I Only Sign Documents I Understand

A phrase that I have heard in my legal career several times—and which I am sure most of you have heard—is, “I never sign anything that I don’t understand.”  This is one of the layperson’s maxims of the law, much like “Book’em, Danno!”  But is it truly wise advice?

I think that if, for instance, you were buying a used car, you might want to understand the import of the paperwork that you were signing.  You might want to consult with an attorney and find out what your recourse is if the car does not live up to what was promised.

Ironically, few people do this.  Instead, the person reads the contract until he starts to get bored with the legalese, which is probably after two paragraphs.  He then signs the contract and drives the car off the lot.

When I draft documents for clients, I often draft very comprehensive documents.  For instance, a power of attorney that I draft may be fourteen pages long.  This can be compared with a power of attorney that you might buy at an office supply store that is two pages long.

The average person would probably prefer the two page power of attorney over the fourteen page power of attorney.  To them, the two page power of attorney is “simple.”  He feels that he can understand what is in the two page document but is simply lost in the legalese of the fourteen page power of attorney.  He falls back on the legal maxim and doesn’t want to sign anything he doesn’t understand.

In my opinion, if we only did or used things that we understood, most of use would be living in rickety hovels, shivering in the cold.  Let’s face it, most of the things we do every day we don’t understand and many of those things could kill us.

For instance, I am typing this article on a computer.  While I understand how to use some computer programs, I have no idea how a computer works.  It is a complete mystery to me.  If my computer stopped working, even if it were for a simple reason, I would probably have to call a technician in to fix it, and even if he explained what he did to fix it, I would have little idea as to what he was talking about.

Today, I will drive a car to work.  I have no idea how a car works.  If my car broke down, I would have no idea how to fix it.  Yet, every day, I hop into my car and drive down the road in excess of 60 m.p.h. along with thousands of other cars without knowing how my car or their cars work and without knowing whether my fellow drivers know how to drive, got a sufficient amount of sleep, or are impaired by drugs or alcohol.

When I go on vacation, I get into a plane, essentially a heavy metal tube with large jet engines strapped to the wings, and go five miles into the sky, travelling at hundred of miles an hour.  I have absolutely no idea how a plane can fly through the air, yet I actually voluntarily get on the plane in order to transport my family and me to a pleasurable vacation.

I make these points because every day each of us does things that we don’t understand and many of those things are much more dangerous than signing a Will or a power of attorney.  Do I think you should ask your lawyer questions about your documents?  Absolutely.  But I don’t think you should limit what you are willing to do legally to what you are capable of understanding.

For instance, I am a Certified Elder Law Attorney.  Every day, I deal with people who have life and death issues.  I have had a number of experiences with the issues that people face, but I have not experienced every issue that a person may face with regard to these issues.  For that reason, I believe that estate planning documents (Will, powers of attorney, living wills) should be comprehensive.  Well-drafted documents are designed to addressed both the expected and the unexpected, those things you understand and those things you do not.

If the document doesn’t address an issue, then the person you named to make decisions for you in the documents may not be able to handle the issue for you.  It is far better to error on the side of caution than to make the document “simple” (insert “brief”) just so that a person feels that he understands everything in the document.

Medicare Pays for Maintenance

This week, a federal court will sign a settlement agreement between the federal government and a class of litigants affecting the administration of the Medicare program.  Because the settlement agreement comes in the context of a class action federal lawsuit, it will affect all Medicare beneficiaries across the country.

Medicare is a health insurance program that the federal government created and administers.  Medicare is available to aged individuals, defined as those individuals age sixty-five or older, and individuals who are totally and permanently disabled for a period of, at least, two years.  Working individuals pay into the Medicare program in order to receive the benefits when they are aged or disabled.

Medicare pays for hospital stays, physician services, prescription drugs, and rehabilitative services.  The settlement agreement affects one aspect of rehabilitative services for which the Medicare program pays.

Assume the following facts:  Mr. Smith breaks his hip.  Mr. Smith is taken to the hospital and has surgery performed upon his broken hip.  Mr. Smith spends four days in the hospital.  After his hospital stay, Mr. Smith is discharged to a nursing facility (that is, a nursing home) for rehabilitation of his newly-mended broken hip.

The Medicare program will pay for up to 100 days of rehabilitative services in the nursing home.  Medicare pays days one through twenty in full.  For days twenty-one through 100, there is a $144.50 per day co-payment, which many policies of private insurance pick up.

Until this settlement is in place, Medicare and the nursing home will tell family members that only if Mr. Smith is improving can he continue to receive Medicare payment for his rehabilitative services.  If the services are necessary to maintain Mr. Smith’s current health status, both Medicare and the nursing home will tell Mr. Smith and his family that Medicare will no longer pay for his rehabilitative services.

Where Mr. Smith falls upon the improvement versus maintenance continuum is, therefore, very important, and oftentimes difficult to judge.  Many older people would benefit from rehabilitative services in order to maintain their current health status.  If they stop receiving rehabilitation, they will fail to maintain their current health status, and they will be susceptible to more health issues.

If Mr. Smith is discharged too soon, he may go home and fall again, breaking the same hip or another part of his body.  Permitting him to recuperate in the nursing facility for a longer period of time may, in the long run, save Mr. Smith (and the Medicare program), because he will go home stronger and more capable of caring for himself.

Furthermore, there are individuals who suffer from chronic conditions, such as Parkinson’s disease or multiple sclerosis, for whom this settlement will bring tremendous benefit.  Individuals with chronic conditions such as these are not expected to get better.  There simply is no cure for many chronic conditions.  But these individuals could greatly benefit from receiving rehabilitative services that would permit them to maintain their current levels of functioning for longer periods of time.

For individuals who suffer from chronic conditions, this settlement will mean quite a bit.

In speaking with a friend of mine who is a physical therapist, there is no doubt that this change in the administration of the Medicare program will tax the capacity of physical therapists.  If Medicare begins to freely pay for rehabilitative services designed to maintain, as opposed to improve, elderly individuals and individuals with chronic conditions, there will be many more people receiving rehabilitative services.  In the long run, though, providing these services will lessen the acute care needs of these individuals and reduce the overall cost of health care in this country.

Medicare Costs More in 2013

Social Security benefits were increased by 1.7% for 2013.  Of course, the costs associated with Medicare also increased for 2013, taking away most of the benefit of that 1.7% increase.  What the government gives with one hand it takes away with the other.

Medicare is a federal health insurance program for elderly and disabled individuals.  Medicare has several co-pays and deductibles.  In this article, I want to discuss the skilled nursing facility co-payment.

A skilled nursing facility is, what most of us would call, a nursing home.  There are two, primary reasons that people go to nursing homes.  They either go for rehabilitation or for long-term custodial care.

Long-term custodial care is a nursing home stay that is indefinite in duration.  In other words, the resident will, in many cases, live in the nursing home until the day he dies.

Rehabilitative care is typically short term care.  In many cases, the patient is progressively getting better during his rehabilitation and expects to leave the nursing home in short order.  For instance, Mr. Smith breaks his hip.  After his surgery at the hospital, Mr. Smith enters a skilled nursing facility (or nursing home) and receives rehabilitation for his newly-mended broken hip.  He may receive rehabilitation for a week or two before going home.

Medicare will pay for rehabilitative services in a nursing home.  Per spell of illness, Medicare will pay for up to 100 days of rehabilitation in a nursing home.

A “spell of illness” is a term of art used in the Medicare law.  A Medicare beneficiary can have many spells of illness during his life, but in order to start a new spell of illness, there must be a sixty day period of time during which the Medicare beneficiary is not receiving Medicare services.

For example, Mr. Smith breaks his hip, has surgery at the hospital, and rehabilitation at the nursing home.  Mr. Smith then goes home.  Four months later, Mr. Smith breaks his other hip (or perhaps the same hip).  Since there has now been a greater than sixty day lapse in Medicare coverage, Mr. Smith has entered a new spell of illness and is entitled to a new 100 days of rehabilitation coverage.

If Mr. Smith broke the other hip (or the same hip) thirty days after leaving the nursing home and going home, he would not have a full 100 days of coverage.  The 100 days would be reduced by however many days Mr. Smith already utilized in the same spell of illness.  If, for instance, he was in the nursing home for fourteen days during his first stay, he would only have eighty-six days of rehabilitation remaining in this spell of illness, even though the second injury may be completely unrelated to the first injury.

The 100 days of coverage is a maximum.  A Medicare beneficiary may or may not receive the full 100 days of coverage.  The only guarantee is that he will not receive more than 100 days per spell of illness because that is the maximum amount of coverage.

For days one through twenty, Medicare pays 100% of the costs of the rehabilitation.  For days twenty-one through one hundred, there is a co-insurance payment that the Medicare beneficiary is responsible to cover.

The co-payment typically increases every year, and 2013 is no exception.  This year, the co-payment increased from $144.50 per day to $148 per day, meaning that in days twenty-one through one hundred the Medicare beneficiary must pay $148 per day for his care.

Many policies of health insurance pick up this co-payment.  There are several policies of health insurance called Medigap policies that are specifically designed to fill in the gaps (co-payments and deductibles) of the Medicare program.  Many Medigap policies cover the skilled nursing facility co-insurance payment.

You Don’t Have To Worry About Federal Estate Tax

So the fiscal cliff has been averted.  If for no other reason, I’m happy it’s been resolved so I can stop hearing about the fiscal cliff.  But what do the changes to our tax laws mean to you and me with respect to estate and gift tax?

A few weeks ago, I predicted that Congress would resolve the estate tax aspect of the fiscal cliff by retaining the current exemption equivalent against the estate tax, that is, $5,000,000.  Though it doesn’t happen all the time, this time, my prediction was correct.

Congress retained the $5,000,000 exemption equivalent against the federal estate tax.  Since the exemption equivalent is indexed for inflation, the current exemption equivalent is $5,250,000.

What this means is, an individual would have to die with more than $5,250,000 before his estate will pay federal estate tax.  Since most people don’t have $5,250,000, the federal estate tax is a complete non-issue for the vast majority of Americans.  In fact, there are so few estates that paid estate tax last year that the only thing that amazes me about the federal estate tax is the number of people who worry about it.

A married couple can shelter $10,500,000 from estate tax.  The federal law makes it easier for a married couple to use both spouses’ exemption equivalent, a concept called “portability.”  The second-to-die spouse can claim the unused portion of the first-to-die spouse’s exemption equivalent, but in order to make the claim, the second-to-die spouse must file a federal estate tax return upon the death of the first spouse.   (I said “easier,” not easy.  Legal work would still be necessary.)

Congress did raise the estate tax rate from 35% to 40%; however, since most of our estates will never come close to paying estate tax, the rate of the tax is hardly a concern.

Notice that I say most of our estate will never pay federal estate tax.  Since the individual exemption equivalent is $5,250,000 and the exemption equivalent for a married couple is $10,500,000, I think we can all agree that my statement is accurate, but I want you to take notice of the limitation of the statement.

While most of our estates will not have to pay federal estate tax, a great many of my clients are affected, and will continue to be affected, by the New Jersey estate tax.  In 2001, the federal government began to increase sharply the exemption equivalent against federal estate, raising it from $675,000 to its current lofty height of $5,250,000.

When the federal government made this change to the law, the state of New Jersey reacted by freezing the credit against New Jersey estate tax at $675,000.  So, in New Jersey, if your estate exceeds $675,000, your estate is affected by New Jersey estate tax.  Also, unlike the federal law, the state law does not contain a portability feature.

From a practical standpoint, what this means is that many married couples will continue to need credit shelter trust planning.  Simply stated, a credit shelter trust is a trust that is typically contained in the last wills and testaments of a married couple.  The trusts permit the couple to take advantage of each spouse’s $675,000 credit against New Jersey estate tax.  By using credit shelter trusts, a married couple can shelter $1,350,000 from New Jersey estate tax, which is $675,000 times two.

The federal government also retained the $5,000,000 lifetime credit against gift tax.  Since this credit is also indexed for inflation, an individual can make lifetime gifts up to $5,250,000 without paying federal gift tax.  (The state of New Jersey does not impose a gift tax.)

The annual exclusion amount, which is also indexed for inflation, increased from $13,000 to $14,000.  Taken together, the lifetime gift credit and the annual exclusion credit means that an individual can gift $14,000 each and every year to an unlimited number of people without reducing his $5,250,000 lifetime credit and because of his lifetime credit, he can gift an additional $5,250,000 without ever having to worry about gift tax.

So, do most of us have to worry about federal estate tax or gift tax?  No.  You are now free to worry about something else.