Spousal Income Allowance


When a spouse enters a nursing home, the healthy spouse is often concerned about her ability to continue to support herself. For instance, Mr. Smith, aged 85, enters a nursing home.  Mr. Smith receives Social Security income of $1,000 per month and a pension of $1,500 per month.  Mrs. Smith, aged 81, remains at home.  Mrs. Smith has Social Security income of $700 per month.

Understandably, Mrs. Smith is concerned about her ability to pay her bills. For many years, she has relied upon both her and her spouse’s income to pay the household expenses.  Now, her spouse lives in a nursing home that costs $10,000 per month.  Mrs. Smith would like to qualify Mr. Smith for Medicaid benefits, but she is concerned as to what that means in relation to Mr. Smith’s income.  Will the nursing home take all of his income?

Medicaid is a health payment plan for needy individuals. In order to qualify for Medicaid benefits, an individual must have very limited assets.  The individual qualifying for Medicaid—in this case, Mr. Smith—can have no more than $2,000 in assets.  Mrs. Smith, who will remain at home, can retain ownership of the home.  In addition, she can retain all the personal effects in the home (cloths, furniture, appliances, etc.) and up to a maximum of $120,900 in cash type assets.

The $120,900 figure is a maximum figure. Mrs. Smith may not be able to retain that much in cash assets; it depends what the Smiths owned when Mr. Smith entered the nursing home.  For instance, if the Smiths only owned $150,000 in cash assets when Mr. Smith entered the nursing home, then Mrs. Smith would only be permitted to retain $75,000.

Then there is income. Mrs. Smith can retain all of her income, but in this case, her $700 isn’t going to get her very far.  She still needs to pay the real estate taxes, the utilities, the food bill, her own medical bills, etc.  For Mrs. Smith, life goes on, and now, she has to make due with substantially less income.

While her expenses will decrease somewhat. For instance, she is now only food shopping for herself, not Mr. Smith.  Many of Mrs. Smith’s expenses are fixed.  Her real estate taxes are not going to decrease simply because her husband resides in a nursing home.

In addition to permitting her to retain certain assets (the home, a car, the personal effects, and up to $120,900 in cash assets), Mrs. Smith may be permitted to retain a portion of Mr. Smith’s income.

Mr. Smith, in this hypothetical, has total monthly income of $2,500. Mr. Smith can retain $50 of his income as his personal needs allowance.  This is money that Mr. Smith can use to pay for clothing and haircuts and entertainment.  Mr. Smith can also use a portion of his income to pay his private health insurance premium.  The Medicaid program wants Mr. Smith to retain his private health insurance, so the program permits a deduction from his income to pay the premium for his health insurance.  Let’s assume that the premium for Mr. Smith’s health insurance is $200 per month.

Mrs. Smith can retain up to a maximum of $3,022 of Mr. Smith’s income. Mrs. Smith’s income allowance is reduced by her income.  In this example, Mr. Smith has $2,500 of monthly income.  He can retain $50 and his health insurance premium is $200.  So, the available income to Mrs. Smith is $2,250 ($2,500 – $50 – $200 = $2,250).  Mrs. Smith’s income allowance is reduced by her monthly income of $700, so in this case, Mrs. Smith would be able to retain $1,550 ($2,250 – $700 = $1,550) of Mr. Smith’s income as a spousal income allowance.

If Mrs. Smith had high monthly income, for instance, if Mrs. Smith’s income were $3,500 per month, then she would not be able to retain any of Mr. Smith’s income.

Time To Revisit Your Estate Plan

Recently, the New Jersey estate tax was modified. Prior to 2017, an estate with a gross value greater than $675,000 was potentially subject to New Jersey estate tax.  After January 1, 2017, the gross estate must be in excess of $2,000,000 in order to be subject to New Jersey estate tax.  Starting on January 1, 2018, the New Jersey estate tax will be completely repealed.

The federal estate tax will (for now) continue.  Currently, a gross estate must be in excess of $5,490,000 to be subject to federal estate tax.  In addition, there has been no change in New Jersey’s inheritance tax.  If any portion of an estate is left to an individual who is not the spouse, parent, child, or grandchild of the decedent, then the estate may be subject to New Jersey inheritance tax.

For years, clients of mine (and I’m sure clients of many other attorneys) planned for the New Jersey estate tax.  A common planning technique was to draft trusts into the Wills of a married couple.  These trusts were called credit shelter trusts or by-pass trusts.  The trusts were designed to take advantage of each spouse’s credit against the estate tax.

The trust would be drafted into each spouse’s Will, because you never know which spouse is going to die first.  When the first spouse dies, an amount up to the credit (for instance, $675,000) would pass into the trust.  The surviving spouse would typically be the trustee of the trust.

With credit shelter trusts, a married couple could shelter twice the $675,000 credit against New Jersey estate tax, or $1,350,000.  If a married couple currently had credit shelter trusts in their Wills, then they could shelter $4,000,000, or twice the $2,000,000 credit that currently exists.

Most of my clients who planned for the New Jersey estate tax had estates worth between $900,000 and $1,500,000.  In fact, I would say that 90% to 95% of the clients who I helped with estate tax planning owned estates in this range.

For those clients, estate tax planning with credit shelter trusts is no longer necessary.  While New Jersey may change the law before the tax is repealed in a few months or the State may lower the credit from $2,000,000, for now, most of my clients who engaged in tax planning no longer need to engage in this type of planning.

For those married clients of mine who did engage in tax planning, I would recommend that they re-visit their estate plans.  While a credit shelter trust is not harmful, it may be an unnecessary part of the client’s estate plan given the change in the law.

I have found that clients like a simple estate plan unless there is a reason to have a more complex plan.  For instance, if you can save $70,000 in New Jersey estate tax with a trust, then a trust makes sense.  But if a trust designed to save taxes no longer is necessary to accomplish that goal, then I don’t believe the client should have that type of trust.

There may be other reasons for a trust.  In the recent past, I have become a believer in establishing trusts to hold the inheritance of a client’s child, called a “bloodline trust.”  Since recent changes in the law make it clear that a child can serve as the trustee of his own trust and the trust can protect the assets from the creditors of the child, I believe that bloodline trusts are useful estate planning tools.

But a bloodline trust is not a credit shelter trust, so a client who has a credit shelter trust with an estate less than $2,000,000, probably would want to modify his estate plan.  A married couple who has an estate worth $1,500,000 could have simple Wills that simply leave the entire estate to the surviving spouse, then the children.

Can an Adult Child Be Forced To Support his Parent?

Can an adult child be held responsible to pay for the long term care costs of his parent in New Jersey? This is a concept called filial responsibility.  The short answer is, yes, under certain circumstances, an adult child could be held responsible for the care of his adult parent.

New Jersey does have a filial responsibility statute. New Jersey’s statute provides that a child of an individual who is receiving public assistance, such as Medicaid, can be ordered to support his parent if the child has sufficient means.  The “order” for support from the child of the parent can be entered by the appropriate county board of social services or any court of competent jurisdiction acting on its own initiative or upon information provided by any individual.

In other words, the board of social services can order the adult child to support his parent or a court can enter such an order if any person with knowledge of the situation informs the court that the adult child has the means to support his parent. A child over the age of fifty-five cannot be forced to support his parent.

A healthy spouse can also be ordered to support his ill spouse who is receiving public assistance. There is no age exception for a spouse, so a spouse of any age, if of sufficient means, could be ordered to support his ill spouse.

Pennsylvania, like New Jersey, has a filial responsibility statute, too. In Pennsylvania, the state has somewhat aggressively sought to enforce its statute.  Apparently, the Pennsylvania statute is broader than the New Jersey statute.  The Pennsylvania statute does not have as many exceptions to support (such as the exception for a child over the age of fifty-five mentioned above).

A recent court case involving a disabled child residing in Pennsylvania reignited some interest in the filial responsibility statute. In this case, the “child” was thirty-one years of age.  He (the child was a son) had been disabled since birth.  The son resided in a long-term care facility in Pennsylvania; however, his parents were New Jersey residents.

The Pennsylvania long-term care facility that provided care to the child sought to obtain a support order against the child’s parents, who resided in New Jersey. The Pennsylvania filial responsibility statute would permit the long-term care facility to obtain an order of support against the parents.  New Jersey’s filial responsibility statute would not permit the facility to obtain an order of support against the parents because the parents were over the age of fifty-five.

The case was a “choice of law” case. When you have a case that involves two states, such as New Jersey and Pennsylvania, a question can arise as to which state’s law applies.  As in this case, one state’s law might differ from the other state’s law and that difference can have a profound impact on the case.

In this recent case, the court held that since the parents resided in New Jersey and the support order was sought against the parents, New Jersey law applied to the case. Since New Jersey law applied to the case and since the parents were over the age of fifty-five, the parents were sheltered from supporting their adult child.

These parents were protected from having a support order entered against them; however, if the child were under the age of eighteen or if the parents were younger than fifty-five, then New Jersey law would have permitted the long-term care facility to proceed against the parents for a support order.

New Jersey’s filial responsibility law is something to bear in mind. An adult child could be held liable to pay for the care of his adult child in New Jersey.  Just because it hasn’t happened to date, doesn’t mean that it cannot happen.