Off to College: Did You Forget Something?

A financial power of attorney and an advanced healthcare directive can be two of the most important documents that you ever sign.  A financial power of attorney permits someone else, called the “agent” or “attorney-in-fact,” to make decisions for the person who signs the power of attorney, called the “principal.”

A power of attorney is only effective when the principal is alive.  Once the principal dies, the agent’s power of attorney authority ends.  Moreover, a principal is always free to revoke any power of attorney authority that he has granted to his agent.

Once a person attains the age of eighteen, no one can make decisions for him unless that person is his power of attorney or court-appointed guardian.  As silly as it may seem, the age of eighteen is the age of majority, and once a person attains that age, he is an adult.

Some people think a spouse can make decisions for you simply because of his/her status as a spouse. This is not the case.  For instance, if Mr. Smith owns an IRA and he is mentally incapacitated, Mrs. Smith would not be able to access that IRA unless Mr. Smith executed (signed) a power of attorney in her favor or she is the guardian of her husband.

When clients come to see me, I always tell them that a Will is important, but a financial power of attorney is even more important.  A Will is for other people.  A Will is only effective after you die, so a Will is not really for you; it’s for those you love.

A power of attorney is for you.  The power of attorney permits someone else to take care of you if you cannot take care of yourself.

An advanced healthcare directive is essentially a financial power of attorney but for healthcare decisions.  The directive grants authority to someone else (called the “agent” or “proxy”) to make decisions for you.  Through an advanced healthcare directive, you can grant someone the authority to access your medical information, which is important given privacy laws.

Over the years, I have had a few clients who I would consider to be good planners contact me about planning for a child of theirs who was going away to college.  The child was about eighteen years of age and the parent realized that if something happened to the child when the child was away at college, the parent would not be able to make decisions for the child.

These parents have contacted me and asked that I draft a financial power of attorney for the child.  This is a smart move.  Now that the parent has a power of attorney, he can continue to make financial decisions for the child.

The parent can still handle the child’s banking, even if the child is perfectly healthy, and if something were to happen to the child—for instance, if the child were to get into an accident—the parent can handle the child’s financial affairs.  Furthermore, the parent could make healthcare decisions for the child and access the child’s healthcare information.

As much as none of us would ever want to think about something happening to one of our children, what would make the situation many times worse is being told that you don’t have authority to make important financial or healthcare decisions for the child who now desperately needs your help.  Eighteen is what the law considers an adult, so your authority over your child legally ends once he attains the age of eighteen.


Calculating a Just Penalty

Medicaid is a health payment plan for needy individuals.  What this means is, if a person qualifies for Medicaid, the Medicaid program will pay for many of the person’s health care needs.

In order to qualify for Medicaid, the person’s assets must be below a certain level, typically $2,000.  His income must be insufficient to pay for his care; for instance, if he is living in a nursing home costing $12,000 a month, then his income (Social Security, pension) must be less than $12,000 a month.  Finally, he must meet certain clinical criteria.  He must require hands-on assistance with three of the basic activities of daily living, such as clothing, bathing, toileting, eating.

If the person meets all three of those criteria, then he can qualify for Medicaid.  If he is residing in a nursing facility, the Medicaid program will pay for most of the costs associated with his care at the nursing home.  Medicaid will also help pay for care in an assisted living residence and at home.

When a person applies for Medicaid, the Medicaid Office requests financial documents for the past five years.  Essentially, the Medicaid Office is performing a forensic accounting of the applicant’s finances for the past five years.  The Medicaid Office is looking to verify that the applicant has less than $2,000 in assets currently and that the applicant has not given away any assets in the past five years.

If the applicant has given assets away in the past five years, then he will be rendered ineligible for Medicaid for a period of time.  The more the applicant gave away in the past five years, the longer the period of ineligibility.  The period of ineligibility is called a “penalty period.”  During a penalty period, the applicant must pay for his care privately; Medicaid will not pay for his care during the penalty period.

A penalty period is calculated by taking the aggregate assets that the applicant gave away during the five years immediately preceding the date of his application, called the “lookback period,” and dividing that figure by a penalty divisor figure that the State publishes every year.

The divisor is supposed to be based upon the average cost of a semi-private nursing home room in the state in which the applicant lives.  So, for instance, if the average cost of a nursing home is $400 in New Jersey, then the penalty divisor is $400.  If the applicant gave away $12,000 during the lookback period, then the applicant will be ineligible for Medicaid benefits for one month, because a $400 daily penalty divisor is equal to $12,000 a month ($400 * 30 = $12,000).    If the applicant gave away $24,000 during the lookback period, then he would be ineligible for two months.

Last year, in 2017, the state published a divisor figure that was $423 per day.  This year, the state is attempting to publish a daily divisor figure that is only $343 per say, or approximately $80 lower than last year’s divisor number.  This would result in longer penalty periods for people applying for Medicaid benefits because the divisor figure is lower.

This is odd because the cost of nursing homes in New Jersey keeps increasing every year.  The cost of a nursing home certainly did not decrease by 19% from 2017 to 2018 ($80/$423 = 19%).

There are several hundred nursing homes in New Jersey, and the divisor figure is supposed to reflect the average cost of care at all of them. From my perspective in Monmouth County, I can say that the cost of a nursing home ranges from $350 per day to $450 per day.  I think the state may need to look at the figures it is using again to ensure the accuracy of the divisor.