Compensating a Guardian

When an individual can no longer make decisions for himself, a guardian may be appointed to assist him with handling his affairs. A guardian is an individual who handles the affairs of another individual, called the “ward.” A guardian is a fiduciary, meaning that a guardian has the utmost duty of care with respect to his ward’s affairs.

Being a guardian is hard work. A guardian is responsible for another human being. He must handle the ward’s financial affairs. He must establish the ward’s living arrangements. He must make all healthcare decisions for the ward.

In addition, the guardian owes the ward the utmost duty of care. A person is free to make good or bad decisions when it comes to his own affairs, but a guardian must always make the correct decision when handling his ward’s affairs. If a guardian makes a mistake, he can be held liable for that mistake. Given this fact, being a guardian involves a tremendous amount of liability.

Because of the work involved and because of the liability that the guardian assumes, he is entitled to a commission. A commission is essentially payment for services rendered to the ward and compensation for the liability that the guardian assumes in performing that work.

Various statutes establish a guardian’s commission. Essentially, a guardian is entitled to three different types of commission—a commission based upon the value of the assets the ward owns, a commission based upon the income the ward receives, and a commission based upon the money the guardian pays out on behalf of the ward.

The commission that the guardian receives on the value of the assets that the ward owns is called a “corpus commission.” The guardian is entitled to an annual corpus commission. The methodology for calculating this commission is $5 per thousand dollars of principal up to $400,000 in assets and $3 per thousand for every thousand dollars of principal in excess of $400,000.

So, for instance, if Mr. Smith is the guardian for Mr. Ward and Mr. Ward owes assets worth $500,000, then Mr. Smith is entitled to an annual corpus commission of $2,300 ($5 * 400 = $2,000 plus $3 * 100 = $300). Assuming Mr. Ward’s assets remained the same—something that would never happen in real life—Mr. Smith would be entitled to an annual corpus commission of $2,300.

Mr. Smith is also entitled to an income commission on the value of the income that Mr. Ward receives. The income commission is 6% of all income that Mr. Ward receives and can be taken on an annual basis. So, for instance, if Mr. Ward receives $20,000 in Social Security income, $10,000 in pension income, and $5,000 in investment income, then Mr. Smith, as his guardian, would be entitled to an income commission of $2,100 ($20,000 + $10,000 + $5,000 = $35,000 * 6% = $2,100). Assuming Mr. Ward’s income remained the same—which, once again, would never happen in real life—Mr. Smith would be entitled to this same commission every year.

Finally, a guardian is entitled to a distribution/termination commission based upon the value of the money the guardian pays out on behalf of the ward and based upon the value of the assets the ward dies owning. So, for instance, if Mr. Smith pays out $100,000 for Mr. Ward’s care in a nursing home, then Mr. Smith is entitled to a 2% distribution commission on those payments, or $2,000. If Mr. Ward dies owning $400,000 in assets, then Mr. Smith is entitled to a termination commission of $8,000, which is 2% of the $400,000 that Mr. Ward died owning.

Big Win Before the State’s Highest Court

Last week the Supreme Court of New Jersey issued an interesting decision in a case that I argued before the Supreme Court on behalf of the National Academy of Elder Law Attorneys. The case is captioned Saccone v. Board of Trustees.

The Saccone case involves the New Jersey Police and Fireman’s Retirement System, commonly known by its acronym, PFRS. The plaintiff, Thomas Saccone, is a retired Newark firefighter. Mr. Saccone has a disabled son, Anthony Saccone.

As a retired firefighter, Mr. Saccone receives a pension through the PFRS. Pursuant to the statutes governing his PFRS pension, if Mr. Saccone were to die, his disabled son would receive a percentage of the pension to which Mr. Saccone were entitled.

The PFRS does not permit Mr. Saccone to change the individual who is entitled to a percentage of his pension if he were to die. In other words, under the law, the pension must be paid to his disabled son and could not be paid to anyone else.

The problem this presented is that Anthony receives government entitlement benefits, such as Supplemental Security Income and Medicaid. These types of benefits are means-tested, meaning that Anthony must have very limited income in order to receive the benefit. The receipt of pension income from PFRS could result in Anthony receiving too much income and being disqualified from the government entitlement benefits to which he otherwise would receive.

From a practical standpoint, this means that if his father were to die, the pension that Anthony would receive could actually be a detriment to him, not a benefit. He might gain some money from the pension but would lose benefits such as Medicaid, a government health insurance benefit. If Anthony were then to need medical care, he would not have health insurance and could end up financially devastated.

To avoid this outcome, Mr. Saccone wanted to name a special needs trust as the recipient of Anthony’s benefit. In this way, if Mr. Saccone were to die, the benefit to which Anthony would be entitled would be paid to the special needs trust. Anthony could then have the benefit of the money in the trust to supplement his needs and would continue to receive government benefits, such as Medicaid.

Mr. Saccone phrased his request to the Police and Fireman’s Board as one to change the beneficiary of Anthony’s benefit to a trust that Mr. Saccone created. The trust Mr. Saccone proposed contained beneficiaries who would receive the money in the trust after Anthony’s death.

The Board rejected Mr. Saccone’s request, holding that the beneficiary of Anthony’s pension benefit could not be changed. Only Anthony could receive the PFRS benefit. Mr. Saccone appealed the Board’s decision, but the Superior Court of New Jersey, Appellate Division, upheld the decision of the Board.

Before the Supreme Court, several non-party entities requested permission to file briefs. When cases are argued before a high court, such as the Supreme Court of New Jersey, it is common for non-parties to request permission to file what are known as amicus briefs. An Amicus is a “friend of the court.” Their role is to bring to the court’s attention important issues that the parties may have overlooked in their arguments to the lower courts.

I filed the amicus brief for the National Academy of Elder Law Attorneys, and I participated in oral argument before the Supreme Court several months ago. It was very exciting to argue a case before the Supreme Court.

Last week, I learned that the Supreme Court accepted the argument that the amici in the Saccone case had proposed. All of the amicus who filed briefs argued that Anthony should be permitted to place his pension benefit into a special needs trust that would contain a payback provision. In this way, after Anthony died, any money remaining in the trust would be paid back to the State, not the third-parties.

The Supreme Court accepted this argument.

The Seven Year Lookback

For the past several years, clients have been coming to me telling me that they heard the lookback period for Medicaid was seven years or that the lookback period for Medicaid was soon to be increasing from five to seven years.

For the first few years, I just dismissed these statements as a common misconception, one of many that clients have, but lately, after hearing these statements for so many years and from so many people, I’m beginning to think there is more to this misconception. I’m beginning to think that this may be one of the most pervasive misconceptions I have ever heard.

Medicaid is a government health insurance program for needy individuals. The federal government establishes the broad requirements for any state’s Medicaid program, and the various states are free to establish their own programs within the parameters of the federal rules.

Since Medicaid is for needy individuals, a Medicaid beneficiary must satisfy certain needs-based criteria. A Medicaid beneficiary must have very limited assets; in New Jersey, typically, less than $2,000 in assets. A Medicaid beneficiary must also have insufficient income to pay for his care. Finally, a Medicaid beneficiary must have a physical need for Medicaid benefits, for instance, the beneficiary must need the care provided in a nursing home.

Because Medicaid requires a Medicaid beneficiary to have limited assets before he can qualify for benefits, the Medicaid program also punishes individuals who give away their assets in order to obtain eligibility for Medicaid benefits. If Medicaid did not punish a person who gave away their assets, then most anyone could qualify for Medicaid benefits simply by giving away their assets one day and qualify for Medicaid benefits the next.

The lookback period is a key component to the Medicaid asset transfer rules. In simple terms, the lookback period is the period of time that the Medicaid program looks at to see if a person who is an applicant for Medicaid benefits gave away his assets.

If an applicant gives away assets prior to the lookback period, then the Medicaid program cannot see those transfers. If an applicant gives away assets during the lookback period, then Medicaid will make the individual ineligible for Medicaid for a period of time depending upon how much money the applicant gave away.

The more the applicant gave away, the longer the applicant is ineligible for benefits. The period of ineligibility is called a “penalty period.” A penalty period can be of unlimited duration. A penalty period is not limited to the length of the lookback period.

For obvious reasons, there are administrative constraints on how long a period of time Medicaid can look at. For instance, banks are only required to maintain their records for a certain period of time, typically, seven years. So, if the Medicaid program had a ten year lookback, an applicant for benefits would not be able to obtain the financial records he would need to apply for benefits from the bank.

The lookback period is currently five years. So, the lookback period begins five years prior to the date the individual applies for benefits and continues to run until such time as the individual ceases to receive Medicaid benefits either due to his death or his ceasing to receive Medicaid benefits. Any gifts made during the lookback period can result in a penalty period.

The lookback period has been five years since February 2006. Before February 2006, the lookback period was three years.

There are, and never have been, any plans to make the lookback period seven years. Quite frankly, from an administrative standpoint, I don’t think the lookback period could be seven years, because I don’t think records would be readily available to an applicant if the lookback period were that long.

Are Two Heads Better Than One?

Every day I meet with clients who are interested in having me drafting the three essential estate planning documents for them–a last will and testament, a financial power of attorney, and an advanced health care directive or living will. Part of each of these documents is nominating a surrogate decision maker, someone who will make decisions for the client if the client is no longer capable of making decisions for himself because of death or disability.

In most cases, the client will name a family member to make decisions for him if he is no longer capable of making those decisions for himself. Sometimes, a client will name a friend or a professional, such as an attorney or accountant.

When dealing with a married couple, the one spouse almost inevitably names the other spouse to make decisions for him, unless the other spouse has health issues that prevent that spouse from carrying out the functions of a surrogate decision maker, such as Alzheimer’s disease. For some clients, choosing one person to serve as their surrogate decision maker is a difficult choice.

The client might be a married couple who needs to name a back up executor or agent or a single client who needs to name their primary executor or agent. When it comes to choosing one of his children to make decisions for him, the client might be torn. Oftentimes, the client’s consternation stems more from a fear of hurting one of his children’s feelings than a desire to name multiple agents.

The client might believe that if he chooses one child as his executor, his other children will be upset by his choice. Perhaps the client is concerned with how his children will think of him given his choice or the client might be concerned with how the children will get along after his choice becomes known.

In some instance, the client believes that by naming more than one executor or financial/health care agent, he is putting in place a better plan than if he only named one child. As the old adage goes, the client believes that two heads are better than one.

Estate planning documents belong to the client. These documents represent the client’s plans, not another family member’s plan and not my plan. For instance, they call a last will and testament a “Will,” because the document represents the client’s free will.

As an estate planning attorney, I do not tell the client how to draft his documents. I merely make suggestions and, in the end, implement the intentions of the client into the documents that I draft for the client. Ultimately, how a document is draft is up to the client, not me.

With that said, as a general rule, I do not like co-executors or co-agents for financial or healthcare decisions. I do not believe that two heads are better than one. I believe that naming two people to make the same decisions is more likely to lead to conflict than naming one person. It certainly is not going to make things easier, because it is always easier for one person to be able to make decisions without having to consult with another person before she makes those decisions.

Now, with that said, tomorrow I may meet with a client for whom I believe naming co-executors or co-agents is wholly appropriate. Everyone’s situation is different and for different reasons things might work better for a given client.

Also, as stated, these documents should reflect the client’s wishes, not mine. If naming co-executors makes the client feel better, than the client should name co-executors. Sure, having co-executors will be more cumbersome, since they both have to make all decisions. Sure, it is possible that naming co-executors could lead to conflicting decisions and general conflict, but if that’s what the client wants, then that is what the client should have.

With estate planning documents, there is no one-size-fits-all document.