Increasing the Personal Needs Allowance

Recently, the state of New Jersey increased the amount of money that a Medicaid beneficiary can retain from his income when he is living in a nursing home.  Medicaid is a health payment program for needy individuals.  In order to qualify for Medicaid, an individual must have very limited assets (less than $2,000) and must have insufficient income with which to pay for the cost of his care.

If a person resides in a nursing home and qualifies for Medicaid, Medicaid will pay for most of the costs associated with his care.  I say “most” because the Medicaid beneficiary has a cost share that he must pay.  The cost share comes from his income.

A Medicaid beneficiary must pay his income to the nursing home every month with certain exceptions.  This is the Medicaid beneficiary’s cost share.  The cost share reduces the amount of money that the Medicaid program pays to the nursing home.  It works as follows:

A private-pay nursing home resident pays, on average, $12,000 a month to the nursing home.  When a person qualifies for Medicaid, the Medicaid program pays the same nursing home for the same care about $6,500 per month.  (And, yes, a nursing home cannot discriminate against a Medicaid beneficiary and must provide him with the same level of care as if he were a privately paying resident.  From personal experience, I can tell you that nursing homes do not discriminate against Medicaid beneficiaries.)

The Medicaid beneficiary’s income reduces the amount Medicaid pays (about $6,500 per month) with certain exceptions.  Assume that Mr. Smith qualifies for Medicaid and that his monthly income is $2,500 per month from Social Security and a pension.  Let’s further assume that Mr. Smith has a wife who continues to reside at home and his health insurance costs him $200 a month.

Mrs. Smith may be able to retain up to $3,000 per month of Mr. Smith’s income.  The amount that Mrs. Smith can retain from Mr. Smith’s income is reduced by the amount of her income.  For instance, if Mrs. Smith has $1,800 in monthly income from Social Security and a pension, then the amount she can retain gets reduced by $1,800.  Let’s assume that Mrs. Smith can retain $1,000 of Mr. Smith’s income.

Let’s further assume that Mr. Smith has private health insurance and his monthly premium is $200.  The Medicaid program wants Mr. Smith to retain his health insurance because if Mr. Smith visits a doctor or is sent to the hospital from the nursing home, then Medicare (not Medicaid) and his private health insurance will probably foot most, if not all, of the bills associated with these types of visits.

So, in this example, Mr. Smith has monthly income of $2,500.  His monthly income is reduced by the $1,000 that Mrs. Smith gets to retain.  His monthly income is further reduced by the $200 monthly health insurance premium.  Mr. Smith now has $1,300 [$2,500 – ($200 + $1,000) = $1,300] of his income available.

The final reduction to Mr. Smith’s income is Mr. Smith’s personal needs allowance.  This is the amount of money that Mr. Smith can retain each month to pay for his own personal items for which the Medicaid program does not pay, such as clothing, haircuts, and entertainment.  For many years, the personal needs allowance for a nursing home resident in New Jersey was $35.  So, Mr. Smith could retain $35 a month from his income to pay for his haircuts, clothing, entertainment, and any other non-covered items he might need.

As of July 1, 2017, the person needs allowance was increased from $35 to $50.  Still not much, but as a percentage increase, it’s a 42% increase in the allowance.  Not bad.

Mr. Smith’s remaining income, $1,250 ($1,300 – $50 = $1,250) is payable to the nursing home.  This reduces the amount the Medicaid program pays the nursing home from $6,500 to $5,250 ($6,500 – $1,250 = $5,250).

Declaring an Estate Insolvent

When a person dies, the affairs of his estate must be wrapped up or administered.  This process is called estate administration.

The person who administers an estate is called the executor, if the person died with a Will, or an administrator, if the person who died did not have a Will.  The executor of an estate has several major duties—he must submit the Will to probate, gather up the assets of the estate, pay all the debts of the estate, file the appropriate tax returns, account to the beneficiaries of the estate, and distribute the assets of the estate to the beneficiaries of the estate.

Sometimes an estate has insufficient assets with which to pay all the debts of the decedent.  An estate with insufficient assets to pay its debts is said to be insolvent.

When an estate is insolvent, the executor must file an action in court to have the estate declared insolvent.  So, if you are named as the executor of an estate and if the estate has insufficient assets with which to pay its debts, then one of the first questions you might want to ask yourself is, Do you want to become the executor of the estate?

Handling an insolvent estate can be quite tricky.  As stated, you have to file an insolvency action.  The creditors of the estate will be contacting you and will be demanding payment.  You might try and negotiate with the creditors in order to reduce the debt.  In the end, though, some creditors might not get paid and the creditor might not understand why they aren’t being paid in full.

Even if you are named as executor in a Will, you do not have to accept the role of executor.  The nomination in the Will is simply that, a nomination.  You would not officially become the executor of the estate until such time as you submit the Will to probate before the appropriate surrogate of the county in which the decedent died domiciled and qualified as executor before the surrogate, which entails signing a few forms.

Until you are officially appointed as the executor of the estate, you are not the executor, so you have no duties or obligations to the estate.  On the other hand, once you qualify, you are the executor and you must faithfully performs the duties and obligation of the executor.  With an insolvent estate, that means paying the creditors in a certain manner.

If the decedent were married, you might ask yourself if the decedent’s surviving spouse is responsible for his debts.  The answer is, she is to the extent that the debt is a necessity, such as a medical expense that the decedent incurred during his life.  But the surviving spouse is only liable after the assets of the estate have been exhausted.  To that end, you are back to filing an insolvency action and paying those debts that you can pay with the assets of the estate.

An insolvency action is filed in the Superior Court of New Jersey.  You file the action no sooner than nine months after the death of the decedent, because creditors have nine months after the death to present their claims to the executor.  The action is filed with an accounting.

There is a certain order in which debts must be paid.  For instance, funeral expenses and expenses associated with the administration of the estate are paid first and second.  Debts with the same priority are paid proportionately if there are insufficient assets to pay all the debts within the same debt class.

At some point in time, a debt might not be paid at all or it may only get paid in part.  The court will enter an order approving a payment plan that the executor submits to the court. Once the court approves the payment plan, the executor can pay the creditors in the manner that the court has directed.  No other payments from the estate will be made, and the executor will released from any liability for not paying a debt of the estate.

Insolvent assets can be much harder to manage than solvent ones.  If you think an estate might have insufficient assets with which to pay its debts, you might want to think twice before qualifying as executor.