Protecting Your Assets with a Trust

For years, I have been using irrevocable trusts to transfer a client’s assets to her children.  The benefits of transferring assets to a trust, instead of transferring the assets directly to the client’s children, are many.

To illustrate, let’s assume a hypothetical set of facts.  Mrs. Smith, aged 70, is interested in protecting her home from the ravages of long-term care costs.  She knows that if someday she needs nursing home care, she will have to spend all of her assets before she will be eligible for Medicaid benefits.  She is interested in removing her home from her name in order to protect the home from long-term care costs.

Mrs. Smith has four children.  She wants to transfer her home to her children, but she worries that a child might get sued or divorced or die and the impact such an event might have on her home.

If Mrs. Smith transfers her home directly to her children, her home would be exposed to any of children’s future problems.  For instance, if a child gets into a car accident and is sued, the child’s creditor could attach Mrs. Smith’s home.

If the spouse of a child files for divorce, the soon-to-be ex-spouse might try and lay claim to the child’s share of Mrs. Smith’s home.  While the claim of the ex-spouse for a share of mom’s house may not succeed, the frustration such a claim would cause to the child and Mrs. Smith can be substantial.

If a child dies, the child’s share of the home will, in all likelihood, pass to the child’s spouse.  Mrs. Smith would probably prefer that the child’s interest pass to the deceased child’s children, Mrs. Smith’s grandchildren, not the child’s spouse.

All of these issues can be avoided with a properly structured Medicaid trust.  Attorneys have been using Medicaid trusts for years, and the law governing these trusts is firmly established.

In 1993, a federal law was enacted detailing when the assets and income of a trust are available to a Medicaid applicant.  The test for availability is called the “any circumstances” test.  In short, if there are any circumstances under which the assets or income of the trust can be distributed to the Medicaid applicant, then those assets or that amount of income that can be distributed is available to the applicant.

The opposite of the “any circumstances” test is when the assets or income, or both, cannot under any circumstance be distributed to the Medicaid applicant.  If there are no circumstances under which the assets or income, or both, can be distributed to the applicant, then the assets or income are unavailable to the applicant.

When a person transfers her assets to an unavailable trust, the five-year lookback for asset transfers begins.  When Mrs. Smith comes to see me in order to protect her home, I tell her about the five-year lookback and the concept is that Mrs. Smith will not apply for benefits for five years following the transfer.

In 1993 and in 1998, the Centers for Medicare and Medicaid Services—the federal agency responsible for administering the Medicaid program, issued letters re-stating the law as I just presented it to you.  So, the fact that the law (passed in 1993) is now twenty-five years old and that the federal agency responsible for administering Medicaid said twenty-five and twenty years ago, respectively, that this is the law means that the state of New Jersey cannot claim that the law is something other than what I have presented to you.

I bring this up because from time-to-time, the State tries to make up its own rules, rules that are more stringent than the federal law permits.  But Medicaid is a cooperative federal-state program, and states that accept Medicaid funds, such as New Jersey, must comply with federal law.  If the State does not comply, it can be sued in federal court and when the law and the federal agency say the State’s position is wrong, it is wrong.

Senior Planning Can Be a Crime


Recently, companies have emerged with the purpose of assisting people (“customers”) qualify for Medicaid benefits, typically when the customer resides in a nursing home or assisted living residence.  The companies are commonly known as non-attorney Medicaid advisors (“advisor”).

If the resident of a nursing home qualifies for Medicaid benefits, Medicaid will pay for most of the costs associated with the nursing home. Since a nursing home can cost upwards of $12,000 per month, qualifying for Medicaid benefits is a big deal.

Nursing homes often refer residents to these advisors. I have seen instances in which the referral was very aggressive, for instance, the family was told that they “must use” the advisor to which the nursing home referred them.

Unlike a lawyer who is responsible to maintain client confidentiality and advocate only for the client, a non-attorney advisor is not bound by a code of ethics. Moreover, the advisor is eager to share the status of his customer’s Medicaid application with the nursing home.  In some cases, the advisor provides written monthly reports to the nursing home as to the status of his customers’ Medicaid application, sharing confidential information with the nursing home.

The Medicaid program is governed by a vast array of extremely complex laws.  The Supreme Court of New Jersey has issued an opinion in which it stated that providing advice on strategies to qualify for Medicaid is legal advice.  When a non-attorney provides such advice, he is committing a fourth-degree crime, the unauthorized practice of law.

Lawyers must go to law school and pass a bar exam for the state in which they practice.  Lawyers are governed by rules, for instance, a lawyer cannot share a client’s confidential information with another person and the lawyer must advocate for the concerns of the client.  Practicing law without a license is a criminal act.  Providing advice to nursing home residents—or their family members—as to qualifying for Medicaid benefits is the practice of law.

The federal regulations governing the Medicaid program do permit a non-attorney to assist an applicant for Medicaid benefits in applying; however, the non-attorney cannot provide any advice on how to qualify for benefits.  In other words, a non-attorney could help you complete the application and gather information for the application, such as bank statements, but the second the non-attorney provides any advice as to how to qualify for benefits—for instance, you should purchase a prepaid funeral for your wife or transfer the house to your name alone to avoid estate recovery—the non-attorney advisor is providing legal advice and committing a crime.

I have had several of my former clients come to me and tell me that a non-attorney Medicaid advisor provided legal advice to them.  A client told me that a company she hired advised her to transfer her assets to a trust for her disabled son.  Advising an applicant for Medicaid benefits on such a complex transfer is clearly the practice of law, and when a non-attorney Medicaid advisor provides that advice to a third-party, he is engaging in the unauthorized practice of law, a criminal act.

Ironically, some of these companies have the word “planning” right in the name of their company.  To me, that is deceptive since the company is touting itself as, primarily, a company that assists people with Medicaid application and the company would be committing a criminal act if it provided any planning advice to its customers.  I would think people hiring a company with the word “planning” in its name would think they were hiring the company to help them plan for Medicaid eligibility.

These companies typically charge around $6,500 to assist a client.  As an attorney, I charge less than $5,000.  And not only do I assist the client will applying for Medicaid, I often develop strategies that save the client’s family tens of thousands, even hundreds of thousands, of dollars. I can develop such a plan because I am a lawyer, and I am legally permitted to practice law.  Don’t get less for paying more.

Hire a certified elder law attorney, not someone who cannot legally providing planning advice yet has the word “planning” right in his company’s name. Hire an advocate who must keep your information confidential and your interests at the forefront, not a company that is eager to share your information with its referral source.

Planning in Changing in Times

A large percentage of people do not have a last will and testament. If you are included in that group, you should get a Will.  Of those who do have Wills, many put their Will in a secure location and never review it again.  If you are in the latter camp, you might want to take your Will out and give it a quick review.  Recent changes to tax laws may make your current Will outdated.

Until this year, an estate with a gross value greater than $675,000 was subject to New Jersey estate tax. With recent changes in the tax laws, your estate now has to exceed $2,000,000 to be subject to New Jersey estate tax.  In 2018, the New Jersey estate tax is completely repealed, so New Jersey will no longer impose an estate tax.

With the repeal of the New Jersey estate tax, the general revenue fund of New Jersey lost about $400,000,000 annually. It is unknown from where New Jersey will make up these lost funds.  Perhaps, the State will substantially cut programs in order to make up for the deficit.

Because the repeal of the New Jersey estate tax causes such a large deficit in the State’s budget, some people believe that New Jersey might re-instate the estate tax. Perhaps, New Jersey will freeze the credit equivalent at $2,000,000 instead of repealing the tax.

Given this concern, how do you plan for these changing times? Furthermore, if your estate plan was designed to shelter your estate from New Jersey estate tax as that tax existed in the past, should you review your estate plan to ensure that it conforms to the current law?

In general, you should review your estate plan to ensure that it conforms to existing law every ten years. Specifically, if your prior estate plan was designed to assist with estate taxes (either state or federal) and you haven’t reviewed your plan in the last year, I’d review it now.

Many married couples have estate plans designed specifically to address the federal estate tax or the New Jersey estate tax as those laws existed in the past. Now, with the changes to the laws, these older plans need to be modified.

If your estate is under $2,000,000, then you probably don’t have to worry about estate tax. So, if your Wills were designed to address estate tax and your estate is worth less than $2,000,000, then you might want to think about removing any old tax planning provisions that you currently have in your Will.

If you are a married couple and your combined estate is $2,000,000 or more, then you might want to think about having a disclaimer credit shelter trust in your Wills. A credit shelter trust is a trust that is designed to take advantage of the husband’s $2,000,000 credit against New Jersey estate tax and the wife’s $2,000,000 credit against the New Jersey estate tax.  Properly implemented, a credit shelter trust could permit a married couple to shelter $4,000,000 from the New Jersey estate tax.

A disclaimer credit shelter trust would read as follows: “I give my estate to my spouse; however, if my spouse disclaims a portion of my estate, then the portion so disclaimed shall pass to a credit shelter trust for my spouse’s benefit of which my spouse is the trustee.”  A disclaimer is a legal way for a beneficiary (the surviving spouse in this case) to say they don’t want something passing to them under a Will.  Yet, with a disclaimer credit shelter trust, the property disclaimed simply passes into a trust for the benefit of the surviving spouse.

This type of planning allows your estate plan to be very simple (an outright inheritance to the surviving spouse), yet preserves estate tax planning if that planning is beneficial at the time of the first spouse’s death (permitting the funding of a credit shelter trust through the use of a disclaimer). Many plans either don’t have this flexibility or are tied to the old federal and state estate tax laws, failing to take into consideration the changes that have occurred in the tax laws.