Residents Entitled to Day in Court

The United States Centers for Medicare and Medicaid Services, the federal agency that administers the Medicare and Medicaid programs, issued new regulations governing nursing homes and assisted living residences that accept Medicare or Medicaid funding for residents.  Since most every nursing home in New Jersey accepts both Medicare and Medicaid and since most assisted living residences in New Jersey accept Medicaid, these new rules will affect most of the facilities in this state.

One of the biggest changes these new rules bring is a prohibition against these facilities from placing binding arbitration clauses into their admissions agreements.  When a resident enters a nursing facility, he is often presented with an admissions agreement (a contract) between the facility and the prospective resident.  The admissions agreement is often thirty or more pages in length.  The agreements are weighted heavily in favor of the facility and against the interests of the resident.

If that were not enough, the facilities also like to place a binding arbitration clause into the agreements.  What these clauses do, in short, is take away a resident’s “day in court.”  Unlike court, with arbitration, there is no jury, there is no judge, there is no public hearing.

Facilities like arbitration because an arbitration hearing prevents the public from hearing what the nursing home is accused of doing. Without a jury, the facilities believe that their chances of winning are increased.  For this reason, facilities like to place these clauses into their admissions agreement.

When a family sues the facility for a problem that the admissions agreement covers, the facility will raise the arbitration clause and get the matter kicked out of court. The family must then submit to arbitration instead of having its day in court.

Over time the Centers for Medicare and Medicaid Services (CMS) heard the complaints of families and elder law attorneys. CMS has now passed laws that prevent facilities that accept Medicare or Medicaid from placing arbitration clauses into their admissions agreement.  The rule does not prevent a family and a facility from agreeing to submit the case to arbitration once a problem arises, but the rules prevent the facility from placing such a clause into their admissions agreement before a problem occurs.

I have concentrated my practice in elder law for seventeen years now, and I can tell you that the myths clients hear from nursing homes are always the same. I constantly hear of nursing homes threatening family members of residents that the facility is going to discharge the resident and the family will have to take care of the resident in their home.  Facilities tell residents that there are no Medicaid beds available when every bed in the facility is a Medicaid certified bed.  Facilities tell families that the waiting list for a Medicaid bed is six months or one year or two years, when the resident is already in a Medicaid bed.

The truth of the matter is, residents have a great many rights. Many of these rights have been in place since the mid-1980s.  Many of the fallacies that facilities spew are in direct contradiction of these rights that have existed now for thirty years.

The latest rule change that will prohibit nursing homes and most assisted living residences from putting arbitration clauses into their admissions agreements will ensure that residents can enforce their rights in court. This new rule further strengthens the array of rights that residents of long-term care facilities possess.  If you are threatened by a nursing home or assisted living residence, I would advise you to seek legal counsel.  Your initial reaction may be to believe what the facility is telling you, but that may be exactly what the facility is hoping you do.

Attorneys Bring Shame to Elder Law

In the past two years, two attorneys, described to the public as “prominent” elder law attorneys, have been arrested on charges stemming from the theft of substantial assets from their clients.  In March 2015, Barbara Lieberman, an attorney who practiced in Atlantic County, was sentenced to ten years in state prison for her role in multiple acts of theft perpetrated against her former clients.

Last week, Robert Novy, an attorney in Ocean County, was arrested on charges that are very much reminiscent of the charges against Ms. Lieberman.  The acts of Ms. Lieberman are in no way related to the acts that Mr. Novy allegedly committed.  And, since Mr. Novy has only been charged and has not been tried and convicted, I will say that the charges of theft that have been leveled against him are based upon alleged facts that have not been proven in a court of law.

The stories of Ms. Lieberman and Mr. Novy are interesting to me for several reasons.  As an elder law attorney and the former Chair of the Elder and Disability Law Section of the New Jersey State Bar Association and current Chair of the Litigation Committee of the National Academy of Elder Law Attorneys, I condemn the actions of Ms. Lieberman and the alleged actions of Mr. Novy.

I have concentrated my practice in elder law for the past seventeen years.  I believe that I know or have at least heard of every experienced elder law attorney in this state.

One of the things that was odd to me about Ms. Lieberman’s arrest and subsequent conviction was the fact that I had never heard of her before her arrest, yet the press described her as “prominent.”  In fact, the vast majority of my elder law colleagues were similarly struck by their lack of knowledge of this supposedly prominent attorney.

As for Mr. Novy, I have heard of him for many years.  I have never met him, and I don’t believe I ever had a legal matter in which he represented a party.  I knew he hosted a radio show called Inside the Law, which focused on elder law.

My guess would be that Mr. Novy paid for his air time with the radio station and that he was not an employee of the radio station, but I have no actual knowledge of this. I also believe he presented seminars on elder law to the general public.  My guess is these were dinners or luncheons in which he would offer food and beverages to those willing to listen to his talk.  On his website, he describes himself as follows:  “Today he is one of the most respected and sought-after Elder Law attorneys in Ocean and Monmouth counties.”

Because Mr. Novy has been practicing elder law for a number of years and because he heavily marketed his practice, I would say—unlike Ms. Lieberman—that he was prominent or well-known.  But Mr. Novy is not a certified elder law attorney.  Mr. Novy lists no merit-based awards on his website, such as a Super Lawyer Award in the practice of Elder Law.  These are awards/certifications of which an attorney can be proud.

I believe that the one thing the general public can learn from the stories of Ms. Lieberman and Mr. Novy is from the methods used to perpetrate the thefts (or alleged thefts) upon their victims.  Both Ms. Lieberman and Mr. Novy served as power of attorney agents for their clients.  Mr. Novy also served as trustee of trusts that his clients had drafted to hold their assets, most likely revocable living trusts.

Power of attorney agents and trustees act without court supervision in most instances.  While acting without court supervision has its benefits—lower cost of administration, no public access to information—a lack of court supervision can have its extreme downside, as these stories prove.  I have been saying this about living trusts for many years.

In my opinion, if your lawyer is pushing to serve as your power of attorney agent or as the trustee of a revocable living trust that he or she drafted for you, you should think twice about using that attorney.  In many cases there may be no harm in the attorney serving in those roles, but the potential for harm is so high that an offer to serve in those roles unsolicited by you, the client, should be cause for significant pause and deliberation.

Planning Abounds

The New Jersey estate tax is effectively eliminated as of January 1, 2017, since the credit equivalent against the estate tax will increase from the current figure of $675,000 to a $2,000,000 credit equivalent as of that date.  Since most people do not own $2,000,000 in assets, the New Jersey estate tax is effectively repealed in a few months for the vast majority of New Jersey residents.  For the very few of us who do have more than $2,000,000 in assets, the New Jersey estate tax will actually be repealed as  of January 1, 2018.

With the repeal of the estate tax comes planning opportunities.  I have planned to reduce or eliminate the estate tax for thousands of couples.  Most of the clients for whom I planned to reduce or eliminate the estate tax had estates worth between $900,000 and $1,500,000.  If you have been fortunate in life, this is the range of wealth in which most people in New Jersey fall.

Let’s assume that Mr. and Mrs. Smith have an estate worth $1,000,000.  Let’s further assume that the Smiths’ wealth consists of a home that they own jointly worth $500,000 and a joint brokerage account worth $500,000.

In the past, I would have advised the Smiths to put trusts in their Wills called credit shelter trusts.  These trusts would have permitted the Smiths to eliminate any New Jersey estate tax issue.  In addition, when Mr. Smith died and when Mrs. Smith died, the assets they owned (the house and the stocks in the brokerage account) would receive a step-up in basis.

The step-up in basis means that the beneficiaries of the Smiths’ estates will own the stock and the house they inherited from the Smiths with a basis equal to the value of the assets as of the date of the death of Mr. Smith or Mrs. Smith.  For instance, if Mr. and Mrs. Smith purchased their house for $100,000 and now it is worth $500,000, their children will have a basis in their house of $500,000.  When the children sell the house for $500,000, there will be no gain in the sale, so the children will not have to pay capital gains tax on the sale.

Before the repeal of the estate tax, it was difficult to accomplish the multiple goals of eliminating the estate tax, receiving a step-up in basis in the assets, and removing the assets from the names of the Smiths for purposes of long-term care/Medicaid planning.  If Mr. and Mrs. Smith were interested in planning for future Medicaid eligibility to enable them to avoid spending all of their money on a nursing home, I had to tell them that it would be difficult to plan for Medicaid and to achieve all of the tax benefits we could achieve if we didn’t plan for future Medicaid eligibility.

Now, I can tell people in the Smiths’ position that they don’t have to worry about estate tax and that they should think about planning to guard against spending all of their money on a nursing home.  So, what would I advise?

For people in the position of Mr. and Mrs. Smith, I would advise that they implement elective share will planning.  Here’s how that works.

We divide all of the Smiths’ assets between Mr. and Mrs. Smith.  Mr. Smith will own half the house, Mrs. Smith will own the other half of the house.  Mr. Smith will own half the brokerage account, Mrs. Smith will own the other half of the brokerage account.

When Mr. Smith’s dies, his Will says that he leaves Mr. Smith the smallest fraction of his estate permitted by law. A spouse is entitled to receive up to one-third of the total estate.  The total estate includes all assets that both Mr. and Mrs. Smith own.

Since Mrs. Smith already owns 50% of the assets and since 50% is more than one-third, Mrs. Smith receives nothing from Mr. Smith’s estate. Mr. Smith’s assets pass to the Smiths’ children.  Mr. Smith’s assets (50% of the total estate) are now safe from nursing home costs and Mrs. Smith cannot be punished by the Medicaid program for having made a gift to her children since she received everything from Mr. Smith’s estate to which she was entitled.  Nothing.

Death of the Death Tax

The New Jersey estate tax will soon be a thing of the past.  Currently, New Jersey imposes an estate tax on estates that have a gross value in excess of $675,000.  On the amount in excess of $675,000, the State imposes a tax of approximately 10%.

New Jersey also has an inheritance tax.  The inheritance tax is a tax imposed primarily based upon the relationship of the beneficiary to the decedent.  Close relatives—such as a spouse, a parent, a child, or a grandchild—do not pay inheritance tax.  More distant relatives and non-relatives pay a tax that ranges from 11% to 15% of the value of the inheritance.

There is also a federal estate tax.  The federal estate tax is imposed upon the value of an estate in excess of $5,450,000.  A couple can easily shelter twice that amount simply by checking a box on a federal estate tax return.  Since most people aren’t worth $5,450,000, and never will be, most people will never pay federal estate tax.

Our governor and legislature have recently reached a deal that will quickly put an end to the New Jersey estate tax.  By January 1, 2017, the credit against the New Jersey estate tax will increase from $675,000 to $2,000,000.  By January 1, 2018, the New Jersey estate tax will be eliminated.  Since most people don’t have an estate worth $2,000,000, the New Jersey estate tax will essentially be eliminated in a few short months for most New Jersey residents.

Many people have been planning to reduce or eliminate their exposure to the New Jersey estate tax for many years.  Many of those people have drafted their Wills in a manner that includes trusts, called credit shelter trusts or by-pass trusts or A/B trusts.  Irrespective of the name given to the trust, the trusts were designed for the same purpose.  These trusts were designed to ensure that a married couple could take advantage of each spouse’s $675,000 credit against the New Jersey estate tax, effectively sheltering $1,350,000 from estate tax for a married couple.

I have drafted hundreds of Wills containing these trusts, and until a few days ago, those trusts were completely appropriate.  Now, with the simple change of a law, all of those Wills have become dated.  While Wills that contain credit shelter trusts aren’t harmful and are perfectly valid Wills, those Wills also are overly complex and, as of a few days ago, contain unnecessary language.  Wills with these trusts could make the process of estate administration more burdensome and, now that there is no estate tax, unnecessarily so.

So, this article is a call to action to all of those people who have trusts in their Wills that were designed to reduce or eliminate the New Jersey estate tax.  If your estate is less than $2,000,000 (and in fifteen months, if it is less than $5,450,000), I would suggest that you modify your Will.

The good news is, your Wills can be much more simple.  Now, even if your estate is worth several million dollars, you can have a very simple Will that leaves everything to your spouse or everything to your children and there will be no negative estate tax issues.

The elimination of the New Jersey estate tax also opens up the opportunity for people who might have wanted to plan for long-term care to plan for long-term care.  In the past, a couple who had an estate worth $1,200,000, for instance, might not be a couple for whom I would recommend planning for long-term care.

That is because such a couple might lose tax planning opportunities by implementing certain Medicaid planning techniques.  Now, without an estate tax to worry about or to hamper their planning, such a couple can freely plan for future Medicaid eligibility without hurting their beneficiaries from a tax perspective.  With every change in the law comes new planning opportunities.