It’s a Moot Issue

I read with interest a recent federal court opinion involving a Medicaid issue. A colleague of mine sued the State after the Medicaid office in Camden County denied Medicaid benefits to his client based, in part, because the client purchased a Medicaid-complaint annuity.

I have used annuities on numerous occasions to hasten a client’s eligibility for Medicaid benefits. A properly structured annuity can be used to convert assets into a stream of income. Once assets are converted into a stream of income, eligibility for Medicaid benefits can be achieved more easily.

The State does not like how some elder law attorneys use annuities to achieve Medicaid eligibility for their clients. In some counties, the State continues to challenge the use of annuities, notwithstanding the fact that there are a great number of federal court cases throughout the country that uphold the use of annuities as a valid Medicaid planning technique.

Why the State cares about a handful of elder law attorneys using annuities to achieve eligibility for Medicaid, I have no idea. Quite frankly, there are so few attorneys who use this technique to help their clients, I would not need two hands to count them.

The economic impact this handful of elder law attorneys has on the State’s budget is extremely minimal. With the amount of Medicaid fraud that occurs in this state, it is amazing that the State wastes its time trying to suppress the legal efforts of a few attorneys.

But what I found interesting about this recent case is not the fact that it involved an annuity, it was the court’s discussion of an issue we lawyers call “mootness.” If a case is moot, meaning the wrong that the plaintiff seeks to remedy is no longer occurring, then the court cannot continue to hear the case and must dismiss the case.

Whenever you file a suit against the State involving a Medicaid issue, mootness is a concern because the State can just say “well, we decided to grant your client eligibility now.” Obviously, this result is good for the client but it’s a bit frustrating for the attorney who had to go through the time, trouble, and effort of filing a federal lawsuit against the State on the same issue, perhaps for the tenth time.

For instance, as I say, the State doesn’t like annuities and hasn’t liked annuities for the past twenty years. The State loves to give a client a hard time every time they use an annuity. If the lawyer has to file a suit against the State every time he uses an annuity, that is somewhat of a pain, especially when the State just say “never mind” after the suit is filed.

What the judge in this recent case made clear is, a case is not moot simply because the State says it will cease its illegal behavior if the State could simply change its mind, once again, at some point in the future. Since Medicaid benefits can always be ceased, for instance, the State could change its mind six months later and terminate benefits and even say it made a mistake when it originally granted eligibility, few cases can be mooted simply by the State saying “never mind” unless the State also say “never mind and we will never change our minds about this unless Congress changes the law.”

It is unlikely the State would ever say this, so the State will have to be careful about what it does unless it wants a great number of federal court judgments against it.

Saving Mom’s House

Many of the people who come to see me are concerned about protecting their assets from the costs of long-term care, such as care in an assisted living residence or nursing home. In this area, assisted living residences cost between $4,000 and $8,000 per month. Nursing homes cost between $8,500 and $12,000 per month, so the concerns that these people have are legitimate.

The advice that I give to a potential client depends upon whether or not there is an immediate need for long-term care or a potential future need. For instance, the advice I might give to a child who has a parent in a nursing home or about to enter a nursing home differs from the advice I would give to an older individual who is in reasonably good heath and is living at home without the assistance of anyone else. Today, I am going to write about a standard piece of advice that I give to individuals in the latter group, that is, those living at home who do not currently require the assistance of others.

Let’s assume that Mrs. Smith is 75 years of age and is in reasonably good health for her age. She owns her home, worth $300,000, and some cash assets worth approximately $150,000. Mrs. Smith purchased the home 30 years ago with her husband, who has since passed away. Her basis in the home is $100,000, which means that if Mrs. Smith sold her home, she would have $200,000 of realized gain on the sale of the home.

Mrs. Smith comes to see me about drafting a last will and testament, powers of attorney, and living will for her; however, during the course of the interview process, she mentions to me that she is worried that she may require long-term care some day and she is concerned that her home will go to pay the nursing home.

Mrs. Smith wants to transfer her home to her four children in order to protect her home from the costs of long-term care. She asks me what I think of her idea of transferring the home.

If Mrs. Smith were to transfer her home to her four children without reserving any rights in the property for herself, she would expose the house to many potential problems. For instance, let’s assume that her son Jim dies before her, that her daughter Mary gets divorced after one-fourth of the home is transferred to her, and that her son David causes an automobile accident and is sued for the damages he caused.

Each one of these issues causes a problem for Mrs. Smith. When her son Jim died, his one-fourth of the house would probably pass to his wife, an in-law of Mrs. Smith. Jim’s last will and testament probably left the entirety of his estate to his wife, so his wife receives his interest in Mrs. Smith’s home. When Mary gets divorced, her estranged husband may make a claim for her interest in the house. While the estranged husband may ultimately lose his bid for an interest in the house, his claim will cause tremendous angst for Mrs. Smith. Finally, if David is sued as a result of the accident he caused and judgments are entered against him, those judgment creditors can attach Mrs. Smith’s house with liens to the extent of David’s interest in the house.

Ultimately, Mrs. Smith might lose her home. So, what do I think about simply transferring the house to the children? I think it’s a bad idea unless there is some reason not immediately apparent for structuring the transaction in that manner.

Many lawyers, including many elder law attorneys, leave Mrs. Smith with a life estate in the property and transfer the remainder of the property to her children. While this form of transfer does ensure that Mrs. Smith will have the right to live in the home for the remainder of her life, an outright transfer of the house to the children still exposes the house to all of the problems discussed above.

So how do I structure the transaction? Typically, I suggest leaving Mrs. Smith with the right to live in the house and place the children’s interest in the home in an irrevocable trust with two of the children as trustees and all four of the children as beneficiaries. By doing this, I protect Mrs. Smith’s home against all of the potential problems mentioned above. I also preserve Mrs. Smith’s ability to claim certain tax deductions on the sale of the house and preserve Mrs. Smith’s right to claim the homestead rebate.

Bottom line, the home is removed from Mrs. Smith’s name for Medicaid purposes, starting the clock running on Medicaid’s five-year lookback period, yet Mrs. Smith retains many of the benefits of ownership.

I Wrote the Book

Around October of this year, a book that I recently wrote on the subject of elder law will be published. American Lawyer Media (ALM) will be publishing my book. ALM publishes numerous legal magazines and newspapers. ALM publishes the New Jersey Law Journal, which is the premier legal newspaper in the state of New Jersey. ALM also publishes legal treatises, such as my book.

I have been a lawyer since 1993. Since 2000, I have concentrated my practice in elder law, when I opened my own firm.

Since opening my firm, I have won a variety of awards in the practice of elder law. I am a certified elder law attorney. In all of New Jersey, there are fewer than sixty lawyers who are certified elder law attorneys.

I have been awarded the Super Lawyer Award in elder law four years in a row. This year, I was awarded a Top 100 Award, meaning that of all the lawyers in the state who practice in any field of law (and there are over 80,000 individuals licensed to practice law in New Jersey), I received enough nominations from my fellow attorneys to place me in the top 100 of all lawyers.

I serve on the National Academy of Elder Law Attorneys (NAELA) litigation committee, deciding which cases NAELA, as an organization, will support in order to promote the practice of elder law and the elderly throughout the United States. I recently served as the Chair of the New Jersey State Bar Associations Elder and Disability Law Section.

I have won the New Jersey State Bar Associations Distinguished Service Award in the practice of elder law. Fewer than five people have ever won this award.

I have sued the State on various occasions in federal court and have won more than my fair share of these cases. The cases I have won have changed the face of elder law in this state. In short, had I not won these cases, the practice of elder law in this state would look vastly different than it looks today.

Quite honestly, my accomplishments in the field of elder law exceed what I ever thought I could achieve.

Clients often ask me, Why did you get into this field? The honest answer is, I like older people. I don’t know why that is. My parents had me later in life. Nowadays, my parents age would be completely average, but when I was a kid, my parents were “old.” Other children’s parents were much younger than my parents.

My siblings are a good deal older than me. Most of my cousins are old enough to be my parents. Without psychoanalyzing myself too much, perhaps this is why.

But, in the end, who really cares why. I practice elder law because I like it, and quite frankly, there are few areas of the law that I could imagine myself liking. If I practiced any other area of the law, I’d probably be a terrible lawyer because I would hate what I did for a living. I’d probably hate it so much that I wouldn’t practice law at all.

I was very lucky to find elder law. The practice of elder law has returned to me far more than I could return to it. I can’t say that I go to work every day skipping and whistling a tune, but I do enjoy what I do for a living.

I think my book will explain the primary topics of elder law in a simple manner that will help both the general practitioner and the general public. The subject of elder law garners a tremendous amount of interest from family members who find themselves struggling with issues affecting an elderly family member. My hope is that my book will smooth out some of the confusion that many people experience when dealing with legal issues that commonly affect the elderly.