Uniform Trust Code

This past week the New Jersey Legislature passed and the Governor signed into law the Uniform Trust Code.  The Uniform Trust Code, or UTC, is a uniform law that was first promulgated in 2000.

There are several uniform laws governing different subject areas.  As a general proposition, a uniform law is designed to create consistency in an area of the law from state-to-state.

For instance, with respect to the laws governing trusts, the Uniform Trust Code is designed to ensure consistency between the manner in which trusts are treated in New Jersey and the manner in which trusts are treated in Wisconsin.  Uniformity in laws permits people to feel confident that a given legal issue will be handled similarly no matter where they may live.

To start at the beginning, a trust is a fiduciary relationship through which one person holds assets for the benefit of another person.  For instance, Joe Smith, who is the trustee of the trust, holds $100,000 for the benefit of Mary Smith, who is the beneficiary of the trust.  The $100,000 is “owned” by Joe, but Joe is merely holding the $100,000 for Mary.  While Joe holds legal title to the money, the money is in an account in his name, as trustee; Mary holds the beneficial interest in the $100,000, not Joe.

When a state enacts a uniform law, such as the Uniform Trust Code, the version of the code that the state enacts isn’t perfectly uniform.  In other words, the committee on uniform laws promulgates a series of uniform laws on various subject areas, such as the Uniform Trust Code.  A state may want to have most of those uniform laws as its governing law; however, the state may not like some of the uniform laws, typically believing that the state’s existing law is better than the uniform law.

When New Jersey enacted the Uniform Trust Code, it enacted most of the proposed uniform laws governing trusts, but not all of them.  In certain areas, New Jersey retained its own existing law.

I think the adoption of the Uniform Trust Code will bring a tremendous amount of clarity and consistency to the laws governing trusts in New Jersey.  As a lawyer, when I mention a trust to a client, you can almost see the client tense.  A trust seems complicated and complex.

Even clients who tell me they want a trust tend to have no idea what a trust really is.  In fact, most people who tell me they want a trust tend to have no need for a trust.

I don’t think the Uniform Trust Code will help the average person understand trusts any better, because the average person doesn’t make a habit out of engaging in legal research.  But even lawyers are confused about trusts, and I think the Uniform Trust Code will help New Jersey lawyers understand this area of the law better.

The laws governing trusts are very old.  If you have an issue with a trust, it’s hard to find a good source to answer to your question.  Now, with the Uniform Trust Code, there will be one area to which an attorney can turn to find his answer to a question concerning a trust.

For instance, Can an irrevocable trust be revoked and under what circumstances?  I know this question has been the subject of debate even amongst many of my colleagues who constantly deal with trusts.

According to the Uniform Trust Code, an irrevocable trust can be revoked if the settlor (the person who created the trust) and all of the beneficiaries of the trust agree to revoke the trust, even if the revocation of the trust frustrates the purpose for which the trust was created.  In simple English, if the guy who created the trust and the beneficiaries of the trust agree, they can revoked an irremovable trust.  A court does not have to oversee the revocation of the irrevocable trust.

Being able to answer questions such as this quickly and efficiently is what a uniform law was designed to accomplish, and I believe New Jersey’s adaptation of the New Jersey Uniform Trust Code will do just that.

Will Medicaid Pay for That?

A recently decided case gives some insight into the nitty-gritty workings of the Medicaid program and offers hope for the most vulnerable among us. Medicaid is a health payment program for needy individuals.  If an individual meets the criteria for eligibility, Medicaid will pay for appropriate and necessary medical care and treatment.

The criteria for Medicaid eligibility are based upon need.  An individual must be both financially eligible for Medicaid and eligible from a health perspective.

In order to be financially eligible for Medicaid, the individual’s income must be less than the cost of his care.  For instance, if an individual lives in a nursing home and the cost of that nursing home to a resident who is paying privately is $11,000 per month, then the Medicaid applicant’s income must be below $11,000 a month.  This makes sense because if the applicant’s income exceeded the cost of his care, then he is not a needy individual; his income would be sufficient to meet the cost of his care.

An individual must also have very limited assets in order to qualify for Medicaid.  Typically, the applicant must have less than $2,000 in countable resources.  A countable resource is all assets except those assets that are specifically designated as non-countable resources.  Non-countable resources are the house, a car, and personal goods and household items; however, the house is only non-countable if the applicant is residing in the house.  I always say that a home is non-countable, a house is not.  The house must serve the applicant’s home.

If an individual is residing in a nursing home or an assisted living residence and is not expected to return to his house, then his house is no longer his home.  In these cases, the house must be sold, and once sold, the proceeds of sale are a countable resource.

Finally, in order to qualify for Medicaid, an individual must needy help with physical or cognitive issues.  In a nutshell, the applicant must either require hands-on assistance with three of the activities of daily living or require queuing with three of the basic activities of daily living.

The “activities of daily living or ADLs” are clothing, bathing, toileting, transferring (from a bed to a chair or from a chair to a standing position), eating, and mobility (walking).  The activities of daily living do not include such things as meal preparation, shopping, and medication administration.  These latter items are called the “instrumental activities of daily living or IADLs” and needing assistance with the IADLs alone will not permit an individual to qualify for Medicaid benefits.  Requiring assistance with the IADLs can augment an application for Medicaid, but the applicant must require assistance with three of the ADLs.

Once an individual qualifies for Medicaid, Medicaid will pay for the cost of his care in a nursing home.  When a nursing home participates in the Medicaid program—and most every nursing homes in the state of New Jersey do participate in the Medicaid program—the nursing home must treat Medicaid beneficiaries in the same manner in which it treats residents who are private paying and the nursing home must meet the needs of the resident.

In a recent case, the question was whether or not the Medicaid program would pay for a power wheelchair for a resident.  The nursing home had manual wheelchairs, but no power wheelchairs.  Testimony was presented that the resident’s use of a manual wheelchair resulted in further deterioration of the arm she used to manually propel the wheelchair.

The state’s Medicaid office claimed that a power wheelchair was not medically necessary and that the Medicaid program only pays for medically necessary items.  The State also argued that the nursing home should supply staff to push the resident around in her manual wheelchair and that the payment of the staff’s salary was included in the amount the Medicaid program paid the nursing home.

The Court held that a power wheelchair was a form a treatment that could be paid by the Medicaid program.  The Court remanded the case for further findings as to whether or not a power wheelchair was the most cost-effective means to meet the resident’s needs or whether other means (such as paying staff to push her around) would be more cost-effective.

New Jersey ABLE Act

Recently, the federal government passed a law called the ABLE Act.  The word ABLE is an acronym that stands for Achieving a Better Life Experience.  This week the New Jersey Legislature and Governor Christie signed into law a statute that implements the federal ABLE Act in New Jersey.  Starting in October 2016, disabled individuals will be able to open ABLE Act accounts.

The Social Security Administration defines disability as the inability to engage in substantially gainful employment as the result of a condition that is expected to result in death or to continue for a period of more than twelve months.  Disabled individuals are potentially eligible for a slew of government benefits, such as Social Security disability benefits, Supplemental Security Income (SSI), Medicare, Medicaid, food stamps, and housing assistance.

Some of these programs, such as SSI and Medicaid, are means-tested, meaning that the beneficiary must have a limited amount of income and resources in order to qualify for these programs.  The ABLE Act is primarily focused at the means-tested government programs for which a disabled individual may be eligible.

For instance, in order to qualify for Medicaid benefits, a Medicaid beneficiary must have less than $2,000 in countable resources.  A resource is what you and I typically call an asset, for instance, a bank account, a brokerage account, an annuity, are all examples of resources.  Some resources are non-countable resources, such as a home and a car, but most resources are countable resources, such as bank accounts and stock.

The ABLE Act allows the various states to offer an account, let’s call it an ABLE account, into which countable resources can be placed and those resources will no longer count against the Medicaid beneficiary’s eligibility for Medicaid benefits.  Accounts such as this are very helpful because means-tested government benefits provide a bare minimum of assistance to people with disabilities.  It would be difficult, if not impossible, for a person with disabilities to live off the assistance these government benefits provide.

An ABLE account has a good number of restrictions.  The state in which the disabled person lives must offer ABLE accounts.  With the law that our Legislature enacted this week, New Jersey will now offer ABLE accounts, starting October 2016.

An ABLE account can only be opened for an individual who was classified as disabled before age twenty-six.  The individual with disabilities can only have one ABLE account, so multiple family members cannot open their own ABLE accounts for the individual.

In any given year, only the amount of the annual exclusion gift, currently $14,000, can be placed in the ABLE account.  The gift does qualify as a present interest gift to the disabled individual if a third-party places the money in the account, though the disabled person can place his own assets in the account.  If one cent more than $14,000 per year is placed into the account, then the entire account is disqualified as an ABLE account.

The maximum amount that the account can contain is $100,000 if the disabled person is receiving Supplemental Security Income, which is the federal cash assistance program.  If the account holds more than $100,000, then the person is disqualified from SSI.  If the beneficiary is not receiving SSI, then the maximum amount that the account can contain is limited to the State’s 529(b) college savings plan limit, which in New Jersey is currently $305,000.

Any money remaining in the account at the time of the beneficiary’s death is subject to estate recovery from the State for the total amount of Medicaid benefits paid to the disabled person during his lifetime.

Given the significant limitations of an ABLE account, these accounts will not be a panacea for disabled persons looking for a solution to their eligibility requirements; however, the accounts can be viewed as one tool in their toolkit.

Drafting Wills for a Married Couple

When drafting Wills for a husband and wife, each member of the couple has his or her own Will.  In other words, the wife has a last will and testament and the husband has a last will and testament.  From time-to-time, a married couple will talk to me as if they should have one, joint Will.

I have to admit that once or twice in my career I have seen a joint Will, but the fact that such a document has been drafted in the past does not mean that such a document is a good planning tool.  In New Jersey’s Probate Code, the series of statutes governing Wills and the administration of estates, the word “Will” is defined in the singular tense to mean the last will and testament of a man or a woman.

From a practical standpoint, I have no idea how a joint Will would work unless both members of the couple died in a common accident, and even then I could see issues arising.  For instance, assume a husband and wife have a joint Will and the wife dies in 2000 and the husband dies in 2015.  When the wife died, the couple’s joint Will was admitted to probate.

The surrogate issued letters of executorship to the individual nominated to be the executor in the last will and testament.  I assume that the husband and wife named the survivor of the two of them to be the executor of their joint Will, though it is a bit odd to nominate yourself to be executor of your Will.

So the question becomes:  How would the joint Will be admitted to probate fifteen years later when the husband dies?  Who would be the executor of his Will since he was already appointed as executor of the estate back in 2000 when the Will was initially admitted to probate.  What if the husband changed his mind between 2000 and 2015 and wanted to leave his estate in a different manner than is provided in the joint Will that was admitted to probate in 2000?

The bottom line is, people should not have joint Wills.  Each member of the couple has his or her own Will.  Most married people have a Will that says something such as, “I give my entire estate to my spouse.  If my spouse fails to survive me, then I give my entire estate to my children.”

These types of Wills are commonly known as “I love you” Wills, because the couple is leaving their entire estate to each other.  As the members of a couple get older, I would suggest that “I love you” Wills are inappropriate.

If Mr. and Mrs. Smith, both age 85, have an estate worth $500,000, consisting of a home worth $300,000 and cash of $200,000, leaving their entire estate to the survivor of the two may be the equivalent of leaving their entire estate to a nursing home.  Assume that Mr. Smith leaves his entire estate to Mrs. Smith, Mrs. Smith now has $500,000 in assets.  If Mrs. Smith enters a nursing home, then she will have to spend the entire $500,000 in assets before she qualifies for Medicaid benefits, which would pay for the same services in the nursing home for which she is paying privately.

What I suggest is that Mr. and Mrs. Smith have Wills that leave each other the smallest fraction of their estate possible under law.  A spouse is the only person you cannot effectively disinherit.  A spouse can always make a claim to your estate, called the elective share.

The elective share amount is one-third of the “augmented estate.”  The augmented estate is essentially the entire estate owned by both the husband and wife.  So, in my example, the augmented estate is $500,000.  One-third of the augmented estate would be approximately $165,000.

If we divided the Smith’s assets so that Mr. Smith owns $250,000 in assets and Mrs. Smith owns $250,000 in assets and if we draft Wills for the Smiths by which each member of the couple leaves the surviving spouse the smallest fractional share permitted by law and the remainder to the children, then upon Mr. Smith’s death, his entire estate will pass to the children.

Since Mrs. Smith already owns 50% of the augmented estate, she has no claim against Mr. Smith’s estate, because 50% is greater than 33%.  Mr. Smith share of the estate, or 50%, can pass to the children.  In this way, 50% of the estate is immediately saved from long-term care costs.