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Mills Elder Law LLC understands the importance of planning for the future. We focus on educating, problem solving and planning for mid-life couples, families of individuals with special needs and seniors when it comes to Medicaid.

  • Medicaid Planning & Applications
  • Special Needs Planning
  • Estate Administration/Probate

HERE’S HOW WE CAN HELP.

Medicaid Eligibility Planning

A loved one is either currently requiring long-term care (“LTC”) or on the verge of needing LTC; whether at home care, assisted living or a nursing home.  It is important that if the loved one lacks mental capacity then there must be a Durable Power of Attorney in place that allows the agent to undertake the steps necessary to engage in planning (e.g., having the ability to make gifts or enter into contracts on behalf of the principal).

17068_wpm_hiresPotential planning opportunities in a crisis situation include but are not necessarily limited to:

  1. Increasing the CSRA.  See our CSRA page for more information.
  2. Increasing the MMMNA.  See our CSRA page for more information.
  3. Spend Down
  4. Prepaid Funeral;
  5. Must be an irrevocable prepaid funeral and the purchaser must be anticipating Medicaid eligibility within the next six months.
  6. Any excess fund must be paid to the State of New Jersey to reimburse for Medicaid benefits.
  7. Home Improvements;
  8. Purchase a car; and
  9. Purchase of household goods and personal effects.
  10. Purchase a Medicaid Compliant Annuities
  11. We highly suggest using a financial firm that has extensive experience in this area and is familiar with New Jersey’s rules.
  12. Creation and funding of a Special Needs Trust.  See our Special Needs Trust page for more information.
  13. Creating and funding of a Miller Trust.  See our Miller Trust page for more information.
  14. Promissory Notes
  15. Although Promissory Notes work in other states they do not work in New Jersey.
  16. Caregiver Agreements

The above items are merely potential planning opportunities in a crisis situation and are meant for educational purposes only.  We urge you to contact our office to discuss your specific facts and circumstances.

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Community Spouse Resource Allowance

For purposes of determining eligibility for Medicaid, a married couple is considered one economic unit (a similar concept to filing a joint federal income tax return). As such, it does not matter for the resource test in whose name an asset is titled.[i] In order to cause the non-institutionalized spouse (i.e., the spouse not needing nursing care) to have to become “poor” in order for the spouse needing long-term care to qualify for Medicaid, Congress enacted the Community Spouse Resource Allowance (“CSRA”).[ii]  The subsection of the federal statute that governs the CSRA is titled “Protecting income for community spouse.”

First off, the CSRA only applies to the resource test and not to the income test when determining Medicaid eligibility. As such, the non-institutionalized spouse is able to retain all the non-countable (or exempt) resources such as the home, a care, household goods and personal effects. For purposes of the income test, the general rule is that whoever’s name is on the check will have that income counted against the income threshold (the 2015 amount is $2,199.00) for purposes of determining Medicaid.

istock_000045151646_large-1024x680When to determine countable resources? The Medicaid program uses a “snapshot” date; the date on which an assessment is made as to total resources of the married couple. The statute defines the snapshot date as the beginning of the first continuous period of institutionalization of the institutionalized spouse. What does that mean? Thankfully, from a practical standpoint, the county boards of social services use the first day of the month that the institutionalized spouse enters the nursing home or assisted living facility.

There is both a minimum and maximum CSRA. At first, you might be wondering why there is a both a minimum and maximum and not just a maximum. Essentially, the minimum can work in favor of the community spouse by allowing him or her to keep more than one-half of the total resources.   For 2015, the minimum is $23,844; this amount multiplied by two is $47,688. Accordingly, if the couple’s total resources are $40,000, then the community spouse can keep $23,844 versus $20,000 (i.e., $40,000/2). Conversely, the maximum works against the community spouse. If the couple has a total of $500,000 in countable resources, one-half of that is $250,000. Since $250,000 exceeds the 2015 maximum CSRA of $119,220, the difference of $130,780 (i.e. $250,000- $119,220) would have to be used for care absent other potential planning.

In addition, there is a minimum monthly maintenance needs allowance (“MMMNA”). The MMMNA may entitle the community spouse to retain a certain amount of the institutionalized spouse’s income in order to satisfy their monthly bills; this is not a state funded amount (again, from a policy perspective, not to impoverish another person and put more pressure on “the system”).  For 2015, the minimum MMMAN is $1,991.25 and the maximum is $2,980.50. The statute provides a formula to calculate the MMMNA which is established by the State of New Jersey for a New Jersey resident. The formula comprises both a “basic allowance” and an “excess shelter allowance.” The basic allowance is for food, clothing, medical expenses, etc. (not the shore house).

Please contact our office to learn more about the CSRA.

[i] 42 USC § 1396r-5(c)(2)

[ii] See Medicare Catastrophic Coverage Act of 1988.

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Qualified Income Trust

millertrustsA qualified income trust (a/k/a Miller Trust)

On December 1, 2014, New Jersey received permission from the federal government to start using Miller Trusts which are irrevocable trusts.  A Miller Trust allows an individual to become eligible for Medicaid by transferring income into a separate bank account.

A Miller Trust is a “legal fiction” that may be required if an individual’s gross income exceeds the 2015 limit of $2,199 per month.  A Miller Trust is an “income only trust,” meaning no resources (e.g., existing cash) can be placed in the Miller Trust nor can anyone other than the Medicaid applicant place income into the trust.  As such, a Miller Trust must only be composed of pension, Social Security, and other gross income of the Medicaid recipient.  A Miller Trust must have a payback provision whereby the State of New Jersey is the first beneficiary.  This provision ensures that the state receives an amount equal to the funds the state paid on behalf of the Medicaid recipient.  The trustee must manage the administration and expenditures of the Miller Trust in accordance with both federal and state law.  The beneficiary, beneficiary’s legal guardian or the beneficiary’s agent with a properly executed power of attorney can establish a Miller Trust.

The following is an example of how a Miller Trust works.  Mrs. Caid has gross income of $2,500 per month, which is in excess of the 2015 limit of $2,199 per month in order to qualify for Medicaid.  Mrs. Smith could establish a Miller Trust and place the difference ($301) in the trust brining Mrs. Caid income below the income cap of $2,199.  Unfortunately there is more to do.  The $301 transfer to the trust could result in a transfer of asset penalty unless Mrs. Caid spends the required amount within a specified time either on herself or her husband.

Here is a non-exclusive list of do’s and don’ts regarding Miller Trusts:

1.       Checks must be deposited in their entirety to the bank account;

2.       Income must be deposited first before any funds are withdrawn to pay ANY expenses;

3.       Only certain expenses are allowed to be paid directly from the Miller Trust account;

a.       These include the Maintenance Needs Allowance; CSRA; health premiums; uncovered medical expenses; and cost share.

4.       Retain documentation that the funds were deposited into the Miller Trust account (e.g., bank deposit slip);

5.       Do not commingle funds (i.e., do not deposit anyone funds belonging to anyone else in the account including your spouse); and

6.       Seek the help of a qualified professional.

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Long-Term Care (“LTC”)

Nearly two out of every three Americans will need LTC assistance at some point in their lives. Such assistance includes basic activities of daily living (commonly referred to as “ADLs”) such as bathing, walking, dressing, and toileting. Long-term care is a variety of services and supports to meet health or personal care needs over an extended period of time. Many associate LTC with nursing homes, but most care is actually provided at home.

Portrait of a doctor caring for her senior patient at a nursing homehttp://195.154.178.81/DATA/i_collage/pu/shoots/806255.jpg

“At age 65, a typical married couple free of chronic disease can expect to spend $197,000 on remaining lifetime health care costs – excluding nursing home care – while it faces a 5-percent probability that these costs will exceed $311,000. Including nursing home care, the mean cost is $260,000, with a 5-percent probability of costs exceeding $570,000. Less than 15 percent of households approaching retirement have accumulated that much in total financial assets.” Webb & Zhivan, What is the Distribution of Lifetime Health Care Costs from 65?, Center for Retirement Research (Boston College) march 2010, Number 10-4.

The following services represent the average annual cost in New Jersey for 2015:

  1. Nursing home (semi-private room) – $116,800 ($105,850.00 in Ocean County);
  2. Home Health Aide – $48,506 ($42,900 in Ocean County); and
  3. Assisted Living (one bedroom; single occupancy) – $68,700 ($58,908 in Ocean County).

With the potential for so much of your retirement income having to fund medical costs, what can you do? Depending on your age, assets, and objectives, there are things you can do to protect your assets from the raising costs of, and likelihood of needing to spend assets, on medical needs.

There are a few ways to fund LTC:

  1. Self-funding/Pay as you go;
  2. LTC insurance (“LTCi”);
  3. Veteran’s Benefits; or
  4. Self-funding/Pay as you go

If you have not planned for LTC and do not/cannot qualify for Medicaid, you may be faced with using a significant portion of your retirement assets to fund LTC. For those who choose to stay in their homes, they tend (statistically) to pay for at home care out of current assets such as stocks, bonds and mutual funds. To the extent a family member can assist with your needs then there may not be any additional financial costs incurred but the additional stress on the caregiver can be significant. The family caregiver may have a full-time job and/or a family of their own. Taking care of an older person or someone with a disability is not the same as taking care of an infant or toddler; the demand and stress is greater.

LTCi

Purchasing a LTCi policy is in many ways similar to homeowner’s insurance. You purchase it to protect a valuable asset but hope you never use it. If you never use your homeowner’s insurance you do not get anything back from the insurance company; they keep your premium. LTCi provides needed protection against the increasing cost of long-term care. The premium you pay is largely dependent on your age and health at the time of purchase. Like buying a car, though, you can add options which would increase the premium.   Because many people do not consider purchasing a LTCi policy until later in life, the cost of the policy may be prohibitive. However, the cost of the LTCi policy should be evaluated against the likelihood the policy beneficiary will need LTC. Under New Jersey law, all LTCi policies are guaranteed renewable.

Hybrid LTCi Policies

Concerned by the use it or lose it nature of a LTCi policy, insurers have developed alternative products to help fund LTC should it be needed. Some life insurance and annuity policies can have a long-term rider attached them for an additional premium, of course.

Medicaid

By far, the majority of nursing home costs are funded by Medicaid. Medicaid is a welfare program (i.e., means tested). The Medicaid recipient must essentially be destitute. “Medicare doesn’t cover long-term care (also called custodial care), if that’s the only care you need. Most nursing home care is custodial care.” https://www.medicare.gov/coverage/long-term-care.html. If there is skilled nursing care involved, Medicare will pay the first 20-days in full. After the 100th day, Medicare does not pay anything. For more information on Medicaid, please see our Medicaid page.

Veterans Benefits

A veteran who was not dishonorably discharged from active military duty and has been a resident of New Jersey for at least two years prior to the date of application may qualify for LTC benefits through the Veterans Administration. The veteran’s spouse may qualify as well. The resource limit is $24,000.00 for a single individual and $110,000.00 for a married couple. Unlike Medicaid, the look back period is 36-months as opposed to 60-months. If the veteran’s disability results in disability of 70% or more and is service related, the veteran is entitled to free lifetime nursing care regardless of that person’s means.

Observation

“If you fail to plan, you are planning to fail.” Benjamin Franklin. Society is living longer and medical technology continues to advance. The Social Security Act was signed by President Roosevelt on August 14, 1935. Life expectancy has certainly changed since 1935. You need to take action and plan for longevity. Consideration should also be given to who your caregiver may be and not just how you will pay for LTC. We welcome the opportunity to have you to our office for a free initial consultation to discuss this very important topic.

Probate

Probate is the process of distributing the decedent’s assets (after all liabilities have been settled). Probate in New Jersey is not as onerous as compared to other states. In fact, probate in New Jersey can be, and should be, a fairly smooth process.

Why should the probate process in New Jersey be fairly smooth? To begin with, there are three ways property can pass upon death. The first is by contract; the second is by operation of law; and the third is by probate. An example of property passing by contract is life insurance and retirement plans. You may have heard of the importance of making sure your beneficiary designations are up to date. If your IRA designates your spouse as your beneficiary, the IRA passes directly from you to your spouse and does not go through probate. The same result applies to life insurance and to property held in trust. For this reason, New Jersey residents that hold property in another state should consider the use of a trust to avoid probate in that state.

istock_000012684639_fullProperty also passes by operation of law. The best example of this is jointly owned property. In New Jersey, when a husband and wife own their home together they create a tenancy by the entirety (a form of property ownership similar to joint tenants with rights of survivorship but only available to a husband and wife). If the husband were to pre-decease his wife, the home would automatically pass to his wife outside of probate by operation of law. The same result would occur if dad owned the home with his daughter with the deed titled “Joint Tenants With Rights of Survivorship.”

What property then is subject to probate? Solely-owned property passes through probate. For example, a vehicle owned solely by the decedent has to go through probate. If there are assets solely in the decedent’s name, it does not matter what the value of those assets are at the time of death. They still must go through probate unless they pass outside of the probate process as discussed above.

What do you need to do to prepare for probate?

  • First off, a Will cannot be probated until the eleventh (11th) day from the date of death. The procedure can be initiated before then but the Surrogate’s Court will not issue any short certificates until the eleventh day.
  • The Will must be filed in the county where the decedent resided at the time of death.
  • Make sure you have an original copy of the Will and there are no superseding Wills.
  • Ascertain whether the executor or executrix will qualify to serve in that capacity.
  • Review the Will to make sure it is “self-proving.” New Jersey permits the testator to have the Will notarized which helps with the probate process. If the Will is not self-proved, a witness needs to be located to execute a Proof of Witness.
  • Have an inventory of the assets that are solely in the name of the decedent so that the executor/executrix obtains the appropriate number of short certificates.
  • Create a list of all immediate next of kin with names, addresses and ages, if minors. If there are any deceased next-of-kin then their issue must be named.

The executor/executrix must within 60-days of the date of probate give Notice of Probate to all beneficiaries under the Will and to all persons who would have inherited by intestacy.

Do you need to obtain a tax waiver(s)? In an interest of protecting its tax base, New Jersey imposes a lien on all property owned by the decedent as of the date of his death. The inheritance tax lien is for 15-years, unless sooner paid or secured by a bond. In limited situations, property of the decedent may be transferred without the Director of Taxation’s written consent (i.e., a tax waiver). As such, financial institutions, corporations and persons may not deliver or transfer any assets within their control or possession which belong to the decedent. When the Division of Taxation issues a tax waiver, it releases both the inheritance and estate tax lien; thereby, permitting the transfer of property for both inheritance and estate tax purposes. Tax waivers are required to transfer property such as the home, funds held in a bank account (bank will usually release half (1/2) of the funds prior to receiving the waiver), brokerage accounts or mutual funds doing business in New Jersey, and stocks or bonds of a New Jersey corporation or institution.

If the taxable estate (i.e., gross assets less liabilities and deductions) is greater than $675,000.00, a New Jersey Estate Tax Return must be filed in order to obtain the waivers. If the taxable estate is less than $675,000.00, self-executing waiver forms are available. Form L-8 is used for intangible property like bank accounts and stocks while Form L-9 is used for real property such as the home. These forms are available on the Division of Taxation’s website. Visit our webpage on the New Jersey Estate Tax for more information.

Before the executor or administrator can distribute estate assets to beneficiaries, debts and taxes must paid. A Child Support Judgement search must also be performed to be sure that a beneficiary has not been found liable for back child support. After the executor or administrator has paid all debts, filed the required tax returns, and distributed all the estate assets, the court will relieve the executor of his or her duties.

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Trusts

What is a trust?  A trust is a contractual arrangement whereby someone (the trustee) manages property on behalf of someone else (the grantor).  The trustee has a fiduciary duty to the beneficiaries of the trust.  Like many things in life, trusts come in different forms and shapes.  Broadly speaking, trusts are either revocable or irrevocable.  Further, trusts can be a “grantor” trust or “non-grantor” trust.  A trust can be established during your lifetime (intervivos) or upon your death (testamentary).

The easiest way to think about a trust is to envision it as a box into which you place property.  The trustee watches over the box until its contents are to be taken out (distributed) for the beneficiary.

istock_000012062410_mediumRevocable living trust (“RLT”).  A RLT provides for your needs during your lifetime and upon your death, provides for the distribution of the trust property or it continues on as an irrevocable trust for the beneficiaries.  Learn more about RLT’s by visiting our blog posting on this topic:

Irrevocable trusts.  An irrevocable trust generally cannot be terminated or modified, once established, without the consent of the beneficiary(ies).  Uses of irrevocable trusts include estate tax planning, Medicaid planning and special needs planning.   Some states permit “decanting.”  Decanting is a process whereby the assets of an existing irrevocable trust are “poured over” to another trust that has more favorable terms.  Although many states have enacted decanting statutes, New Jersey has yet to do so; however, case law in New Jersey may permit decanting in certain situations.

Income taxation of trusts.  There are generally four types of entities that are subject to tax: 1. Individual; 2. Estates; 3. Trusts; and 4. C Corporations (note that an S Corporation may be subject to a built-in gains tax if once a C Corporation).  Since trusts are an income tax paying entity, it is important to understand the taxation of trusts particularly in light of the fact that the income tax rates for trusts are significantly compressed when compared to individuals (i.e., trusts reach the maximum tax bracket very quickly as opposed to an individual).  Whether a trust pays tax on its income depends on whether the trust is a “grantor trust” for income tax purposes.  This determination is made by applying federal tax law as compared to the trust’s agreement.  Simply, grantor trust status is when the grantor or another person is treated as the owner of all or a portion of the trust under the Internal Revenue Code.   When this happens, the grantor reports all items of income and deductions on their personal Form 1040.

For a non-grantor trust, the taxation of the trust is the same as an individual expect for the compressed tax rates.  A non-grantor trust files a Form 1041 if its gross income exceeds $100.00 or if the trust has any taxable income.  From a tax perspective, there are both simple and complex trusts further discussion of which is beyond the scope of this page.  A non-grantor trust can receive a deduction from gross income for income currently distributed or required to be distributed (referred to as distributable net income).

Special Needs Planning

Planning for a loved one with special needs is about enhancing that person’s quality of life to the maximum extent possible and protecting them only as much as necessary to not limit or restrict their potential for government benefits. If there it is anticipated that there will not be a need in the future for government programs that are means-based (e.g., SSI and Medicaid) then there is no need for a special needs trust. Objectives of planning include but are not limited to:

  1. Provide Financial Security
  2. Leverage Means Tested Public Benefits (e.g., Supplemental Security Income and Medicaid)
  3. Select Proper Team to Provide Lifetime Management
  4. Plan for Appropriate Housing
  5. Provide Ongoing System for Advocacy
  6. Plan for Caregiving Needs
  7. Coordinate Entire Extended Family’s Planning
  8. Protect Beneficiary from Predators
  9. Preserve Assets for other Heirs

Currently a first part trust (“SNT”) must be established by the parent, grandparent, guardian of the disabled person or by a court.  As of September 2015, legislation has passed the Senate and is with the House to amend the statute to allow the disabled person to establish their own trust.  A SNT is usually established when the disabled person receives money from a lawsuit.  Generally, a SNT requires the following:

  1. Be established before the disabled beneficiary reaches age 65;
  2. Only permits the disabled person to be a beneficiary;
  3. It must be irrevocable;
  4. It must be an inter vivos trust and not created under a Will (i.e., a testamentary trust); and
  5. On the death of the beneficiary assets remaining in the trust must be used to pay back Medicaid benefits to the extent of the Medicaid benefits received.

Conversely, a third party trust is usually established by the parent(s) of the disabled person.   A major difference between a third party trust and a SNT is the assets remaining the trust upon the disabled person’s death need not be used to pay back Medicaid.  Additionally, a third party trust permits a beneficiary(s) besides the disabled person.

Another type of trust that may be funded with the disabled person’s assets is a “pooled trust” (commonly referred to as a “(d)(4)(C)” trust by attorneys).  These trusts pool the resources of many beneficiaries, and those resources are managed by a non-profit association. Unlike a SNT which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself.

In addition to drafting the trust so that it does not disqualify the beneficiary from government means-based benefits, it is important to select a trustee who is well versed in government means-based benefits so that during the administration of the trust the beneficiary does not lose any government benefits.

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