Is a Reverse Mortgage Right for You

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

How reverse mortgages work

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

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

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

What reverse mortgages cost

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


Benefits of reverse mortgages

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

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

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


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

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

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

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

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

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IRS Cracks Down on IRAs

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

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

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

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

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

Increase in Income Can Lead to Loss of Medicaid

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

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

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

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

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Poorly Designed Medicaid & Estate Plans Can Harm Divorced Children

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

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

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

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

Don’t Fall Victim to a Social Media Scam

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

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

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

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

To bolster your defenses further, see the Securities and Exchange Commission’s bulletin Social Media and Investing Tips for Seniors at

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

New Case Supports Medicaid Annuity Planning

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

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

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

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

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

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

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

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

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

Letter of Intent Definition

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

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

Special Needs Attorneys

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

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

Letter Details

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

Medical Information

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


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


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

Family Beliefs

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

Getting Started

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

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

$aving Estate Tax Through Portability

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

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

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

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

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

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

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

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Should You Buy Long Term Care Insurance?

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

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

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

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

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

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

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

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

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

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Medicaid Estate Recovery

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

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

Eighth Circuit Shoots Down Medicaid Appeals To Federal Court

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

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

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Medicare Benefits for Health Care Abroad

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

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

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

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

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

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

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

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Time Social Security and Spending to Increase Your Retirement Funds

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

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

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

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

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

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

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

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

House Republicans Propose Major Medicare Premium Increase

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

Why Work with an Elder Law Attorney for Medicaid Planning?

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

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

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

Detailed information on Medicaid planning is available throughout Questions and Answers appear at and via the articles tab]

Medicare Tax On High Earners’ Investments

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

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

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

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Will Congress Delay Medicare Eligibility to Benefit Hospitals?

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

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

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

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When Should You Start Social Security?

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

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

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

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

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

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

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

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

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

New Class Action Gives People with Autism Their Day in Court

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

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.