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Lawrence Friedman honored with NJICLE award

Lawrence Friedman was honored at the New Jersey Institute for Continuing Legal Education’s (NJICLE) Excellence in CLE Awards Ceremony on June 17, 2019.

Larry was awarded NJICLE’s Distinguished Service Award, in recognition of his 25+ years giving continuing legal education program to other attorneys in the areas of elder law, special needs, disability, Medicaid, wills, trusts and estate planning, guardianship, and similar topics.

Larry was honored to receive this award, and is proud of his work educating both attorneys and the public and seeking to “raise the bar” of elder law practice in New Jersey. A few days after the award ceremony, Larry moderated the long-running Sophisticated Elder Law seminar. Larry started this annual program, New Jersey’s first elder law seminar, twenty-five years ago, and this was the twenty-fifth program. Larry has spoken at it and moderated it every one of those twenty-five years. At this year’s program, he spoke about Medicare options, ethics in elder law practice, and Medicaid and personal injury settlements.

Larry also for many years moderated Senior Citizens Law Day, a program with the New Jersey Bar Foundation that provides legal information that’s of interest to seniors to the public. Mark Friedman (me) has since taken over moderating the program. We held this year’s program on June 4, and it was a great success – we had over 100 people in attendance. We had representatives from the New Jersey Attorney General’s office speaking about elder abuse and scams and fraud that target seniors, and Mark Friedman (that’s me!) spoke about basic estate planning, long term care and Medicaid asset protection planning.

At FriedmanLaw, Larry Friedman and Mark Friedman are proud of the work we do for our clients, and the many educational programs we speak at both for the public and for other attorneys. Some of these programs are listed on our Events page (although I’ll confess we don’t always do the best job keeping the page up to date).  We hope to see you at one of our future events, and if you have any questions about elder law, special needs and disability, will, trusts and estates, or any other legal topics, please feel free to call or email us.

New Jersey Hospital Safety Grades Are Released for Spring 2019

Note:  This blog post is by our office manager, Nancy Hochenberger.  Thanks Nancy!  -MRF

The Leapfrog Group recently released their Spring 2019 Hospital Safety Grades report for hospitals nationwide. Many New Jersey hospitals fared well, but others didn’t match up. Leapfrog, a national nonprofit group, represents some of the largest U.S. employers and purchasers of healthcare. They have collected and reported on safety and quality information on hospital inpatient care for the past 19 years. Over 2,600 hospitals participate in their Leapfrog Hospital Survey, which collects information focused on errors, accidents, injuries and infections. Approximately 70 percent of the hospital beds in the U.S. are represented in these reports, which are issued in the spring and fall of each year.

Of the 68 New Jersey hospitals listed in the report, 31 earned an “A” grade in hospital safety, while 27 earned a “B” grade, 7 earned a “C” grade, and only 3 earned a “D” grade. Researchers assessed that when compared to “A” hospitals, patients at “D” and “F” hospitals face a 92% greater risk of avoidable death, while patients at “C” hospitals on average face an 88% greater risk, and patients at “B” hospitals on average face a 35% greater risk.

Nationwide, the researchers estimate that 160,000 lives are lost every year, due to avoidable medical errors. It sounds high, but is a significant improvement over the estimated 205,000 avoidable deaths in 2016.

“The good news is that tens of thousands of lives have been saved because of progress on patient safety. The bad news is that there’s still a lot of needless death and harm in American hospitals,” said Leah Binder, president and CEO of the Leapfrog Group. “Hospitals don’t all have the same track record, so it really matters which hospital people choose, which is the purpose of our Hospital Safety Grade.”

Starting in 2020, Leapfrog will also report on Ambulatory Surgery Centers and hospital outpatient surgeries, because they recognize that more than 60 percent of surgeries in the U.S. are performed in these facilities.

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.

Special Needs Trust Distributions, Credit Cards, Debit Cards & True Link Cards

A special needs trust (sometimes called supplemental needs trust, SNT, supplemental benefits trust, or SBT) is a great way to make funds available to benefit a person with disabilities without disqualifying a disabled person for government benefits. However, a special needs trust will disqualify a disabled person for government programs unless the trust is drafted and administered correctly.

A properly drafted special needs trust permits the trustee to spend the trust for the disabled person’s best interests without giving the disabled person rights to control the trust, spend the trust for food or shelter, or revoke the trust. Additional requirements apply to trusts that contain amounts that could have been paid to the disabled trust beneficiary (e.g. trusts containing proceeds of a disabled beneficiary’s medical malpractice settlement).

Even though a special needs trust may be drafted properly, it still can disqualify the disabled trust beneficiary if it gives the disabled beneficiary cash, allows the disabled beneficiary to withdraw cash, or pays for the disabled beneficiary’s food or shelter. (Although details are beyond the scope of this article, good legal advice may permit a special needs trust to fund certain food or shelter purchases but not disqualify the disabled beneficiary for government disability benefits like Supplemental Security Income (SSI), Medicaid, SNAP (formerly called food stamps) and section 8 housing aid.)

We often are asked how a special needs trust can satisfy a beneficiary’s needs without disqualifying the beneficiary for government aid. While the simplest approach probably is for the special needs trust to make all purchases directly and provide purchased items to the beneficiary, that often is not practical. Like anyone else, a person with disabilities may wish to make impulse purchases, pay for entertainment, shop in a store, etc.

Another option may be for the disabled trust beneficiary to have his/her own credit card and ask the special needs trust to pay the credit card bill. However, the trust must not have any obligation to pay the credit card bill or else the beneficiary would have impermissible control over the trust. Similarly, a special needs trust beneficiary should not have an ordinary debit card on any account other than the beneficiary’s own account that is within government benefit program limits.

Recently, a new option has become available– trustee managed prepaid cards such as the True Link debit card. These cards allow a trustee to give a special needs trust beneficiary a debit card that can be used only for purchases that should not disqualify the special needs trust beneficiary for government disability benefits. The card should provide that the disabled special needs trust beneficiary may not use the card to obtain cash. If the trustee also prohibits the card from being used to buy food or shelter, the special needs trust beneficiary can then use the card to buy clothes, entertainment other than food, and other things without jeopardizing disability aid. In short, True Link and other similar cards give trustees one more tool to afford greater independence to special needs trust beneficiaries.

Please contact FriedmanLaw if you want to discuss options to design or administer special needs trusts to better meet your needs.

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.

Mark R. Friedman named to Rising Stars

FriedmanLaw attorney Mark R. Friedman was selected to the New Jersey Super Lawyers Rising Stars list for 2019.

Or rather, I was selected to the list.

It was gratifying.  I’ve put together a lot of educational events recently for both the public, and other attorneys.  I’ve been particularly pleased with Senior Citizens Law Day, a program I organize with the New Jersey Bar Foundation that provides legal information to seniors – both the elder law and estate planning work I do, and other topics of interest like scams and frauds that target seniors.  Last year we had the Middlesex County Prosecutor’s Office speak on that, and this year we anticipate having the New Jersey Attorney General’s Office speak.

I’ve also served on the Executive Committee of the New Jersey State Bar Association’s Elder and Disability Law section for the past few years, advising the Section on legislation that affects seniors and people with disabilities, and organizing meetings and programs.

I think that these educational programs, and my work with the Bar, is a big part of why I was selected.

It’s nice to be recognized, and it’s a real honor to be picked alongside the other attorneys on the list.  Many of the colleagues who I respect and admire most were named as Rising Stars in the past or as Super Lawyers now.

One of them, my colleague at the firm (and father), Larry Friedman, has been named to the Super Lawyers list every year since 2006.  This year was no exception, and he was chosen for 2019.

Larry and I both really enjoy serving our clients and helping with elder law, Medicaid, long term care, nursing home, asset protection, wills, trusts, tax and estate planning, disabilities, guardianship, and other legal issues.  If you have concerns involving one of these areas, please call or email us today.

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.

Conclusion

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.

Should You Choose Original Medicare or a Medicare Advantage Plan?

Medicare Primer

Original Medicare covers hospitalization, professional fees and other common health care costs.  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.

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. The principal advantages to Medicare Advantage Plans are lower premiums and avoidance of high deductibles and co-pays.

Advantage to Original Medicare

Original Medicare is available everywhere in the United States whereas Medicare Advantage Plans may have limited coverage areas and availability.  You may be forced to switch plans or return to Original Medicare if you move or your Medicare Advantage Plan ceases to serve a locale or goes out of business.

Original Medicare covers all providers and facilities that accept Medicare with no networks and no referrals required. Medicare Advantage Plans may limit providers and facilities to networks and require referrals and to see a specialist or obtain certain kinds of care.

Medicare Advantage Plans manage care. Therefore, they sometimes refuse to cover treatments that would be eligible for coverage by Original Medicare.

Advantage to Medicare Advantage Plans

Medicare Advantage Plans typically have lower costs than Original Medicare.  Original Medicare has co-payments such as 20% for most Part B benefits and over $300 per day for hospital stays after 61 days. There also is a Part A deductible of over $1,000 for each hospital admission and relatively small deductibles for Parts B and D as well.

Original Medicare participants must purchase Medicare Supplements (a.k.a. Medigap insurance) if they want to avoid costly deductibles and co-payments. Participants in Medicare Advantage Plans don’t need (and can’t buy) Medigap policies.

Except for very limited situations, Original Medicare does not cover care outside the United States. Medicare Advantage Plans can (but don’t have to) cover care outside the U.S.

Medigap Underwriting– Hidden Risk in Medicare Advantage Plans

If you initially choose a Medicare Advantage Plan, you risk an unpleasant surprise on later switching to Original Medicare.  Many people initially choose Medicare Advantage Plans to save money, but as health declines with age, the limitations of managed care may prove more of a concern.  Therefore, some participants in Medicare Advantage Plans may want to switch to Original Medicare during the general Medicare open enrollment period or the separate Medicare Advantage open enrollment period.

When switching from a Medicare Advantage Plan to Original Medicare you also must buy a Medigap policy (a.k.a. Medicare Supplement) or face potential high hospitalization deductibles, additional high costs for hospital stays beyond 61 days, Part B co-payments, and other costs.

During a Medigap open enrollment period (typically but not always when you first enroll in Medicare), you may buy a Medicare Supplement policy at standard premiums regardless of health or pre-existing conditions. Except in limited circumstances, beyond your Medigap open enrollment period, insurers may refuse to sell you a Medigap policy or charge higher premiums if your health is bad.

Once you have a Medigap policy, the insurer can’t charge more because your health declines. Therefore, provided you buy a Medicare Supplement 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.

For instance, Medicare Advantage Plans’ lower premiums or broader benefits may seem attractive while healthy, but networks, referral requirements, and limitations on costly care may lead a Medicare Advantage participant to switch back to Original Medicare if he/she becomes seriously ill. But the very illness that causes an individual to switch from an Advantage Plan to Original Medicare may make it impossible or too expensive to obtain a Medigap policy. In that case, there can be hefty deductibles and co-payments such as 20% of many Part B charges.

Conclusion

As with so much of elder law, there is no obvious one size fits all choice between Original Medicare or Medicare Advantage Plan.  No question that you can save some money by buying a Medicare Advantage Plan.  But are you willing to let strangers who administer a Medicare Advantage Plan decide what 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.

Affordable Care Act Portal Can Help You Find Health Insurance

Governor Murphy’s Administration announced that the Affordable Care Act’s open enrollment period runs through Dec. 15, and http://www.GetCovered.NJ.gov provides a portal for New Jersey residents seeking health insurance coverage. The site addresses plan options, financial assistance and contact information for New Jersey residents seeking health insurance.  The New Jersey Department of Human Services also announced that it is working with the following five community organizations to support enrollment efforts:

  • The Center for Family Services (1-877-922-2377)
  • The Family Resource Network (1-800-355-0271)
  • The Oranges ACA Navigator Project (1-973-500-6031)
  • Fulfill Monmouth & Ocean (1-732-918-2600 or 1-732-731-1400)
  • Urban League of Hudson County (1-201-451-8888, ext. 217)

New Jersey residents can also call 877-96w-8448 to talk about health insurance options and get help enrolling.

While FriedmanLaw does not endorse any particular plan, we encourage readers in need of health insurance to take advantage of all the Affordable Care Act offers both through the new New Jersey portal, http://HealthCare.gov and local resources.  In addition lots of information about Medicaid, Medicare, and Social Security is available throughout http://SpecialNeedsNJ.com.

Medicare Open Enrollment, Original Medicare Parts A and B, Medicare Part C Advantage Plans, Medicare Part D Prescription Drug Plan Donut Hole Partially Plugged

The following article was written by guest author Lindsay Engle, editor of Medicare FAQ, and Lindsay is solely  responsible for its content.  As with all our blog posts, please remember that this website provides general information that isn’t tailored to your particular situation and may not take into account updates, rules and exceptions that affect you.

There are many Medicare beneficiaries who have enrolled into a Medicare Advantage plan and realized in January that their doctor wasn’t in network, or didn’t even realize they had a network they needed to stay in.
1. Return of the Open Enrollment Period
The Medicare Open Enrollment will replace the Medicare Advantage Disenrollment Period (MADP) that was from January 1 until February 14 of every year.
This was an opportunity to disenroll from a Medicare Advantage plan and return to Original Medicare. The option to enroll in another plan wasn’t available during this time.
Now that is about to change. The new Medicare changes of 2019 will make changing from the unsuitable Medicare Advantage plan to a more suitable plan, possible.
Medicare is reinstating the Open Enrollment Period for all beneficiaries in New Jersey. During this time Medicare beneficiaries can disenroll from their Medicare Advantage plan and enroll in a new plan or switch back to Original Medicare.
If you are Medicare eligible and you’re enrolled in a stand-alone Part D prescription drug plan, you need to make changes to your Part D Prescription Drug plan during AEP (October 15 through December 7 of every year). Part D beneficiaries won’t qualify for plan changes during OEP.
Other Coverage Changes in Medicare 2019
1. Starting in April of 2018, Medicare recipients will start to receive new Medicare ID cards that no longer have a Social Security number displayed on them. This change was announced in September 2017, the biggest reason for the change was to help prevent seniors from being victims of identity theft and fraud.
a. As required by the Medicare Access and CHIP Reauthorization Act-MACRA all beneficiaries will have a new Medicare ID cards by April 2019. The new cards will display a random ID number instead of Social Security numbers.
2. In 2019, a new premium bracket for the highest-income Part B and Part D enrollees with go into effect. Under the BBA 2018 enrollees with an income of $500,000 or more ($750,000 for married couples) will pay a higher premium for Part B and Part D coverage.
3. The coverage gap will be eliminated in 2019 for brand-name drugs, which is a year sooner than predicted. The Bipartisan Budget Act of 2018 (BBA 2018) will close the donut hole one for brand name drugs. This means that beneficiaries will only pay 25% of the cost of brand name drugs. The cost of closing the donut hole for brand name prescriptions is being shifted to the drug manufactures instead of insurance companies or beneficiaries.
4. Medicare Advantage and Part D prescription drug plans change every year. 33 percent of Medicare recipients enrolled into a Medicare Advantage plan in 2017. These plans are popular, but they change every year, it’s important to stay informed on yearly plan changes.
5. For those on Social Security, you might notice an almost 3% increase on your social security checks. This could be up to an additional $500 per year.
Each year by September 30th, Medicare Advantage recipients receive an Annual Notice of Change (ANOC) and Evidence of Coverage (EOC) from their existing insurance carrier for their Medicare Advantage and Medicare Prescription drug plan providers.
Medicare Supplements don’t change year to year. You can expect consistent benefits from one year to the next year.
The Center for Medicare and Medicaid services posts plan changes for the following year sometime in October, several months before the new year begins. Medicare.gov is a valuable resource that
Medicare beneficiaries can use to compare plans, look up information and learn more about Medicare.
The changes for 2019 will be beneficial to many Medicare recipients; freedom to change plans, more social security income, new Medicare ID cards and so much more.

Using Qualified Income Trusts to Qualify for Medicaid to Fund Long Term Care

To qualify for Medicaid to fund long term care in New Jersey, your monthly Medicaid countable income must not exceed Medicaid income caps– $2,250 per month for an unmarried applicant in 2018. However, not all receipts are Medicaid countable income, and even if your Medicaid countable income exceeds long term care Medicaid income caps, you still may be able to qualify for Medicaid to fund long term care in New Jersey by placing excess. Medicaid countable income into a qualified income trust

A qualified income trust (sometimes called a QIT or Miller trust) may help you get Medicaid even if your Medicaid countable income exceeds Medicaid limits. However, not everyone is a candidate for a qualified income trust / QIT and not every QIT / Miller trust will lead to Medicaid approval. To succeed, a qualified income trust / Miller trust must be drafted, funded, administered, and spent correctly.

A QIT / Miller trust must be drafted in accordance with both Medicaid guidelines and New Jersey’s Uniform Trust Code or it will not lead to Medicaid eligibility. To be administered and spent properly, the trust must pay solely for expenditures allowable under Medicaid rules. These include certain care costs, medical expenses facility charges, and some other kinds of purchases. You may lose Medicaid if your qualified income trust pays for items not allowed by Medicaid authorities.

To properly fund a QIT / Miller trust, all of each income item that would cause Medicaid countable income to exceed Medicaid limits should be deposited into the qualified income trust. However, while you are not required to place every receipt into the qualified income trust, if you deposit any of a particular income item into the QIT, you must put that entire item into the Miller trust. Partial deposits are not allowed. For instance, you may choose to deposit into the QIT both your pension and Social Security or only one of your pension and Social Security, but you can’t place only part of the pension or part of the Social Security into the qualified income trust.

In many cases it will be advantageous to deposit all of your monthly income into the Miller trust/ QIT. However, if income would be left in the QIT after paying out all amounts authorized by Medicaid authorities, savings could prove greater if you don’t deposit all income items into the QIT. This is due to the interplay of QIT and Medicaid gift penalty rules, which is far too complex to discuss further in brief blog post.

Like so much of Medicaid planning, Medicaid qualified income trust rules contain many traps for the unwary. Therefore, it is risky to do it yourself without professional guidance. FriedmanLaw welcomes your inquiries on Medicaid planning and QITs / Miller trusts.

For further information on qualified income trusts / Miller trusts see Mark Friedman’s May 10, 2018 post on this blog titled NJ Medicaid and Qualified Income Trusts.”

Special Needs Trusts and Retirement Accounts

A special needs trust is important if you have a child or grandchild, or another person in your life, with disabilities who you want to leave property to when you pass away.

A lot of people with disabilities receive disability benefits, which are often valuable and important. Some of these disability benefits programs are means-tested, which means that you must have limited assets and income (means) in order to be eligible for these programs.

SSI and a number of Medicaid programs have asset limits of $2,000. That means a person with disabilities must maintain assets under that figure to remain eligible for these benefits.

So if you leave property to your child with disabilities, you may be disqualifying her from disability benefits on which she relies.

Instead, those assets can be left to a special needs trust, a legal instrument in which the money is held and managed by someone other than your child (the trustee). The trustee controls the money, but can only spend it for the benefit of your child (the beneficiary). If the trust is created and administered correctly, the property can be used to benefit your child while your child remains eligible for disability benefits.

That said, a special needs trust only works if the property you want to leave to your child goes to the trust instead. For much of your property, this can be accomplished with your will. But as we wrote last week, some of your property may pass outside your will by law – life insurance with a designated beneficiary, houses owned by joint tenants with a right of survivorship, bank accounts with a payable on death beneficiary.

One type of property that often passes by law is retirement accounts. If you designate a joint beneficiary, the account will typically pass outside your will to that beneficiary. And because of favorable tax treatment, there is usually good reason to designate a beneficiary on your retirement accounts.

That designated beneficiary can be the trustees of your child’s special needs trust.

The beneficiary designations have to be completed in a particular way in order to achieve this. FriedmanLaw can work with the custodian of your retirement account (Vanguard, Fidelity, etc.) to set up beneficiary designations leaving the account to the special needs trust.

If you’re interested in learning more, please call or email FriedmanLaw today.

Tax Reform– Medical Expense Deduction Lives

What a difference a few months can make!  On November 21, 2017, Mark Friedman, Esq. wrote a blog entry explaining that the then tax reform bill would eliminate the deduction for medical expenses creating major issues for many people.  As Mark noted,

“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.”

Thus the tax reform bill would have created particular issues for families that liquidate IRAs and 401(k) accounts to fund long term care.

Mark ended his blog post by writing, “I hope that lawmakers will take this into account as tax reform progresses.”  Fortunately, Congress heard the uproar from elder law attorneys and other groups and eliminated that feature of tax reform.  In fact, the recent tax legislation temporarily expands the medical expense deduction.

To learn how this may affect you, make an appointment with Mark or me.  In the meantime,  a hearty toast to democracy in action.

 

Understanding Medicare

Medicare is a health insurance program sponsored by the federal government. Medicare is available to most people at age 65, but younger people may qualify for Medicare when collecting Social Security Disability Insurance (SSDI) or due to contracting end stage renal disease or Lou Gehrig’s Disease (ALS).

If you become eligible for Medicare at age 65, you can enroll in Medicare during your initial Medicare enrollment period of 3 months before to 3 months after the month in which you reach age 65. After receiving Social Security Disability Insurance (SSDI) for 24 months you should automatically receive Medicare. If you have group health insurance through your current employment or your spouse’s current employment, you may be eligible for a Medicare Special Enrollment Period.

As discussed in greater detail in the  Medicare section of specialneedsnj.com, you also can enroll in Medicare late. However, delaying Medicare can lead to Medicare late enrollment penalties and may leave you without sufficient health insurance (especially if Medicare would provide primary health insurance coverage).

While you may be tempted to save on premiums by deferring Medicare, over a long lifetime, Medicare late enrollment penalties can dwarf Medicare premium savings from deferring Medicare. Your Medicare Part B premium may go up 10% for each full 12-month period that you could have had Part B, but didn’t sign up for it. In addition, you may have to wait until the Medicare General Enrollment Period (from January 1 to March 31) to enroll in Medicare Part B, but Medicare coverage won’t start until July 1 of that year.

You also may face a Medicare prescription late enrollment penalty if, for any continuous period of 63 days or more after your initial enrollment period is over, you go without Medicare prescription insurance or other creditable drug coverage. Large employer drug plans typically are creditable but check with your employer to make sure.

A Medicare late enrollment penalty should not apply if you are covered by an employer or union group health plan based on your own or a spouse’s current employment. Because COBRA and retiree health plans are based on former employment, Medicare late enrollment penalties apply if you delay enrolling in Medicare Part B because you have COBRA or retiree health coverage but not current active employment coverage.

Finally, delaying Medicare enrollment can leave you uninsured. Medicare may be primary or secondary depending on various factors. If Medicare is primary, Medicare rather than other health insurance (such as COBRA or retiree coverage) pays first. Where Medicare normally would be primary but you don’t sign up for full Medicare coverage, other health insurance typically won’t pay costs Medicare normally covers. When through no fault of the secondary insurer, you fail to obtain Medicare that would be primary insurance, the secondary coverage may pay little or nothing on your claim leaving you liable for costs Medicare normally would cover!

Medicare usually is primary to small employer health plans, retiree health plans, COBRA, Medigap insurance, and some other coverages. For instance, if you are eligible for Medicare but don’t take Medicare because you are covered by your spouse’s retiree health insurance, your spouse’s plan may not cover you for most costs.

For further information on Medicare, see the elder law section of SpecialNeedsNJ.com. However, Medicare rules are extremely complex and errors can prove catastrophic. Since, this site provides only general information on Medicare, it is important to obtain individual legal counsel on your own issues

Five Reasons why Estate Planning is Important

This is another in a series of guest articles we’ll be posting from attorney colleagues across the country on issues relevant to our readers.  Enjoy!

Because we never know what the future holds, it’s important to plan your estate now rather than put it off until later when it might actually be too late. Let’s take a quick look at the specific reasons why being proactive when it comes to your estate is important:

1. Preparation in case disaster happens
– Estate planning provides you with the opportunity to appoint one or more people to make medical decisions on your behalf if you lose the ability to do that on your own.
– You can specify what, if any, extraordinary measures healthcare providers should take in the event you are incapacitated.
– Designate who will pay your bills during the time you are recovering from a medical issue or emergency.

2. Complete picture of finances
– As part of estate planning, you will inventory your debts and assets.
– You will designate who will inherit your assets and how you want them distributed. This is also true for sentimental items that have little financial value.
– As your review your important documents and other paperwork, you may find that updating some of them is necessary and would have otherwise been overlooked. This includes designating beneficiaries.

3. Reduce the stress of your family members in advance of your passing.
– When estate planning is not done in advance, it’s left to the surviving family members who will already be grieving your loss. Handling the deceased’s finances, distribution of assets, and other matters can add substantial stress to what they will already be experiencing.

4. Provision for your loved ones
– Specify guardians for your minor children.
– Set up a trust for your special needs children or other relatives to distribute funds to them after your passing. An estate planning attorney Scottsdale AZ can assist with this in a manner that the payments don’t interfere with the recipient’s government benefits.
– Designate which of your children from previous relationships and your current relationship should receive various of your assets. This can have the added benefit of protecting those assets from former spouses and creditors. Speak to an estate planning attorney for more details.

5. Establishes a plan in case of your incapacitation.
Estate planning makes it possible to provide information and answers to family members when they will most need to know but are unable to ask you. It is also likely to reduce tensions and conflict among your surviving family members. You can designate any or all of the below:
– The executor of your estate.
– End of life medical care that you wish to have.
– The disbursement of your retirement account funds.
– The disbursement of your sentimental items.
– The handling of your social media accounts.

Too many people delay or avoid planning their estate for any number of reasons. Taking a proactive approach to how you want your estate handled can be beneficial for your entire family. Talk to an estate planning attorney today to discuss your legal options.

Thanks to our colleagues and contributors from Hildebrand Law for their insight into estate planning practice.

Medicaid to Pay for Long Term Care in Nursing Home, Assisted Living, or Home

Medicaid can pay for long term in a nursing home, assisted living facility, or at home with aides, but with long term care costing thousands of dollars each month, long term care could easily wipe out your life savings unless you plan effectively.  In  “What-should-you do-now-to-protect-against-nursing-home-costs?” [April 26, 2017 SpecialNeedsNJ.com/blog] Mark Friedman discusses Medicaid and other long term care planning tools  This article focuses on how to get New Jersey Medicaid or New York Medicaid to pay nursing home, assisted living, or in home aide long term care costs– particularly in crisis situations.

 

So what should you do if a spouse or parent has a stroke or contracts dementia?  The first thing to consider is engaging an elder law attorney.  Do it yourself Medicaid planning is hard because Medicaid is governed by complex rules that often defy common sense.  A mistake that delays Medicaid eligibility for as little as one month can cost you over $10,000!

 

Clearly trying to qualify for Medicaid without consulting an elder law attorney is risky.  What about the friendly Medicaid planning firm recommended by dad’s nursing home?  Well, the longer dad stays off Medicaid, the more the nursing home earns because Medicaid pays only a fraction of private pay long term care costs.  Therefore, a firm chosen by the nursing home may not be eager to qualify dad for Medicaid while he still has assets left.

 

So what are some Medicaid planning options?  To qualify for Medicaid, you must have limited  finances and pass a Medicaid care screening (which NJ Medicaid calls a PAS).  Depending on where you receive care, you may have t0 take steps to obtain the PAS.  At FriedmanLaw, elder law attorneys employ various techniques such as gifts, purchases, and home improvements to qualify clients for Medicaid to fund long term care– often protecting substantial savings.

 

While Medicaid may impose penalties for some gifts made during the five year lookback period, it hardly ever is too late to benefit from Medicaid planning.  Some gifts are exempt and even non-exempt gifts can yield savings (sometimes very large savings) in the right situations. We also may suggest coupling gifts with annuities to save large amounts.  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.

 

While most gifts (whether or not taxable) during the lookback period trigger a penalty period that delays Medicaid eligibility, some gifts for a spouse or disabled person and some gifts of a home are exempt– provided the gift meets various technicalities.  For instance, a caregiver child gift can protect mom’s home but only if it meets stringent Medicaid requirements.  Starting the  Medicaid gift penalty period at the right time can save a lot.  For instance,  $150,000 gift to grandchildren in January 2017 would trigger a roughly 15 month penalty period but the 15  months won’t even start until much later unless the gift is designed 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.  Finally, unless wills and powers of attorney are coordinated with Medicaid planning, 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.

 

 

 

Don’t Lose Supplemental Security Income (SSI), Social Security Disability (SSD), or Medicaid If You Marry

Supplemental Security Income (SSI) and Social Security Disability (SSD) are monthly payments to an individual who is disabled per Social Security definition.  Medicaid can cover health care for people who meet the Social Security definition of disabled and in some cases developmental disabilities housing as well.

 

Although the actual test is very technical, for the most part an individual is Social Security Disabled if he/she can’t work and earn significant income due to a disabling medical condition expected to last at least a year or result in death.  Significant income is at least $1,170 ($1,950 if blind for Social Security purposes) per month in 2017.

 

Eligibility and benefits depend on income and assets for SSI and Medicaid but work history for SSD.  To read more on qualifying as Social Security disabled and Social Security disability benefits, click this link https://specialneedsnj.com/disability-benefits/

 

Because SSI and Medicaid base eligibility and benefits on income and assets of both spouses, marriage can lead to loss or reduction of benefits.  This is particularly likely if the new spouse has more than very modest income and savings.  The exact impact would depend on the type and amount of income and savings and the make up of the household.

 

Social Security Disability (SSD) eligibility and benefits don’t depend on finances.  Instead, to qualify for SSD, you must have sufficient Social Security covered work experience or qualify for child insurance Social Security Disability benefit SSD per 42 U.S.C. 402(d).

 

Child insurance Social Security Disability benefit SSD is paid to people who become disabled before age 22 if a parent either receives Social Security retirement or disability benefits or died after working sufficient quarters of Social Security covered work to qualify for Social Security retirement or Social Security Disability benefits.

 

Marrying an individual who doesn’t receive Social Security Administration benefits will disqualify you for child insurance Social Security Disability SSD (i.e. SSD on your parent’s work record).  However, marriage won’t cause you to lose Social Security Disability SSD benefits based on your own work history.  Unfortunately, it is difficult for an individual with developmental disabilities or other early onset serious disabilities to accumulate sufficient quarters of Social Security covered work to qualify for Social Security Disability benefits.

 

Although an obvious way to avoid losing benefits is simply not to marry, that may be unfair and extreme. A more acceptable option could be to live together without a formal marriage.  But even that may be overkill because not all marriages lead to loss of benefits.  Depending on your situation, FriedmanLaw may be able to guide you with individually tailored planning to let you marry and keep SSD, SSI, and Medicaid.

 

Lawrence Friedman Receives Distinguished Legislative Service Award

The New Jersey State Bar Association has awarded attorney Lawrence A. Friedman its 2016 Distinguished Legislative Service Award for helping to enact the Uniform Trust Code (“UTC”) in New Jersey.  The Distinguished Legislative Service Award is the Bar Association’s highest honor for noteworthy legislative service while the UTC codifies over 100 years of trust law into one comprehensive statute that is largely uniform over many states.

In bestowing the award, Bar Association President, Thomas Prol, noted,
This significant piece of legislation not only impacts the practice of trusts and estates law, but impacts young lawyers who may now find the practice of trusts and estates law more accessible.  Your efforts on drafting this legislation and ensuring its passage is exemplary of the kind of work the Association proudly encourages and supports and we are grateful for your service.

Larry drafted statutory provisions to protect special needs trusts and worked with Bar Association colleagues to resolve concerns of the Legislature and Governor and facilitate New Jersey’s enactment of the UTC in 2016.  Regarding Friedman and his colleagues, Bar Association President Prol also said,
“Their knowledge in this area of the law is unparalleled, and they continue to dedicate their efforts to teaching the UTC to their colleagues as evidence of their continued commitment to their profession.  In addition, their work has not gone unnoticed. They are called upon by legislative staff when questions arise in the area of trust and estate law. Their contributions to the association’s legislative program have proven invaluable.”

The Bar Association also awarded its  Distinguished Legislative Service Award to Lawrence A. Friedman in 2000 for his work in drafting earlier legislation to help New Jersey residents use special needs trusts.  Special needs trusts are an important tool that lawyers use to help people with disabilities enjoy a better quality of life.

Medicaid Gifts and the Simplified Application

Last week, New Jersey Medicaid announced a simplified process for applying for Medicaid for people with income below the federal poverty level who haven’t made gifts.  We wrote about that in a blog post last week.

This simplified process for some applicants is a welcome development.  Unfortunately, however, as is often the case with Medicaid, it’s not as simple as it appears.

The process involves applicants being able to use an affidavit to attest that no gifts were made, instead of having to submit five years of financial records for the Medicaid agency to review.  However, it’s not always clear what’s a gift, and transfers that wouldn’t be gifts in other contexts are gifts for Medicaid.

Under Medicaid rules, a gift is a transfer of assets for less than fair market value.  A gift can be any amount and to any recipient.  Unlike with tax, there is no $14,000 exemption, and charitable donations can be counted as gifts.

For example, if Jane gives a $10,000 wedding present to her son, it’s a gift.  If she transfers $50,000 in stocks to her daughter, it’s a gift.  If she makes a donation of $5,000 to her church, it’s a gift.  If she sells her car to her sister for $4,000, when the car is worth $10,000, it’s a $6,000 gift.

Gifts incur a Medicaid penalty – in the long term care context, for every $10,000 you give away, you lose roughly one month, during which Medicaid will not pay for your care.  However, some gifts are exempted from incurring a penalty, including certain gifts to your spouse, a child with disabilities, and others in certain specific situations, as well as gifts outside the Look Back Period.  (Since exempt gifts are very technical, you should consult with a lawyer on specific questions.)

It’s not clear whether someone who has made an exempt gift can use the affidavit.  It’s a technical question, and hopefully the answer will become clear as this simplified process sees more use.  However, you certainly don’t want to be in the position of unintentionally lying to the government in an affidavit, so if you have any questions about whether you’ve made gifts, you should speak with elder law attorneys like FriedmanLaw about your specific situation.

Medicaid simplifies Application Process for Some Applicants

Today, New Jersey Medicaid issued a MedComm (Medicaid Communication) saying that applicants with incomes under the federal poverty level (currently $983 / month) can use an affidavit in lieu of the lookback review.

When applying for long term care Medicaid benefits, the Medicaid agency usually requires you to submit five years’ worth of statements for all financial accounts.  A Medicaid worker reviews these statements to determine whether you’ve made any gifts in the past five years.  Gifts incur a penalty, a period of time during which you lose Medicaid benefits.

This review of financial records is very burdensome for all involved.  It’s onerous for applicants, who must gather five years of records and explain their entire financial life to a stranger.  And it’s arduous for the Medicaid worker, who has to review all the statements and verify each significant deposit and withdrawal.

According to the new MedComm, applicants with income under the federal poverty level who haven’t made any gifts in the past sixty months will now be able to submit an affidavit attesting so.  In doing that, the applicant will avoid having to submit financial records for the past sixty months.  This will make the Medicaid application process worlds easier for applicants with modest income who haven’t made gifts.  This is especially true where a third party is trying to assemble the records, for example, a child-caretaker trying to piece together their parent’s financial records.

The affidavit can only be completed by the individual, or his or her spouse, guardian or agent under a power of attorney.  So for a widow who lacks capacity to sign the affidavit herself and never created a power of attorney, her children (or others) would have to apply for guardianship in order to use the affidavit.  This drives home the need to have a well-drafted power of attorney, especially if you may need long term care.

We have yet to see how this shakes out, but if things go as stated in this MedComm, then we at FriedmanLaw are excited to be able to offer some of our clients a simpler way to apply for Medicaid.

For specific information on Medicaid or long term care, please call or email us today.

Protect Your Loved One with Special Needs

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

 

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

 

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

 

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

 

Hearing Loss Affects Longevity for Seniors

On Oct.1, 2015, Reuters reported that a recent study involving researchers at Johns Hopkins University School of Medicine in Baltimore, Maryland shows that older people with significant hearing loss are at risk to die sooner than people with normal hearing.  While researchers haven’t determined the cause of the connection, the study points to hearing impairment as at least a warning sign and maybe even a contributor to lowered survival odds.

“In the simplest terms, the worse the patient’s hearing loss, the greater the risk of death,” lead author Kevin Contrera said of the study’s findings. While prior research has linked hearing problems to negative health effects, few studies have addressed mortality risk, Contrera and his colleagues write in JAMA Otolaryngology-Head and Neck Surgery.

Reuters notes that a hearing loss researcher who teaches at the University of Manchester in the U.K. and had no connection to the study wasn’t surprised by the results because seniors with hearing loss tend to have more difficulty with communication, are more socially isolated, and are less able to care for their own long-term health conditions. However, it isn’t clear whether increased mortality risk arises from hearing loss itself or these related conditions.  Since most older people have some hearing impairment, hearing loss could just be a marker of being older and sicker in general.

The study involved data on 1,666 adults from a nationally representative survey conducted in 2005-2006 and 2009-2010, as well as death records through the end of 2011. The study group were all over age 70 and had undergone hearing testing. Using World Health Organization definitions of hearing impairment in light of age, the researchers found that people with moderate or severe hearing impairment had a 54 percent greater risk of dying than those with normal hearing. In contrast, participants with mild hearing impairment had a 27 percent greater risk of mortality. Meanwhile, even after injecting other potential mortality indicators into the mix, people with moderately or severely impaired hearing had a 39 percent higher risk of death than those without hearing problems, and those with mild hearing impairment had a 21 percent greater risk.

Since two thirds of adults over 70 experience some hearing impairment, every hearing impairment alone doesn’t automatically indicate a major health issue. Still, in light of the links shown in the study, seniors with noticeable hearing loss would do well to discuss the study with their health providers.

While this study is outside the typical topics we discuss on this blog, at FriedmanLaw, we think it’s important to take a broad approach to solving legal issues. Thus, we hope you have found this post useful.

 

Appellate Division Makes Do It Yourself Medicaid Gift Planning Even Riskier

The Appellate Division of the Superior Court of New Jersey laid to rest two vexing Medicaid planning issues in C.W. v. Div. of Medical Assistance and Health Servs. (Aug. 31, 2015 #22-2-7790) Since nursing homes average over $10,000 per month in New Jersey and Medicaid is the only government program that funds long term care, these rulings should be of more than passing interest to anyone with a loved one in failing health.

C.W. v. Div. of Medical Assistance and Health Servs. dealt a death blow to two areas of contention. First is whether the Medicaid disqualification penalty period due to gifts is recalculated as the average cost of nursing home care changes from year to year. The second question is whether a penalty period is reduced when some (but not all) gifts within the lookback period are returned.

To understand these issues, we first must consider how one qualifies for Medicaid. Medicaid eligibility is discussed in detail under the www.SpecialNeedsNJ.com elder law drop down menu, but we’ll summarize two key bones of contention in C.W. v. Div. of Medical Assistance and Health Servs.

An individual must satisfy both financial and care requirements to obtain Medicaid to fund long term care. Thus, resources and income of a Medicaid applicant (and spouse in most cases) must fall within Medicaid caps. However, where the applicant asks Medicaid to fund long term care, gifts by either spouse during a lookback period are taken into account. The lookback period is roughly the 60 months prior to application in addition to the application date forward.

Non-exempt gifts during the lookback period disqualify the applicant for roughly a month of Medicaid funded long term care for each $10,000 gifted by either spouse. The $10,000 divisor represents average nursing home costs in New Jersey so it varies from year to year.

The divisor can increase quite a lot if the gift is early in the lookback period and nursing home costs rise substantially during the lookback period. For instance, if gifts total $120,000 and the gift divisor is $10,000 per month, the long term care Medicaid disqualification penalty period would be 12 months. However, $120,000 in gifts would trigger only a 10 month penalty period if average monthly nursing home costs rose to $12,000.

As the examples show, the higher the divisor, the shorter the penalty period. Since average nursing home costs tend to increase over time (often much more than general inflation), applicants generally could qualify for Medicaid sooner if gift penalties were based on current divisors rather than staying static from the start of the penalty period.

Rather than start when gifts are made, the Medicaid gift penalty period is deferred until the individual both has applied for Medicaid and would receive Medicaid to fund long term care but for the gifts that trigger the penalty period. Thus, the penalty period wouldn’t start until June 2016 if the applicant’s spouse gifted $250,000 in August 2015 but excess resources weren’t spent down and a Medicaid application filed until the end of May 2016. Since the penalty period would cover multiple years this raises the question whether the penalty period is based on the average nursing home cost in 2016 or is recalculated each year with the new annual divisor.

In C.W. v. Div. of Medical Assistance and Health Servs., the Appellate Division held that once the penalty period starts, it continues to run and isn’t shortened even if the gift penalty divisor rises in the interim. Even a new Medicaid application doesn’t allow for the penalty period to be recalculated.

The Appellate Division’s second holding may prove even more vexing. The court ruled that a penalty period need not be reduced when some but not all gifts within a lookback period are returned. Thus C.W. argued that the Medicaid penalty period should be reduced pro rata when gifts are returned. For instance, if mom gave her son $180,000 in May 2015 and the son either returned $80,000 to mom in December 2015 or spent $80,000 on mom, C.W. would say the penalty period should be based on $100,000 rather than $180,000.

The Appellate Division rejected partial penalty abatement and held that the penalty period is unchanged where only some gifts within the lookback period are returned. In addition, the court held that a gift penalty still applies where a gift recipient deposits the gift in the recipient’s name but spends it on the donor.

So, what should we learn from C.W. v. Div. of Medical Assistance and Health Servs.? The most important lesson is a principle we have stressed throughout our website– do it yourself long term care or Medicaid planning is incredibly risky. Errors that might seem inconsequential to a lay person can prove catastrophic. Spouses should seek Medicaid counsel before making significant gifts whenever there is reason to fear that either spouse may need long term care in the next 60 months or so.

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.

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