Living Wills Don’t Kill

By:  John W. Callinan, certified elder law attorney, serving Monmouth, Ocean, and Middlesex Counties, New Jersey, in the areas of Guardianship, Medicaid planning, powers of attorney, living wills, last wills and testaments, and estate administration

I recently read an article about a lawyer inMissouriwho was charged with murdering her father.  The lawyer/daughter was described as an attorney “who specializes in end-of-life issues.”  Personally, I have no idea what that means.  Specializing in end-of-life issues seems like an incredibly narrow practice area.  The article also said that the lawyer had recently filed for bankruptcy, which made her specialty sound a bit more understandable to me.  (In other words, there is no such specialty of the law.)

At any rate, the lawyer was charged with murdering her father and the father’s girlfriend.  The daughter allegedly shot her father and his girlfriend, killing the girlfriend immediately and critically wounding her father.  The shooting occurred on a Saturday.

At the hospital, the daughter (who is also an end-of-life specialist lawyer) presented a health care power of attorney naming herself as her father’s power of attorney.  By Wednesday, the daughter instructed the hospital to remove her father from life support systems, and he died.

The authorities allege that the daughter forged her father’s signature to the health care power of attorney and used the forged document to, essentially, finish her father off.

As I read this story, I could see future clients sitting in front of me as we discussed a living will for them telling me that they didn’t want such a document because they feared someone would kill them.  Unfortunately, stories such as the lawyer-daughter-alleged murder make good stories, but reality is—in the vast, vast majority of cases—nothing like that story.

While many of my clients are willing to permit me to draft a living will for them, I often get pushback from clients when I ask if they want to donate their eyes or organs in the event of their death.  “No,” the client will say, “I heard that they let you die if you’re an organ donor.”

So, when it comes to living wills, there is definitely a level of fear in many people.  People who believe that someone is going to kill them because of what they have said in their living wills.

I am frequently appointed by the court to be the guardian for a person who never signed a power of attorney or living will and who needs someone to make decisions for him because he can no longer make decisions for himself.  For instance, a man may be in a hospital in very critical condition, incapable of making decisions for himself, with no one else to make decisions for him.  The hospital and his doctors must have someone with whom they can communicate about medical decisions for the patient that must be made.

In situations such as this, the hospital will file and action in court to have someone appointed as the guardian of the patient.  The guardian will need to make medical decisions for the patient and arrange for his care.  In situations such as these, I am frequently appointed.

Because the people for whom I am appointed are in very, very poor health, I can honestly say that I have made end-of-life decisions for over twenty people.  (Yet, I don’t consider myself an end-of-life attorney.)  I can tell you without equivocation from my experiences with end-of-life decisions, which is vastly deeper than most peoples’ experiences, that medical professionals are not eager to usher a person from this world.

Most of the medical professionals with whom I have dealt are more than willing to try every technique and procedure that could possibly save a person’s life and only when it has become abundantly clear that no medical intervention can save the person will they cease providing medical interventions designed to “cure” the person.

My point is, living wills don’t kill people.  If you were in a state where your doctors believed they could save your life, they aren’t going to let you die even if your healthcare agent says “Let her die.”  I’ve never seen it happen, and I have seen and participated in these situations more times than you ever will.

 

 

Is Long Term Care Insurance Dying?

“Do you think long-term care insurance is right for me?”  It’s a question that many clients have asked me.

I don’t sell long-term care insurance, and although I have some knowledge on the subject, I would not call myself a long-term care insurance expert.  What I do know about long-term care insurance, I think it’s a good product, but the cost scares my clients and that cost may be increasing dramatically in the future.

One of the main reasons that I believe long-term care insurance is a good product has to do with the fact that I believe many elderly people will require long-term care and will, if they purchased long-term care insurance, use the insurance.  But the frequency with which long-term care insurance is used may be the downfall of the product.

Long-term care involves several forms of care.  Care in a nursing home is a type of long-term care.  Assisted living residences provide long-term care, as well.  And there are home health aides, people who come to your home and provide care to you.

With all these different forms of care, many elderly people are receiving long-term care for—well—a long-time.  Gone are the days when people might go to a nursing home for a few months before they died.

Many people move into senior communities, or adult communities, when they are in their mid-50’s.  In their 70’s or early 80’s, people may begin receiving the services of a home health aide.  Perhaps a few hours a day, several times a week at first.  Eventually, they may require the assistance of a live-in aide.  Finally, the person may move to a nursing home, where he may live for several years.

Long-term care is very expensive.  A home health aide can cost between $20 to $30 per hour.  A live-in aide costs upwards of $200 a day.  An assisted living residence costs anywhere from $4,500 to $8,500 per month, and I can tell you that those rates rise dramatically year-over-year.  A nursing home costs anywhere from $8,500 to $12,000 a month, and like assisted living residences, the cost of nursing homes is rising dramatically, year-over-year.

Long-term care insurance is designed to mitigate the costs of long-term care.  For instance, a person might purchase of policy of insurance that will pay $200 a day for five years.  The $200 a day daily benefit may have a 5% inflation rider so the daily benefit will increase.  Purchasing a $200 a day benefit today may be of little assistance twenty years from now when the cost of a nursing home is $40,000 a month if the daily benefit doesn’t have an inflation rider.

The problem with long-term care insurance is that it is costly, and most people don’t think they will ever need long-term care, so they don’t want to pay for something that, in their opinion, they will never need.  The problem for long-term care insurance companies are multi-fold.

In 2010, there were fifteen companies that sold long-term care insurance.  Today, five of those companies no longer exist.  Of the ten companies that continue to sell long-term care insurance, one of the companies accounts for more than 20% of the total business.

A shrinking pool of companies offering long-term care insurance means that the industry as a whole is at risk of shriveling away.  As fewer companies take on more and more liability, their creditworthiness becomes worse-and-worse.

Another problem for these companies is low interest rates.  These companies depend on being able to invest the premiums they receive and obtain a reasonable rate of return on the money they invest.  But in a low-interest rate environment, the companies are unable to earn a decent amount of money.  The companies are then less able to cover the claims that will come in the future.

Finally, the fact of the matter is, there will be high claim rates on these policies, so if the few companies that sell the product haven’t been able to turn a decedent return, they won’t be able to cover the claims.

Executor’s Priorities

As my practice ages, I have a number of individuals come to me for advice on how to administer a loved one’s estate.  The person died and may have a number of assets and several bills that need to be paid.

Assume that Mrs. Smith dies owning a home, five bank accounts, several annuities, stocks, and bonds.  Some of her assets name beneficiaries, some do not.  Mrs. Smith also has a funeral bill that needs to be paid, several medical bills, and the on-going bills associated with running her house (electric bill, gas bill, real estate taxes, etc.)

Many of the people who come to me want me to tell them what they should do as executor at our initial meeting.  As if I have a priority list and all I have to do is walk the people through this priority list, and they will know what to do.

The fact of the matter is, administering a decedent’s estate is a process, not a checklist.  The basics of every administration are these, the executor must submit the decedent’s last will and testament to probate before the surrogate of the county in which the decedent died domiciled.

The executor must marshal all of the decedent’s assets, typically into an estate account or two.  The executor must pay all the debts of the decedent’s estate.  The executor must account to the beneficiaries of the estate.  Finally, the executor must distribute the assets of the estate to the beneficiaries.

Now, those are the basics, but if someone comes to my office, and I tell them that those are their duties, they’ll look at me as if I have two heads.  They won’t understand what I mean, and they’ll think that I’m being vague.

But the fact of the matter is, that is the checklist for an executor.  Beyond that, there’s a lot of leg work for the executor.  The executor must actually do those things.

More importantly though, within these items are a lot of hidden pitfalls.  It is helping people negotiate those pitfalls where I typically come in to help.

For instance, Mrs. Smith has several annuities.  There are all different types of annuities.  Many seniors own deferred annuities.  A deferred annuity is an annuity on which the owner deferred the payment of the income tax.

Mrs. Smith might own an annuity worth $200,000 for which she paid $100,000.  The executor—eager to gather up Mrs. Smith’s assets and distribute her assets to the beneficiaries as quickly as he can—might submit a claim for the annuity and withdraw all the money from the annuity in one lump-sum.

Next year, the executor will be surprised to receive an IRS form 1099 telling him that he has to claim $100,000 of income on the estate’s income tax return.  Moreover, if the executor is like many of the people with whom I meet, he may have already distributed the assets of the estate to the beneficiaries and no longer has estate funds with which to pay the estate tax.

For many, being an executor is like being handed a hot potato, because they believe that the quicker they end the estate the better.  Knowing better, I believe the opposite is true.  The executor should take his time and be deliberate in his actions.

Mrs. Smith may have owned assets that name individuals as beneficiaries.  These beneficiaries will receive the assets on which they are named as beneficiary outside the terms of the Will.  Mrs. Smith’s estate may be subject to estate tax or inheritance tax.  The question that arises then is, who pays this tax and in what proportions?  Do the people who receive money via a beneficiary designation escape the obligation to pay the tax?

Perhaps not.  The answer depends on several factors.

The point is, there are a great number of questions that need to be answered.  Telling someone the basics of estate administration is quite simple. Understanding the ins-and-outs of what to do all the way is quite another thing.

Unequal Distributions

Every day, I meet with people who want to engage in Medicaid planning.  Medicaid is a government health insurance program for needy individuals.  Unlike most health insurance programs, Medicaid will pay for long-term care costs, such as care in a nursing home or assisted living residence.

Medicaid planning is a process through which individuals seeks to transfer assets to family members and qualify for Medicaid benefits sooner than they would qualify for such benefits if they had not engage in such planning.  Through Medicaid planning, I can, in many cases, preserve significant assets for family members of the individual who requires long-term care.

One impediment to such planning is when the elderly individual has an unequal distribution plan or when the case involves a second marriage.  What I mean by this can be explained with two examples.

Example One.  Mr. Smith requires nursing home care.  His daughter comes to see me.  Mr. Smith’s Will leaves everything to the daughter and nothing to his son.  Mr. Smith signed the Will six months prior to the daughter coming to see me.

Example Two.  Mr. Smith requires nursing home care.  Mrs. Smith, Mr. Smith’s second wife, comes to see me.  Both Mr. and Mrs. Smith have children from a prior marriage.

The problem with these situations is that any transfer of Mr. Smith’s assets has a strong probability of being challenged by someone.  If I instruct the daughter to transfer assets of Mr. Smith to herself, the son may step in and say that Mr. Smith was incompetent when he made his last will and testament and that the money should not have been transferred to the daughter.

If I instruct the wife to transfer the assets to herself, Mr. Smith’s children from a first marriage might step in and say that their father wanted them to receive his assets, not his wife, and that even though Mr. Smith is in a nursing home, the second wife may predecease Mr. Smith and they would then inherit Mr. Smith’s assets.

And you know what, they’re right, and that’s what makes Medicaid planning in these situations very hard.  It’s not impossible, but it’s harder.

In the second-marriage situation, I may wish to meet with Mr. Smith’s children.  In the disinheriting situation, I may want to obtain a guardianship over Mr. Smith and seek court approval for the transfer.

Medicaid Planning and the IRA

Medicaid planning is a process through which and individual attempts to qualify for Medicaid sooner than he would without planning and to preserve assets for his or his family’s benefit.  Much of Medicaid planning involves transferring, or gifting, assets to family members.

One of the biggest issues that I see with clients in recent years is that the client has significant assets in qualified accounts such as Individual Retirement Accounts or 401(k)s.  For instance, assume that Mrs. Smith, age 75, owns her home worth $200,000 and an IRA worth $400,000.  Mrs. Smith is interested in protecting her assets from long-term care costs.  She currently does not need long-term care services, but she worries that someday she may.

In order to protect Mrs. Smith’s assets, I have to remove those assets from her name.  I may suggest using an irrevocable trust in order to protect her assets, but inevitably, any Medicaid plan will involve transferring her assets out of her name.  The problem is that the vast majority of Mrs. Smith’s assets are in qualified accounts.  If she were to remove the money from her IRA, she will pay income tax on the money.  If Mrs. Smith removes $300,000 from her $400,000 IRA, Mrs. Smith will have $300,000 of extra income in that year.

Mrs. Smith probably will not want to pay income tax on $300,000 of additional income, so for all intents and purposes, Medicaid planning, at least for her IRA assets, is foreclosed.

What do I suggest?  To me, there is no clear cut answer.  Mrs. Smith may never need care, and if she doesn’t need care, paying the tax on the money she removed from her IRA could be a mistake.  Someday, Mrs. Smith will have to pay income tax on the money she removes from her IRA or, after her death, her children will have to pay tax on the money when they remove it from the IRA.  But no one wants to pay tax sooner than they have to, and that is exactly what would happen if Mrs. Smith removes the $300,000 from her IRA.

On the other hand, if long-term care costs are a significant concern for Mrs. Smith, then she may be willing to incur the income tax liability for removing money from her IRA.

I can only present Mrs. Smith with her options, and there is no easy answer.

 

A Call to Arms for the Disabled

The Social Security Administration (“SSA”) recently revised its policy manual with regard to the administration of special needs trusts.  This revision could have widespread implications for individuals with disabilities and their families.

A special needs trust is a trust that permits a disabled person to receive government entitled benefits, such as Medicaid and Supplemental Security Income (“SSI”) yet also have the benefit of money that is being held in the trust.  Medicaid, which is a government health insurance program for needy individuals, and SSI, which is a cash-assistance government welfare program, are needs-based programs, meaning that the beneficiary must have limited assets in order to qualify for the programs.

If an individual owns assets with a value greater than $2,000, he typically will not qualify for Medicaid or SSI; however, if the disabled individual places his assets into a special needs trust, he can receive Medicaid and SSI despite that the fact that his special needs trust may hold thousands, hundreds of thousands, or even millions of dollars.

A disabled person may come into money because of a lawsuit or because of an inheritance from a family member.  If the funds are not put into a special needs trust, the disabled person will lose or will not receive government entitlement benefits such as Medicaid and SSI.  The money that he just received will then be used to pay for things for which Medicaid would have paid but for the fact that the disabled person received an award in a lawsuit.

The lawsuit may be based in the incident that gave rise to the disability.  For instance, assume that Mr. Smith was involved in a severe car accident that was not his fault.  As a result of the accident, Mr. Smith cannot work and cannot care for himself.  He requires extensive personal care.

Mr. Smith—or, more likely, his guardian—sues the person at fault for the accident on Mr. Smith’s behalf.  Assume that Mr. Smith wins $1,000,000 as a result of his lawsuit.  If that money comes into the hands of Mr. Smith, he will not receive Medicaid.  He will then have to use the money he just received to pay for the medical care for which Medicaid would have paid but for his lawsuit winnings.  Ironically, Mr. Smith would not benefit at all from the lawsuit and once his money was expended, he would have no money whatsoever.

By placing the lawsuit winnings into a special needs trust, Mr. Smith can receive the benefits of Medicaid and the benefits of the lawsuit winnings to supplement his needs.  Medicaid fails to pay for many services from which a disabled person would benefit, so the money in the trust can be used to supplement Mr. Smith’s needs.

Furthermore, the maximum monthly SSI benefit is about $800, and while it is designed to pay for food and shelter, only the most frugal and Spartan of individuals could ever subsist on the SSI benefit.  But if Mr. Smith has money in a special needs trust, his trustee can use his money to supplement his needs and ensure that a meager, but livable, lifestyle is maintained.

The Social Security Administration runs the SSI program, and most of the rules governing the Medicaid program are from the SSI program.  The two programs work very closely together.

Recently, the SSA put out a policy that forbids a special needs trust from paying for items for a family member of a special needs trust beneficiary.  For instance, if the sister of a disabled person who lives inCaliforniawishes to visit her disabled brother inIowa, the SSA says that the special needs trust cannot pay for the sister’s plane ticket.

Now, these is no question that a special needs trust should only be used for the disabled person’s benefit.  But it is also true that family members are often the best caregivers that a disabled person can have.  If the sister is coming to visit her brother and a substantial purpose of the visit is to assist her brother with care needs, then I believe that the brother’s special needs trust should pay for the visit.

This change in policy is a call for further advocacy on behalf of the disabled.

How To Obtain Guardianship

As I previously posted, I have obtained guardianship for hundreds of individuals, primarily in the superior court serving Monmouth, Middlesex, and Ocean counties, New Jersey.

As discussed, obtaining guardianship over a loved one or family member can be a necessity, and our courts have established a procedure for accomplishing this goal.

When a person asks me to represent them in a guardianship proceeding, I am asking the court to appoint my client as the guardian.  The person we are asking the court to adjudicated incapacitated is called the incapacitated person or the ward.  The first order of business is to have the ward examined by two licensed physicians.

These physicians write reports for me, telling the court why the ward needs a guardian and what deficits–physical, mental, or both–from which the ward suffers.  I draft a Verified Complaint and various other document, which, along with the doctors’ reports, will be filed with the the Superior Court of New Jersey in the county in which the ward resides.

After I file the documents, the court sets the matter down for a hearing date and appoints an attorney for the ward.  The ward’s attorney, or court-appointed counsel, must visit his client and interview individuals who are familiar with the ward.  Eventually, the court-appointed attorney will compose a report of his findings and file his report with the court.

Assuming the doctors and court-appointed counsel agree, my client will typically be appointed as guardian of the ward.  Most guardianship cases are uncontested, meaning that neither the ward or other individuals oppose the appointment of a guardian for the ward.

If the matter is opposed, by the ward or another individual, then the guardianship is contested.  A contested guardianship can result in a trial before a Superior Court judge.  Ultimately, the judge will determine if the ward is an incapacitated individual and, if so, who should be the ward’s guardian.

Guardianship in New Jersey

A guardianship is a procedure through which an individual, called the “ward,” is adjudicated to be an incapacitated individual by a court.  Another person, called the “guardian” is appointed by the court to make decisions (financial, health, and residential) for the ward.

Guardianships are most frequently needed for individuals who have failed to plan for incapacity.  For instance, an individual who has failed to sign a power of attorney for financial decisions and a living will for healthcare decisions would probably need a guardian appointed for him if he were ever incapacitated.  The incapacitated person may be involved in an accident or suffer the traumatic onset of an illness, such as a stroke.  One moment the person is functioning and the next, they are not.

Having a power of attorney and living will can avoid the need for a guardianship in most instances, but not in all instances.  For instance, not all powers of attorney are the same.  I frequently have people come to my office asking me to assist them with Medicaid planning for a family member.  The client’s husband may have suffered a stroke and now requires nursing home care.  Faced with $10,000 a month in nursing home bills, the client wants me to qualify her husband for Medicaid benefits, as Medicaid will assist with the payment of the nursing home bill.

One of my first question is, “Do you have a power of attorney for your husband?”  I will then examine the power of attorney, and if the document fails to address or fails to address adequately the issue of gifting, I will inform the client of the need to obtain guardianship over her husband and seeks the court’s permission to gift assets.

In order to address adequately the issue of gifting, the power of attorney must specifically permit the power of attorney agent (the wife) to gift her husband’s assets in unlimited amounts.  In other words, the gifting authority cannot say something such as “My agent can gift $13,000 a year,” because if the husband has $300,000 of asset in his name, the ability to gift $13,000 a year isn’t going to help much.

If the power of attorney lacks sufficient gifting authority, I can frequently assist the client in obtaining the court’s permission to engage in Medicaid planning/gifting in the context of a guardian proceeding.

The key to avoiding a guardianship in 90% of the cases is having a living will and well-drafted power of attorney in place ahead of time.  The other 10% of cases involve situation in which the family must do something for the incapacitated person that he simply refuses to do for himself.

A power of attorney and living will are voluntary sources of authority.  As a person’s power of attorney agent, you cannot force the person to do anything, so for instance, if the wife wants to place her husband in a nursing home because she simply cannot care for him at home and his being at home has become a danger to himself and others, the wife cannot force the husband to enter a nursing home even if she is his power of attorney agent.

Sometimes, in cases such as this, I help clients become guardians for family members, even if the family has a well-drafted power of attorney and living will.

Next, I’ll discuss the procedure for obtaining guardianship over a ward in New Jersey, particularly my experiences in Monmouth, Middlesex, and Ocean counties, New Jersey.