Mon, 30 November 2009
Once again the holiday season is upon us, a time of joy but also stress. We often visit family members we haven’t seen in some time and that’s when changes in older loved ones become more noticeable. Some of the changes that may indicate your loved one needs some extra help:
1. Weight loss
So what should you be doing if you see any of the above? A physical and neurological exam should identify any medical issues. A Geriatric Care Manager (GCM) can help assess the options available that will allow your loved one to continue to live a full, fruitful and safe life. Suggestions may include a home health aide, adult day care, and personal organizer to help with money management.
If your loved one can no longer live alone, possible alternative living arrangements include another family member’s home, assisted living, senior housing or nursing home. Each choice has pros and cons and expense is often an issue. Planning should be done as early as possible to determine what government benefits can be tapped to help pay the cost, such as Medicare, Medicaid and Veteran’s benefits.
Because the family is together once again, the holidays are a good time to begin discussing these difficult decisions. For example, if one child lives nearby an aging parent and sees the decline on a daily or weekly basis, and the other child does not, there is often a tendency for that second child to downplay or minimize the decline, often basing his/her opinion on phone calls with the parent. But seeing the parent and visiting their home can alter that perception.
Remember, there are resources available to you. All you need to do is find them or consult with someone knowledgeable, such as an elder care attorney, who can help point you in the right direction. But, don’t put it off till next year. By that time you may be dealing with a full blown crisis.
Mon, 23 November 2009
Much has been written in recent years about the health of Social Security. As the population ages two things are happening. Fewer people are paying into the system, while at the same time more people are receiving benefits, raising concern that the program will run out of money. But there is another, perhaps, more serious crisis developing within state employee pension programs that hasn’t, until now, received as much attention. We are seeing it here in New Jersey, as are other states across the country. And it may hit some folks harder than the Social Security problem because so much more of their retirement income may be derived from a state pension than from Social Security.
As the economy remains in a funk and financial markets still struggle to recover from huge losses over the past couple of years, many pension systems have seen their investments take a big hit. Since the beginning of 2009, for example, New Jersey ‘s pension fund has lost almost 13% in value, $10 billion to be exact. It hasn’t helped that the government has taken money from the pension system to plug budget gaps in other areas in past years.
Now, our new governor, Chris Christie, is assessing the situation. Will he be the one to make some hard decisions? Our outgoing governor already has signed legislation raising the retirement age and barring retirement payouts for part time employees paid less than $7500 per year. You can be sure other changes are coming from the new governor. There have to be. There isn’t enough money to pay everyone who will be entering the pension system in the next 30 years. The state has to close the gap somehow.
Now, ask yourself what you would do if the State cut your pension by 10%, 20% or more. What would you do to replace that income? And what would you do if you were then faced with rising long term care costs? The government is dealing with a fiscal crisis. It is doing the same things we all do when we are faced with a financial crisis – tighten our belts and cut costs.
The signs are there. You just have to pay attention – and take the opportunity to protect yourself and our families. Don’t assume the government will be there to protect you. It’s busy trying to fix it’s own problems. You’ve got to take care of your own. And the time to do it is now.
Mon, 16 November 2009
Understanding the maze of laws and benefits that form our long term care system is a full time job. That’s why I devoted my practice exclusively to elder and disability planning. A few weeks ago I was reminded of that fact when I was asked what I know about a particular VA program that provides adult day care services for a small co-pay. This clearly didn’t sound like the Aid and Attendance program that in the past two years we have incorporated into our planning arsenal.(see my 2/25/08 post). So I decided to investigate and here’s what I learned.
The VA doesn’t do a good job of publicizing its benefits and services so getting accurate information is never easy. There is a program of services under what the VA calls the Geriatric and Extended Care Program. These include programs that provide care in a veteran’s home or in a community setting such as adult day care, specialized services for rehabilitation following, amputation, stroke, traumatic brain injury and spinal cord injury, physical therapy and home hospice care. Keep in mind that the range of services can vary greatly depending on where you live and which health care network the VA has charged with providing those services.
Uncovering and understanding the eligibility requirements is the harder part. Unlike the Aid and Attendance program which is available to veterans and their spouses, the Extended Care Program is only available to veterans who received a discharge under honorable conditions. It is, however, not limited to veterans who served during wartime (again, unlike Aid and Attendance). There is no length of service requirement for vets who enlisted before 1980.
There is a co-pay requirement applicable to the nonservice connected veteran, that is, a veteran who’s injury or illness is not linked to his military service (which is the case with most of our elderly clients). In order to be eligible the veteran’s income must not exceed the maximum annual pension rate for the Aid and Attendance program. The co-pay generally ranges from $5 to $97 per day, depending on the particular service received.
What I concluded from my research so far is that the Extended Care Program is another option, another piece of the long term care puzzle. And with proper guidance our clients may be able to tap into a valuable source which will help lessen the risk that they will run out of money and options when they reach the next step in the long term care journey.
Category:Veteran's Benefits -- posted at: 6:00am EDT
Mon, 9 November 2009
How many times have you contacted a government office to inquire about some benefit or program and told you are not eligible? Have you then left the office or hung up the phone accepting that what you have been told is true? What if that is just flat out wrong? As an elder law attorney I see that happen all the time, especially when it comes to the Medicaid program. A recent court case last week corrected at least one of those untruths.
A federal court last week finally weighed in on a particular exception to the Medicaid transfer rules that the State of New Jersey has, for some time, misinterpreted. A transfer of assets from parent to child, if made within 5 years of the date of application for Medicaid benefits, carries a Medicaid penalty, but there are some exceptions to that general rule. If the transfer is made to a child, or to a trust for the benefit of the disabled child, then that transfer is not subject to a Medicaid penalty. The State has for as long as I can remember, insisted that this exception applies only if the transfer is to a trust for the sole benefit of the disabled child.
Now, if you are not familiar with the ins and outs of the Medicaid laws, and were told that your mother is ineligible for this reason, what would you do? Probably go home and wait till the Medicaid penalty expires, not knowing any better. My staff has reported back to me on some of our cases the same thing. I then have to go back to the federal law and state regulations interpreting that law to find the exact sections that support our claim. Sometimes that is enough to resolve the issue, but other times, such as in the case of Sorber v. Velez, the case decided last week, the State doesn’t budge and we, as elder law attorneys, have to resort to the court system to settle the dispute. In the Sorber case, the issue came down, in part, to the type of grammar lesson you might remember from elementary school about the proper placement of a comma. The State’s interpretation didn’t seem logical and the court agreed.
One of my staff asked me the other day why the State would take a position that seems so farfetched. The answer, I think, can be found by looking at the bigger picture of what is playing out in this country. The government doesn’t have enough money to fund the programs and services it currently has. Looking at what’s coming, the number of people facing a long term care crisis will continue to increase in the next 20 years as 77 million baby boomers reach senior status. So, you can expect the State to continue to interpret eligibility standards very strictly. And sometimes they’ll get it completely wrong. That’s why the “do it yourself” approach is dangerous. You could be losing valuable benefits and without the assistance of someone with knowledge of the laws you wouldn’t even know it. The government wants to push you to the back of the line. Make sure you protect yourself and fight to maintain your spot at the front .
Mon, 2 November 2009
For many families, keeping their elderly loved one at home will require in home assistance. There are many quality home health care companies in the area so finding one isn’t a problem. But I find so often that clients don’t go through a licensed agency because of the cost. While I have written in the past about the Medicaid problem of hiring aides directly and paying cash (7/20/09 post), there is another very real risk, safety. The following story is one, unfortunately, I have heard more than once.
Mary found an aide to care for Dad through an agency she had learned of from a friend. I know many of the quality licensed agencies in the area but had never heard of this one. Mary paid a fee to the agency, who sent an aide to her dad’s home but her financial dealings with the agency ended there. She paid the aide directly in cash. I cautioned Mary that she didn’t really know anything about the agency or the person they were sending but she said she interviewed the woman, who seemed pleasant enough. And Mary was in a bind because Dad had run out of money so she was paying out of her own pocked. Now the aide she had found herself and whom had stayed with Dad for 3 years was going back to her native country. Mary needed to find someone quickly and cost was a real issue.
What happened after one month was Mary’s worst nightmare. On one of her daily visits to Dad’s home she found him bruised and battered, in a semiconscious state. He had been beaten by the aide, who claimed not to know what happened. Mary called the police. They immediately arrested the aide and Dad was transported to the hospital.
Upon further investigation, Mary discovered that the agency was neither licensed nor insured. The owner disappeared, probably to reappear under another agency name. And unfortunately Dad’s injuries were of a severity that he could no longer stay at home, but needed nursing home care. Mary felt terrible, but her predicament is hardly uncommon. When trying to make ends meet safety was compromised. Bringing a complete stranger into a home to care for a defenseless senior should not be taken lightly. Background checks must be done. Training is important. There is a reason going through a reputable agency is more expensive.
However, if a long term care plan had been put in place, well before Dad needed care, perhaps Mary would not have been strapped for cash. Dad would have the money to pay for his own care, maybe government benefits could have been tapped to help out. Mary would then have hired the licensed agency, safety precautions would have been taken, and a tragedy could have been avoided.
Mon, 26 October 2009
Let’s pick up where we left off with Mary. Her son, Jim is unemployed and Mary has been giving him funds totaling $50,000 over the last 6 months to help him pay his bills. And she intends to continue doing so until he finds a job. While Mary is 70, healthy and not thinking she’ll ever need long term care, I explained to her that if her health takes a turn, the transfers to Jim will make her ineligible for government benefits should she run out of money. That is a very real possibility, with the cost of care currently averaging over $100,000 per year in her area. So what can we do?
We can set up a trust to which Mary transfers assets. The trust then provides the funds to Jim. Now, you may be thinking, “doesn’t this create the same problem Mary already has by giving Jim money each month or two?” Yes, but by having Mary transfer the money in one lump sum Medicaid’s 5 year lookback is applied one time so we know when it will expire. If she transfers a little bit at a time Mary creates a new 5 year lookback for each separate transfer. But isn’t there a potential Medicaid penalty when the trust gives money to Jim? No, because Medicaid only looks at Mary’s transfers, not the trust’s.
Some may read this and conclude that this is just a way for Mary to avoid using her money for long term care and have the government pay her bills instead. But is that really what is going on here? Cleary not. Mary isn’t even thinking about long term care (although she clearly needs to). Through the use of a trust she can accomplish both goals, helping her son get back on his feet and providing for her own needs. If she gets sick she’ll definitely need to use some of her funds for her own care but when she spends down completely, if done properly, she will be ready for Medicaid. And that benefits not only Mary, but also the providers of her care who will receive those benefits, whether it be a nursing home, assisted living facility or home health care agency.
The long term care provider will know that after Mary spends down her assets she will qualify for Medicaid without any surprise ineligibility periods imposed by Medicaid. And Mary will know that she can be there for her family and still meet her own needs. Mission accomplished.
Mon, 19 October 2009
Mary had been reading my blog posts for some time now about the need to plan ahead for long term care. Something struck a chord with her and she called. She has a home and about $200,000 in investments. While still healthy, she is 70 and thinking about the future. I then asked her if she had made any gifts to her kids or grandkids. She replied, “No gifts but I am helping out my son Jim a little bit because he has been out of work for 6 months”.
“Well, Mary, actually, the money you are giving your son may disqualify you for government benefits down the road, should you need them”, I explained. Mary became exasperated. “Jim has had such a tough time finding a job in this economy. How can the government tell me I can’t help my family when they are in need?” The reason for this, if you have been reading my posts over the past number of months, is the Medicaid spend down rules. The government wants you to spend your money on your own long term care first, before asking for assistance.
Now, not all your money must be spent on long term care. But it must be spent in such a way that you are getting something of equal value back. Mary heard this and in an exasperated tone cried, “what could provide me greater value and satisfaction than helping to keep a roof over my son, daughter-in-law and grandchildren’s heads and food on the table, until Jim can get back on his feet? My parents helped us out when my husband lost his job. In tough times our family has always pulled together and pitched in. Jim is a good son. He just needs a break.”
While you and I may view Mary’s help as essential and proper, unfortunately the government does not. Mary estimates that she has given Jim $50,000 over the last 6 months and intends to continue to do so. Right now, however, she has a potential Medicaid penalty of about 7 months and that will only increase if she continues to advance funds to Jim.
Mary is really getting agitated now. “So are you telling me I have to stand by and watch Jim lose his house -- that I can’t do anything?” “Not at all”, I replied. “You can be there for Jim, but we have to do it in a way that won’t create long term care problems for you down the road.” In next week’s post I’ll share with you what I told Mary.
Mon, 12 October 2009
A few months back I wrote about how estates up to $3,500,000 are not subject to federal estate tax and that the tax will be eliminated in 2010. For this reason, when people call our office to discuss estate planning they will often begin by saying that they are not concerned about estate tax. I have to correct them, however, because most states have their own estate tax that may kick in on smaller estates where the federal tax isn’t a concern. So, how big might such an estate tax bill be?
First, a little background. Under the previous law, Congress permitted a dollar for dollar credit towards the federal estate tax for any state estate and inheritance taxes paid up to a certain limit. So, many states established their estate tax structures to “soak up” the maximum credit that Congress permitted. In essence, the federal government shared a portion of its tax revenue with the states. When it raised the federal exemption, however, Congress decided it could no longer share a smaller tax revenue with the states so it phased out this credit. Many states, in response, changed their tax laws to preserve their revenue stream. New Jersey now has an estate tax that kicks in on estates greater than $675,000 and New York on estates greater than $1,000,000.
New Jersey’s estate tax starts out at 4% and gradually increases to a maximum of 16%. New York’s estate tax also maxes out at 16%. As I explain to our clients, we usually see federal estate taxes in the six figure to seven figure range and state estate taxes in the tens of thousands of dollars on the low end, and hundreds of thousands of dollars on the higher end.
What can you do to reduce, or even eliminate this tax? Well, for starters, in the case of married couples, a bypass or credit shelter trust should be employed. This will save substantial amounts of tax that would be paid by children at the death of the second parent to die. But you must have this trust set forth in your will before you pass away.
What if that opportunity has already passed? Purchasing life insurance to pay the tax is another solution, which may be especially desirable where the estate consists of real estate that the family doesn’t want to sell just to pay the tax. And, placing that insurance in a life insurance trust is usually a good idea. Otherwise, you end up paying estate tax on the life insurance that you bought to pay the tax in the first place.
Category:Estate tax -- posted at: 6:00am EDT
Mon, 5 October 2009
On September 1, 2009 New York’s new power of attorney law became effective. There has been much written about it. The intent of lawmakers was to correct the financial abuses that seem to increase in frequency, probably due to the aging of our populace. As with any new law, however, what lawmakers envision and what actually occurs often differ greatly. But, what does the new law mean for you?
First, let’s run through the major changes. One of the biggest changes is the creation of a “statutory major gifts rider”. This is a document separate from the power of attorney that specifically authorizes major gifts and other transfers (defined as greater than $500 per person per calendar year). No longer can the principal (the person executing the power of attorney) authorize gifts in the body of the power of attorney document. This will impact many long term care plans in which assets are placed in trust, for example. If the principal can no longer make the transfer and a child, as agent under power of attorney, needs to complete that transaction, New York law now requires this separate rider.
A second important change focuses on the execution of the document. Now the principal and the agent must sign the document in front of a notary and two disinterested witnesses. The signings need not, however, occur at the same time. The agent may sign at a later date than the principal.
A third major change is one that at first might not seem like much. Any new power of attorney automatically revokes all previous power of attorney unless the principal expressly states otherwise in a special “modifications” section. This could really wreak havoc upon estate and long term care plans. Think about it. How many times have you gone into a bank and executed a limited power of attorney appointing a family member as agent for a particular account? If that document doesn’t expressly state your wish not to revoke your general power of attorney or any other limited power of attorney that you signed previously then they all are revoked. What if the bank employee doesn’t point this out to you? They may not even be aware of this provision.
It will be interesting to see what impact the new law will have. Will it correct financial abuses of the elderly? Will it be too restrictive and hamper families in their ability to care for elderly members? Will there be any unintended consequences that nobody foresaw? And will other states follow suit? One thing should be clear. Consult your elder or estate planning attorney before you execute any other powers of attorney.
Mon, 28 September 2009
One of the more common questions asked of me is “should I take Social Security early?”. The questioner is referring to the ability to take Social Security as early as age 62, rather than waiting till the full time retirement age of 65. (By the way that age gradually increases for those born after 1937 until it reaches age 67 for those born 1960 or later.) Taking early Social Security reduces your monthly payment by ½ of 1 percent for the number of months before age 65 you start those checks coming. If you enroll at age 62 you will get roughly 75% of what you would receive at age 65. Ok, those are the basics. So, what’s the answer?
Well, it depends. There isn’t a “one size fits all” solution here. But let’s analyze this a bit. One consideration is going to be, “How long do I think I will live and what is my break even point?” For example, if I wait until age 65 to take my benefit how long will I need to live before I come out ahead by giving up a lesser benefit at an earlier age? That may also be impacted by what I do with the money if I take it early. If I have sufficient other income and I invest the Social Security that will affect the calculation.
But, wait. That’s not the only consideration. If I am still working when I take an early benefit I can lose some of that Social Security if my income exceeds a certain level (this changes from year to year). And, what about my spouse? When one spouse dies, the surviving spouse is entitled to receive the larger of the two checks. So that may work into this as well.
As you can see, there are many things to consider. There is a certain amount of guesswork involved as well. The best answer I can give, however, is to consult with your professional advisors – financial, tax and elder law – to run some numbers. What is best for you will most likely not be best for the person seated next to you. There are just too many variables for there to be one right answer. But, one thing I can unequivocally say is that you should “run the numbers” before you reach age 62. It might be right for you and you wouldn’t want to pass up that opportunity if it makes financial sense.
Mon, 21 September 2009
I met with a family with the following scenario. Dad needed nursing home care and the family had done no long term planning. We talked about how under Medicaid rules the couple’s assets would be counted, divided in half and that Mom would be able to keep 50% of the assets up to a maximum of $109,540 and the home. We went through a list of their investments. I then asked if they had anything else of value. Son, Joe, mentioned that Dad had just signed up for Jets season tickets at the new stadium the Giants and Jets will be opening in 2010. “We want to keep the tickets in the family”, he said. “Dad can just transfer them to us, right?” That got me thinking. “I’m not so sure”, I replied.
If you’re a sports fan, by now you know all about seat licenses. Both the Giants and Jets are selling season tickets in a new way. Before you can have the privilege of buying a game ticket you must pay a fee, called a seat license. The better the seat, the higher the fee. Joe told me that the license for his family’s seats cost Dad $60,000. So, what do you think will happen if Dad just transfers his seats and later applies for Medicaid?
Certainly there is no mention of NFL seat licenses in any state Medicaid regulations. But, doesn’t the license have a value? Teams are telling their fans that they can resell the license, that it’s really an investment. It isn’t a stretch, then, for the State to treat the transfer of the license from one generation to another as a transfer for less than fair value subject to a Medicaid penalty. Especially since the State is facing huge budget deficits and can ill afford to pay out benefits to huge numbers of its residents. So, do I think that the State will let it go? Not likely.
Back to Joe and his parents. I told him that any transfer of the seat license had to be for fair value. But, that’s easier said than done. No one really knows what resale value they have since the licenses are brand new and can’t even be resold yet. There is a lesson to be learned though. Families with season ticket plans may want to consider transferring them to the next generation while healthy. Just another reason it’s a good idea to plan for long term care, and if you’re a Jet fan like me, you don’t want to miss out on the possibility of a Super Bowl trip. It’s gotta happen one of these years – right?
Mon, 14 September 2009
I discussed in last week’s post how a guardianship may not be possible where Mom needs help but is not necessarily incompetent. So, what other options are there? Mom’s health has been in gradual decline. The family sees it. Sometimes they agree that action is necessary, some times not. They have had more than one conversation with Mom about the need for long term care planning, for example moving Mom to a safer environment.
The problem, however, is that the family (usually the children) are uncomfortable in their role. Mom, understandably, is not thrilled with the suggestions, and may even be hostile. Roles are reversed. The child assumes a parental role, taking care of the parent, who cannot, or will not, consider the risks that lie ahead. Yet the child is waiting for the parent to say “yes” and can only go so far on his/her own without that permission. So nothing is accomplished and the family simply moves from crisis to crisis, always seemingly reacting to events, not preparing for them.
That’s when you need to introduce an outside person into the conversation. As I explain to clients, I can say things to your parents that will be heard differently than if you say them to your parents, or if I say them to my own parents. I may, in fact, say the very same things that the family has been telling Mom. But, now it’s different. Mom may have been waiting for the children to take the next step. It isn’t just talk anymore. One step turns into the next and that’s how problems get solved. That process can start with an elder law attorney. It can also begin with a trusted advisor, such as your financial planner or accountant.
Another opportunity that so many families let pass is when a crisis occurs. Mom is in the hospital or rehabbing in a subacute care facility. She wants to go home. The family relents. That may, however, be the best time to make a change. It doesn’t have to be a permanent one from the start. But you’ve got doctors and medical staff to support you as well. If everyone is telling Mom what needs to be done the focus isn’t on the children. It is a whole lot easier for Mom to accept.
Just a few options to consider. Time isn’t on Mom’s side. Her health will continue to decline. Sometimes it’s a matter of waiting for, and recognizing, the opportunities that present themselves, and then seizing upon them. In the end, Mom may come to accept the changes as necessary, or at least grudgingly allow the children to take the action they know is necessary to insure Mom’s continued well being.
Category:addNewCategory -- posted at: 6:00am EDT
Mon, 7 September 2009
The caller gives me the following fact pattern or some variation. Mom’s health is deteriorating. Her behavior is becoming extremely erratic, in some cases violent or abusive. In some cases it’s dementia. In others it’s alcohol or the side effect of the medications she is taking. Bills go unpaid. Spending is out of control. The house is falling into disrepair. The family has spoken to Mom but hasn’t gotten anywhere. She refuses to sign a power of attorney or health care directive or take any direction or assistance from family. The caller would like to know more about guardianship.
I listen patiently and then start by explaining that guardianship isn’t suitable for everyone. And it isn’t easy to obtain. Now that can be a good thing, but it also can be a bad thing. You see, the first step in seeking guardianship is a decision by a court that Mom is incompetent, that she legally cannot make decisions for herself. We have a long history of individual rights in this country. Taking away that freedom is not something we take lightly. So the process of declaring someone incompetent is not an easy one.
Mom has to be examined by two doctors who must agree that she is incompetent. (The exact process may vary from state to state.) Then the court appoints an attorney to represent Mom. The attorney must meet with Mom and report back to the court. And here is where the problem usually occurs. If Mom is aware of what is going on, she may object to the process. She may become angry with her children and tell her attorney to go back to the judge and tell him she doesn’t want to be declared incompetent and that she will fight it.
She tells the attorney that her decisions are hers to make. Her children may think she is incompetent but where is the line between bad decisions and mental incompetency? It is not an easy one to draw. In many cases I must tell the children that attempting a guardianship will probably fail. Even worse, it may drive the parent away from seeking or allowing the children to help, actually making the problem worse. In those cases, then, what other options are there? More on that in next week’s post.
Mon, 31 August 2009
Long term care for people suffering from Alzheimer’s Disease and other progressive, degenerative neurological diseases comes in many forms. In past posts I have discussed nursing homes, assisted living facilities, adult day care and home care administered by professionals and family members. Another type of care that you may or may not have heard of is called respite care. This type of care is as much for the caregiver as it is for the ill family member.
For so many people care is provided by family members. As anyone who has provided this level of care for any length of time knows, it is an exhausting task, both mentally and physically. It is a full time job, but not one typically limited to 9 to 5 hours. It is often a 24/7 task and the toll, especially if the caregiver is a healthy, but elderly, spouse, can be harsh. That’s why respite care is so important.
Respite care is a form of short term relief for the primary caregiver. That caregiver may need time away to “recharge the batteries” or to address his/her own health issues. There are various programs and services available to provide care to the ill loved one while the caregiver is taking a break. This can range from home health care to adult day care to overnight care in a licensed facility such as an assisted living facility or nursing home. The care is temporary, usually a period of days or weeks at a time.
Financial aid for respite care may also be available through the Alzheimer’s Association’s Greater New Jersey chapter. The program will provide reimbursement of up to $1000 in respite care expenses incurred during the 3 month period beginning on the date of acceptance into the program. Eligibility is not limited to people with Alzheimer’s but is open to individuals suffering from other related progressive, degenerative, neurological dementia. While funding for the Caregivers Respite Care Assistance Program is limited it does not require disclosure of financial information. And there is no downside to applying. If funds are not available when you apply, your application will be kept on file for 12 months. For more information go to www.alznj.org. If you live outside the Northern and Central New Jersey area check with your local Alzheimer’s Association chapter to determine if a similar program is available where you live.
Mon, 24 August 2009
My Disabled Son is Going to Receive an Inheritance and Lose His Government Benefits – What Can We Do?
Mary calls with the following problem. Her father recently passed away and left a sum of money to each of his grandchildren, including Mary’s son, John. “So, what’s the problem”, you ask. John is 25 and mentally challenged. He is disabled, doesn’t work and receives Medicaid. Mary is concerned because she heard that receiving the inheritance will cause John to lose his benefits. She’s correct if John’s assets exceed $2000. “Is there anything that can be done?” she asks desperately.
The answer is to set up a special needs trust, but the timing of doing so is critical. The law has established certain safe harbor trusts that allow recipients of Medicaid and other needs based government benefits to keep those benefits and place their assets into a trust to be used for their “special needs”. These trusts, however, have very technical and specific rules surrounding their set up and administration.
For example, the trust must be irrevocable and established by a parent, grandparent, guardian or court. The disabled individual cannot set it up him/herself. The trust must provide that the disabled individual is the only beneficiary and that the assets can only be used for special needs and not for food, clothing or shelter. The trust may also need to include a “payback provision”, which states that any assets left in the trust when the beneficiary dies will be used to pay back government benefits first. Oh, and the trust cannot be set up if the disabled person is over the age of 65. These are just some of the many restrictions and requirements.
So, let’s go back to Mary and her problem. We can absolutely place John’s inheritance in a special needs trust. It probably is best to have the court act as the grantor so we’ll need to make an application to the court. It is also important that we do this before assets are ready to be distributed from the grandfather’s estate. Once the inheritance is made available to John he may lose some months of benefits before the court establishes the trust. He doesn’t actually have to receive the assets for them to “be available”. A typical estate can take several months or longer to administer so while the executor is gathering estate assets and paying debts and taxes is the best time to get the trust set up.
Keep in mind that the laws in this area are very technical so it is always best to hire an elder and disability attorney who is very familiar with these types of trusts. And, where possible, it is better for the family member leaving assets to the disabled relative to set up a special needs trust in his/her will or leave the gift to a trust that already has been established by another family member. That is what we call a “third party special needs trust”, but that’s a discussion for another day.
Category:addNewCategory -- posted at: 6:00am EDT
Mon, 17 August 2009
The recent deaths of two wealthy men, one very well known, the other not, illustrates yet again the complications and costs of not preparing an estate plan. The media has focused in the last few months on the story about Michael Jackson’s death and its aftermath. No doubt we will be bombarded with this story for months and years to come. Jackson left a mountain of debt, assets that in death are probably worth more than when he was alive, and a less than traditional family. Jackson did, however, do some things right. He left a will which included trusts for his children and a clear indication of who he wished to be appointed as their guardian.
Then there is Yung-Ching Wang. Most people probably never heard of Wang but he ranked among Forbes Magazine’s top 200 wealthiest people in the world when he died last year at the age of 91. Wang was a true success story, born into poverty, the son of Taiwanese farmers, he turned a $700,000 loan from the United States government during the height of the Cold War into a multi billion dollar international manufacturing conglomerate. His company, Formosa Plastics, became the largest manufacturer of the ubiquitous plastic materials that we find in all kinds of products today.
By all accounts, Wang was a management guru and a visionary. His personal life was a little bit more, shall we say, messy. He left a wife, to whom he was married for 72 years and 9 children. None of those children, however, were born to his wife. Oh, and he didn’t have a will. No written plan of distribution from a man whose rightful heirs is now open to interpretation and who left property and other assets around the United States and around the world.
One of his sons has filed a complaint in New Jersey state court (he was a part time resident there) seeking to be appointed administrator, the official estate representative charged with gathering assets, paying all debts and taxes and distributing the balance to his heirs. He already has a fight on his hands from two of his sisters. Had Wang executed a will appointing someone this initial fight could have been avoided.
The battle promises to last for years and drain the estate of countless dollars. One of the big questions is who the rightful heirs should be, not an easy answer since Wang fathered his children with several different women. New Jersey’s intestacy laws address distribution of estates when no valid will exists but the laws are not perfect and there, no doubt, will be issues for which clear cut answers don’t exist. Legal battles will ensue.
The lessons learned from the Michael Jackson and Yung-Ching Wang cases are clear for all of us. You can save your family much heartache and expense by leaving a clearly thought out estate plan. In Jackson and Wang’s cases, their estates are so complicated that courts will need to step in at some point to assist in the distribution. However, Jackson’s family will have a much easier time than Wang’s since Jackson at least took care to express his wishes in writing. For the average estate that usually is enough to eliminate the fighting the typically ensues when a loved one passes away.
Category:Estate Plan -- posted at: 6:00am EDT
Mon, 10 August 2009
Mrs. Jones came in to see me. Her husband was diagnosed with Alzheimer’s three years ago and the disease has progressed to the point where he needs long term nursing home care. At the time of the diagnosis she talked to some family friends and they told her to go ahead and add the kids’ names to her bank accounts and mutual funds to protect those assets from Medicaid. Now that her husband is in a nursing home she wonders whether she did the right thing. Unfortunately, she did not.
In New Jersey, Medicaid says that adding someone else’s name to a bank account or mutual fund does not transfer the ownership on that account. In other words, if Mrs. Jones had a bank account with $50,000 and she added her daughter Mary’s name to the account, the State would say that she did so for convenience purposes. The entire account still belongs to Mrs. Jones. So even though Mary’s name has been added, the practical effect, from a Medicaid standpoint, is that there has been no gift and the entire account still belongs to Mrs. Jones.
This is true whether we are talking about bank accounts, certificates of deposit, savings bonds, mutual funds or any other liquid asset. The law says there is no gift until, and unless, the child actually takes the money out of the account. Using this same example, if Mrs. Jones added Mary’s name to the account three years ago, there has been no gift made, even if Mary’s Social Security number is used for the account and she pays the taxes on all income. If Mary later takes some money out of the account, and moves it into her own name, then the gift is made at that point in time.
This general rule is not true where real estate is concerned. That’s because if someone’s name is added to real estate, at the time the deed is signed and recorded, then a completed gift has been made. For instance, let’s say that Mrs. Thompson is a widow and she owns a house valued at $200,000. If she adds her son’s name to the house and then has the deed recorded, at that time she has made a completed gift. A gift in the amount of $100,000 would cause her to be ineligible for Medicaid for 13 months. At the end of that time, however, the Medicaid ineligibility would cease... and one-half of the house’s value would be protected.
Whether or not it makes sense to add someone’s name to real estate or financial assets depends upon the facts and circumstances of each particular case. Be sure to seek the advice of a competent elder law attorney before proceeding.
Mon, 3 August 2009
Joe calls me because he wants to understand how Medicaid works. I start to explain how you have to spend down your assets before you can qualify for benefits. That the spend down has to be for value, meaning that you are spending your money and receiving something of equal value in product or service in return. Joe listens and then perks up. "Wait a second", he says. "I can make a gift of $10,000 per person so that doesn’t count, right?". "Wrong", I reply.
What Joe has done is make a very common mistake by confusing the annual gift tax exclusion with the Medicaid rules. So let’s run through the basics and clear it up. Gift tax is paid when you make a sizable gift to someone who isn’t your spouse. One of the purposes of the gift tax law is to protect the estate tax. For example, if I know that my estate of $2,000,000 will be taxed when I die, then why don’t I just transfer all my assets to my loved ones shortly before I die. The gift tax eliminates this estate tax avoidance strategy.
A certain amount, however, is exempt from the gift tax. There is a lifetime exclusion of $1,000,000, meaning I can transfer up to that amount, in one lump sum or in smaller increments, over my lifetime. In addition, I can gift up to $13,000 per person per year (everyone remembers it as $10,000, but several years back an inflation adjustment was added so the number now is $13,000). Yes, there is no gift tax owed when you make that gift but it does carry a Medicaid transfer penalty.
How so? Because the gift tax rules have nothing to do with the Medicaid rules. On the one hand, the government is telling us its OK to gift some amount of money without paying tax, but only up to a point. On the other hand, if we need nursing home care the government doesn’t want to pay for that care unless we spend all of our own money on that care first.
Every $13,000 gift, therefore, carries a Medicaid transfer penalty, a period during which you are not eligible for Medicaid. That penalty, expressed in months, is calculated by taking the transfer for less than fair value (the gift, as we have been discussing) and dividing by the average monthly cost of nursing home care. This number is set by each state and in some states it varies by region. Here in New Jersey that number right now is $7282. This means every $13,000 tax free gift carries a Medicaid penalty of almost 2 months.
Now, does that mean that you should never make gifts? No, not necessarily. It just means that in today’s increasingly complicated world, you have to understand that making those gifts can result in long term consequences, which you may not recognize until it’s too late. That’s why a carefully thought out long term care plan is critical and getting the proper advice and guidance well before that care is needed is always the best approach.
Mon, 27 July 2009
In discussing long term care planning with new clients, very often they will tell me that they have everything covered because years earlier they set up a living trust. Living trusts are estate planning devices designed to eliminate the need to probate an individual’s estate at his/her death. In the 1990’s they were especially popular and still are very common, especially in states such as Florida and New York, where probate is time consuming and expensive. But are they useful for long term care planning purposes?
Most likely, not. Living trusts are usually revocable, meaning that when a grantor or settlor (the person establishing the trust) transfers assets to it he/she has the ability to take the assets back out at any point in time. People believe that when they make transfers to the trust, these assets are not counted as theirs for purposes of qualifying for Medicaid or VA Aid and Attendance benefits. That is just plain wrong. If the trust gives you the ability to take the asset back out of the trust, the government will say “go ahead and take it back, spend it all down and then when it is gone come back to us.” The trust has to be irrevocable, meaning assets transferred to the trust cannot be taken back out by the grantor.
A second reason living trusts (or other trusts, such as testamentary credit shelter or bypass trusts, won’t work for long term care planning purposes is that they usually contain a clause providing that the trustee can use the assets for the “health support and maintenance” of the beneficiary. Again, if the beneficiary needs long term care the government will look at the trust and point to that language. “Long term care needs are health, support and maintenance,” they’ll say, “so spend it down and then come back to us when it’s gone.”
So, what’s the solution? If you have read previous posts on this blog you know that first of all, the trust must be irrevocable. Now, that makes people uncomfortable. “Does that mean I am giving away my assets and losing control over them?” The answer of course, is no. What I tell people is that the purpose of this transfer is not to give away assets because you may very well need some (or all) of them, depending on what your health needs are. But you can qualify for government benefits that can help pay for care. Not knowing how long you will live, the challenge is to protect your assets so you don’t run out of money. Tapping into other sources helps accomplish that goal because you are spending down your own assets less rapidly.
Additionally, the trust language allowing distribution of assets by the trustee to the beneficiary has to be tailored very carefully so as not to jeopardize eligibility for government benefits. It all adds up to a trust that avoids probate and addresses long term care planning needs.
Mon, 20 July 2009
As long term care needs increase and families want to keep their loved ones at home, hiring home health aides often becomes necessary. Paying an aide, however, if not done correctly, can cause Medicaid ineligibility years later, after funds run out. Consider the following very common scenario.
Jane hires a home health aide at $700 per week cash, or $3000 per month. She keeps the aide 3 years until her funds run out and now needs round the clock care. A nursing home becomes the only option.
She applies for Medicaid but is told, “Sorry, you’re not eligible for 15 months. You’ll have to private pay until then.” Of course, Jane has no more money. She’ll have to come up with the funds some other way, perhaps from family members. But at $9000 per month or more that may not be possible. How did Jane get into this mess? Because Medicaid treated her payments to the aide ($108,000) as transfers subject to a penalty.
Qualifying for Medicaid requires spending down assets below $2000. Transferring assets may cause Medicaid ineligibility if you do not receive something of equal value back. Medicaid calls this a “penalty”. However, and this is key, you must prove to Medicaid that assets transferred are not subject to a penalty.
If you pay the aide cash (or by check) and don’t keep proper records Medicaid will assess a penalty. The penalty is calculated by dividing the transferred amount by the average cost of nursing home care. When one applies for Medicaid there is now a 5 year lookback period, meaning Medicaid will look back 5 years from the date of the application to find these transfers. They will add together all the transfers made during that time. The penalty will begin when all other assets have been spent down and the individual enters a nursing home and applies for Medicaid.
Of course, that is exactly the time when you have no more money. The State presumes you gifted the money and so will tell you to get it back, use it and then, after it’s gone to come back and they will pay for your care. But, you didn’t gift the money so you can’t get it back.
So,how can you avoid Jane’s problem? By keeping records to prove the payments were not gifts and not paying cash which is difficult to trace. It is also a good idea to generate detailed invoices of the services which you purchased. Another, perhaps better, solution is to hire a home health agency that will supply the aide. It will cost more than hiring an aide directly but your contract with the agency will insure that Medicaid can never challenge the payments as gifts. And, in the long run it may cost you less because you won’t be stuck with a Medicaid penalty.
Mon, 13 July 2009
As I often tell clients, one of the most important documents that everyone should have is a power of attorney. A power of attorney allows you to designate someone to conduct financial and other transactions on your behalf. The ease with which anyone can execute such a document is a positive but can also be a negative because of the risk of it being abused. And therein lies the problem when it comes to being accepted by a third party, such as a financial institution or bank.
When we prepare a power of attorney for a client we draft it with the client’s needs in mind as well as the mindset that we may not have another opportunity to redo it later so it must be as broad as necessary to cover all possible scenarios in which it may be used by the agent. We also tell clients that when their agent presents the document to a bank or other financial institution the first reaction may be that the bank will want our client (the “principal”, that is, the person signing the power of attorney in favor of the “agent”) to execute another power of attorney on their own form.
The bank’s reason is usually a concern about liability – being sued for honoring an invalid power of attorney. However, the law provides a measure of protection for both the principal and the bank. New Jersey law states that a bank must accept a power of attorney that conforms to the law unless the principal’s signature is not genuine or the bank has actual notice that the principal has died, the power of attorney has been revoked or the principal was under a disability when the document was signed, meaning he/she wasn’t competent to sign it.
The problem presented to clients is that the bank employee is usually following bank policy set by their legal department that they want the principal to sign their own document, typically in front of one of their own employees. Obviously, this makes it easier for them to be sure the document is valid but it frustrates the purpose and benefit of the law, that the principal can sign one document to cover all scenarios. Persistence with the bank employee and sometimes intervention by the elder law attorney will usually overcome this resistance and convince the bank to honor a valid power of attorney.
It helps to know a little bit about the law because the person you are dealing with at the bank probably doesn’t and will tell you they are simply “following bank policy”. But this policy is not at all helpful to the client, especially in situations in which physical frailties prevent him/her from physically appearing at each bank to execute a separate power of attorney. That’s not to say that there aren’t legitimate concerns about agents abusing their power. It’s just that a “one size fits all” approach is the easy way out, instead of a careful examination of the facts of each case.
Mon, 6 July 2009
Mon, 29 June 2009
A few months ago I wrote about the difficulties qualifying for assisted living Medicaid. (See 3/23/09 blog post). Last year I wrote about the risks of trying to handle a Medicaid application yourself. (See 10/5/09 blog post). A recent case we handled in our office illustrates both issues.
John had been in an assisted living facility for several years. His wife, Mary was living at home and private paying for his care. She had numerous conversations with the assisted living facility about Medicaid and was told that qualifying wouldn’t be a problem and that John could remain in the facility on Medicaid. Pretty simple, or so it seemed.
Mary began the long winding journey that we have come to know as the Medicaid application process. Similar to the couple I wrote about in March, Mary did not understand the timing aspect of Medicaid, that she had to reach a target level of assets before John could qualify and that each month she missed that target was a lost month, never to be recaptured. This was of paramount importance to her, since she is several years younger than John and will need to preserve as much as she can to live on after he is gone.
The Medicaid application process dragged on as the caseworker asked for each follow up piece of documentation, all very confusing to Mary. She finally sought assistance and we were able to help her finally achieve financial eligibility. At that point Medicaid sent a nurse out to the facility to evaluate John medically, to determine that he needed nursing home care. Mission accomplished. John received the go ahead. Now, all that remained was for the facility to complete its required form, indicating that it would OK John for a Medicaid slot. Imagine the surprise when we received word of Medicaid’s denial.
When we followed up, we learned that the facility refused to make a Medicaid slot available, resulting in the denial, despite the promises made to John and Mary. We were told, however, by Medicaid that John could still be approved if the facility simply changes its stance and agrees to make a slot available.
John and Mary’s experience is a cautionary tale for families. Qualifying for Medicaid is anything but simple, especially so when it comes to assisted living. It requires the cooperation of families and the facilities caring for their loved one. It is confusing and time consuming and best not handled without the guidance of a qualified professional, such as an elder law attorney. And keep in mind that much of this is state specific. While the long term care options are complicated no matter where you live, each state has its own system and set of laws so make sure you consult with someone familiar with the process in the state where your loved one lives.
Mon, 22 June 2009
As I have written previously, in speaking with families, overwhelmingly the desire is for elderly family members to remain in their own home as they age and face declining physical and mental health. But, is that always the best thing? Perhaps, not for everyone.
I was reading a recent post on the New York Times New Old Age blog (www.newoldage.blogs.nytimes.com) which highlighted two cases in which elderly parents were living at home in declining health. One was a 95 year old woman living in her own home with a team of aides and other assistance, all coordinated by her overwhelmed daughter. The other was an elderly man suffering from Alzheimer’s Disease, living in the basement of his son’s home. The woman had visitors and activity in her home every day. The man did not, spending most of the day alone watching television.
The two cases raise some interesting questions. Would the elderly man be better served in an assisted living facility or at least, adult day care? He is not getting any mental stimulation through most of the day, which, if received, could slow down the progression of his disease. There is the safety issue as well. He remains at home in the basement for long hours unsupervised. What if there is an emergency? Will help arrive in time?
The elderly woman would seem to be better cared for. She has visitors in and out of her home throughout the day. But, her daughter is coordinating all this care. It sure sounds like a full time job. And then we learn that the daughter, herself, is 74 years old. How is this affecting her health and what happens if she needs care? Finally, I wonder what Mom’s finances are? All this assistance can approach and exceed the cost of care in a facility. Will she run out of money and if so, what happens then?
As 77 million babyboomers begin turning 65 in 18 months, long term care will continue to be a major issue families will have to wrestle with. And, I am not saying that remaining at home shouldn’t be the goal for many. However, as with most complex problems a one size solution does not fit all. Assisted living facilities and nursing homes will always have a place in the continuum of care and may just be the right fit for some. Food for thought and a different perspective to consider.
Mon, 15 June 2009
Some months ago I wrote about the couple who, not understanding the peculiarities of the Medicaid rules, did not spend down in a timely manner and, as a result, lost six months of Medicaid eligibility. Even though the money was eventually spent those lost months could not be recovered and the wife was stuck with a nursing home bill of $60,000 she should not have had. (See 10-5-08 blog post)
The ins and outs of Medicaid are complex and confusing. Another example which we recently addressed in our office highlights that point. Mr. Jones was in a nursing home and we were applying for institutional Medicaid. Under Medicaid rules the applicant needs to be below $2000 in assets as of the first moment of the first day of the month in order to qualify for Medicaid for that month. We tell clients that they must be below this number as of the last day of the preceding month.
Spending down means making transfers for value, that is to say, a purchase of goods or services for fair or equal value. Very often this spend down occurs right up until the last day of the month. So, what happens if I write a check to pay a bill on the 31st of the month but the person or business I give it to doesn’t cash it until the next month? As long as it is dated the 31st (or earlier) and you give it to that person or business no later than the 31st, then it is counted as being spent even though it will not clear your checking account until the next month.
Now, this all sounds very trivial, and I would agree with you, but don’t think for a minute that the State will overlook these transactions. They won’t. They scrutinize them very carefully. If you’re over the Medicaid limit by a dollar, you’re over for that month and have to wait until the next month. (See above)
Let’s go back to Mr. Jones. His son was spending down Dad’s assets. He had credit card, rent and utility bills to pay. We spoke on the 31st and Son confirmed that Dad’s 3 accounts totaled $1200 after accounting for payments. Now, we didn’t have statements yet for one of the accounts so we had to rely on Son’s statement. We filed the application and several weeks went by before we heard from the Medicaid office. They wanted missing statements from one of the accounts at an out of state bank. With some difficulty (because the bank at first balked at accepting the power of attorney Dad had executed in Son’s favor) we obtained the statements but were surprised to learn that some of the bills were not paid by check, but rather by electronic transfer on the first of the month. So, while Son kept telling us that Dad’s accounts totaled $1200 that was not, in fact, true. He was counting these electronic debits which Medicaid would not.
As it turned out, we still were under $2000 in Mr. Jones’ case, but not by much. (We tell clients we want them to be well below $2000 to leave room for just these types of surprises.) The next case may not work out so favorably. Just another example of how tricky the Medicaid rules really are and why you don’t want to go it alone.
Mon, 8 June 2009
Category:Estate tax -- posted at: 6:00am EDT
Wed, 3 June 2009
Continuing care retirement communities can be a great option for many people. I can move into one community that can meet all my needs, from independent housing to assisted living to nursing home care as I need it.
Show 18 of his monthly elder law podcast, Yale Hauptman, a practicing
elder law attorney, provides an overview of CCRCs, the pros and cons.
So often, he sees people enter into these financial arrangements without
closely examining the 40+ page contract that typically the resident
must sign. The contracts often require a large upfront financial
commitment. What will the CCRC agreement cover? What won’t
it cover? What happens if you run out of money? What if
the facility runs out of money?
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Mon, 1 June 2009
Continuing Care Retirement Communities (CCRCs), are communities that provide a full continuum of care for their residents. They have flexible accommodations designed to meet their resident’s health and housing needs as those needs change over time, offering independent living, assisted living and nursing home care, usually all in one location.
As a requirement for admission to most CCRCs, residents are required to pay an entrance fee or a lump sum “buy-in” which, in addition to other things, guarantees the resident’s right to live in the facility for the remainder of his/her lifetime. In addition to the entrance fee, residents pay a monthly service fee.
The entrance fee is often, but not always, reimbursable (at least partially) if the individual moves from the facility, passes away while a resident at the facility, or otherwise terminates the contract. Many contracts also contain a provision wherein an individual is able to use a portion of the entrance fee towards monthly resident charges if the resident exhausts his resources and becomes otherwise unable to pay.
The concept is a very appealing one. The resident knows that as he or she ages and needs increased care it will all be provided by the same organization, usually in the same location. There are certain risks, however, that make it unsuitable for many.
The CCRC is promising to provide care over a potentially long time frame without knowing exactly how much it will cost or when it will be needed. The concept is something akin to insurance. The company must make projections as to how many of its residents will need what level of care at any one time. But so many things can go awry. What happens if too many people need nursing home care at one time? What about the rising cost of long term care? What happens if residents run out of money? Or the CCRC runs out of funding? Certainly possible in today’s world, where not even big financial companies like Prudential or AIG are safe.
Because of all these contingencies the CCRC contracts have many so called “out” clauses. When you buy into the community there isn’t an iron clad guaranty that no matter what you’ll be able to stay. Under some scenarios you may run out of money and be asked to leave. This risk is especially present when husband and wife move to the community together. If one spouse needs nursing home care for an extended period the couple may spend down their assets towards that care, leaving the health spouse with not enough to cover his/her care. In some cases the entrance fee can be used for that care but then what? Is Medicaid a possibility? Maybe, but usually the resident must satisfy certain conditions imposed by the CCRC in addition to Medicaid eligibility rules. It depends on the terms of the contract.
It is, therefore, very important to review the contract (which can be 40 pages or more) with an elder law attorney before signing and go through these different scenarios. If you put all your financial eggs into the CCRC basket, what happens if that basket springs a leak? It is a good idea to have an emergency plan in place.
Mon, 25 May 2009
Medical science has made great strides in the last 30 years. We are certainly living longer. Illnesses and injuries that in the past resulted in death, now do not. However, the recovery period can be a long one, especially for the elderly, whose recuperative abilities are not the same as younger patients. As a result, patients remain hospitalized longer and bounce back and forth between nursing home and hospital, in so many cases.
That’s where the long-term acute care hospital or LTACH, comes in. General hospitals are typically paid a standard fee for a diagnosis so they earn more for a quicker patient discharge. At the same time, the patient may not quite be ready for a subacute facility in a nursing home, which focuses primarily on rehabilitation but can’t provide the medical care of a hospital. The LTACH can bridge that gap. Patients receive the benefit of physicians on duty around the clock as well as nurses, respiratory therapists, case managers, physical and occupational therapists, dieticians and pharmacists, all on staff. LTACHs provide more nursing care than on a medical-surgical floor of a hospital but less than is provided in an intensive care unit.
Many LTACH patients use ventilators to breath and are recovering from multiple medical conditions such as heart failure, major surgery, etc. They may have developed complications such as bed sores. The specialty hospital can concentrate on weaning the patient off of the ventilator or providing wound care, for example, that can require weeks of care, that the general hospital won’t receive payment for. For those on Medicare, LTACHs are covered under Part A. The average stay in an LTACH is 25 days.
There are over 400 LTACHs nationwide and 8 in New Jersey. Most are housed in general hospitals, however, some are freestanding, such as Select Specialty Hospital in Rochelle Park, New Jersey which is owned by the same company that also owns Kessler Institute, the facility that specializes in the treatment of spinal cord injuries. The long term acute care hospital is definitely an option families should explore for their critically ill or catastrophically injured loved one. It may very well improve the recovery process and increase the chance that a loved one can ultimately return home, the end result that we all want to achieve.
Mon, 18 May 2009
Last week I wrote about Dad who gifted a large sum to his children and within 6 months needed long term care. Because the money had been spent and could not be returned I had to explain to the daughter that Dad would not be eligible for Medicaid for 4 and ½ years. A complete disaster. But this week let’s take a look at a success story, one in which we were able to work to fix the mistakes that were made, long before long term care and Medicaid were needed.
Two years ago Mary contacted me concerning her mom who was living in an assisted living facility with an aide that she and her sisters were paying cash. Mom had transferred her assets to her 3 daughters. They had begun to spend some of the money on Mom’s care but had also opened and closed accounts, moving, combining and commingling assets. Over time it would have been very difficult to follow the paper trail and establish with Medicaid that Mom’s money had been spent for her care, and not gifted to the children. Unlike last week’s family, however, Mary reached out to me within a few months after the initial transfers and, as it turns out, almost 2 years before we applied for Medicaid.
We quickly counseled Mary that the assets had to be returned, and, thankfully, although some had been spent on Mom’s care, she and her sisters still had possession of the balance. We then guided Mary on the records that she needed to obtain in preparation for the anticipated Medicaid application. While she still employed the aides we were able to prepare invoices and documentation showing that the cash withdrawals were not gifts, but payment for services, including a statement from the facility. Mary had been paying the facility bill on her credit card and then taking money from Mom’s account (which was titled in Mary’s name). We had her go back through her records and copy the credit card bills with those charges and match up payments back to her from “Mom’s account”. We also counseled her on a better way to make those payments.
Finally, Mary and her sisters had moved money from one account to another, for convenience, a better interest rate or to keep FDIC insurance coverage. Without recognizing it, however, they were muddying the paper trail. You see, Medicaid requires as many as 5 years of financial records to show how money has been spent. Mary and her sisters didn’t realize the problems they were creating. We painstakingly had to document all the transfers from one account to another and transfers in and out of each account.
As I said, this was a success story. 2 months ago we applied for Medicaid. We provided Medicaid with details of each transaction, backed by supporting documentation. Last week the family received Medicaid approval without a hitch. Every dollar had been accounted for and we achieved a smooth transition to Medicaid with no ineligibility period. Financially, the family can rest easy that Mom’s care is paid for and the nursing facility, which receives those Medicaid benefits, is happy that their resident went from private pay to Medicaid without interruption of payment. An example of the way things can work if you have someone with knowledge guiding you through the process.
Mon, 11 May 2009
In February, 2006 Congress passed some significant changes to the Medicaid laws that created some very dangerous traps for unprepared families needing long term care. At the time I wrote about a case in which Granddad gifted his money to Granddaughter who moved in to care for him. When she could no longer provide the care and applied for Medicaid she was told, mistakenly, that he was not eligible because of the gifts. It turned out that the Medicaid ineligibility period had expired. We filed for Medicaid on her behalf and the application was approved. A happy ending, but one which I wrote at the time would not end so happily under the new law.
Last week I received a call with an all too common story. Mom had recently died. Dad moved in with Daughter, Jane and the plan was for him to live there the rest of his life. At the same time, Dad gifted $150,000 to Jane and her brother, Joe. "It's Dad's money. He can do what he wants with it", she told me.
Well, I think you can guess what happened. Jane was unprepared for the reality of long term care. I could hear the stress in her voice as she described the deterioration of Dad's mental and physical state, from the mood swings and erratic behavior to the declining personal hygiene and the inability to walk without assistance. His care needs were increasing and Jane was unable to handle the increased demands on her time while caring for her own young children.
"I just never expected this", she exclaimed." I can't do this anymore. I need to get Dad into a nursing home and he has $50,000 left. What do I do?", she pleaded. I explained to her that once his money was spent down he could qualify for Medicaid, but she and Joe would need to return the $150,000. But here was the problem. Jane and Joe had already spent the money and, therefore, couldn't return it. "Well”, I told her, "when Dad's remaining $50,000 is spent down he still won't be Medicaid eligible for another 4 years. That’s because the Medicaid penalty doesn’t start until he has less than $2000 to his name and he needs nursing home care.
"It's so unfair," she cried. "The government is forcing me into poverty to pay for Dad's care." I had to patiently explain to her that she and her brother did receive a substantial sum from Dad, money that should be spent for his own care before public funds could be tapped. The sad truth, however, is that had the family consulted with an elder law attorney before the gifts were made, Dad could have transferred some assets but enough would have been preserved to cover the possibility that he would need long term care before Medicaid eligiblity. Unfortunately, in Jane’s case I didn’t have any solution to her problem. She would have to figure out how to care for her Dad or pay out of her own pocket until the Medicaid ineligibility period expired. It didn’t have to turn out this way. A cautionary tale for all.
Wed, 6 May 2009
The law allows every person to distribute property according to their wishes by a written instrument known as a Last Will. However, many people never execute one and miss that opportunity, the consequences of which can be devastating to loved ones.
In Show 17 of his monthly elder law podcast, Yale Hauptman, a practicing elder law attorney, discusses what can go wrong without a will. Each state has a set of laws that predetermines how assets will pass where there is no will, known as intestacy. That may not, however, be what you want. For example, assets may be left outright to heirs who shouldn’t or can’t handle the money or may end up in the wrong people’s hands.
Yale also discusses the difficult issues involved in second marriages where each spouse has different heirs who they wish to leave their estate. Without proper planning that won’t happen. Ownership of real estate in another state can also present a problem without planning. The bottom line is that without a carefully drawn plan your intentions and desire may not be carried out.
Tune in to learn what you need to do to safeguard yourself and your loved ones.
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Mon, 4 May 2009
Jane’s husband, John, was recently hospitalized and nursing home care was looking more than likely. At that time, their assets totaled approximately $150,000 (not including their home and one car, both of which are “exempt” for Medicaid purposes). Jane went to the Board of Social Services to see what benefits would be available to help her pay for her husband’s nursing home costs. The caseworker explained to Jane that, upon application for Medicaid benefits, the state will total all of the assets she and John own on the day he entered the nursing home (the “snapshot date”). The state will then divide their assets in half (“division of assets”) and Jane is entitled to keep one-half of the couple’s assets, but only up to a maximum of $109,540. John will qualify for Medicaid once his “half” of the assets are spent down below $2000.
Jane and John needed to spend their assets down to $77,000 before qualifying John for benefits. Jane was distraught at the idea of having to spend her life savings … what about her own health care costs? A social worker at the hospital recommended that Jane contact an elder law attorney to see if there were ways they could preserve more of their assets. When we met Jane we explained that there was a way she would be able to increase the amount of assets she is entitled to keep. Here is how.
Jane and John owned their home free and clear, with no mortgage. It was no problem for them to take a home equity line of credit in the amount of $100,000, since their home was worth approximately $400,000. Jane immediately borrowed $70,000 against the line, before John entered the nursing home. By doing so, she increased the amount of assets at the snapshot date from $170,000 to $220,000. This meant that Jane could keep $109,540 and the couple would need to spend the remaining assets down to $2000. In other words, the couple would have to spend $110,460 before John could qualify for nursing home benefits.
After John entered the nursing home we instructed Jane to repay the line of credit leaving another $40,440 to spend down. Paying the nursing home and other bills quickly accomplished that and we were able to get John Medicaid. The end result was that Jane kept nearly $110,000 of their combined $150,000, much needed money considering she was also going to lose some of John’s income and could very well outlive John by 5 years or more.
A word of caution. This scenario is fact specific to Jane and John and should not be considered without proper counseling. The bottom line, however, is that before you start spending down, you should seek advice from someone who knows the Medicaid laws.
Mon, 27 April 2009
Mary and Joe own their home and have $150,000 in savings. They have wills leaving everything to each other and then alternatively to their children, but they have done nothing to address their long term care needs. Joe is now about to enter a nursing home and Mary is faced with spending down to $75,000 and losing Joe’s income before he will be eligible for Medicaid. A classic crisis planning case. Does Mary have any options?
Actually, yes. While she will have to spend down there are ways to spend that will be more beneficial for Mary. Let’s go through a list of some of them. At the top of the list is setting up an irrevocable burial fund to pay for both of their funerals. Better to do that now. Otherwise she’ll have to take that expense out of what Medicaid says she can keep. Other strategies focus on exempt assets, the house and a car. Mary will keep the house and one car. Of the $75,000 that she has to spend down she could fix up the house. That might include replacing an old cooling or heating system, installing new windows and/or siding and remodeling the interior. If she makes improvements that enhance the value of the home should she decide to sell that will result in more money for her to live on.
How about her car? Mary has a 10 year old car. It is better for her to purchase a new car as part of the spend down. Or perhaps she has a car loan that she is paying off over time. Paying it off before applying for Medicaid may be the better alternative. That applies for other debt, such as credit cards or other installment loans. Finally, Mary ought to look at anticipated expenses. For example, if she or Joe needs dental work now may be the time to do it.
Some of the spend down will need to go to the nursing home to pay for the cost of care at its private pay rate so it is important to determine what amount will be necessary to get Joe into a quality facility. Knowing that, they can then work backwards to determine what they have left to spend on the other items. Additionally, if Joe is not yet in the hospital or nursing home it may be possible for Mary to keep more than $75,000 by taking a home equity line of credit (more on that in next week’s post).
A word of caution, however. One size does not fit all. What is best for one person may not be right for another. Medicaid rules are very complicated and quite technical. Before taking any action it is best to consult with an elder law attorney well versed in Medicaid law. But, if done properly, Mary can preserve more than the 50% of assets that Medicaid laws say she can keep. This is especially important, given the possibility that Mary may outlive Joe by 5 or 10 years or more.
Mon, 20 April 2009
Whenever we meet with new clients, especially married ones, I always want to review the estate planning documents that they currently have. Sometimes those documents are 10, 20 or 30 years old. Other times, the clients will say, “Oh, we just had our wills updated in the last year so we’re good there. Yet, when I review the documents, I find that they are not suitable for their current needs. How can this be?
Very simply, no one considered how long term care costs can completely destroy an estate plan. As I have explained in previous posts, when one spouse needs nursing home care and the other does not a spend down must occur. The healthy spouse gets to keep one half of the couple’s assets up to a maximum of $109,540 and a home, if he/she is living there. The ill spouse can then get Medicaid. But, what happens if the healthy spouse dies first?
Well, in most cases the will provides that everything is left to the surviving spouse and then to the children after the second spouse dies. Or, perhaps, the will establishes a bypass trust for the surviving spouse, to save on estate taxes. In either case the assets will now be accessible to the surviving spouse who is on Medicaid. One of two things will happen. Either the assets must be given to the State to pay back Medicaid benefits received and the surviving spouse can continue to receive benefits. The alternative is to terminate Medicaid and begin private paying for care until all the assets are spent and then reapply for Medicaid.
Neither scenario is very appealing and need not happen if we modify the will. Instead of leaving everything to the surviving spouse we leave the assets to a trust for that spouse, but, and here is the key, a trust that will not be counted for Medicaid eligibility purposes. Now, those assets are available to be used for other needs not covered by Medicaid. And when the surviving spouse passes away, there will likely be something left to pass on to the next generation, an important goal for many families.
Does this mean that everyone should set up their will in this manner and that leaving everything to your spouse is the wrong thing to do? Not necessarily. What I am saying is that you do need to sit down with an elder law attorney who is well versed in the long term care system. You may have a will that was suitable for your needs at the time it was created but things change and your plan may need to be changed too. You may be leaving yourself vulnerable. The State says you have to spend down most of your assets towards long term care. With a poorly drafted estate plan you may end up spending all of your assets towards care, something even the State doesn’t require you to do.
Mon, 13 April 2009
In my last post I explained how Mom’s transferring her home to me during her lifetime will result in capital gains tax whereas passing the home to me after she dies can reduce or even eliminate the tax. However, Mom considered transferring the house because she wanted to protect it from being consumed completely by the cost of long term care, especially important where other family members live in the home.(See my posts on 2/23/09 and 3/2/09).
Right there is the dilemma. What to do? Capital gains tax, at worst, will never consume the entire proceeds of sale. Long term care, however, could easily exceed the home value if it is needed for several years. But do I have to really choose between the two? Well, maybe there is another way.
Putting the home in a trust, if set up properly, can accomplish both goals. The home is removed from the parent’s name and, if done 5 years or more before needing long term care, will be outside the Medicaid lookback, that time frame within which Medicaid looks to confirm that you have in fact spent all your money and haven’t given it away. At the same time, the trust can be set up in such a way that the assets it holds will be part of Mom's estate and she will be able to take advantage of both the capital gains tax exclusion and the step up in basis that I discussed in my last post.
We accomplish the best of both worlds. The home can be protected and tax advantages will not be lost. But, there are even more potential benefits. Since the home is not in the child’s name but in the trust, it is not subject to the child’s creditors, or to being split with the child’s spouse in a divorce. Additionally, if Mom needs care within 5 years of the transfer, the home can be sold or borrowed against to help pay the cost of care. In other words, some of the asset can be used for care but not all of it need be consumed.
As you can see, a simple question, or so you thought. Is home transfer right for you and your family? Well, that depends on many factors, including the health of the parent, what other assets exist to pay for long term care and what goals the parent and child want to accomplish. One thing is for sure. Planning early makes things easier and the outcome so much better than waiting until a crisis hits.
Mon, 6 April 2009
"Mom wants to transfer her home to me. Do you think it’s a good idea?" A seemingly simple question and one that is probably one of the more common questions I am asked as an elder law attorney. But, not one that I can answer without knowing more. One size does not fit all.
The home is typically the largest asset people have and they are frequently and understandably emotionally attached to it. The primary residence also enjoys special tax treatment and that is what most people fail to consider when they make the decision. Let's run through the basics.
Real estate, like stocks, bonds and other investments, is subject to capital gains tax. If Mom bought her home for $100,000 and sells it for $500,000 she has what is called a "realized gain" and Uncle Sam will want to tax her on that gain. The gain is calculated by taking the amount she sold the home for and subtracting the “cost basis”. The cost basis is her purchase price plus capital improvements (eg. addition, new roof, windows, siding) and closing costs.
In my example, if Mom made no improvements her gain is $400,000. The capital gains tax she must pay is based on her tax bracket. The higher the bracket the higher the tax, although capital gains tax rates are lower than for regular income. Let’s say her tax rate is 20% so her potential capital gains tax is $80,000. I say “potential” because, if the home was her primary residence in 2 of the 5 years before she sold it then she can exclude up to $250,000 of gain. Married couples can exclude $500,000 of gain.
If Mom transfers her home to me and I don’t make it my primary residence then when I sell I won’t be able to exclude any capital gains from tax. But, Mom still intends to live in the home. I don’t want to sell it until after she passes away. Is there a way to avoid the capital gains tax, entirely?
Yes, by invoking something called the “step up in basis”. If Mom owns the home when she dies and passes it to me upon her death my cost basis when I sell is not what she paid for it, but rather what it was worth at the time of her death (or, alternatively, 6 months after her death). If I sell it immediately after she dies my capital gains is zero, and thus, there is no tax. If I sell after Mom dies, but she transferred it to me during her lifetime, then I owe Uncle Sam capital gains tax.
So, then that’s it, right? Mom shouldn’t transfer the home to me. Well, not so fast. What if Mom gets sick and needs long term care? We’ll tackle that one in next week’s post.
Fri, 3 April 2009
Elder Law Today Show #16 Mom is Not Capable of Handling Her Affairs - When is a Guardianship Appropriate
Mom is unable to handle her affairs and either can’t or won’t accept assistance from other family members. Or maybe one child lives close by and is taking advantage of mom and other family members, who live a distance away, are frustrated in their attempts to protect mom. Is guardianship a solution?
In Show 16 of his monthly elder law podcast, Yale Hauptman, a practicing elder law attorney discusses when a guardianship is possible and when it isn’t. Does Mom need to be declared incompetent? How does that happen and what is the standard? Yale also discuss what options are available when a guardianship isn’t possible, such as a conservatorship.
If your family is grappling with these issues or you know someone else who is, then you’ll want to tune in to learn more.Click here to listen
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Mon, 30 March 2009
As the current economic crisis deepens, it is becoming increasingly clear that we are heading into uncharted waters, in so many respects. Specifically, however, I am talking about the long term care arena, and a recent phone call I received highlights this so clearly.
John called concerning his father. Dad owns a home in which he lives. Home health aides come into the home to assist Dad but as his health deteriorates and he needs increased care John believes that Dad will very soon need to move to a nursing facility. Now, here is where it gets interesting.
Dad took a reverse mortgage for $300,000 and he took it in a lump sum. John’s plan was to invest the money in the market, get a decent rate of return that would help meet Dad’s expenses. Well, we know what has happened in the past year. The stock market has headed south. Dad’s investment headed south too. He lost roughly half of his investment. That’s bad enough. But here is the problem. John transferred the money to an account in his name. Not because he intended to keep it, but because it was just easier to manage the funds that way.
When he did that, however, he caused a Medicaid transfer penalty. In New Jersey that penalty is approximately 3 and ½ years. So what happens when Dad sells his home and uses the sale proceeds (less the amount he pays back to the bank) for his nursing home care? He will be ineligible for Medicaid unless John transfers back the money. Except that he doesn’t have all of it.
I know. You’re thinking, “Will Medicaid really deny Dad’s application if John can show that the loss in value occurred in the market, and that he didn’t take the money?” I don’t know. Maybe, maybe not. You see, we are living in unusual times. Many states are struggling with budget deficits. Medicaid is one of the biggest, if not the biggest, program for most states. If they don’t have the money to fund these programs I can certainly see them applying the Medicaid rules as written and impose a penalty. If Dad is ineligible for 3 and ½ years he may never live to receive Medicaid, something the government no doubt may consider when trying to balance its budget.
And just another reason why you can’t afford to be unprepared when it comes to long term care.
Mon, 23 March 2009
Dad has been living in an assisted living facility for 3 years at a cost of $4500 per month. He likes it there, is safe and well cared for. There is one small problem. He is running out of money and the family is becoming desperate.
The application process for Medicaid can take several months or longer. If, for example, Dad becomes eligible and applies for Medicaid beginning in February, it might take until April, or longer in some cases, for him to receive approval. In the case of nursing home Medicaid whenever Dad is approved payments will be made on his behalf retroactive to when he first applied (assuming of course that he was eligible in that month). Not so for assisted living Medicaid. Approval is not retroactive.
As an elder law attorney, our focus with clients is on the financial requirements of Medicaid. I always, however, remind clients that we can’t forget about the medical requirement. The applicant must meet the test of medical necessity for nursing home level care as determined by a Medicaid nurse who visits the applicant. In New Jersey, this is true even in the case of assisted living. It bears repeating. The assisted living Medicaid applicant must be certified as needing nursing home level care. Fail that test and the asset and income levels are irrelevant.
So, if Dad can’t get Medicaid, what then? If he can’t pay the bill he generally won’t be able to stay in the assisted living facility unless the family pays for his care. Not a great result but one the family could have avoided. Before he entered the facility a plan should have been put in place to cover the possibility that he could run out of money. In some cases that may involve moving assets to a trust, determining what public benefits he can or cannot receive and when, (such as VA Aid and Attendance benefits) or negotiating a contractual modification with the facility before initial entry. It may mean choosing a different, less expensive, facility or living arrangement. It all depends on one’s particular situation.
The mistake that Dad and his family made is in not looking far enough down the road and failing to sit down with someone knowledgeable about the various issues and pitfalls, such as an elder law attorney. The lesson to be learned is that you can’t wait until the money runs out to then answer the question "What do I do now?"
Mon, 16 March 2009
So often, when working with families who are struggling to care for a loved one with dementia, the most frustrating part is the uncertainty of the condition from day to day. The recent case in Minnesota of Verne Gagne highlights that very clearly.
Verne Gagne was a prominent professional wrestler in his day with the American Wrestling Association, in the 1960’s and 70’s. He eventually lost his big stars, such as Hulk Hogan and Jesse Ventura, to the World Wrestling Federation. He is now 82, and suffers from Alzheimer’s disease, residing in a nursing home. That is where he had an altercation with a 97 year old resident and put a wrestling move on the resident, slamming his body to the ground. The other man broke his hip and died several weeks later. The police are investigating the incident but there is a consensus of opinion that Mr. Gagne should not be charged with a crime because he didn’t know what he was doing. A tragic story but with similarities that are all too familiar to families who have loved ones with Alzheimer’s. It is the uncertain, sometimes violent and erratic, behavior that can be most frustrating and frightening.
Although no one can be sure what caused Verne Gagne to act in the way he did, we know that Alzheimer’s patients very often lose their short term memory but are able to conjure memories of events and people 40 or 50 years ago or more. Gagne’s skill as a wrestler made him more dangerous than the average resident. Firstly, he was more physically fit than the average resident. Secondly, while he was losing his short term memory, he was prone to recalling events from his past, such as his days wrestling. Perhaps it is that memory, programmed into his brain, that caused him to perform a wrestling move on his co-resident.
It is the unpredictability that often turns a family’s world upside down,. Dad can be living comfortably in a facility one day and the next he can become extremely agitated and aggressive, causing the facility to ask the family to move him because they can’t accommodate his needs, or because of concern for the safety of other residents.
It is just another reason why families cannot wait and react to a loved one’s long term care needs. When possible, preventative measures need to be taken. So often, we see families plan as if Mom or Dad’s current condition, while tragic and upsetting, will remain static, unchanging. That is usually far from the case and misjudging the situation can be worse than anyone imagined.
Who knows what could have been done to prevent Verne Gagne from acting out, although, there was at least one previous altercation between the two residents. The lesson to be learned on a broader level, however, is to recognize the unpredictability of Alzheimer’s, and dementia in general. Take action before, not after, it becomes necessary. I am sure everyone involved in Verne Gagne’s case is reexamining what they could have done differently.
Mon, 9 March 2009
Jane calls us to relate the same problem that many Americans today are coping with, trying to care for aging parents. She calls because Dad’s health is rapidly deteriorating and she fears he will need nursing home care. I ask about Mom’s health. Jane replies that she is healthy. And here is the twist, where the story becomes more complicated.
Jane tells me that Mom and Dad have been separated for years, never divorced, just living separate lives under separate roofs, with separate assets. “Dad was never easy to live with”, she tells me, “but Mom wasn’t the type to file for divorce. It wasn’t acceptable.” “So”, she asks me, “we can spend down Dad’s assets and then qualify him for Medicaid, right?”
“Well”, I tell her, “it is a bit more complicated than that”. Under Medicaid rules, because they are still married, all their assets are combined for purposes of calculating how much to spend down. Medicaid rules do provide that if the applicant is separated from a spouse for at least one month then he will be treated as a single person and only his assets will count towards the asset spend down. However, there is no definition of what constitutes a separation and you can be sure that the State will scrutinize it very closely. Mom may still have to spend some of her assets for Dad’s care even though they have been living single lives for years. “Is there anything we can do,” Jane asks, as I hear the desperation in her voice.
Divorce is still an option, although it could be considerably more difficult if Dad doesn’t have the mental capacity to understand the legal process and consent to a divorce settlement. There is also the matter of the State, again, scrutinizing the divorce, especially if Mom has accumulated and wants to keep more than 50% of the combined assets. You see, the State assumes the divorce was obtained for the purpose of qualifying for Medicaid. If Mom keeps more than half of the assets Dad would probably be turned down for benefits. There may also be other strategies that we have discussed for married couples that could be employed to preserve assets for Mom but, although they are married under the law, they are not really “together”. So preserving Dad’s assets for Mom and vice versa is not the goal.
As Jane puts it, “Mom and Dad have lived separate lives for many years. Mom has struggled to accumulate her own assets and become self sufficient. How can I tell her that she may lose some of her hard earned money?”. I didn’t have an answer for Jane. I do, however, have one for others who may one day be in that situation. If any of Jane’s story sounds familiar to you, don’t wait till long term care is staring you in the face. Plan ahead and solve the problem before it reaches crisis proportions or you’ll be faced with the dilemma that Jane and her family face.
Thu, 5 March 2009
Elder Law Today Podcast Show #15 - You’ve Spent Down all Your Money and Still Can’t Get Medicaid – How Could This Happen?
You’ve spent down the remaining assets on Mom’s care and have no more money left. You apply for Medicaid but are told, “Sorry, Mom’s not eligible for another 8 months.” How could this happen? What can you do to avoid this horrific outcome?
In Show 15 of his monthly Elder Law Today Podcast, practicing elder law attorney, Yale Hauptman, explains why spending down assets may not be as simple as you think. Medicaid rules are complex and it is easy to get tripped up. Well meaning citizens can unwittingly cause themselves to lose these essential benefits by creating transfers that are subject to a Medicaid transfer penalty.
Learn the danger of paying home health aides cash and why that could result in long penalty periods. Discover why gifts made 4+ years before Medicaid is applied for can come back to haunt you. More importantly, learn how you can avoid these Medicaid traps and how to correct the mistakes you’ve already made. If you wait till you apply it’s too late.
This episode is for anyone who cannot afford the cost of long term care indefinitely and may need to apply for government benefits at some time in the future. Important information that you’ll want to listen to carefully.
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Mon, 2 March 2009
As we discussed last week, Joe wants to transfer his home to Jim, who lives there with his wife and children. But let’s change the facts a bit. Joe is not healthy but has the early stages of dementia and needs some in home assistance. It is possible that within 5 years he will need nursing home care, so we are concerned about the 5 year Medicaid lookback. What options do Joe and Jim have?
One possibility is for Jim to buy the home at a price that he can afford but that may be below fair market value. If, for example, he purchases the home for $200,000 and it is worth $450,000, then $250,000 is considered a gift subject to the Medicaid transfer penalty. Jim can spend down the $200,000 for his care but if he runs out of money then Jim may need to cover the cost of care until the 5 year time frame expires.
Now that Joe lives in Jim’s home, they could enter into an agreement for Joe to pay rent. If Jim or his wife is providing care that Joe otherwise would need to hire an aide to do, then Joe could pay Jim to do it. This is what is called a personal services contract. Food, utilities, and other goods and services that Jim may be providing, can and should be paid for by Joe. Perhaps the home needs to be modified to allow Joe to live there. Jim could spend money to make those improvements when they become necessary, borrowing against the home.
Some or all of these strategies may be ways for Jim to, in essence, pay Joe for some of the remaining uncompensated value of Joe’s home, over time, in a way that may be more affordable for Jim. However, each of these financial arrangements must be in writing. That’s because Medicaid presumes that any transfers of money or services is a gift, subject to a transfer penalty, unless it is in writing and at fair value.
But, a word of caution. The Medicaid rules are complicated. What will work in one state may not work in another. What may suitable for one family may be entirely the wrong solution for another. If you try to do it yourself and get it wrong, you may find yourself with a lengthy period of Medicaid ineligibility and no money to pay for care. You need a knowledgeable and trusted elder law advisor to guide you through the maze of laws and regulations that leave hidden traps for the unwary.
Mon, 23 February 2009
Home ownership has long been a large part of the American dream. Through the course of the 20th century, the percentage of Americans owning their homes rose considerably. In many of these homes three generations lived under one roof. Today, there still are many 3 generations homes. The reasons for it are the same. The grandparents often help care for their grandchildren while the parents are working. Sometimes the grandparents need assistance and can’t live alone any longer.
There is, however, a big difference between the households of the 20th century and those of the 21st century, which generation owns the home. The parent homeowner of the 20th century now is the grandparent homeowner of the 21st century.
Well, not so fast. If Jim doesn’t pay fair market value for the home then the uncompensated amount is treated as a transfer for less than fair value should Joe need Medicaid benefits in the next five years to pay for long term care.
Provided these contingencies are covered, however, the home transfer can work well. What happens, however, if Joe is not healthy when contemplating a transfer, but instead has dementia and already needs some care. In that case, the home transfer is a little more complicated but I’ll address that in the next week’s post.
Mon, 16 February 2009
So, in last week’s blog I presented a common scenario, Mom and Dad both needing long term care and nothing but a house left in their names. The children are paying for their care to the tune of $10,000 per month. We get Dad on Medicaid first.
Now we work on getting Mom into a nursing home and then apply for Medicaid for her. The home will have to be sold (unless there is a family member living there but we’ll address that exception in another issue) but it won’t hold up Mom’s Medicaid, which is important, since it not so easy these days to sell in a what is a down market. Once the home is sold Mom will lose her eligibility for Medicaid and will need to private pay from the proceeds of the sale. She also could keep her Medicaid eligibility and pay the proceeds to the State to reimburse it for benefits paid up till that point. Which option is better depends on how much is realized from the sale and how much is owed to the State. But, keep in mind that the State pays the nursing home at a lower rate than you or I would pay (approximately 50% less).
And, what about the money that the children paid out of their own pocket for Mom and Dad’s care? They can be reimbursed from the proceeds once they sell the house. However, everything must be documented because Medicaid presumes that transfers between family members are gifts, not loans. If it is a loan then there must be a written agreement. The best practice is for there to be a recorded mortgage. At the closing the mortgage is paid off and a discharge is recorded by the Buyer’s attorney. The children are reimbursed directly and there is a record as far as Medicaid is concerned.
In the end, the parents are paying for their care from their own assets, the children are paid back (money which they will need for their own retirement and long term care needs) and depending on how much long term care is needed and what the home sells for, there may even be some amount left to transfer to the next generation in the form of an inheritance, after the State is reimbursed for benefits they paid out on Mom and Dad’s behalf.
Mon, 9 February 2009
Mom and Dad are still living in their home which they own. They both need round the clock nursing home level care and have home health aides living with them. This has been going on for a number of years and they have spent down all their assets on care and maintaining the home. Now the children are spending their own money, in some cases as much as $10,000 per month or more, with no end in sight. They want to sell the home but in today’s economy and real estate market that isn’t as easy as it once was. Their current predicament is taxing on the family, both financially and emotionally. Last week I talked about a reverse mortgage as a possible solution. Is there any other way out?
Actually, there is. There is a way to move both parents into a nursing home, get them on Medicaid and reimburse the children for monies they paid for their parents’ care. Medicaid rules are very complex and the timing of each step in the process is critical but it can be done. Here’s how it works.
The first step is to get one of the parents into a nursing home. Let’s say it is Dad. If he is in the hospital already (often the case when we get the call) then he should be transferred from there to the nursing home. We then apply for Medicaid. The house is an exempt asset (ie. not a countable asset for Medicaid eligibility purposes) since Mom is still living there. Once we get Dad approved for Medicaid there is what is called a “division of assets”. Whatever is Mom’s is now hers, to be spent on her care but not on Dad’s. This is the key. In next week’s blog I’ll discuss the next step, getting Mom on Medicaid.
Thu, 5 February 2009
So after listening to
Show 13 you’re thinking, we should have taken action
immediately after Dad’s diagnosis but didn’t so now what
do we do? In the 14th installment of his audio podcast,
Yale Hauptman discusses just that scenario, crisis planning.
Although the picture is more complicated all hope is not lost.
Yale discusses some of the options still available to families, but
timing is a key.
Be sure to tune in for a concise 10 minute discussion of Medicaid crisis planning that will give you an overview of what still is possible, even if you have failed to early action, but time is running out.
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Please send us your feedback
Mon, 2 February 2009
Mom and Dad are living in their home but their health is failing. They do not yet need nursing home level care, but do need some assistance on a daily basis. Their children are running back and forth helping to provide care but it is just too difficult to do on a long term basis. The plan is to move them to an assisted living facility. The problem, however, is that they have limited funds to pay for that care. While they intend to sell the home, that won’t happen overnight.
An option that has worked well in the past is to take a home equity line of credit and use it to pay the monthly assisted living fee and real estate taxes, insurance and maintenance until the home is sold. Except, in today’s economy with the financial industry itself being bailed out, banks are no longer approving these loans, concerned about the creditworthiness of borrowers and the risk of default. So what now?
It may be time to look at a reverse mortgage. Increasingly, this is the only option for seniors. The concern about defaulting loans is not an issue because, by its terms, a reverse mortgage won’t be repaid until the borrower dies or sells the home. The ability of the borrower to repay isn’t a factor because he/she makes no monthly payments. Hence the term “reverse”.
Over the years I have seen many cases where reverse mortgages have enabled seniors to stay in homes they really couldn’t afford any longer and probably should have sold. If they outlive the funds borrowed, typically they are in poor health and now have exhausted their assets completely. It is also true that these loans carry higher transactional fees than traditional mortgages.
However, here, the plan is to sell the home as soon as possible to pay for the next level of care, not hang on too long. And, if a traditional mortgage isn’t an option any longer, the higher fees become acceptable given the alternative of the children taking money from their own savings to pay the cost of Mom and Dad’s care. With an economy in recession and unemployment rates at their highest in a generation many children don’t have the funds to pay for their parents’ long term care.
That’s why for many, it may be time to take a closer look at the reverse mortgage.
Mon, 26 January 2009
When I talk with people about long term care and the Medicaid program I sometimes hear very strong opinions that "it is wrong to transfer assets in order to qualify for Medicaid to pay for nursing home care". The person making the statement, however, typically hasn’t really given any thought to what that means in real life situations.
Let me give an example. Mom is 85 years old and living alone. While she clearly shows the signs of aging and should have put in place a plan in case she needs long term care, like most people, she hasn’t considered it at all. She receives a $100,000 inheritance from her brother. She has always considered her family first, ahead of her own needs, and wants to transfer this inheritance to her son, who is struggling to make ends meet and just lost his job. She believes she has everything she needs financially and her maternal instincts are to help her child. You may or may not believe she is being foolish in her thinking but it is her genuine belief.
Times are tough. Families do what they always do. They pitch in and help each other out. Except that if Mom gives this money to her son and needs nursing home care in the next 5 years she won’t qualify for Medicaid because of the transfer. So, is Mom trying to beat the system, transferring assets to qualify for Medicaid? No, I think we all would agree that this is not what is motivating her. But it’s not that simple. It never is in the real world. Mom ought to be thinking about her long term care needs but she isn’t.
Had she consulted with an elder law attorney she could have set up a plan that would allow her son to receive the inheritance (or she and her son could share the inheritance) by setting up a trust. And when I sat down with Mom and explained to her what would happen if she needs long term care, she very quickly agreed that it was not a good idea to simply transfer the inheritance to her son. She just had never had that conversation before and no one ever explained it to her in that way.
So, instead of having that conversation after she received the money, if we had it before the inheritance had been received, my advice to Mom would have been to keep the money in a trust, in case she needs it for long term care, but that it would be possible to transfer some of it to her son, should he need it. We would have to manage the trust very carefully but it is clearly doable. I wouldn’t call this beating the system. It is a case of families pulling together in times of need. Isn’t that what families are supposed to do?
Mon, 19 January 2009
Very often, when I prepare wills, powers of attorney and health care directives (living wills) for clients they react with surprise when they see the length of my documents. “Why”, they say, “is the will you are preparing 20+ pages when my previous one was only 2?” “The document is designed to cover as many scenarios as possible”, I explain, “not knowing which scenario may in fact occur”. It is not good enough to simply address the most likely ones, especially if yours turns out to be one of the uncommon ones.
Narrowly or poorly drafted wills can cause unpleasant and expensive results. Let’s take the simple task of designating an executor, the person who is appointed the official representative of the estate and is charged with gathering the assets, paying the debts and taxes, if any, and following the instructions set forth in the will and making final distributions to the heirs. It is a good idea to have one or more backup or alternate executors, in case someone can’t or won’t serve, when the time comes.
Now, most people would think in terms of the executor dying as the reason a back up is necessary, but that is just one possible scenario. Yet, I not infrequently see a will drawn up that states “if my executor dies then I appoint my alternate to serve”. Let’s say Child A is the executor and Child B is the alternate. Mom dies and A doesn’t want to serve. No problem. A will step aside in favor of B, right?. Except that A is alive and the will only provides that B can serve if A has died. So, what now?
B can serve as administrator. Same role and responsibilities but some very important differences. An executor can serve without a bond if the will so provides but an administrator cannot. And that can be an expensive difference. The bond acts similar to an insurance policy in that the company issuing the bond will pay out the inheritance if the assets are lost or misappropriated. The bigger the estate the higher the cost, sometimes tens of thousands of dollars. While a bond can be very important, many close knit families see it as unnecessary. Unfortunately, in our case there is no choice. Had the will stated that the alternate can step in if the executor dies or otherwise can’t or won’t serve, then the bond could have been avoided. A very expensive mistake and a reason you want to be sure that the attorney drafting your will is experienced in estate planning or elder law.
Category:Estate Plan -- posted at: 6:00am EDT
Wed, 14 January 2009
In the first show of Season 2 of his Elder Law Today Podcast, by listener request, Yale Hauptman has modified the format and shortened the length of his audio podcast. In a concise 10 minutes, Yale presents a common scenario that many families today are faced with. Dad has just recently been diagnosed with early stages of Alzheimer’s Disease (you can substitute any other long term care illness because the issues remain the same). What lies next for Mom and Dad? What should the family be doing and when?
Yale runs through the planning strategies that ought to be employed to insure the best care possible for Dad, preferably at home rather than in a nursing home, and also to protect Mom so that all their hard earned savings are not spent on Dad’s long term care, leaving Mom with very little to live on.
Yale provides an overview of the long term care system, the benefit of setting aside assets in trust and the various government benefits, including VA and Medicaid, that may be able to play a role in Mom and Dad’s journey through the long term care system. Learn why it is so important to take these steps as soon as possible and why inaction can be so costly.
Episode 13 is a can’t miss listen for families who are unsure what to do and where to start.
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Mon, 12 January 2009
Mom is in her late 40's and divorced. She owns her own home worth approximately $250,000 but with a substantial mortgage with a balance of $150,000. Probably describes a lot of people. Except that Mom has Alzheimer’s. While the disease mostly affects the elderly, early onset Alzheimer’s is not uncommon. It is hereditary and can hit people in their 30’s.
I received a call from Jane, her daughter. Mom can’t work and has no income. The home is a mess and falling into disrepair because she can no longer take care of it. She is temporarily living with her father who is in his late 70’s. He pays the mortgage, taxes and upkeep on her home, although he is getting on in years and his health is failing. The family has no direction and is just living day by day with no idea when the nightmare will end.
Jane asked if we could help save the home. Could the home be transferred out of Mom’s name? My answer, unfortunately, was no. “How long ago was Mom diagnosed”, I asked. Jane told me it was about 3 years ago. Mom refused to consider moving and Jane and her grandfather have been supporting Mom to this point but now they have reached a point where that is no longer possible.
So now the home is on the market. But after closing costs and paying off the mortgage there isn’t much left. She was also hoping to recoup for herself and her grandfather the money they spent supporting Mom. Most importantly, there is the matter of providing care for Mom, hopefully in an assisted living facility at a cost of $4500 per month. When Mom’s condition worsens the next step is a nursing home and that costs $9000 per month.
I sympathized with her but didn’t have any magic solution. She simply waited too long before making what no doubt are tough decisions. So what should she have done?
3 years ago when the diagnosis was made is when the family needed to act. Selling the home and/or moving assets into a trust and out of Mom’s name would have made sense. Because there is a 5 year lookback for Medicaid benefits the family would need to manage Mom’s care and costs during that time period. But, managed correctly, they could have had assets left after 5 years, in trust, that could be used together with available government benefits to get the best care possible for Mom. They would have had options.
Now, they are selling a home falling into disrepair, in a down market. Not the best scenario for Mom who needs as much money as she can squeeze out of the sale to provide for her future care. A lesson for us all. If we delay making tough decisions they only get tougher.
I felt the despair in Jane’s voice. “How can our country let this happen?”, she asked. I didn’t have an answer for that one either.
Mon, 5 January 2009
A very common scenario we see is what I’ll call the case of the late in life second marriage. We all need companionship, especially after a spouse has died or after going through divorce. It’s lonely being alone. So we have Joe and Mary. They marry in their 60’s. He has 2 children from a previous marriage and she has 3 from her first marriage.
2 years later Joe’s health starts to deteriorate. It’s looking like he will need long term care. Mary comes to see me. “I love Joe but I am concerned for myself as well”, she says. “Will his long term care needs eat up our assets? We entered into a prenuptial agreement before we married. I had much more financially then he did. So please review it and tell me my assets are protected.”
I first explain to Mary that before the prenuptial agreement can protect her assets she must first get divorced. A prenuptial agreement basically is a contract that predetermines, in the event of divorce, how assets are to be split. In most cases the parties take back what was theirs and split what they acquired jointly during the marriage.
Let’s go back to our couple. Joe doesn’t have much and very quickly will run out of funds and need to apply for Medicaid. But, the only way Mary can preserve her assets is to divorce Joe and you can be sure that the State is going to look very closely at that prenuptial agreement before they approve Joe for Medicaid.
I explain all this to Mary. This isn’t much of a choice. She loves Joe and emotionally can’t reconcile divorcing him in his time of greatest need. “Is there any alternative?”, she asks.
Actually, there is. She can move her assets to a trust and after 5 years Joe can qualify for Medicaid. In this way she can spend as much of her assets for his care as she wants but not be forced to spend it all, leaving nothing for herself to live on or to provide for her own long term care needs.
When is the ideal time to do that? Really, she should have consulted an elder law attorney before or shortly after the marriage. In her case, it still isn't too late since it doesn't appear that Joe is close to needing long term care yet. However, the longer she waits the smaller that window of opportunity becomes. A little preventative medicine can go a long, long way.