Spousal Income Allowance

A recent decision of the Superior Court of New Jersey, Appellate Division, should be of interest those individuals who have a spouse in a nursing home.  A nursing home in New Jersey costs anywhere from $8,500 to $12,000 a month, with most costing around $10,000 a month.

Given the cost of a nursing home, many individuals who require nursing home care are desirous of qualifying for Medicaid benefits.  Medicaid is a federal and state government health insurance program for needy individuals.  Unlike most health insurance programs, Medicaid will pay for the cost of long-term care, such as care in a nursing home.

When a single person qualifies for Medicaid benefits, his income is owed to the nursing home.  The payment of his income reduces the amount the Medicaid program pays the nursing home.  Only limited amounts of his income can be diverted to pay for items other than his nursing home bill.  The common deductions are a deduction for the Medicaid beneficiary’s health insurance premium and a $35 per month deduction for the Medicaid beneficiary’s personal needs.

Let’s assume that Mr. Smith is residing in a nursing home.  Mr. Smith has monthly income from Social Security and a pension of $2,135.  Mr. Smith’s private health insurance costs him $200 per month.  Once Mr. Smith qualifies for Medicaid benefits, Medicaid will permit a $200 deduction from his income to pay his health insurance premium and a $35 per month deduction from his income for his personal needs.  The remainder of his income, or $1,900, will be owed to the nursing home.

If Mr. Smith were married, his wife may be entitled to retain a portion of his income.  This spousal income allowance is designed to avoid the pauperization of Mrs. Smith.  Mrs. Smith may very well be dependent upon Mr. Smith’s income, so if that income were taken away, she may find herself living on the streets.  The Medicaid Act seeks to avoid this result by allowing Mrs. Smith to retain a portion of Mr. Smith’s income.

The laws governing Medicaid establish a formula for calculating the spousal income allowance.  Mrs. Smith can only increase her income allowance if she can show “exceptional circumstances resulting in financial duress.”  Our courts have said “exceptional” means unexpected and unusual.  Since most expenses Mrs. Smith has are probably routine expenses—such as food, clothing, and shelter—in most instances, Mrs. Smith would not be able to show exceptional circumstances.

Another provision of the Medicaid Act compels the State to give Mrs. Smith a spousal income allowance equal to the amount provided for in a court order.  So, if Mrs. Smith has an order from a court saying Mr. Smith must pay her $1,900 per month as spousal support, then Medicaid must honor that award.

Given this provision of the law, some elder law attorneys attempt to obtain an order from the Family Part court—the court that typically hear issues involving divorce, child support, and spousal support—before apply for Medicaid on behalf of their client.  Using this procedure, the attorney is seeking to increase the income allowance that Medicaid would otherwise afford to the community spouse.

In R.S., the Appellate Division held that unless the Medicaid Office participates as a litigant in the Family Part action resulting in the spousal support order, Medicaid does not have to honor that order.  Furthermore, the R.S. Court appears to say that the community spouse still must show exceptional circumstances for any order to be valid.

The bottom line is, this decision effectively abrogates a provision of the Medicaid Act and leaves only one method for calculating the spousal income allowance.

Expanding Estate Recovery

A recent change to the federal Medicaid Act will permit the various states more freedom when seeking recovery from a personal injury victim’s recovery in a lawsuit.  Currently, pursuant to two decisions of the United States Supreme Court, the various states are limited as to what portion of the lawsuit award they can seek recovery against.

Currently, the states are only able to seek recovery against that portion of the award that compensates the victim for medical expenses he incurred.  The Bipartisan Budget Act of 2013 will change that effective October 1, 2014, permitting the states to recover against the entire award in a personal injury lawsuit.

To explain what this means, it is best to use an example.  Assume that Mr. Smith is injured in an automobile accident.  As a result of the accident, Mr. Smith incurs significant medical expenses and can no longer work.  Unable to keep up with his medical bills and his general living expenses because he can no longer work, Mr. Smith qualifies for Medicaid benefits.

Medicaid is a health insurance program for needy individuals.  In order to qualify for Medicaid benefits, an individual must have limited assets and income.  Because of Mr. Smith’s situation, he is now a “needy individual” within the meaning of the Medicaid Act and he qualifies for Medicaid.

The Medicaid program pays for a number of Mr. Smith’s medical bills that relate to the injuries he incurred in the accident.

Mr. Smith sues the driver who hit him, hoping to recover the money he lost paying for medical expenses, the money he lost due to missing work, and for his pain and suffering.  Eventually, Mr. Smith wins the lawsuit and recovers $1,000,000.  Of that $1,000,000, $300,000 of the award is allocated to compensate Mr. Smith for the money he lost paying his medical bills, $300,000 is allocated to compensate him for lost wages, and $400,000 is allocated to compensate him for his pain and suffering.

Pursuant to the two decisions of the United States Supreme Court, the state of New Jersey, which paid Medicaid benefits on behalf of Mr. Smith, could only recover against the $300,000 he received to compensate him for the medical expenses he paid.  Since the Medicaid program paid some (or all) of those expenses, the theory goes, the Medicaid program should be permitted to recover against that portion of Mr. Smith’s personal injury award.

The other portions of the award—the portion designed to compensated Mr. Smith for lost wages and the portion designed to compensate Mr. Smith for his pain and suffering—have nothing to do with the Medicaid benefits Mr. Smith received, so New Jersey should not be permitted to seek recovery for Medicaid benefits paid on his behalf against those portions of the award.  Or, so that is what the Supreme Court held.

The new portion of the Medicaid Act permits New Jersey (and the other states) to recover against Mr. Smith’s entire award, including those portions designed to compensate Mr. Smith for lost wages and his pain and suffering.  So, if New Jersey paid $500,000 in Medicaid benefits for Mr. Smith, New Jersey can now (or will be able to effective October 1, 2014) recovery against Mr. Smith’s entire lawsuit award and receive full recovery.

While this sounds good and just, the fact of the matter is, it leaves people such as Mr. Smith, who may need care for the remainder of his life, with little money to pay for that care.  Mr. Smith may need a home health aide or medical equipment, and the less money with which he is left means the less money he has to pay for his care, not to mention his basic living expenses.

Executor’s Commission

Being an executor is hard work.  Being an executor involves assuming a lot of liability.  As executor, you are handling other people’s assets and you are responsible to handle those assets with the utmost care.  If, for instance, you, as executor, continue to hold a stock the decedent owned and that stock drops in value significantly, the beneficiaries of the estate might sue you for failing to invest the assets of the estate in a prudent manner.

Being an executor is also a job with little reward.  The beneficiaries of the estate frequently believe that they could handle the estate better than the executor and second-guess the actions of the executor with regularity.

So, why shouldn’t the executor receive compensation for his services?  A lot of work and a lot of liability warrant payment for services rendered.

An executor is entitled to a declining percentage of the estate as compensation for his services.  He is entitled to 5% of the first $200,000 of the estate, 3.5% of the value of the estate above $200,000 up to $1,000,000, and 2% of the value of the estate in excess of $1,000,000.  In addition, the executor is entitled to a commission of 6% of the income of the estate.

So, assume that Mr. Smith dies having an estate worth $600,000.  During the administration of his estate, his estate assets generate $20,000 of income from dividends and interest.

Generally speaking, the executor of Mr. Smith estate would be entitled to a commission of 5% of the first $200,000, or $10,000, and 3.5% of the remaining $400,000, or $14,000, for a total commission on the assets of the estate of $24,000.  The commission is based upon the value of the assets that the executor receives.  The New Jersey courts frequently say that the executor is entitled to a commission based upon the value of the assets that come into the executor’s hands.

In addition, Mr. Smith would be entitled to an income commission of 6% of the income the estate earned, or $1,200.  In this case, the executor’s total commission would be $15,200.

Now, I used the phrase “generally speaking” because in certain cases, the executor is not entitled to a commission on a portion of the assets that the decedent owned.  Assume that Mr. Smith specifically devised his house to his daughter.  Assume that his Will provides as follows:  “I give my home to my daughter Julia.”

Let’s say that of the $600,000 in assets, Mr. Smith’s home, which he specifically devised to his daughter Julia, is worth $300,000.  Because Mr. Smith specifically devised his home to his daughter, our courts say that the executor is not entitled to a commission on the value of the home.

According to the courts, because Mr. Smith specifically devised the home, the home passed to the daughter immediately upon Mr. Smith’s death, so the home never “came into the hands” of the executor.  For this reason, the executor is not entitled to a commission on the value of the house.

In this case, the executor would only be entitled to a commission of $13,500, or 5% of the first $200,000 and 3.5% of the remaining $100,000.

The executor also cannot use the assets of the estate to pay for the cost of maintaining the home, because the home is not an asset of the estate.  The home immediately became the property of the daughter upon Mr. Smith’s death, so the daughter must immediately assume responsibility for the home.

The executor assumes no liability with regard to the home because the home passed to the daughter immediately.  The executor’s only responsibility is to sign the deed transferring title to the daughter.