Do You Have a Second?

In my practice, I deal extensively with agents—an individual with authority to act on behalf of another individual.  For me, the need to ensure that you have named an agent to handle all aspects of your affairs is so obvious that I forget most people don’t think in these terms.

The majority of people believe that they will always be able to handle their own affairs and that disabilities and death are the other guy’s problem.  Unfortunately, none of us can escape death.  And if we are fortunate to live long enough, there will likely come a point in time when we need the assistance of others because of some level of disability.  The fact of the matter is, if you are fortunate enough to live into your eighties or nineties, you will likely need some help from family or friends to handle your affairs.

So, naming someone else to assist you in various aspects of your life, and death, is a good idea.  The common documents used to name someone as your “agent” is a power of attorney, an advanced health care directive, and a last will and testament.  Powers of attorney and advanced health care directives enable someone else to make decisions for you while you are alive.  Through a last will and testament, you nominate someone else, called an executor, to handle your affairs after your death.  In addition, in a Will you can nominate a trustee to handle the assets you leave to the beneficiaries of your estate, typically if the beneficiary requires assistance in handling her own affairs, for instance, the beneficiary might be a minor.

When I speak to clients, I sometimes get the impression that the client doesn’t accept the fact that someday he might be disabled and unable to handle his own affairs.  In fact, some times when I speak with clients, I get the impression that they don’t accept the fact that someday they will die and someone else will need to handle their financial affairs for the benefit of the beneficiaries of their estate.

Naming an agent can be one of the most important decisions you make.  It ensures that your affairs can be handled in the event you cannot and it ensures that your affairs are being handled by the person you chose to make those decisions.

Most married people believe that their spouse can simply make decisions for them in the event they cannot.  So it may come as a surprise to learn that unless you name your spouse as your power of attorney agent, she could not make any financial decision for you simply because she is your spouse.  For instance, assume that Mr. Smith suffers a stroke.  Mr. Smith owns his house jointly with his wife and owns a 401(k) in his name alone.  He also owns several bank accounts jointly with his wife.

Mrs. Smith could access the joint bank accounts without a power of attorney, but without a power of attorney, Mrs. Smith would not be able to access any of the funds in Mr. Smith’s 401(k).  Mrs. Smith would not be able to mortgage or sell the house she owns jointly with Mr. Smith unless she as a power of attorney for him.

Without an advanced health care directive, Mrs. Smith may have difficulty accessing Mr. Smith’s health care information.  Mr. Smith’s health insurance company may not speak with Mrs. Smith.  The Health Insurance Portability and Accountability Act, commonly known as HIPAA, prevents health care providers and insurance companies from sharing your health care information with anyone except your designated health care personal representative.

Assuming Mr. Smith passes away, Mrs. Smith could not serve as Mr. Smith’s executor unless Mr. Smith executed a Will naming Mrs. Smith as the executor of his estate.  And while Mrs. Smith would likely be able to be appointed as the administrator of Mr. Smith’s estate—a role that is similar to that of an executor—she might be required to post a probate bond, which would cost the estate money.  Having a good plan in place is simply and costs much less than you think.  Putting that plan in place when you are healthy is a great idea.

Tolling a Penalty Period for Medicaid

A colleague of mine recently had a victory for individuals applying for Medicaid that bears mentioning.  Medicaid is a health payment plan for needy individuals.  Medicaid is a federal and state program.  The federal government pays for, at least, 50% of the costs associated with Medicaid.  In order to participate in the Medicaid program, a state must agree to be bound by the federal rules governing the program.

In order to qualify for Medicaid, an individual must have limited resources (typically less than $2,000) and income that is insufficient to pay for the cost of his care. In other words, if Mr. Smith lives in a nursing home and owns $1,000 in assets and has monthly income of $1,500, then he could qualify for Medicaid because the cost of his care is probably in the neighbor of $12,000 a month; accordingly, his income and assets are insufficient to pay for the cost of his care.  (If Mr. Smith had monthly income of $13,000 and his care cost $12,000, he would not qualify for Medicaid, but few people have income that high).

If an individual makes an uncompensated asset transfer within the five year period of time prior to applying for Medicaid, then he can be penalized for having made the transfer.  The five-year period of time is commonly known as the “lookback period.”  The lookback period is the only period of time that the Medicaid office can look at to see if the applicant made uncompensated asset transfers.

The manner in which Medicaid penalizes an applicant who has made an uncompensated transfer during the lookback period is by making the applicant ineligible for Medicaid for a period of time commensurate with the period of time the money transferred could have paid for his care.  In short, for every $12,700 (approximate) that an applicant gives away during the lookback period, the applicant is ineligible for Medicaid for one month.  The $12,700 figure is derived from the average cost of care in a nursing home in New Jersey.  Essentially, what the government is saying with the penalty period is, “If you hadn’t given away that $12,700, you could have paid for your care in a nursing home for one month, so we are going to make you ineligible for Medicaid for one month.”

Although the state can only look at financial transactions that the applicant made during the lookback period, the penalty period can be unlimited in duration.  So, for instance, if Mr. Smith gave away $1,000,000 three years prior to applying for Medicaid benefits, he would be rendered ineligible for Medicaid for months 78 months, which is $1,000,000/12,700  = 78.

Once a penalty period begins, it cannot be tolled. In other words, once the state imposes a penalty period, the penalty period does not stop running even if the financial circumstances of the applicant change.  The federal government has told the various states this fact, so since the states must abide by the federal rules governing the program, the states, including New Jersey, must abide by this rule.

Recently, a county attempted to stop an imposed penalty period claiming that after the penalty period was imposed, the applicant’s income rose to a level that made him ineligible for Medicaid for several months. The county attempted to stop the penalty period from running during the months the applicant received a higher level of income

An administrative law judge ruled that because the federal government does not permit penalty periods to be tolled, the county could not toll the penalty period. This is the correct result because this is what the federal law on the issue states.