, LTCI can be very broad or fraught with limitations. Generally, when purchasing LTCI from a quality insurer, you get what you pay for. In other words broader coverage typically leads to higher prices and policies with low ball premiums probably won’t meet your needs. LTCI premiums vary with age, sex, health, and policy options.

LTCI usually can’t be purchased once an individual needs long term care and LTCI premiums are more manageable if you buy your insurance while younger. Therefore, you may want to consider buying LTCI while in your fifties or sixties instead of waiting until your seventies.

LTCI comes in many flavors, all of which impact benefits and costs. For instance, LTCI may be available with compound inflation protection, simple inflation protection, or no inflation protection. Compound protection is worth more and costs more than simple cost of living increases, but the benefit may be very valuable for younger purchasers. Thus, some consumers may do well to trade a longer elimination period for greater inflation protection. Other options may combine life insurance with LTCI, provide refundable premiums, or integrate husband and wife coverage.

When comparing LTCI options, your top concerns should be to understand the coverages and limitations offered by each policy; whether, when, and why premium can rise; whether the insurer is sound; and the insurer’s reputation for paying or denying reasonable claims. Finally, you also may want to consider a public/private partnership LTCI policy. [See “Public-Private Long Term Care Insurance Medicaid Program Protects Savings & Funds Long Term Care” at https://specialneedsnj.com/article.php?id=26]

Because LTCI can be so complex, professional advice can be crucial. FriedmanLaw has helped many families unravel the complexities of LTCI.

Medicaid Estate Recovery

Posted on: January 30th, 2012 by Lawrence A. Friedman

When a Medicaid recipient passes away, the state can recover Medicaid expenditures from the individual’s probate estate and perhaps from other assets in which the individual once had an interest. As explained in greater detail throughout SpecialNeedsNJ.com, individuals may employ various planning techniques to preserve savings and qualify for Medicid to fund long term care. For instance changing a will or title to a home and other assets may shelter assets against Medicaid estate recovery.

An unusual story in the December 26, 2011 Eagle Tribune of North Andover, Massachusettes illustrates how expensive estate recovery can be. Massachusettes courts ruled that close to $200,000 found in a safe on a vacant lot could be taken to repay Medicaid provided to the safe’s former owner. While the state may be more deserving of this money than potential claimants, like the person who dumped the safe in the lot, it seems a shame that the owner’s relatives lost so much money to Medicaid. Perhaps the moral of this story is that consulting an elder law attorney early regarding options to fund long term care may permit families to protect substantial savings and still obtain quality long term care.

Protecting Medicare Eligibility When Settling Personal Injury or Worker Comp Claim

Posted on: January 22nd, 2012 by Lawrence A. Friedman

Will settling your personal injury or worker compensation claim cost you your Medicare? It shouldn’t, but it easily could if you and your personal injury lawyer don’t protect Medicare’s rights.

Generally, Medicare coverage is secondary to others who may have responsibility for your health care costs. Therefore, when settling nearly all personal injury and worker compensation claims, Medicare expects Medicare participants to repay Medicare’s pre-settlement expenditures for accident related care and spend damages that compensate for post-accident care costs incurred after settlement (“Future Medicals) on Future Medicals rather than submit claims for Future Medicals to Medicare. You must protect Medicare’s secondary payer interests if you are on Medicare when your claim settles or reasonably should expect to get Medicare within the 30 months following settlement for reasons such as having reached age 62.5, applied for Social Security Disability benefits (even if denied by an appeal is anticipated), or contracted end stage renal disease

Why should you care? Failing to protect Medicare’s rights can forfeit your own Medicare! What if you need costly surgery due to your accident, Medicare says you must pay for Future Medicals, but you’ve already spent your entire settlement? To make matters worse, Medicare may require you to spend more on Future Medicals going forward than they would if you’d made a good faith effort to protect Medicare’s secondary payer rights when settling your case.

What should you do? Medicare prefers you set aside Future Medicals damages in a Medicare Set-aside Arrangement (“MSA”). An MSA is a share of your damages that is calculated to cover Future Medicals for the rest of your life expectancy and is set aside solely to pay for Future Medicals. The appropriate amount to place in an MSA is based on Medicare guidelines and your post-accident medical records. However, an MSA satisfies your obligations to Medicare only if limited to paying for Future Medicals at rates acceptable to Medicare. Professional administrators can help meet these requirements. If the MSA is funded and administered in accordance with Medicare requirements, Medicare will pay for any Future Medicals that arise after the MSA is exhausted. If your actual Future Medicals turn out to be less than anticipated, the excess can pass to your beneficiaries.

FriedmanLaw can work with you and your personal injury or worker compensation lawyers to design a cost effective MSA that avoids interruption of your Medicare coverage. Contact us today at 908-704-1900.

Occupy Grandma’s? Only 5% of Americans Incur 50% of U.S. Health Care Costs

Posted on: January 17th, 2012 by Lawrence A. Friedman

In recent months, many have protested the gap between the wealthiest one percent of Americans and the rest of us, but what about the health care gap? A new study sponsored by the United States Department of Health and Human Services reports that only one percent of patients account for over twenty percent of health care expenditures and five percent of Americans run up almost half our medical expenses. This top five percent group averages around $36,000 in doctor bills annually compared to an average of only about $230 per year for the bottom half of medical consumers. Study authors Stephen B. Cohen, PhD, and William Yu, said: “In both 2008 and 2009, five percent of the population accounted for nearly 50 percent of healthcare expenditures, with a mean expenditure of nearly $36,000.” This disparity in health care expenditures is thought provoking and may help focus the health care debate in the United States if we can resist the kind of hyperbole and hysteria that accompanied enactment of 2010′s Patient Protection and Affordable Care Act.

Of course, health care usage is heavily skewed by age, and it should surprise no one that older Americans incur far greater health care costs on average than do their children and grandchildren. While young people may prefer not to pay taxes to care for their elders, age warfare is not in anyone’s best interests. Even a newly minted college graduate will turn old someday and may need to access the social safety net of Medicare, Medicaid and other government health care programs.

Cohen, S. and Yu, W. The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2008–2009. Statistical Brief #354. January 2012 is available at the website of the Agency for Healthcare Research and Quality, Rockville, MD is available in its entirety at the following URL:

http://www.meps.ahrq.gov/mepsweb/data_files/publications/st354/stat354.pdf

Eighth Circuit Shoots Down Medicaid Appeals To Federal Court

Posted on: January 3rd, 2012 by Lawrence A. Friedman

In our June 21, 2011 SpecialNeedsNJ.com/blog entry, we noted that 1971′s, Younger v. Harris, 401 U.S. 37 (1971) United States Supreme Court decision generally requires federal courts to abstain from certain cases that implicate important state concerns, but a case then pending in the United States Court of Appeals for the Eighth Circuit would test whether the Younger doctrine precludes federal courts from considering Medicaid appeals.

Last month, the Eighth Circuit ruled in Hudson v. Campbell (8th Cir., No. 10–3025, Dec. 15, 2011) that United States District Court should not consider a Medicaid applicant’s appeal from Medicaid denial where the applicant goes directly to federal court without going through Medicaid’s fair hearing process. Applying the Younger doctrine, the Eighth Circuit held that abstention is appropriate where the Medicaid applicant hasn’t exhausted her administrative remedies because the state has an important interest in administering Medicaid. The Medicaid applicant’s attorney, Nathan Forck maintains that the Eighth Circuit ruling conflicts with a ruling in a United States Court of Appeals for the Tenth Circuit case involving similar circumstances. Thus, the issue eventually may end up at the Supreme Court. The Medicaid applicant’s initial brief can be accessed at http://tinyurl.com/Hudson-Brief while the applicant’s reply to the Medicaid agency’s brief is available at http://tinyurl.com/Hudson-Reply-Brief

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

Medicare Benefits for Health Care Abroad

Posted on: December 27th, 2011 by Lawrence A. Friedman

In our mobile society, people often vacation and even retire outside the United States. U.S. citizens and permanent residents generally are eligible for Medicare at age 65 provided the individual or spouse has worked at least ten years in employment subject to Social Security payroll tax. Medicare also is available to some younger people with serious disabilities or renal failure.

Medicare comes in two flavors. Original Medicare is a traditional health insurance indemnity plan with deductibles and percentage co-payments while Medicare Advantage plans are managed care plans that may require referrals and limit care to networks. Medicare covers certain pharmaceuticals under separate optional plans that can be combined with Original Medicare or a Medicare Advantage plan or included within a Medicare Advantage plan While all Medicare plans provide comprehensive health care within the United States, what if you get sick outside the country?

Original Medicare doesn’t cover care outside the United States other than medical costs on a cruise ship in or near a United States port and very limited hospital costs while traveling through Canada to or from Alaska, where a foreign hospital is closer to a home in the United States than domestic hospitals, or when a medical emergency arises in the United States and a foreign hospital is closer than any domestic hospital. Medicare doesn’t cover drugs purchased outside the country, and except for limited emergencies, Medicare doesn’t even cover dialysis outside the United States.

While some foreign countries’ national health plans may cover Americans who receive care within their borders, Medicare participants generally must make their own financial arrangements for foreign emergency and routine treatment and costly evacuations for medical treatments. Two solutions are available to cover the nightmarish costs that can escalate out of control when a medical emergency arises abroad– supplemental Medicare coverage and private insurance.

Some employers and unions provide retiree coverage that supplements Medicare and may cover travel. Also, Medicare participants can buy optional Medicare supplement insurance against gaps in Medicare coverage such as deductibles and co-payments. These “Medigap” policies are sold by many private insurers as well as AARP and other affinity groups. Medigap premiums can vary considerably depending on coverage desired and the particular insurer, and not every Medigap plan covers medical care outside the United States.

Medigap plans are designated by letter, which indicates the benefits offered. More comprehensive Medigap plans offer some travel emergency coverage. Medigap plans C, D, F, G, M, and N (also E, H, I, and J if purchased before June 30, 2010) cover 80% of certain medical costs in foreign countries after a modest deductible with a current lifetime limit for foreign care of $50,000. Private travel insurance may be another option, but read the fine print to make sure it covers health care and not just lost luggage or trip interruption.

Medical emergencies can happen anywhere so it is important to have comprehensive medical benefits when traveling outside the United States. While Medicare provides high qualify insurance for medical costs within the country, it usually will not pay for foreign treatments or evacuations. To fill this void, Americans should consider Medigap plans or other insurance that covers foreign care. Finally, because limitations apply and benefits may change over time, contact your insurer before you travel outside the United States to make sure you have adequate coverage. The State Department website also can be a wealth of information on dealing with emergencies when traveling abroad.

Further information on this and other subjects is available throughout SpecialNeedsNJ.com. To subscribe to our frequent blog updatres, click on “entries RSS” to the left and then click on “subscribe to this feed.”

Time Social Security and Spending to Increase Your Retirement Funds

Posted on: December 24th, 2011 by Lawrence A. Friedman

Mid wealth retirees typically rely on Social Security, savings, and sometimes pensions to fund retirements. By timing receipt and expenditures of these different kinds of funds, retirees often can generate significant tax savings.

Savings can be either tax free, tax deferred, or taxable. Typical tax free savings are the kinds of municipal bonds that generate tax exempt income. The most common tax deferred savings are IRAs and qualified retirement plans like 401(k) plans, pensions, and profit sharing plans. Qualified retirement plans and some IRAs are particularly advantageous because their initial funding is with pre-tax dollars.

Because tax deferred accounts generate taxable income when withdrawn, it usually makes sense first to spend taxable amounts and defer withdrawing from tax accounts. Therefore, one retirement strategy calls for funding living expenses with Social Security and taxable investments in order to retain tax deferred accounts intact for as long as possible. While that can be sensible for some people, other folks may be able to save substantial tax by deferring Social Security and funding early retirement year expenses entirely from taxable accounts.

Instead of taking Social Security early or at normal retirement, it can pay to wait. Deferring the start of Social Security can increase wealth in two ways. The later you start Social Security up to age 70, the higher your annual benefit. At the same time, starting Social Security later keeps Social Security out of your income longer, which may reduce your income tax rate in early retirement years.

If you don’t take Social Security when you first retire and you keep retirement funds like 401(k) and pension accounts tax deferred by leaving them in the retirement plan or rolling them over to an IRA, your income probably won’t be large if it consists of income and dividends on modest taxable investments, possibly supplemented by tax free bond income. In that case, deferring Social Security will keep your taxable income and tax bracket down.

In addition, as you spend your taxable savings for normal living expenses, your taxable income will drop even further. Depending on your taxable income and tax rate, you may be able to realize substantial reductions in potential tax on your tax deferred accounts by converting some of them to Roth IRAs each year before you start to take Social Security. Roth IRAs are includible in taxable income upon conversion but earnings on the Roth IRA after conversion aren’t taxed at all.

Depending on your other income, you may be able to convert as much as $50,000 from tax deferred regular IRA to Roth IRA without increasing your federal income tax bracket. For instance, if you are married filing jointly with taxable income of $19,000, you would be in the 15% federal income tax bracket in 2011. If you convert $50,000 of your regular IRA or 401(k) account to a Roth IRA, you would stay in the 15% bracket and pay only $7,500 federal income tax on the conversion, which you probably can make up simply through by avoiding tax on post conversion income on the Roth IRA as well as savings by paying tax at a 15% rate rather than the 25% or higher federal income tax rate that would apply to withdrawals from tax deferred accounts and Roth conversions when you are at a higher income tax rate.

By timing spending of pre-tax and post-tax accounts and the start of Social Security, middle wealth retirees can realize significant reductions in potential income tax and increase overall wealth accordingly. However, it is crucial to analyze your particular spending habits, savings, income, and obligations before embarking on any financial plan. While the financial strategies discussed below may save tax and increase wealth for many people, they also can backfire and generate higher tax, lower return on investment, or other negative consequences for people in certain situations.

House Republicans Propose Major Medicare Premium Increase

Posted on: December 13th, 2011 by Lawrence A. Friedman

While Republicans continue to thwart President Obama’s proposals to increase taxes on people earning over $250,000 or even $1,000,000, House Republicans are expected to pass legislation that describes people earning over $80,000 (families earning over $160,000) as high earners who must pay far higher Medicare premiums. Current law sets higher Medicare premiums for individuals earning more than $85,000 and families with incomes over $170,000 and adjusts these thresholds for inflation. The House Republicans’ plan would cut or freeze the high earner income thresholds until 25% of Medicare participants are subject to the high earner premiums. This would trigger a five fold increase in the percentage of Medicare participants facing the higher premiums. Where less than 5% of Medicare participants now pay higher earner premiums, 25% would face the higher charges under the House Republicans’ plan– a dramatic increase in Medicare costs for many Americans of retirement age. Republicans maintain that they simply are cutting federal health care subsidies to better off seniors, but some advocates counter that the change is equivalent to a middle class tax hike since it would force many Medicare participants to pay more to the federal government.

Why Work with an Elder Law Attorney for Medicaid Planning?

Posted on: November 2nd, 2011 by Lawrence A. Friedman

Long term care can cost over $10,000 per month in the most expensive settings and even care at home with part time paid caregivers can cost thousands of dollars per month. Individuals without long term care insurance must look to savings or Medicaid to fund their care. To qualify for Medicaid, an applicant must meet stringent financial tests, but contrary to conventional wisdom, expert advice often can help families qualify for Medicaid without spending all their savings on long term care.

Medicaid is governed by complex and sometime contradictory laws and regulations, and Medicaid planning will not protect savings unless it satisfies all applicable rules and avoids hidden traps for the unwary. Thus, legal training can be essential to develop an effective Medicaid plan. In addition, states as diverse as Ohio, Texas, and Tennessee have ruled that non-lawyers engage in unauthorized practice of law when advising on Medicaid law and developing plans to qualify for Medicaid. Furthermore, faulty Medicaid planning actually can forfeit amounts that otherwise could be protected.

While various advisors may offer to help with Medicaid planning, friendly neighborhood Medicaid planners sometimes have hidden agendas to sell costly annuities, insurance, and other investments to generate large sales commissions rather than meet client needs. This is a particular concern when services are marketed through seminars where a free meal is accompanied by a powerful sales pitch. Thus Medicaid planning truly is a field where buyers should beware.

Detailed information on Medicaid planning is available throughout SpecialNeedsNJ.com. Questions and Answers appear at https://specialneedsnj.com/elder_law.php and via the articles tab]

Medicare Tax On High Earners’ Investments

Posted on: October 27th, 2011 by Lawrence A. Friedman

Beginning in 2013, people with higher incomes will pay a 3.8 percent Medicare surtax on net investment income such as interest, dividends, rents, net capital gains on investments, and certain other income. However, net investment income doesn’t include tax exempt municipal bond interest, annuity distributions, distributions from IRAs and qualified plans, and various other kinds of income. The surtax only applies to the lower of net investment income or the excess of modified adjusted gross income over thresholds that vary by filing status (e.g. $200,000 single persons, $250,000 married persons filing jointly). The tax also can apply to trusts and estates with undistributed net investment income.

Since the surtax isn’t effective until 2013, accelerating income (especially investment income) into 2012 can generate significant savings. For instance, if you are considering converting a regular IRA to a Roth IRA, it may be beneficial to convert in 2012 rather than 2013 to avoid the surtax. By the same token, it may be beneficial to sell in 2012 assets with substantial built-in capital gain that otherwise would be liquidated in the next few years. Similarly, exposure to the surtax can be lessened through strategies that reduce modified adjusted gross income generally. For instance, investments that generate income subject to the surtax can be sold and proceeds invested in municipal bonds. Maximizing contributions to 401(k) plans, IRAs, other tax favored savings, and cafeteria plans all serve to reduce income.

In short, higher income taxpayers will face a significant Medicare surtax beginning in 2013, but advance planning can limit the exposure. FriedmanLaw can guide you to develop effective plans to limit the impact of the Medicare surtax and realize your overall tax and estate planning goals.

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Medicare Announces Set Asides Unnecessary in Some Personal Injury Settlements

Posted on: October 4th, 2011 by Lawrence A. Friedman

An individual who currently receives Medicare or reasonably expects to become eligible for Medicare in the next 30 months must protect Medicare’s interests when resolving a worker compensation (WC) or personal injury (PI)claim. In other words WC and PI recoveries rather than Medicare must fund care necessitated by a work accident or other injury.

Medicare recipients must repay Medicare payments occasioned by a work accident or personal injury when the WC or PI award is paid. Otherwise, Medicare can recover from the Medicare recipient personally and/or from others involved in the case such as Medicare recipient’s attorney. A few years ago, Congress clarified the Medicare Secondary Payer Act to make this repayment obligation crystal clear.

In addition to reimbursing Medicare for prior expenditures, an individual who recovers at least $25,000 (current Medicare participant) or $250,000 (reasonably expected to be eligible for Medicare in next 30 months) must pay for future care occasioned by the work or other injury to the extent of damages for medicals. Unless the individual includes reasonable arrangements to protect Medicare’s future interests in resolution of his/her claim, Medicare may treat an entire redovery as damages for medicals. Therefore, it is foolish to ignore Medicare’s future interests when settling WC and PI claims.

Because it can be tricky to anticipate whether an arrangement reasonably protects Medicare’s future interests, Medicare has developed a complex rubric to determine an appropriate amount to set aside from WC recoveries for future care. While there is no similar procedure for PI recoveries, the WC guidance can serve as a starting point in both kinds of cases. In addition, on Sept. 30, 2011, Medicare issued a memorandum stating that Medicare will not require any set aside or other arrangement where the Medicare participant’s treating physician certifies in writing that treatment for the injury giving rise to the PI recovery has been completed as of the recovery date and no future care will be required. Medicare’s memorandum is available at http://www.cms.gov/COBGeneralInformation/Downloads/FutureMedicals.pdf. To subscribe to this blog, click on one of the RSS buttons to the left and then click on the subscribe button.

Will Congress Delay Medicare Eligibility to Benefit Hospitals?

Posted on: September 19th, 2011 by Lawrence A. Friedman

The deficit reduction plan authorized this summer would automatically cut billions of dollars from Medicare payments to hospitals and other health providers unless Congress agrees to alternate budget reductions. Medicare typically pays hospitals and health providers lower rates than other health insurers pay. Thus, the hospital industry is lobbying Congress to raise the Medicare eligibility age from 65 to 67 by 2014 instead of cutting their Medicaid payments. Such an increase could have a dramatic effect on people close to age 65 who are counting on Medicare to provide health insurance in the next few years.

Hospitals are pushing Medicare eligibility deferral as an alternative to billions of dollars of cuts in their future Medicare payments. While the American Hospital Association claims the delay in Medicare eligibility could be ameliorated by other provisions in 2010′s Affordable Care Act, others respond that those provisions will provide little benefit to most retirees and raising the eligibility age would cost individuals, employers, and states far more than the federal government would save. In addition, various pending lawsuits may preclude Affordable Care Act provisions from even taking effect.

In short, soon to retire baby boomers no longer can assume that Medicare will kick in at age 65 and should consider alternatives in case Medicare eligibility is deferred.

For further information on health care and estate and elder law planning, see the articles and topic tabs at SpecialNeedsNJ.com. To subscribe to this blog, click the RSS tabs to the left and then click the subscribe button.

Should you give your home to your kids now?

Posted on: September 18th, 2011 by Lawrence A. Friedman

Titling your home to your children can be very risky. Once your children own your home, they can sell the home out from under you or simply force you to leave, a major risk should a child develop credit or marital issues. Gifting your home also gives up equity you may need later to move to an adult community, warmer climate, or more accessible home. It also may sacrifice tax breaks that would be available if you sold the home or left it to your kids when you pass on. For further information, see our more extensive blog entry of May 15, 2011 How Should I Protect My Home Against Nursing Home Costs? as well as the elder law Q&A and articles accessible at https://www.specialneedsnj.com/elder_law.php. To subscribe to this blog, click on entries RSS to the left under Meta and then on the subscribe button.

Federal Court Supports Special Needs Trusts

Posted on: August 27th, 2011 by Lawrence A. Friedman

Federal law provides that trusts containing assets of a disabled beneficiary generally disqualify the beneficiary for Medicaid, Supplemental Security Income, and various other disability benefits. However, amounts in certain pooled special needs trusts and individual special needs trusts are not subject to this general rule.

Pennsylvania enacted various restrictions on pooled special needs trusts limiting beneficiaries to people under age 65, requiring beneficiaries to demonstrate a need for the trust, limiting permissible expenditures, and limiting the amount pooled trust sponsors may retain to benefit other disabled people when a beneficiary dies. In the recent case of Lewis v. Alexander, 2011 U.S. Dist. LEXIS 95109, U.S. District Court Eastern District of PA, Case 2:06-cv-03963-JD Document 73 Filed 08/23/11, a federal court invalidated all these restrictions as violating federal law. While the case is in Pennsylvania, it may prove relevant in New Jersey because Pennsylvania and New Jersey are in the same federal circuit and if the State should appeal and lose, the decision may be considered authoritative by other courts.

When Should You Start Social Security?

Posted on: August 3rd, 2011 by Lawrence A. Friedman

Your Social Security retirement benefit depends on your earnings history and when you choose to start receiving Social Security. While you can start Social Security retirement benefits at age 62, if you elect to begin Social Security before reaching normal retirement age (“NRA”), your benefit is reduced. On the other hand, SS benefits rise by close to eight percent per year for each year you defer the start up to age 70. NRA varies by birth date, and ranges from age 65 for people born before 1938 to age 67 for people born in or after 1960. For instance, starting Social Security retirement benefits at age 62 yields only about three quarters the benefit you would receive if you waited until NRA to commence Social Security. By the same token, delaying the start of Social Security to age 70 should increase your monthly check by about a third. You can determine your particular early start discount or deferred start premium from the Social Security Administration’s benefit calculator at .

In periods of modest inflation, the eight percent per year premium for delaying the start of Social Security retirement benefits should exceed the annual cost of living adjustment (“COLA”). This makes it more attractive to defer your Social Security start date, and the recent debt ceiling agreement may make deferral even more lucrative. An option being discussed to reduce spending would change the Social Security COLA index to reduce annual COLAs. This would increase the gap between the eight percent per year premium for deferring the start of Social Security and the annual Social Security COLA. Thus, deferring Social Security start date could yield considerably more in lifetime Social Security retirement benefits unless you pass away prematurely.

For more information, please visit the elder law and articles tabs at SpecialNeedsNJ.com.

New Class Action Gives People with Autism Their Day in Court

Posted on: July 18th, 2011 by Lawrence A. Friedman

Federal court in Potter v. Blue Cross Blue Shield of Michigan has authorized a class action against Blue Cross and Blue Shield of Michigan. Plaintiffs claim that Blue Cross and Blue Shield of Michigan improperly denied health benefit claims for applied behavior analysis therapy on grounds that it is investigative or experimental. The decision is procedural in that it simply allows plaintiffs to assert their claims on behalf of themselves and others who are similarly situated. However, full court proceedings are required to determine whether the claim has merit. Thus, barring an unusually quick settlement, the case is unlikely to be resolved for some time. While the case only affects Blue Cross and Blue Shield of Michigan claimants directly, it could help others bring similar claims. For further information on issues affecting people with autism and other serious disabilities see SpecialNeedsNJ.com special needs articles tab https://specialneedsnj.com/special_needs_trusts_articles.php and special needs FAQs https://specialneedsnj.com/special_needs_trusts.php

Compensation for Child’s Care of Parent Not Tax Deductible Absent Written Agreement

Posted on: July 18th, 2011 by Lawrence A. Friedman

The United States Tax Court just held that a New Jersey estate may not deduct a child’s charges for long term care provided to a deceased parent absent a written agreement by the parent to pay the child for the care. Estate of Olivo v. Commissioner (U.S. Tax Ct., No. 15428-07, July 11, 2011) http://www.ustaxcourt.gov/InOpHistoric/OLIVO.TCM.WPD.pdf. The estate claimed the child and parent agreed orally that the estate would pay the child for extensive long term care the child provided over many years. While the Tax Court acknowledged the child provided the care, the child’s law practice suffered dramatically as a result of devoting so much time to the parent’s care, the parent needed the care, and the care had substantial value, the Tax Court held that absent a written agreement, the estate didn’t satisfy its burden to prove the existence of a binding obligation to pay for the care.

The estate also couldn’t deduct the value of the child’s services in quantum meruit, whereby a quasi-contract may be inferred where it would be inequitable to deny payment to a person who confers a benefit on another. Essentially, quantum meruit allows a plaintiff to recover the reasonable value of services that are accepted by the recipient of the services and provided with a reasonable expectation of payment. However, New Jersey’s Supreme Court has held that services by family members residing in the same household are presumed to be provided for free and the estate lacked evidence to overcome the presumption. Waker v. Bergen, 132 A. 669, 669-670 (N.J. 1926).

One piece of good news for taxpayers was the Tax Court’s willingness to allow deductions for statutory commissions to an estate personal representative that haven’t been approved by a court. The Tax Court also indicates that an estate may deduct properly documented attorney fees paid to the personal representative in accordance with New Jersey law.

The moral of this case is to document through written agreements at the earliest possible date all payments to family members that are intended to be tax deductible. However, be careful because the family member providing services must treat the compensation as taxable income that generates state and federal income and payroll tax, which could more than offset the value of tax deductions.

Finally, as discussed throughout SpecialNeedsNJ.com, care agreements always must be reduced to writing before care is provided or the payments likely will be considered gifts that can trigger Medicaid transfer of asset gift penalties.

New Class Action Gives People with Autism Their Day in Court

Posted on: July 18th, 2011 by Lawrence A. Friedman

Risky Business- Combining Medicaid Planning & Promissory Notes

Posted on: July 15th, 2011 by Lawrence A. Friedman

Since enactment of the Deficit Reduction Act of 2005, some elder law attorneys have promoted promissory notes as a way to accelerate Medicaid eligibility and preserve funds when a family member requires long term care. I and other elder law attorneys have been concerned that Medicaid authorities might attack such notes as trust like devices. On July 12, 2011, the United States Court of Appeals for the Third Circuit ruled that the kinds of promissory notes typically used in Medicaid planning are Medicaid disqualifying trust like devices. Sable v. Velez https://www.casemine.com/judgement/us/59146358add7b049342642f9. The court noted was suspicious of Medicaid planning promissory notes because they typically are repaid from the loaned funds rather than having an independent feasible repayment plan, are not arms-length transactions, are between family members not in the business of lending money, and loan timing and amounts are tied to qualifying for Medicaid.

While it is too early to determine the long term impact of Sable, it now seems quite risky to engage in Medicaid planning involving promissory notes. Nevertheless, various other techniques remain available to preserve assets when a loved one may need long term care. Further information is available at the elder law Q&A tab https://www.specialneedsnj.com/elder_law.php and the elder law articles tab https://www.specialneedsnj.com/elder_law_articles.php.

Medicaid Appeals at Risk

Posted on: June 21st, 2011 by Lawrence A. Friedman

In 1971′s, Younger v. Harris, 401 U.S. 37 (1971) decision, the United States Supreme Court held that federal courts should abstain from certain cases that implicate important state concerns. A case currently in the United States Court of Appeals for the Eighth Circuit, Hudson v. Campbell, tests whether the Younger doctrine should apply to certain Medicaid appeals. The Medicaid applicant’s attorney, Nathan Forck says, “If the Eighth Circuit rules against us, it would essentially foreclose Medicaid applicants’/beneficiaries’ right to appeal procedural due process violations that occur within the context of a state fair hearing to a federal district court.” Such a ruling could create a conflict between circuits that ultimately may land at the United States Supreme Court. The Medicaid applicant’s initial brief can be accessed at http://tinyurl.com/Hudson-Brief while the applicant’s reply to the Medicaid agency’s brief is available at http://tinyurl.com/Hudson-Reply-Brief

Sick Kids on Medicaid Routinely Denied Care

Posted on: June 16th, 2011 by Lawrence A. Friedman

A recent comprehensive study by Joanna Bisgaier, M.S.W., and Karin V. Rhodes, M.D. found that children on Medicaid and state Children’s Health Insurance Programs (CHIP) must wait twice as long as their peers with private insurance for an appointment with a specialist even though Medicaid recipients are supposed to be able to access care on a similar basis as others. In fact, the study found many providers wouldn’t even treat Medicaid recipients. Although expecting to find some disparity, the authors were surprised by the magnitude reports Reuters Health on June 15, 2012[http://news.yahoo.com/s/nm/20110615/hl_nm/us_medicaid_children].

The authors attribute the disparity to health care providers’ reluctance to accept public benefits. This result shouldn’t be surprising because, as the study notes, Medicaid often pays considerably less than other insurers for the same treatment. Thus, the authors suggest that this issue be addressed as part of the larger debate over health care reform. Although it is too soon to tell, the move by some states (like New Jersey) to move Medicaid recipients to managed care plans may help broaden access even if states’ motivations are more to reign in Medicaid costs.

The study appears [http://healthpolicyandreform.nejm.org/?p=14707&query=home] in the June 16 2011 issue of the New England Journal of Medicine [http://www.nejm.org].

Protecting Seniors Against Financial Abuse

Posted on: June 7th, 2011 by Lawrence A. Friedman

It’s difficult enough for many seniors to cope with the normal issues and changes that arise as people age, but it’s particular unfortunate when they also must contend with financial abuse. The National Committee for the Prevention of Elder Abuse reports that a recent study by MetLife Mature Market Institute in conjunction with NAPEA and others (available on NAPEA’s website at http://www.preventelderabuse.org) finds that financial abuse of seniors is on the rise and costs billions of dollars. While much of the fraud noted in the studies was by strangers, a substantial share of financial abuse resulted from exploitation by family, friends, and neighbors. The study found that women are more than twice as likely as men to be victims of financial exploitation and men are somewhat more likely than women to be perpetrators.

Elder law attorneys can make various tools available to reduce an elderly loved one’s risk of financial abuse. Most importantly, statements for savings, investments, credit cards, loans, and lines of credit should be reviewed regularly to guard against unusual financial activity. Giving power of attorney to a financially secure and trustworthy loved one can ensure a second pair of eyes is on the lookout for patterns of abuse. Another option is to place assets under professional management through a living trust or other legal mechanism. We often help clients retain geriatric care managers to facilitate care and appropriate services to vulnerable seniors and serve as an additional bulwark against financial abuse. Of course, a lawyer should review contracts before they are signed. In addition, our firm helps families develop individual plans to protect a loved one where abuse is a serious concern.

Financial elder abuse often is circumspect and easy for the casual observer to miss. That is just one reason, it’s best to be proactive and put powers of attorney and other mechanisms in place early. Hiding your head in the sand can prove costly to both the victim and family.

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Wife Liable for Husband’s Nursing Home Bill

Posted on: June 4th, 2011 by Lawrence A. Friedman

A recent New York Supreme Court case, Wayne Health Care Demay Living Center v. Blair (N.Y. Sup. Court # 68514/2009, April 20, 2011), illustrates the pitfalls of do it yourself Medicaid and long term care planning. Mrs. Blair admitted her husband to a nursing home but apparently didn’t properly handle his Medicaid application. Because Mr. Blair was denied Medicaid, Mrs. Blair was held liable to the nursing home under the doctrine of necessities. New Jersey courts also recognize this doctrine. The shame is that knowledgeable Medicaid planning could have avoided or substantially limited Mrs. Blair’s need to fund personally her husband’s nursing home costs. The doctrine of necessities is just one of many traps for the unwary in Medicaid planning. For instance, couples in second marriages often are surprised to learn that one spouse’s assets can be tapped for the other spouse’s long term care even when spouses always keep their finances separate and have a pre-nuptial agreement. We typically find Medicaid planning very valuable whether a single or married person needs long term care. For further information on long term care options and Medicaid planning visit the elder law tab at specialneedsnj.com or contact FriedmanLaw at 908-704-1900. The Wayne Health Care Demay Living Center v. Blair decision is available at http://www.elderlawanswers.com/Resources/ArticleAtty.asp?id=9117&Section=9&state

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How Should I Protect My Home Against Nursing Home Costs?

Posted on: May 15th, 2011 by Lawrence A. Friedman

Unless you have long term care insurance, you or your family must fund your long term care privately until you qualify for Medicaid. As further explained at FriedmanLaw’s elder law page https://www.specialneedsnj.com/elder_law.php, to qualify for Medicaid, your Medicaid countable income and resources must be reduced to modest program limits although our Medicaid plans usually can help families preserve substantial amounts.

Titling your home to your children may protect against long term care costs but can be fraught with danger. Once you give your home to your children, they own it and can sell the home out from under you or simply force you to leave. Even if your children would never voluntarily do such a thing, your children may have no choice if they get into financial difficulties. Similarly, a child’s spouse or other beneficiaries could evict you if your child passes away after taking title to your home.

Gift your home and you give up equity you may want for purchases or to move to an adult community, warmer climate, or more accessible home. Due to complexities in the Internal Revenue Code, gifting your home can lead to taxes on its eventual sale that otherwise might not arise. Finally, most gifts temporarily disqualify the donor for Medicaid if made during the look back period (currently 60 months) although there are exceptions as further explained at FriedmanLaw’s elder law page https://www.specialneedsnj.com/elder_law.php.

A life estate deed can preserve your home even if you later require long term care but protect you against being thrown out of your own home. A life estate deed gives you the right to live in your home or rent it, but transfers to the grantees (typically your children) all ownership rights once you pass away. Like all Medicaid planning techniques, life estate deeds have both advantages and disadvantages and are effective only if properly designed and executed. If you wish to discuss your Medicaid planning options, contact FriedmanLaw at 908-704-1900.

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Poorly Drafted Special Needs Trusts May Not Prove “Special”

Posted on: May 2nd, 2011 by Lawrence A. Friedman

Calling a trust special needs trust or supplemental needs trust doesn’t prevent it from disqualifying the trust beneficiary from government aid like SSI, Medicaid, and free group home placement. So-called SNTs will prove disqualifying unless drafted and administered properly. At a minimum, an SNT must not have any obligation to fund the beneficiary’s support or distribute at fixed times, and the trust beneficiary must not have the right to terminate the trust and capture the amounts in it. Although not stated explicitly, such disqualifying obligations and rights can be implied from poorly drafted trust terms as sometimes arise when the person drafting a so-called SNT lacks expertise in this arcane area of the law. In addition, a trust containing amounts attributable to the trust beneficiary (such as a personal injury recovery, outright inheritance, or divorce share) must contain numerous provisions mandated by complex Medicaid regulations. Finally, even a well drafted trust can disqualify the beneficiary for government aid if it isn’t administered properly.

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