Quarterly Newsletters

March 2008: Long-Term Care and Veterans Benefits

One thing that people who require long-term care need is money. If an elderly individual in need of care is a veteran or the widow of a veteran, he may be entitled to receive up to $1,843 per month in extra money. In this article, I will discuss a little known Veterans benefit that could be a big help to those in need of long-term care services.

There is no doubt that long-term care services cost a lot of money. Everyday I have clients come to me who are concerned about the costs of long-term care. Currently, I would put the costs of an assisted living residence at between $3,500 and $6,500 per month. A live-in home health aide costs about $5,000 per month, and a nursing home costs anywhere from $7,000 to $10,000 per month.

Furthermore, these costs are rising rapidly. When I first started practicing elder law, I think most of my clients who were residents of assisted living residences paid between $2,500 and $3,500 per month. Now, I would say that most of my clients in assisted living residences pay $5,000 or more per month.

Only five or so years ago, most of my clients in nursing homes paid about $6,500 per month. Now, most pay around $8,500.

Few people could afford to pay these costs for an extended period of time without bankrupting themselves. Moreover, many elderly individuals are receiving long-term care for much greater lengths of time.

With the proliferation of long-term care services, more and more seniors are receiving home health aide services or residing in assisted living residences for years before they ever require nursing home services. This elongating of the long-term care period means a greater number of elderly individuals are looking for ways to supplement the costs of long-term care.

I have written many articles on Medicaid. Medicaid is a welfare program that pays for long-term care at home or in an assisted living residence or in a nursing home. Today, however, I am going to write about a lesser known benefit that is available to many elderly individuals.

Aid and Attendance (A&A) is a cash assistance benefit available through the Veterans Administration. Aid and Attendance is available to all veterans and widows of veterans who have at least one day serving during war time, who served at least ninety consecutive days in the military, who received a discharge for reasons other than dishonorable, who are disabled or over the age of sixty-five, who need assistance with their activities of daily living, and who meet the financial criteria for eligibility.

The financial criteria for eligibility concerns assets and income eligibility. As for assets, the individual must have less than $80,000 in countable assets. "Countable assets" include everything but the house and other personal property. The income criterion is based upon the applicant's living situation. For instance, a widow with no dependents can have up to $998 per month in income.

For those applicants who exceed the income limit, their income can be reduced by certain expenditures, the biggest one being the costs of long-term care. So, for instance, the costs of a home health aide or assisted living residence or nursing home could reduce an applicant's countable income below the income limits necessary to receive benefits.

Once an applicant qualifies for A&A, the Veterans Administration will pay up to $1,843 per month. A&A benefits are not considered income for purposes of qualifying for Medicaid, so receiving these benefits will not affect an individual's ability to qualify for Medicaid benefits.

KNOWING YOUR WILL

Drafting a person's last will and testament is not as simple as it may seem. Yet drafting a Will seems to be one of those tasks that many people tend to believe they can do without the assistance of an attorney.

The thing about making a mistake in your Will is, you won't be around to realize your mistake. Since the mistake will only become evident after your death, as far as you are concerned, the Will you drafted is fine. Your beneficiaries may have a different take on your drafting skills.

Most Wills say something such as, "everything to my wife, then to my four children equally." The question then becomes, what happens if your wife predeceases you and so does one of your four children? Does the deceased child's share pass to his children or to the decedent's surviving three children? Does the deceased child's share pass to his wife?

More importantly, what did the decedent want to happen with his estate in the event that one of his children predeceased him? Did he want that child's share to pass to the deceased child's children, to his surviving three children, or to the deceased child's wife?

Questions such as this, while seemingly simple, are very frequently overlooked when a person with little to no experience drafts a Will. And these questions become even more important when the relationship of the beneficiaries becomes more distant (or non-existent) to the decedent.

For instance, assume that Mr. Smith has a Will that says, "I give my estate to my friend Mary and my friend Joe in equal shares." What happens if Mary predeceases Mr. Smith? Would Mr. Smith want half of his estate to pass to Mary's children? Would he want the estate to pass entirely to Joe? Or would he want to name a secondary beneficiary to take Mary's share in the event of her death?

If Mr. Smith's Will does not stipulate who will receive Mary's share, Mary's share, by law, passes to Joe. Since Mary was not related to Mr. Smith, her share does not pass to her children, it passes to the surviving residuary devisee, that is, Joe.

On the other hand, if Mary were a "descendant of a grandparent of the decedent," her share of the estate would have passed to her children. For instance, if Mary were a cousin of Mr. Smith, then Mary would have a grandparent in common with Mr. Smith.

Since Mary has a grandparent in common with Mr. Smith, Mary is a "descendent of a grandparent of the decedent," that is, Mr. Smith. Since Mr. Smith and Mary are blood relatives, the anti-lapse statute permits Mary's share to pass to her children. An anti-lapse statute is a statute that prevents a devise to a blood relative from lapsing.

Either of these results (Mary-the-friend's share passing to Joe and Mary-the-cousin's share passing to her children) can be altered by the terms of the Will. The anti-lapse statute that saves Mary's devise for her children and the statute that says a non-relative's share passes to the surviving residuary beneficiary can be altered if the person making the Will chooses to override those statutory provisions.

Mr. Smith may have a closer relationship with Mary-the-friend than he has with Mary-the-cousin, so the fact that the law leaves the relative's share to her children but not the friend's share might concern Mr. Smith if he were aware of the consequences of his action. The problem is, if you are not in the business of drafting Wills, you might not be aware of these consequences.

You might think, "I don't worry about someone dying before me, because I'll just change my Will if someone dies before me." The problem with that solution is, it ignores the possibility that you may be incapable of changing your Will because you are disabled. As unpleasant as it may seem, some people in their final years lack the mental capacity to make a new Will and are stuck with the Will they have.

You should have your last will drafted each time it is drafted as if it were your last will.

A NOVEL CASE

Last month, the Appellate Division of the Superior Court decided an interesting case. The case, entitled Garruto v. Cannici, involves a challenge to the last will and testament of Mary Garruto.

In a nutshell, Mary Garruto's brothers filed a suit claiming that a niece of Mary Garruto had caused Ms. Garruto to make her Will through fraud. The brothers filed their suit claiming "tortuous interference with an expected inheritance."

When a person files a suit, he must have a basis for the suit. As surprising as my next statement may be to many people, you cannot simply sue someone just because you want to sue them. The law must recognize some right of yours that has been aggrieved.

The good news is for would-be litigants, the law recognizes many rights of which a person can be deprived. One of those rights is "tortuous interference with an expected inheritance."

When you sue for tortuous interference with an expected inheritance, you claim, as did Ms. Garruto's brothers, that someone (the niece in that case) did something (the allegation of fraud in that case) to interfere with an inheritance that you were expecting to receive. For instance, had Ms. Garruto died without a last will and testament, the brothers, her closest relatives, would have received her estate. So, if the brothers' allegations were correct, the niece interfered with the brothers' inheritance by inducing Ms. Garruto to make a Will through fraud.

The brothers' allegations were unique in New Jersey. The case is a case of first impression, meaning that no other written opinion existed regarding this issue.

Yet, despite the uniqueness of their argument and the creativity of the argument, the brothers' lost. The reason the brothers' lost is probably the reason why they brought this creative suit in the first place - they waited too long to challenge the Will of their sister.

As many of you may know, our society is very litigious. People love to sue, and estates receive their share of suits. A person dies and someone believes that he is not receiving what he perceives to be his fair share, he sues. They call these suits "will contests."

There are a couple of common claims that people make when challenging a Will. People file challenges to Wills claiming that the decedent was mentally incompetent when she made the Will or that she was being unduly influenced to make the Will.

Will challenges have become extremely common, and in my opinion, are popular with lawyers. If, as a lawyer, you file suit challenging a Will that governs an estate worth $400,000, you, as the lawyer, know that when the suit is over, there is a pool of money ($400,000) from which to draw your fee.

But, as with all matters of law, will contest cases have rules. And one important rule with regard to will contests is that the suit must be filed within four months of the Will having been submitted to probate (six months if the individual challenging the Will lives out of state).

The Garruto brothers never filed their will contest case within the time permitted by law, so what they were attempting to do by raising the claim of tortuous interference with an expected inheritance is extend the length of time that they had to file their challenge. A will contest case must be filed within four months of probate, but a suit for tortuous interference has a two year statute of limitations, giving the brothers an extra twenty months during which to file their suit.

The problem for the Garruto brothers is, the Court realized what they were trying to accomplish. Essentially, what the Court held is, the law does not permit a person to do an end-around of the statute of limitations for will contest cases. In plain English, file your suit within four months or you are barred. At least the Garruto brothers were barred.

The Court did believe that an action for tortuous interference with an expected inheritance could exist in certain cases, just not here.

CARE AGREEMENTS

On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005, or DRA. The DRA was the federal budget for 2006. This new budget brought sweeping changes to the laws governing the Medicaid program, specifically, the laws governing the transfer of assets.

The transfer of asset rules play a critical part in the process called Medicaid planning. Medicaid planning is a process through which an individual attempts to preserve a portion of his estate for his family. Frequently, Medicaid planning involves transferring, or gifting, assets.

Since Medicaid is a welfare program, the laws governing the Medicaid program have, for some time, punished applicants who have gifted assets. If Medicaid failed to punish applicants who transferred assets, then an applicant would simply transfer his assets immediately before he sought to qualify for Medicaid.

Medicaid punishes people who have made gifts by making the person ineligible for Medicaid benefits for a period of time. Generally speaking, the more money that an applicant gifts the longer the person is ineligible for Medicaid benefits.

One Medicaid planning technique that has existed for quite some time and that has become the subject of increased interest since the enactment of the DRA is the use of family care agreements. Since Medicaid punishes applicants who have gifted assets, the concept behind family care agreements is to compensate younger family members who are caring for elderly family members.

If the elderly family member is paying the younger family member for the care the younger family member is providing, then no gift is occurring and Medicaid cannot punish the applicant. But family care agreements may not be the ultimate solution.

Individuals who are in their fifties and sixties are known as the Sandwich Generation. These individuals are sandwiched between elderly parents, typically in their eighties, and grandchildren. The Sandwich Generation has children who work, so members of the Sandwich Generation find themselves caring for grandchildren and parents.

The family care agreement is designed to compensate the Sandwich Generation for the care they would otherwise provide gratuitously to aged parents. For instance, if mom had to hire an aide to care for her twelve hours per day, mom might pay that aide anywhere from $15 to $20 per hour. So, why shouldn't mom pay her daughter who is caring for her $20 an hour for that care?

After all, if mom enters a nursing home in the coming years, she'll being paying that nursing home anywhere from $8,000 to $10,000 a month. Mom's money will be flying out the window. At that time, the daughter will have wished that she received compensation from mom for the services the daughter provided for free. In essence, all the daughter was doing was saving money for the nursing home.

On the other hand, if the daughter is compensated, the daughter will have to claim that compensation as earned income on her tax return. Many people are turned off by the need to claim the compensation as taxable income.

In order to work, the family agreement must be in writing and it must predate the date on which the services being compensated were rendered. In other words, you cannot compensate yourself retroactively for services that you provided in the past for free.

Another issue with regard to family care agreements is the method of payment. Can you compensate the family member with a lump-sum payment or do you have to compensate the family member monthly? A lump-sum payment would permit you to base the payment on the family member's life expectancy. For instance, if the caregiver is receiving compensation at the rate of $3,000 per month and the elderly individual has a ten year life expectancy, under a lump-sum agreement, the caregiver would receive $360,000 in one shot.

In New Jersey, I do not know of any attorney who uses a lump-sum payment method, and I believe that the Medicaid office would give you a fight over the use of such a method. Paying monthly is permitted if the compensation amount is reasonable.

PLANNING IN CHANGING TIMES

Since President Bush signed major tax cuts into law in 2001, estate planning has been in a state of flux. In 2001, the credit against federal estate tax was equivalent to $675,000. So, if a person died with an estate worth more than $675,000, his estate would pay federal estate.

Federal estate tax rates are quite steep, currently as high as 45%. This means that if a person died before the tax cuts with an estate that was greater in value than $675,000, his estate could pay taxes as high as 45% of the amount over $675,000.

The law that President Bush signed into existence in 2001 rapidly increased the federal exemption equivalent. The exemption rose from $675,000 in 2001 to its current lofty level of $2,000,000. Next year, 2009, the credit equivalent is scheduled to rise to $3,500,000. Finally, in 2010, the federal estate tax is repealed, but only for one year.

In 2011, if Congress fails to make the tax cuts permanent - and there is very little chance that Congress will make the tax cuts permanent - the law that President Bush signed into existence in 2001 will expire. The federal estate tax will then be governed by the law that existed prior to 2001, which means that the federal estate tax exemption will be $1,000,000.

Under the law that existed prior to 2001, the federal exemption would have been $1,000,000 by 2006, so that is what the exemption will be in 2011 when the law reverts to the "old law."

The second major issue with estate tax planning is the effect that the change in the federal estate tax had on the New Jersey estate tax. Prior to the law change, the federal estate tax and the state estate tax worked in tandem.

The federal estate tax gave a credit to the decedent's estate for state estate tax paid, up to a maximum amount. Most states simply made their estate tax the maximum credit that the federal government offered as a credit on the federal estate tax return. For this reason, the state estate taxes were called "sponge taxes," because the states' taxes soaked up the credit that the federal government offered.

When the federal government changed its law, New Jersey countered with a change of its own. New Jersey fixed its credit equivalent at $675,000, making all estates greater in value than $675,000 subject to New Jersey estate tax.

Now, for instance, if Mr. Smith were to die with an estate worth $2,200,000, his estate would pay federal estate tax and New Jersey estate, and the New Jersey estate tax paid would not be a credit against the federal estate tax amount.

The problem with trying to plan for clients is, you simply do not know where the federal estate tax credit will be two years from now. It is almost universally accepted that Congress will not permit the federal estate tax to be repealed. But will Congress freeze the credit at its current level ($2,000,000), increase the credit, or let it slip back to $1,000,000.

If a client comes to a lawyer today with an estate worth $3,000,000, does the lawyer try and protect the client's estate against federal and New Jersey estate tax or just New Jersey estate tax? The planning will be different depending upon the answer. If the client only has to worry about New Jersey estate tax, and not federal estate tax, the actions that the lawyer will suggest might be different.

Added to the mix is the Presidential election. This year is an election year. It's unlikely that Congress will act on the federal estate tax this year, so that means that Congress won't get to the federal estate tax issue until, at least, 2009, when the credit equivalent is $3,500,000.

Personally, I believe that the credit will be frozen at $3,000,000 or greater. But I'm not a soothsayer, so I cannot guarantee that prediction. One thing I know for sure, there are going to be a number of people who will need to adjust their estate plans after Congress does get around to acting on this issue.