Is a Will Important?

A last will and testament can be a very powerful legal document.  It has the potential of disposing of all of your property after your death.  A Will could control tens of thousands dollars or even millions of dollars of assets, depending upon the worth of the deceased person.  On the other hand, a Will might control nothing.  It depends on what assets the decedent owned and how those assets were titled.

A Will is only an effective document after the person who made the Will dies.  During his life, his Will has no effect at all.  A person can always change his Will until the day he dies.  This is why we call it the “last will and testament.”  The only important Will is the last will that the person made before he died.  All prior Wills are meaningless.

If a person dies without any assets, then his Will won’t control any assets.  Sometimes, a client of mine will be a recipient of Medicaid benefits and his family will say something such as “Dad doesn’t have a Will.  Does he need one?”  If dad is receiving Medicaid benefits, then he would have to own less than $2,000 in assets.  So, he might need a Will, but his Will isn’t going to control many assets.

There are non-financial aspects of a decedent’s affairs that can be controlled through his Will.  For years, I have nominated a funeral agent in my clients’ Wills.  This is a person with authority to direct the funeral arrangements for the deceased person.  This could be very important if there is a dispute as to how the deceased would like his remains handled.  Funeral directors like it if there is a nominated funeral agent, so I have nominated a funeral agent in my clients’ Wills to handle this situation.

A Will may or may not control the decedent’s assets.  It depends on how the decedent titled his assets.  When a person dies, his assets pass in one of three ways—by operation of law, by contract, and by probate.  If all of person’s assets pass by operation of law or by contract after his death, then his Will won’t control how any of his assets pass.

An example of property passing by law is when a husband and wife own their home jointly.  When a husband and wife own a home jointly, they own it as joint tenants with right of survivorship.  This means that when one spouse dies, the other spouse becomes the absolute owner of the entire property.  Nothing needs to be done to effectuate the vesting of absolute ownership in the surviving spouse.  The property passes to the surviving spouse by operation of law.

An example of property passing by contract is a life insurance policy that names a beneficiary.  When the insured dies, the insurance policy pays out to the named beneficiary.  The contract, the life insurance policy, controls who will receive the proceeds of the insurance when the insured dies.

A person might die with nothing but property that passes by operation of law or by contract.  Typically, when the first spouse dies, his Will doesn’t have to be probated because everything passes to the surviving spouse in one of these two ways.

On the other hand, a Will might control some of the decedent’s property or all of the decedent’s property.  For this reason, a Will can be very important.  In fact, in my opinion, it is wise to ensure that some of your property passes under your Will because you need to leave your executor with some assets with which to pay your final debts—funeral expenses, medical expenses, credit card bills, and utilities for your house.  Without any assets, your executor can be left in the unseemly positon of having to beg or to sue the individual who received your assets by operation of law or by contract in order to pay your debts.

Dying without a Will

What happens if you die without a last will and testament?  Many people believe that if they die without a Will, their money goes to the State.  This isn’t true.  What really happens is that your money passes to those individuals whom various state statutes designate.  These statutes are known as the Intestate Succession Statutes.

When an individual dies, his assets pass in one of three ways to his heirs—by operation of law, by contract, or by Will or intestate succession if he dies without a Will.  If a married couple owns a house together, when one spouse dies, the house passes automatically to the surviving spouse.  The house is said to pass by operation of law to the surviving spouse.  The death of her spouse means that she owns the entire house in its entirety.  She doesn’t have to do anything to become the absolute owner of the property.

When a life insurance policy is paid to a beneficiary after the death of the insured, this is an example of property passing by contract.  The life insurance policy—the contract—dictates who will receive the property after the death of the insured.

If property isn’t passing by contract or by operation of law, then the individual’s Will controls who receives the property, and if the individual does not have a Will, then the intestate succession statutes control who will receive the property that does not pass by operation of law or by contract.

The intestate succession statutes are essentially what the New Jersey government believes to be fair to the surviving relatives of a deceased individual who dies without a Will.  If you are a surviving relative of an individual who dies without a Will, you cannot challenge the intestate succession statues.  In other words, you cannot say, “I took care of Aunt Rosie, so I should get all of her money, not you.  You did nothing for her!”

Assuming that you actually did help Aunt Rosie no less fervently than Mother Teresa cared for the sick of Calcutta and her other relatives did absolutely nothing—in fact, let’s assume that the other relatives hated Aunt Rosie and let their hatred be known—it’s irrelevant.  If Aunt Rosie dies without a Will, then her assets are going to pass in the manner specified in the intestate succession statutes.

Those statues are the embodiment of what the government believes to be fair and equitable and those statutes are unassailable.  Aunt Rosie did not take the time to draft a Will for herself, so the government wrote a Will for her.

The people who will receive your estate if you die without a Will are a series of progressively less closely related individuals to you.  Your spouse and your children are in the first tier of potential heirs.  Next comes your parents, then your siblings, then your aunts/uncles, then your cousins, and so on down the blood line.  Only if you have no relatives would your property pass to the state.

In most cases, a deceased person has some relative.  The decedent might not have even know the person who inherits his estate.  Such a person would be known as a “laughing heir,” because unlike close relatives who are saddened by the death of their loved one, laughing heirs are someone who never knew the decedent yet inherit his money.

Within a class of relatives of the same degree, relatives of the half blood inherit the same as relatives of the whole blood.  What this means is, a half-brother inherits the same amount as a whole-blood brother of the decedent.  A cousin of the half-blood inherits the same amount as a cousin of the whole-blood.  This is important in today’s society of second and third marriages.

Using Living Trusts Wisely

Many clients ask me if they should have a revocable living trust.  These clients may have heard how a revocable living trust is better than a last will and testament.  Often they seek to avoid the tangles and delays of probate.

The word “revocable” means the trust can be revoked without the consent of another individual.  So, for instance, if Mr. Smith established a revocable living trust, Mr. Smith retains the right to revoke the trust any time he wishes.  He can also modify the trust any time he wishes.

The word “living” means that the trust is created during Mr. Smith’s life.  The opposite of a living trust would be a testamentary trust.

A testamentary trust is a trust established in the last will and testament of a decedent. Mr. Smith can establish a living trust during his life, but he would establish a testamentary trust in his Will.  A testamentary trust, like a Will, is only effective when a person dies.  A living trust is effective when the person is alive.

Because a revocable living trust is effective when Mr. Smith is alive, Mr. Smith can put assets into the trust during his life. He can title his house into the trust or his bank accounts.  Theoretically, he could transfer most of his assets into the trust, bur some assets, such a car, might be difficult to transfer into the trust because it would be difficult to insure a car if it were owned in a trust.

I often draft revocable living trusts for clients. In most instances, the client owns real estate in another state, such as Florida.  I advise the client to have a revocable living trust in order to avoid probate in the other state.

If Mr. Smith owns real estate in Florida at the time of his death, then his Will would have to be submitted to probate in New Jersey and Florida. By re-titling his Florida house into his revocable living trust, his estate will avoid having to submit his Will to probate in Florida.  To me, avoiding probate in two states is worth the extra time and effort it takes to re-title Mr. Smith’s house into a living trust.

On the other hand, simply avoiding probate in New Jersey is not worth any extra time or effort. The process of submitting a Will to probate in New Jersey is very simple and very inexpensive.  The cost of probating a Will in New Jersey is about $150 whether the value of the estate is $100,000 or $10,000,000.

Because there are some assets that are difficult to place into a trust, such as a car, in most cases, a person cannot avoid probate with a revocable living trust. And whether a person’s Will has to be submitted to probate for a $10,000,000 estate or for a car only, the cost and time involved in submitting a Will to probate is exactly the same.  For that reason, in most cases, I typically don’t recommend having a revocable living trust if you don’t own real estate in another state.

To make matters even more complicated with a living trust, I have seen many couples who have joint revocable living trusts. A joint revocable trust is a trust that is established by both members of a married couple and that is funded with the assets of the couple.  For instance, Mr. and Mrs. Smith put all of these assets into one trust.  When either spouse dies, his/her assets typically pass into a sub-trust inside the main trust for the benefit of the surviving spouse.  When the surviving spouse dies, all of the assets typically pass to the couple’s children.

The problem with these trust is, the trust documents are frequently very long, very complicated legal documents. Ironically, Mr. and Mrs. Smith established the trust to avoid costs to their estate and complications, but the time involved in properly administering a joint living trust far outstrips the costs of having separate Wills for each member of the couple.

Living trusts can be useful tools that can reduce the cost and expense of estate administration after your passing, but if used improperly, they can actually result in significantly greater costs to your estate.

I Want To Qualify for Medicare

I’m an elder care attorney, so many people come to see me about a family member’s long-term care needs. Many of them will say to me, “We want to qualify our mother for Medicare.”  To which, invariably, I will say, “You mean Medicaid.”

Those who confuse Medicare and Medicaid typically are the children of the person who requires long-term care, and typically, the children are not old enough to be enrolled in Medicare themselves. Given this fact, there confusion is somewhat natural.

Even those who are old enough to be enrolled in Medicare wonder if their potential receipt of Medicaid benefits will disqualify them from their Medicare benefits. In other words, they wonder if they will be disenrolled from Medicare benefits if they qualify for Medicaid benefits.

But what is the difference between Medicare and Medicaid?  And does qualification for Medicaid affect a person’s Medicare benefits?  If so, how does it affect those benefits?

Medicare is a government health insurance program.  Taxpaying workers in the United States pay into the Medicare program through deductions from their pay during their working years.  A person must work a certain number of quarters (three-month periods) in order to qualify for Medicare, typically, forty quarters or ten years.

Once a worker satisfies the forty quarters of work, he must either be aged, which is defined as aged sixty-five, or disabled in order to qualify for Medicare benefits.  Most people qualify based upon age, not disability, though there are a lot of people who qualify based upon disability.  Beneficiaries who qualify based upon age begin receiving benefits immediately.  People who qualify based upon disability must (in most cases) wait twenty-four months before they begin receiving Medicare benefits.

Like most policies of insurance, Medicare has deductibles and co-payments.  To cover these gaps in the insurance, there are private policies of insurance called Medigap policies (shore for Medicare gap policies).  There are ten different, standard Medigap policies with different levels of coverage.  The better the policy the more of the deductibles and co-payments that the Medigap policy will cover.  Of course, the more the policy covers the more the premiums will be for the policy.

Medicare does not cover long-term care services.  Medicare will cover some rehabilitative services, and for this reason, Medicare is often confused with insurance that covers long-term care costs.  For instance, if Mr. Smith falls and breaks his hip, he will go to the hospital first, then he will go to a rehabilitation facility.  The rehabilitation facility is, in most instances, a nursing home.  Medicare will help pay for Mr. Smith’s care in the hospital and it will pay for up to 100 days of rehabilitative services in the nursing home.  I think, for this reason, many people believe that Medicare pays for long-term care services, but it doesn’t.  It only pays for rehabilitative services.

A person who worked the requisite quarters will qualify for Medicare benefits even if the worker is rich.  Bill Gates, for instance, will qualify for Medicare benefits when he attains the age of sixty-five.

Unlike Medicare, Medicaid is means-tested.  That means that in order to qualify for Medicaid, a person must have a limited amount of assets (typically less than $2,000), and he must have insufficient income to pay for his care.  Medicaid is a health payment plan, not health insurance.  Medicaid will pay for certain services if a person qualifies.

Medicare and Medicare are mutually exclusive.  A person can qualify for both Medicare and Medicaid.  Qualification for one program does not disqualify a person from eligibility for the other program.  Also, unlike Medicare, Medicaid will pay for long-term care services.

The State of New Jersey Death Taxes

For many years, New Jersey was one of the most expensive states to die in.  Most states have no “death taxes,” which could include an estate tax or an inheritance tax.  New Jersey, on the other hand, had both.  Starting this year, New Jersey no longer has an estate tax, but we still impose an inheritance tax.  So, what’s the difference and does the inheritance tax affect you?

An estate tax is a tax imposed upon the gross value of the estate.  Around 2001, the federal government began increasing the credit equivalent against the federal estate tax quite dramatically.  A credit equivalent in the amount you can pass to your heirs without paying an estate tax.  In 2001, the credit equivalent was $675,000, so if you died with an estate worth $675,000 or less, then your heirs would pay no estate tax.

Soon after 2001, the credit equivalent began to rise.  Currently, you have to die with more than $11,000,000 to pay federal estate tax.  A married couple would have to die with more than $22,000,000 to pay federal estate tax.

When the federal government began increasing the credit equivalent dramatically, the state of New Jersey froze its credit equivalent at $675,000, and for years, that’s where our credit equivalent remained.  Estates worth more than $675,000 were potentially subject to the New Jersey estate tax.

In 2017, we increased the credit equivalent to $2,000,000, and in 2018, we completely eliminated the New Jersey estate tax.  The upshot of all of this is, if you live in New Jersey and have an estate worth less than $11,000,000, you aren’t paying any estate tax—federal or state.

Some estates in New Jersey, though, could be subject to New Jersey inheritance tax, and I have recently met with several people who are interested in protecting their estate from the inheritance tax.  New Jersey has long had an inheritance tax.  In the past, the inheritance tax received less attention because the estate tax affected more estates.  Now, with the elimination of the estate tax, the inheritance tax is the only thing to focus on.

The inheritance tax, like the estate tax, is imposed based upon the value of the inheritance an individual receives, but unlike the estate tax, the primary focus of the inheritance tax is the relationship that the decedent bore to the heir.  In other words, was the person who died a parent? A child?   A spouse?  Or an Uncle?  That relationship determines whether or not the estate will be subject to inheritance tax.  The value of the inheritance could change the rate of tax that the estate pays.

With inheritance tax, a parent, spouse, child, grandchild, or other lineal descendants pay no tax.  Stepchildren are also part of this non-tax paying group, but step-grandchildren are not part of the group.  More distant relatives—brothers, sisters, cousins, nephews, etc.—are subject to the inheritance tax; however, the rate of tax and any exemptions against the tax vary somewhat.  Individuals who are more closely related pay less tax and have a higher exemption.

Non-relatives, such as friends, are also subject to the tax. Charities are exempt from the tax.

So, how do you avoid or plan against the inheritance tax? The answer is, there really is no easy answer.  Move to another state is probably the first response a lawyer would give you.  Most states do not impose an inheritance tax, so if you lived in another state, your estate would not pay New Jersey inheritance tax.

The only other way to avoid the tax is to give the property to your heirs before you die as a gift, but you must give the assets away three years before you die because gifts made less than three years before your death are brought back into your estate and taxed.

Can a Penalty Period Be Tolled?

Can an uncompensated asset transfer penalty be tolled once it begins?  The director of New Jersey’s Medicaid program correctly agrees that it cannot.

Medicaid is a health payment plan for needy individuals.  If an individual qualifies for Medicaid, the program will pay for many of the costs of his care.

There are several different Medicaid programs, but primarily, Medicaid programs can be broken down into community Medicaid and institutional Medicaid.  Community Medicaid is essentially health insurance for a needy individual.  Institutional Medicaid is for an individual who requires long-term care services, such as a home health aide, an assisted living residence, or a nursing home.

In order to qualify for Medicaid, an individual must have insufficient income with which to pay for his care, and he must have a limited amount of assets, typically less than $2,000.  Certain assets, however, are exempt, such as a home in which an individual resides, an automobile, and certain small policies of life insurance.

Applications for Medicaid are filed with the county board of social services for the county in which the applicant resides.  So, if you live in a nursing home in Monmouth County, you file your application for Medicaid benefits with the Monmouth County Division of Social Services.  When an individual applies for institutional Medicaid, his finances are reviewed during the five years that preceded the date of his application for benefits.  This review is commonly known as the “five-year lookback.”  So, for instance, if Mr. Smith applies for Medicaid on April 1, 2018, then the County asks for financial statements for the applicant’s finances back to May 1, 2013.

If the applicant made any uncompensated asset transfers during the five-year lookback period, then he can be rendered ineligible for Medicaid benefits for an unlimited period of time.  The greater the value of the assets that the applicant transferred during the lookback period, the longer the period of ineligibility for Medicaid benefits.

A period of ineligibility for Medicaid benefits is known as a “penalty period.”  The penalty period is designed to render the applicant ineligible for Medicaid benefits for a period of time that is commensurate with the period of time for which the money he gave away could have paid.

In order to begin a penalty period, an applicant must be eligible for Medicaid benefits in all ways except for the fact that he made an uncompensated asset transfer during the lookback period.

About twelve years ago, the federal government issued guidance on the Medicaid program, specifically, how a penalty period begins and when it ends.  According to the federal government’s guidance, once a penalty period begins, it cannot be tolled.  So, if Mr. Smith applies for Medicaid and it is discovered that he gifted $150,000 within the five-year lookback period, then the County will assess a one year penalty against him.  Mr. Smith will be ineligible for institutional level Medicaid benefits for one year and will have to private pay for the cost of his care during that period of time.

No matter what Mr. Smith’s finances are after the penalty period is imposed, the penalty period cannot be stopped.  So, if Mr. Smith inherited money during that one-year penalty period, the penalty would continue to run.  At the end of the penalty period, Mr. Smith might be ineligible for Medicaid benefits because he now owns the inherited money, but the penalty period would have run and could not be imposed against him again for the $150,000 of transfers that he made during the lookback period.

Applying for Medicaid

Medicaid is a health payment plan for needy individuals.  In order to qualify for Medicaid benefits, an individual must have limited assets and insufficient income with which to pay for his care.  If an individual qualifies for Medicaid benefits, Medicaid will pay for most of the costs of his care.  For instance, if an individual is in a nursing home and qualifies for Medicaid benefits, Medicaid will pay for his nursing home care; the Medicaid beneficiary will only owe a portion of his income to the nursing home.

For almost twenty years, I have been helping people apply for Medicaid benefits. I am uncertain how many people I have assisted in apply for Medicaid benefits during that period of time, but it is a great many.

You apply for Medicaid benefits with the county board of social services in which the applicant for benefits resides.  If the applicant were in a nursing home in Monmouth County, then he would file an application for Medicaid benefits in Monmouth County, even if his home were in Middlesex County.  The county acts as an agent for the state of New Jersey.  The State contracts with the County to handle applications for Medicaid benefits.

When you file an application for Medicaid benefits, the County will ask the Medicaid applicant to sign various forms.  Some of those forms permit the County to verify the applicant’s income and assets.  The County has the right to contact banks and other financial institutions.  The County could, for instance, obtain statements and information about financial transactions that the applicant made.

The County, through its computer system, also has access to information about an applicant.  For instance, the County could verify the applicant’s Social Security income and date of birth.

Just because you file an application for Medicaid benefits, it does not mean that you will ultimately be approved for Medicaid benefits.  In fact, the system is set up in a way that seeks to deny an application for Medicaid benefits.

If people know anything about the laws governing the Medicaid program, they know something about the five year lookback period.  The five year lookback period is the five year period of time prior to the date on which the application for benefits is filed.  The County is entitled to look at financial transactions that the applicant made during the lookback period.  If the applicant made any uncompensated transfers during the lookback period, he can be determined to be ineligible for Medicaid benefits for a period of time without limit.  The more money that the applicant transferred during the lookback period, the longer the period of ineligibility will be.

If the application process were simply set up to approve your application, there would be no scrutinizing of the application’s finances for the past five years.  There would simply be a verification that your assets are currently limited and that your income is insufficient to pay for your care.  But that is not what the application process is about.  The application is primarily about the lookback period and about closely reviewing the financial transactions that the applicant made during the lookback period, with an eye toward denying the application for benefits if the applicant made any uncompensated transfers.

Some people believe that since the County has the authority to access the applicant’s financial information—based upon the authorizations an applicant signs when he files his application—that the County has the obligation to obtain any financial information it wishes to see.  In other words, some people believe that the County ultimately has the obligation to obtain the applicant’s bank statements and other verification documents, not the applicant.  But a recent cases tells us that this is not the case.  In this case, the court held that the applicant has the obligation to provide the verifications the county requests, not the County.  If the applicant fails to provide the information, the applicant can and will be denied benefits.

Nursing Home Myths

Loved ones are often quite confused when a family member requires nursing home care. For them, the event is both new and unique, and for them, it is.  But from a broader perspective, a person’s need for nursing home care and their entrance into a nursing home follow a very common pattern.  Knowing these patterns can prove helpful and will make you feel less adrift if you find yourself in this situation.

For many elderly individuals, the need for long-term care begins with a trip to the hospital, perhaps after a fall in their home. They will stay in the hospital for several days, then they will be discharged to a “rehabilitation center.”  The rehabilitation or rehab center is really a nursing home.  Technically it is called a sub-acute care facility.

Most nursing homes have both a rehabilitation section and a long-term custodial care section. The long-term section is what most people would call a nursing home, but if you didn’t know which section of the nursing home was which, you would be unable to distinguish the rehabilitation section from the custodial care section.

It is important to be discharged from the hospital to a nursing home where you might want your family member to stay if he requires long-term custodial care. Getting your foot into the door of the nursing home where you want your family member to stay is important.  Nursing homes want rehabilitation patients.  For the elderly and disabled, Medicare covers rehabilitation services.

Medicare’s reimbursement rate to nursing homes is quite good, so nursing homes like to take patients who require rehabilitation. Nursing homes also like to receive referrals from hospitals, so they are eager to accept referrals from hospitals for rehabilitative services.

After your family member has entered the nursing home for rehab, you may discover that your loved one does not have the ability to return home. The staff of the nursing home might tell you that you need to look for a long-term care facility that can care for your family member.  They might tell you that all of their Medicaid beds are full and that they have a waiting list for long term care beds.

Despite what the staff of the nursing home might tell you about “not having a Medicaid bed,” in New Jersey, most every bed in every nursing home is dual certified for Medicare and Medicaid coverage. This means that rehabilitation services will be covered (by Medicare) and custodial care could be covered (by Medicaid).

Once your family member enters the rehab center, he is already in a Medicaid bed, and the facility cannot discharge him for lack of a bed. Even if the bed weren’t Medicaid-certified, the nursing home, not the family, must find a facility that will accept the patient as a long-term resident, and the facility cannot discharge your family member until they find a facility that will accept him.  The facility tries to make this your burden, but the reality is, the burden is theirs, not yours.

Finally, the staff of the nursing home might tell you that if your family member is going to stay in their facility and if he is going to apply for Medicaid, then you have to use the company they recommend to help you apply for Medicaid benefits. The owners of these Medicaid application companies are often related in some manner to the owners of the nursing homes and are very loyal to the owners of the nursing homes.  The companies often charge more than an attorney would charge, yet the companies cannot provide the same level of services that an attorney can provide because there are certain services that constitute the practice of law and only attorneys can provide those services.  The truth is, you have the right to apply for Medicaid on your own or to hire whomever you wish to hire to help you file your application for Medicaid benefits.

Do You Have a Second?

In my practice, I deal extensively with agents—an individual with authority to act on behalf of another individual.  For me, the need to ensure that you have named an agent to handle all aspects of your affairs is so obvious that I forget most people don’t think in these terms.

The majority of people believe that they will always be able to handle their own affairs and that disabilities and death are the other guy’s problem.  Unfortunately, none of us can escape death.  And if we are fortunate to live long enough, there will likely come a point in time when we need the assistance of others because of some level of disability.  The fact of the matter is, if you are fortunate enough to live into your eighties or nineties, you will likely need some help from family or friends to handle your affairs.

So, naming someone else to assist you in various aspects of your life, and death, is a good idea.  The common documents used to name someone as your “agent” is a power of attorney, an advanced health care directive, and a last will and testament.  Powers of attorney and advanced health care directives enable someone else to make decisions for you while you are alive.  Through a last will and testament, you nominate someone else, called an executor, to handle your affairs after your death.  In addition, in a Will you can nominate a trustee to handle the assets you leave to the beneficiaries of your estate, typically if the beneficiary requires assistance in handling her own affairs, for instance, the beneficiary might be a minor.

When I speak to clients, I sometimes get the impression that the client doesn’t accept the fact that someday he might be disabled and unable to handle his own affairs.  In fact, some times when I speak with clients, I get the impression that they don’t accept the fact that someday they will die and someone else will need to handle their financial affairs for the benefit of the beneficiaries of their estate.

Naming an agent can be one of the most important decisions you make.  It ensures that your affairs can be handled in the event you cannot and it ensures that your affairs are being handled by the person you chose to make those decisions.

Most married people believe that their spouse can simply make decisions for them in the event they cannot.  So it may come as a surprise to learn that unless you name your spouse as your power of attorney agent, she could not make any financial decision for you simply because she is your spouse.  For instance, assume that Mr. Smith suffers a stroke.  Mr. Smith owns his house jointly with his wife and owns a 401(k) in his name alone.  He also owns several bank accounts jointly with his wife.

Mrs. Smith could access the joint bank accounts without a power of attorney, but without a power of attorney, Mrs. Smith would not be able to access any of the funds in Mr. Smith’s 401(k).  Mrs. Smith would not be able to mortgage or sell the house she owns jointly with Mr. Smith unless she as a power of attorney for him.

Without an advanced health care directive, Mrs. Smith may have difficulty accessing Mr. Smith’s health care information.  Mr. Smith’s health insurance company may not speak with Mrs. Smith.  The Health Insurance Portability and Accountability Act, commonly known as HIPAA, prevents health care providers and insurance companies from sharing your health care information with anyone except your designated health care personal representative.

Assuming Mr. Smith passes away, Mrs. Smith could not serve as Mr. Smith’s executor unless Mr. Smith executed a Will naming Mrs. Smith as the executor of his estate.  And while Mrs. Smith would likely be able to be appointed as the administrator of Mr. Smith’s estate—a role that is similar to that of an executor—she might be required to post a probate bond, which would cost the estate money.  Having a good plan in place is simply and costs much less than you think.  Putting that plan in place when you are healthy is a great idea.

Tolling a Penalty Period for Medicaid

A colleague of mine recently had a victory for individuals applying for Medicaid that bears mentioning.  Medicaid is a health payment plan for needy individuals.  Medicaid is a federal and state program.  The federal government pays for, at least, 50% of the costs associated with Medicaid.  In order to participate in the Medicaid program, a state must agree to be bound by the federal rules governing the program.

In order to qualify for Medicaid, an individual must have limited resources (typically less than $2,000) and income that is insufficient to pay for the cost of his care. In other words, if Mr. Smith lives in a nursing home and owns $1,000 in assets and has monthly income of $1,500, then he could qualify for Medicaid because the cost of his care is probably in the neighbor of $12,000 a month; accordingly, his income and assets are insufficient to pay for the cost of his care.  (If Mr. Smith had monthly income of $13,000 and his care cost $12,000, he would not qualify for Medicaid, but few people have income that high).

If an individual makes an uncompensated asset transfer within the five year period of time prior to applying for Medicaid, then he can be penalized for having made the transfer.  The five-year period of time is commonly known as the “lookback period.”  The lookback period is the only period of time that the Medicaid office can look at to see if the applicant made uncompensated asset transfers.

The manner in which Medicaid penalizes an applicant who has made an uncompensated transfer during the lookback period is by making the applicant ineligible for Medicaid for a period of time commensurate with the period of time the money transferred could have paid for his care.  In short, for every $12,700 (approximate) that an applicant gives away during the lookback period, the applicant is ineligible for Medicaid for one month.  The $12,700 figure is derived from the average cost of care in a nursing home in New Jersey.  Essentially, what the government is saying with the penalty period is, “If you hadn’t given away that $12,700, you could have paid for your care in a nursing home for one month, so we are going to make you ineligible for Medicaid for one month.”

Although the state can only look at financial transactions that the applicant made during the lookback period, the penalty period can be unlimited in duration.  So, for instance, if Mr. Smith gave away $1,000,000 three years prior to applying for Medicaid benefits, he would be rendered ineligible for Medicaid for months 78 months, which is $1,000,000/12,700  = 78.

Once a penalty period begins, it cannot be tolled. In other words, once the state imposes a penalty period, the penalty period does not stop running even if the financial circumstances of the applicant change.  The federal government has told the various states this fact, so since the states must abide by the federal rules governing the program, the states, including New Jersey, must abide by this rule.

Recently, a county attempted to stop an imposed penalty period claiming that after the penalty period was imposed, the applicant’s income rose to a level that made him ineligible for Medicaid for several months. The county attempted to stop the penalty period from running during the months the applicant received a higher level of income

An administrative law judge ruled that because the federal government does not permit penalty periods to be tolled, the county could not toll the penalty period. This is the correct result because this is what the federal law on the issue states.