Secure Your Financial Future After the SECURE Act

Just last month the President signed into law the brand new Setting Every Community Up for Retirement Enhancement Act of 2019 as part of the year end Further Consolidated Appropriations Act. Why should you care? Because the SECURE Act makes major changes to retirement accounts.


Tax qualified retirement accounts like IRAs, 401(k) plans, profit sharing plans, etc. allow individuals and employers to invest savings on a tax deferred basis. Because taxes are not due until funds are withdrawn from an IRA, 401(k) or other tax qualified retirement account, these vehicles can provide much higher net returns than similar investments that don’t provide for tax deferral. As a result, the longer funds can stay in an IRA, 401(k) or other tax qualified retirement account, the greater the potential returns.


Prior to the SECURE Act, individuals had to take required minimum distributions (RMD) starting at age 70.5. The SECURE Act defers RMDs to age 72. A year and a half extra deferral may not sound like much but it can result in significantly higher returns in a large IRA, 401(k) or other tax qualified retirement account.


However, like the “Good Lord” when the government giveth, it often taketh away at the same time. Thus, the downside of the SECURE Act is that it eliminates the former option for certain children and other beneficiaries to inherit an IRA, 401(k) or other tax qualified retirement account and take RMDs over the child’s or other beneficiary’s life expectancy. While surviving spouses and certain disabled children can continue to elect lifetime RMDs (often called “stretch out”), stretch out is no longer an option for most non-spousal beneficiaries who inherit IRA, 401(k) or other tax qualified retirement account. Instead, most non-spousal beneficiaries will have to completely distribute an inherited IRA, 401(k) or other tax qualified retirement account within ten years of the deceased owners death. Thus the SECURE Act dramatically reduces tax deferral opportunities when inheriting IRA, 401(k) or other tax qualified retirement account.


So is the SECURE Act a positive or negative development?  Like so many things, it depends which side you are on.  SECURE Act clearly is favorable to people who fund there own IRA, 401(k) or other tax qualified retirement account since the SECURE Act gives them an extra year and a half of tax deferral.  In changing from a half year to full year RMD trigger (i.e. age 72 rather than 70,5) the SECURE Act also may make it a bit simpler to figure out your first year RMD. On the other hand the SECURE Act will require most non-spousal beneficiaries to pay income tax on inherited IRA, 401(k) or other tax qualified retirement account sooner than prior law would have required.  The result will be less chance to defer tax and inherited accounts possibly triggering higher tax brackets.


How does the SECURE Act impact your trust and estate planning?   Make no mistake; the SECURE Act will have major impacts, but the effects will vary depending on your estate planning goals and circumstances.  For instance, the SECURE Act may require changes to trusts named as beneficiaries of IRA, 401(k) or other tax qualified retirement account if you don’t want the account to be distributed to your children within ten years of your passing.  Changes also may be appropriate when an IRA, 401(k) or other tax qualified retirement account is intended to benefit a person with serious disabilities such as via a supplemental needs trust.


What should you do?  At FriedmanLaw, we recommend that you come in for a consultation with lawyers Larry and Mark Friedman to fine tune your planning to account for the new environment triggered by the SECURE Act. Happy planning!

Are Big Changes Coming to Retirement Plans and IRAs?

Since the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), major changes to the rules governing Individual Retirement Accounts (IRAs) and 401(k) and other retirement plans have been relatively few and far between.  That may be changing soon.


First the Treasury Department announced in March 2019 that employers could offer to buy out long term pension obligations in exchange for lump sum payments.  However, many critics claim the lump sum payments can be far less valuable than the surrendered pensions.


Then just yesterday (May 22, 2019), the House of Representatives did the unimaginable.  It passed a bipartisan bill.  What legislation was so popular it won support from both Democrats and Republicans and generated only 3 no votes (out of 420 votes cast)?  It’s called the Setting Every Community Up for Retirement Enhancement Act abbreviated as the Secure Act.


If enacted the Secure Act would make sweeping changes to annuity rules, benefit distribution options, small business retirement plans, and required minimum distribution calculus as well as other revisions.  So, will the Secure Act become law?  Well, it still must pass the Senate and avoid veto by the president.  However, commentators expect it to be enacted later this year.

Required Minimum Distributions from IRA, 401(k), 403(b), Profit Sharing & Other Retirement Plans

IRAs and employer sponsored saving or retirement plans (“Plans”) are a great way to save for retirement.  Typically, they defer income tax for many years and Plans often include employer contributions and other benefits.  While IRAs and Plans can be corner stones of a successful retirement, they are subject to complex required minimum distribution (“RMD”) rules.

Required minimum distributions or RMDs are based on the account balance at December 31 of the prior year.  RMDs equal the applicable account balance multiplied by a fraction based on age and life expectancy statistics.  Thus required minimum distributions change each year.  The IRS and most major investment firms publish guidelines and tables you can use to help calculate your RMD.

The required minimum distribution RMD rules generally require an IRA owner or Plan participant to take distributions from IRAs and Plans starting with the year in which he or she reaches age seventy and a half (i.e. 70.5 years old).  RMDs are not required from Roth IRAs and Roth Plans until the Roth owner dies.  Sometimes Plan RMDs can be deferred until retirement after age seventy and a half.

The first RMD is due by April 1 (not April 15) of the year after the year in which an IRA owner or Plan participant reaches age 70.5.  The second and subsequent RMDs are due by Dec. 31 of the year.  Failing to take required minimum distributions on time can lead to a large penalty tax.

You must calculate RMDs separately for each IRA and Plan.  While you must take a Plan RMD from the Plan that generates the RMD, you may take IRA RMDs from any or all of your IRAs.

The required minimum distribution rules may be illustrated by the following example. John is born August 20, 1948 and has two IRAs and Plan benefits from three businesses of which John owns 6%.

    1    John turned 70.5 years old Feb. 20, 2019 so his first RMD is for 2019;

    2    Even though John is not retired, John must take Plan required minimum distributions starting with the year in which he reached age 70.5 (2019) because John owns at least 5% of each Plan sponsor business;

    3   Normally, RMDs are due by December 31 but John may defer his first required minimum distributions to April 1, 2020.  Even if deferred to April 1, 2020, John’s 2019 RMDs will be based on John’s Dec. 31, 2018 IRA and Plan balances;

4    John must also take RMDs for 2020 by Dec. 31, 2020 based on Dec. 31, 2019 balances;

5    John must take RMDs for 2021 and subsequent years by December 31 of each year based on balances as of December 31 of the prior year.

    6    John must calculate RMDs separately for each IRA and Plan but he can take the total of IRA RMDs from either or both of his IRAs in any proportion he chooses.  However, John must take each Plan RMD from the Plan that generates the RMD.  John is not required to take RMDs from Roth accounts.

Original Medicare vs. Medicare Advantage– Which is Right for You?

The Choice is Yours

You have a choice whether to stick with Original Medicare or sign up for a Medicare Advantage Plan. Both Original Medicare and Medicare Advantage Plans cover most kinds of mainstream medical care like hospitalizations, speech therapy, physical therapy, occupational therapy, professional fees, and common preventive health care such as colonoscopies and certain screenings for heart disease or cancer. Also, prescription coverage is available whether you choose Original Medicare or a Medicare Advantage Plan.

What is the Difference?

If both Original Medicare and Medicare Advantage Plans cover mainstream health care, how do they differ? Original Medicare is single payer indemnity health insurance as was typical in the United States before managed care became popular with employers in the late twentieth century. As you probably can guess, Medicare Advantage Plans provide managed care similar to that offered in many employee benefit plans.

Indemnity and managed care are dramatically different approaches to funding health care. Indemnity plans pay a percentage of reasonable and customary charges for covered care. For instance Medicare Part B pays only 80% of most professional fees leaving you to pay the rest either directly or by purchasing Medicare supplement (also called Medigap) insurance. In contrast a Medicare Advantage Plan pays the full cost of covered care other than a (typically small) co-payment and perhaps an annual deductible. Some Medicare Advantage Plans also provide additional benefits like dental care, vision care, or gym membership subsidies.

Which Is Better?

If Original Medicare only covers 80% or so of many health care costs and can have hefty per diem charges for other care unless you buy costly Medigap supplemental insurance while Medicare Advantage Plans fund nearly the full cost of covered care and may even include extra benefits, why wouldn’t everybody choose a Medicare Advantage Plan? It all boils down to the age old tension between cost and quality.

There is little doubt that Medicare Advantage Plans typically offer lower cost health care than original Medicare. However, Medicare Advantage Plans bring with them the features of managed care that bother many people.

Many participants in Original Medicare also purchase Medicare Supplement (a.k.a. Medigap) insurance policies to cover Original Medicare’s deductibles and co-payments and expand coverage for blood and international travel. Unlike Original Medicare, Medicare Advantage Plans are sold by private insurers and are managed care plans (along the line of the employee benefit group health care plans provided by many employers). Medicare Advantage Plans provide the benefits of Original Medicare and sometimes add additional benefits (like vision care or gym subsidies).

Medicare Advantage Plans can cost less and include greater benefits than Original Medicare. But as usually is the case, the cost savings come at a price. While Original Medicare plus a Medigap policy may cost more than a Medicare Advantage Plan that provides comparable benefits, Medicare Advantage Plans have all the detriments of managed care.

Medicare Advantage Plans usually have networks and require referrals to see a specialist. Although strictly anecdotal, I sense that Medicare Advantage Plans are more likely than Original Medicare to try to avoid covering costly care like new cancer treatments that arguably are more effective than older less expensive kinds of care. Original Medicare has no networks or referral requirements.

The principal advantage to Original Medicare is greater control over your own care. You don’t have to convince a managed care organization to approve costly surgery or other care and can choose facilities and providers without worrying whether they are in-network. However, you also have to buy a Medigap supplemental policy unless you are willing to self insure. The principal advantages to Medicare Advantage Plans are lower total cost and avoidance of high deductibles and co-pays.

Medical Underwriting– the Hidden Danger

If you initially choose a Medicare Advantage Plan, you may not be able to buy a Medigap supplemental policy if you later switch to Original Medicare. If you are under Original Medicare but don’t have a Medigap supplemental policy, you may face potential high hospitalization deductibles, additional high costs for hospital stays beyond 61 days, Part B co-payments, and other costs.

During your Medigap open enrollment period (usually, but not always, when you first enroll in Medicare), insurers must offer to sell you a Medigap supplemental policy at standard premiums even if you have major pre-existing conditions. Thereafter, typically, insurers may refuse to sell you a Medigap policy or charge higher premiums if your health is bad. Provided you buy a Medigap supplemental policy during your Medigap open enrollment period, you can keep it at standard rates for the rest of your life even if your health becomes precarious.

If you switch from a Medicare Advantage Plan to Original Medicare, you risk medical underwriting when buying a Medigap policy. This can be a catastrophe for a Medicare Advantage Plan participant who becomes dissatisfied with his/her Plan.


So, are you better off with Original Medicare or a Medicare Advantage Plan? It depends which is more important to you cost or choice. While a Medicare Advantage Plan may cost less than Original Medicare plus a Medigap supplemental policy, do you want Medicare Advantage Plan administrators to decide what health care you can and can’t have? FriedmanLaw can apply our extensive knowledge of Medicare to help you choose coverage that is right for you.

Maximize Your Social Security Benefits

The Social Security Administration administers several programs. Supplemental Security Income or SSI is a financial need based benefit to help people who can’t earn enough to get by due to disabilities or old age. Old age, survivors, and disability insurance (OASDI) is the official name for Social Security’s insurance programs. This article discusses options to increase benefits under the Social Security Administration’s OASDI program, which often is called simply Social Security.

OASDI is a comprehensive program that provides benefits to retirees, disabled people, spouses, divorced former spouses, surviving spouses, and children. Unlike Supplemental Security Income, Social Security is an insurance program that bases Social Security benefits on your work history or the work history of your spouse, divorced spouse, deceased spouse, parent, or deceased parent.

Social Security OASDI benefits are based on a primary insurance amount (PIA). The Social Security primary insurance amount is based on age, work history, and earnings that were taxed to fund Social Security or Railroad Retirement Benefits.

When an individual elects to start Social Security at his or her full retirement age (also called normal retirement age), Social Security Administration pays a monthly Social Security benefit equal to the PIA rounded down to a whole dollar amount. An individual who starts Social Security before or after reaching normal retirement age receives an adjusted PIA. Your benefit may be further reduced if it is based on the work history of a parent or current or former spouse rather than your own work history.

Originally, Social Security started at age 65. Eventually, Congress provided options to start an adjusted Social Security benefit anywhere from age 62 on up. However, Social Security benefits that start before normal retirement age are reduced while benefits that start after full retirement age increase up to age 70.

Originally age 65, Congress eventually increased Social Security normal retirement age to preserve the Social Security trust fund. For people born before 1938, Social Security full retirement age is still 65. However, full retirement age of folks born after 1937 ranges from 65 and two months to 67.

When benefits start before reaching full retirement age, the PIA is reduced 5/9 of one percent for each of the first 36 months before full retirement age plus 5/12 of one percent for each of the remaining months until normal retirement age. For example, where benefits start 60 months before reaching full retirement age, the benefit is reduced by 30 percent– 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.

On the other hand, when starting benefits after full retirement age, the monthly benefit equals the PIA plus delayed retirement credits of 8% per year if born after 1942. The delayed retirement credit is lower for folks born before 1943.

Obviously, Social Security benefits can vary dramatically depending on when you choose to start benefits. In addition, you may have options to take Social Security benefits on the work record of a current or former spouse rather than your own record. Your choice of Social Security start date also can affect how much Social Security your young or disabled children can receive because children also may be entitled to Social Security based on the work record of a parent who is receiving Social Security. Furthermore, Social Security benefits taken before full retirement age may be recaptured when earnings are high, and high earners also may pay more tax on Social Security.

You have the option to start Social Security anytime from age 62 on, but starting before full retirement age triggers reductions in Social Security. By the same token, delaying Social Security until after reaching Social Security normal retirement age results in a larger benefit. (However, there is no point to delaying Social Security beyond age 70 because the monthly Social Security benefit does not increase beyond age 70.)

Waiting until age 70 to start Social Security can result in substantially more lifetime Social Security benefits if you live a long time. However, for people who die comparatively young overall benefits will be higher if you start Social Security at age 62. In addition to life expectancy, spousal Social Security options, tax brackets, and other factors can impact when to start Social Security in order to maximize lifetime Social Security benefits. Depending on when spouses were born, it can make sense for one spouse to collect a spousal benefit while delaying his or her own benefit to age 70, but this may not be an option for younger people due to recent law.

Clearly, many factors play into the decision of when to start Social Security, and errors can leave thousands of dollars (or more) on the table. With so many variables at play it is hard to imagine seat of the pants evaluations being very accurate. Working with a nationally recognized Social Security expert and sophisticated software, FriedmanLaw can evaluate options and help you develop a Social Security benefit strategy that meets your needs.

Taxation of Settlements

Per Internal Revenue Code section 61 all income is subject to income tax unless excluded in tax law. Therefore, a settlement is taxable income unless the taxpayer proves that an exception applies.

Internal Revenue Code section 104 provides that damages that compensate an individual for personal physical injuries or physical sickness are not taxable income. However, Internal Revenue Code section 104 does not exclude from income damages for personal injuries that are not physical.

Fortunately, Congress and the IRS agree that damages for non-physical injuries are not taxable when they flow from a personal physical injury. H. Conf. Rept. 104-737, page 301 and Internal Revenue Service income tax regulation 26 C.F.R. 1.104-1(c)(1). For instance, a parent’s damages for emotional distress from seeing her child maimed by a reckless driver normally should not constitute taxable income.

Code §104 does not exclude from taxable income damages for emotional distress not derived from a physical injury even if the emotional distress leads to physical injury or physical sickness. Therefore, damages for emotional distress due to professional malpractice in settling a claim for divorce normally should not be excludable under Code §104.

Internal Revenue Code section 104 does not exclude punitive damages from taxable income. However, a limited exception applies in certain states that characterize all allowable wrongful death damages as punitive. Punitive damages in New Jersey do not qualify for the exception

Where a plaintiff sues for both punitive damages and compensatory damages, IRS may maintain that some of the damages are taxable punitive damages. While plaintiff and defendant may agree how to allocate a settlement, IRS is not bound by self serving allocations. Nevertheless, tax counsel may find ways to minimize taxation as punitive damages.

Where damages are personal rather than business in nature, attorney fees to obtain the damages are not deductible. For instance, when a building owner sues a plumber for faulty work, the attorney fees will not be deductible if the building is plaintiff’s home but they may be deductible where the plumber caused plaintiff’s business to flood.

Damages for a personal injury that isn’t physical are taxable income, and attorney fees to recover personal damages are not deductible. Therefore, an individual who recovers damages for a non-physical personal injury must include the full settlement in taxable income even if the defendant pays part of that settlement to the individual’s attorney to cover the individual’s attorney fees.

The above analysis leads to the following conclusions.
1. Punitive damages normally are taxable income, but bringing in tax counsel early in a case may limit the tax.

2. Non-punitive (i.e. compensatory) damages  can be taxable income or excluded from taxable income.

3. Compensatory damages due to personal physical injuries or physical sickness are not taxable income.

4. Compensatory damages due to non-physical personal injuries or sickness are taxable income unless the injury flows from a physical personal injury or sickness such as emotional distress due to a loved one’s physical personal injury.

5. Even if all damages are taxable, a plaintiff may not deduct legal fees to obtain damages that don’t relate to a business.

FriedmanLaw can help you determine whether a settlement may be taxable and limit any tax.

NJ Medicaid to issue new Regulations on Trusts

New Jersey’s Department of Human Services, Division of Medical Assistance and Health Services (DMAHS), recently posted notice that it will issue new regulations on how Medicaid laws and rules apply to trusts, including special needs trusts and qualified income trusts.

Why does this matter to you?

Well, if you have a loved one with disabilities or a loved one who may need long term care in the future, or receives long term care now, odds are good that you’ll eventually be seeking Medicaid.  You might already be on Medicaid.

There’s also a chance that you’ll be using a trust to do so.  In New Jersey, people with high incomes (currently over $2,250 per month gross) have to use a Qualified Income Trust (aka Miller Trust) in order to qualify for long term care Medicaid.

And if a person with disabilities inherits money from family or receives proceeds from a lawsuit or other significant funds, often it makes sense for those funds to be held in trust with a special needs trust.

These new regulations are going to create new rules for how qualified income trusts (QIT’s) and special needs trusts (SNT’s) are treated.  If you are seeking Medicaid, or you’re on Medicaid, it’s important to understand how these new rules affect eligibility.  Or better yet, to work with a lawyer who understands that.

The regulations have yet to be issued, but you can bet that FriedmanLaw will be following this matter.  In addition, I (Mark Friedman) serve as roundtable coordinator for the New Jersey State Bar Association’s Elder and Disability Law Section, and we’ll likely be doing a program on the new regulations in February 2019.  For other attorneys who are members of the NJSBA, it would be very helpful to attend that program.

NJ Medicaid Planning and your Power of Attorney

If you think you may need long term care in the future, and are interested in doing asset protection planning or Medicaid planning to protect your assets for your spouse or children, one of the best things you can do now is make sure you have a well-drafted power of attorney document.

That’s because Medicaid planning often involves making gifts. In order for Medicaid to pay for long term care (in a nursing home or other setting), applicants must spend down their assets below $2,000. Medicaid planning seeks to spend those assets in a way that provides benefit or value to family members, instead of spending everything on nursing home bills or other long term care. That often involves making gifts in a structured, planned way, working with New Jersey elder law attorneys like FriedmanLaw to do planned Medicaid gifts.

However, people who need long term care often lack capacity to manage their affairs, due to conditions that affect mental capacity such as dementia, Alzheimer’s disease or severe stroke. If you can’t make gifts yourself, it limits your ability to do Medicaid planning.

With a power of attorney, you can appoint someone you trust to manage your financial affairs. That person is called your attorney-in-fact. You can give your attorney-in-fact broad powers over your finances – buying and selling property, paying for things, moving money between accounts, signing contracts and starting or ending lawsuits, etc. However, your attorney-in-fact cannot make gifts of your assets unless you explicitly authorize him or her to do so. (That is because of a law, N.J.S.A. 46:2B-8.13A, which Larry Friedman helped draft.) A blanket grant of authority is not enough.

Often, power of attorney documents that are not prepared by attorneys familiar with elder law do not include this gift provision, and if you don’t have a power of attorney with the right language, your family will have to apply to court for guardianship to get this authority, which may or may not be granted.

So if you may need long term care in the future, and you may want to do Medicaid planning to protect assets, it’s worth talking with an elder law attorney to make sure you have the right power of attorney. FriedmanLaw is available to help, call or email us today.

New Jersey and Estate Tax – Will They or Won’t They?

For a while now, New Jersey estate planners have been playing a guessing game.

Guessing whether New Jersey will bring back the estate tax.

The estate tax is a tax that your estate pays when you pass away. In the past, anyone who died in New Jersey and left behind an estate valued at more than $675,000 had to pay the estate tax (with some work-arounds like leaving property to a spouse or charity).

From the State’s perspective, the estate tax was good, because it brought in much-needed revenue to pay for schools, roads, police, etc. And back when New Jersey’s estate tax was created, this sort of tax was common among states.

But in the years since then, many other states raised their thresholds significantly, or eliminated estate tax altogether. New York’s estate tax threshold was $1 million, which was then raised to over $5 million. Many of New Jersey’s other neighbors have no estate tax. And many older New Jerseyans are moving to states like Florida that have lower taxes in general.

When residents leave New Jersey for lower tax states, the State loses revenue. So it’s a balance – taxes generate revenue, but if they drive residents away, the State ultimately loses revenue.

I think the tipping point may have come a few years ago when David Tepper, a wealthy hedge fund manager, moved from New Jersey to Florida.  Mr. Tepper was New Jersey’s wealthiest resident, and he reportedly owned property in both New Jersey and Florida, so he simply changed his residency to Florida.  Reportedly when he did so, New Jersey lost hundreds of millions of dollars in lost taxes.

In 2016, New Jersey passed a tax reform bill that changed the gas tax, sales tax, and estate tax. The gas tax was increased, sales tax decreased, and estate tax decreased and eventually eliminated.

In 2017, the estate tax threshold in New Jersey was raised from $675,000 to $2 million. And in 2018, the New Jersey estate tax was eliminated.

As of this writing, if you die a resident of New Jersey, you don’t have to pay New Jersey estate tax, no matter the value of your estate.

That said, the estate tax reform was enacted under our previous governor, Chris Christie. We have a new governor now, Phil Murphy, who has proposed increased funding for a number of measures, particularly schools.

This comes on top of a state budget that is already strained, with increasing pension obligations that pose fiscal peril.

In short, the state needs more revenue. So some professionals who work in this area think that the estate tax will come back in the near to mid future. Governor Murphy has said he intends to leave the estate tax eliminated, but if we face a true budget crisis, who can predict what will happen.

For our part, we try to do estate planning both for now, and for the future. If we think a client may have a valuable estate in the future, we sometimes recommend including provisions in the will that could save New Jersey estate tax, if it comes back. One example is a credit shelter trust, which allows a married couple to take advantage of both spouses’ estate tax exemptions when passing assets to their children.

When we write wills, we try to give our clients options that don’t have any negative effects, but can decrease their taxes in the future if New Jersey does bring back the estate tax.

If you would like to find out more about creating a will, please call or email FriedmanLaw.

Does my will cover my retirement accounts?

Everyone should have a will.

It’s the most basic component of an estate plan. In it, you set forth your directions on how your property should be distributed after you die, who should manage your affairs, who should take care of your children, etc.

However, in some cases your will does not cover all of your property. Certain property will pass outside your will. The legal system calls this property “non-probate assets,” because it passes outside probate by law. In other words, the legal directions regarding this property take precedence over the directions you set forth in your will.

Examples of non-probate assets include joint property with a right of survivorship. If a married couple buys a house together, and the husband dies, the house usually passes by law to the wife. Another example is a bank account with a payable on death (POD) beneficiary. If you have a bank account and you designate your brother as POD beneficiary, but your will says that everything goes to your child, then usually when you die the bank account will still go to your brother. Likewise for a life insurance policy, if you have a designated beneficiary on that policy.

One type of asset where this becomes especially important is tax-advantaged retirement accounts, like an individual retirement account (IRA), Roth IRA, 401(k) account, etc. These accounts get favorable tax treatment. That tax treatment of retirement accounts is described in detail elsewhere, but essentially, these accounts typically let you defer paying taxes until later, allowing your investments to grow with money that would have gone to taxes. Or they allow you to pay taxes now, and avoid paying taxes later on your investment gains.

The bottom line of this favorable tax treatment is that it’s usually more profitable to keep your money in these accounts longer, and delay taking withdrawals for as long as possible.

If you pass away, and you still have money in these retirement accounts, for some accounts you have to distribute the entire remaining balance of the accounts within five years. Unless you have a designated beneficiary on the account. If so, and if the account is set up right, it can be transferred to that beneficiary, and be distributed over that beneficiary’s lifetime. That means it may be able to distribute the account over forty years, instead of five. That could result in enormous gains – depending on how the numbers play out, tens of thousands, hundreds of thousands, or even millions of dollars.

So there are compelling reasons to have a designated beneficiary on your retirement accounts. That said, doing so means the account will go to the beneficiary, and not pass under your will. Your will can include safety measures like trusts, in case the beneficiary shouldn’t receive the money – for example, if they’re too young to wisely manage it, or they are irresponsible with money, or they have a drug problem and shouldn’t have access to a large amount of money, or they receive government benefits that they would lose if they receive a large sum of money.

Leaving the property directly to a beneficiary circumvents the trusts that would protect the beneficiary in these scenarios.

It’s possible to instead leave retirement accounts to a trust, and still get favorable tax treatment, but the trust has to be set up properly.

The bottom line is that retirement account designations, as well as a will and other non-probate assets, are part of a hollistic estate plan. If you want to get started crafting yours, or it’s time to review your estate plan, FriedmanLaw is available to help. Call or email us today.

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, 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  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, 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

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 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/ 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 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 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.”

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.
Interior photo: Somerset hills pastoral scene by Lawrence Friedman.