An Overview Of Elder Law And Estate Planning
Elder law planning usually begins with a crisis. As the result of a catastrophic illness or disability, a spouse or parent faces admission to a rehabilitation and therapy facility, assisted living facility or nursing home. The spouse/family fears that everything the incapacitated person saved during his or her lifetime may be at risk. The bad news is that the answer is yes most of the time ; the good news is that it doesn’t have to be this way.
We offer services in all areas of elder law and estate planning. You can read general information about these areas below and reach out to us for more in-depth information about your specific situation.
Asset Preservation / Medicaid Planning
Asset preservation planning, or Medicaid planning, allows you to legally preserve your assets from these long-term care costs.
Estate and Tax Planning
Reduced to basics, estate planning is the need for a will, a power of attorney and a health care directive/living will to assure that your “legal house is in order.” If the estate is subject to State or Federal estate taxes, the necessary tax planning will be incorporated into the estate planning. This is the beginning, not the end, of the need for planning.
Lifetime Planning
We next concentrate on life time planning to minimize income and gift taxes on investments while you are alive and to implement asset preservation planning to minimize your lifetime estate from medical spend-down for long-term health care costs.
While estate taxes can take 40 percent and income taxes up to 38 percent, long-term care cost is referred to as the “100 percent tax” since it can exhaust your entire estate.
The above estate, tax and lifetime planning needs use specialized trusts to achieve asset preservation.
Trust Planning
To avoid or minimize estate taxes, Pagliara Law Group will use “qualified disclaimer” trust provisions in the will to allow establishment of a credit shelter and/or a marital trust for the benefit of the spouse and children. There may be a need for spend thrift trusts for potential beneficiaries who are financially irresponsible; a need for disability trusts for the special needs/care of disabled children or beneficiaries; minor trusts for underage beneficiaries to allow the money to be used for limited purposes until they reach a mature age and the funds are released.
Most tax and estate planning advisers stop there with the tax techniques and leave the residuary of the testamentary estate to the surviving spouse, without addressing the 100 percent tax noted above long time care. Without further protection, the will is the same “sweetheart will” we see on a daily basis whereby one spouse passes the entire estate to their sweetheart/surviving spouse.
Consider these complications of the sweetheart will: What if the surviving spouse is disabled, in a long-term care facility or on public benefits? The inheritance received must be spent on the medical care/facility cost of the surviving spouse and will disqualify him or her from public benefits/Medicaid. In effect, you have made the medical care provider/ facility the beneficiary of your will!
Guardianship And Conservatorship
Our lawyers view guardianship as a last resort, when no other alternative, such as power of attorney, is available. Rushing someone into guardianship without that person’s cooperation can make the process difficult and complex as well as pit child against parent and sibling against sibling.
Probate Administration
Our lawyers guide families through the probate process in New Jersey. We also provide a ” probate it yourself” option and have many years’ experience in probate litigation matters.
Real Estate
Protecting Your Home
The most valuable and vulnerable asset many clients own is their home and their first concern when a spouse or loved one needs long-term care is to protect the home, typically to allow the well spouse to live there.
It is critical to preserving/protecting the home that the client plan before illness or, at minimum, consult a certified elder law attorney immediately when any signs of potential long-term care present themselves, since there is a five-year look-back/penalty period for transfer of real estate before eligibility for public benefits.
There are traps and minefields related to protection of the residence that should be addressed only by an experienced real estate and certified elder law attorney. For example: A spouse moves to a long-term care assisted living or nursing facility. They apply for Medicaid public benefits to pay for care. They are advised that all spousal assets will be considered before Medicaid qualification, including the marital residence, but are assured by the Medicaid worker that they will not be forced to sell the residence provided the well spouse continues to live there. This statement is “half-true” but consider the following “Full” storm:
A. What if the well spouse becomes ill or disabled and also needs long-term care? The home is then no longer protected from forced sale and spend-down of the proceeds since it is not serving as the residence of either spouse.
B. What if the well spouse living in the home dies before the infirmed spouse? Under New Jersey law, the title to the home passes to the surviving spouse, the one in the nursing home. That spouse then is ineligible for Medicaid and will be forced to sell the home and spend down all of the sale proceeds before qualifying for Medicaid.
Who can foresee these circumstances and prevent these dire consequences? A certified elder law attorney versed in real estate has a legal solution to protect the home from forced medical spend-down under these two scenarios.
There are additional legal techniques to protect a second home, vacation home and even homes held for investment purposes.
These examples highlight the need for expert advice from a certified elder law attorney with real estate experience to achieve peace of mind that your home will not be subject to medical spend-down, leaving you impoverished.
An Overview Of Medicaid & VA Benefits
When clients learn that Medicare pays only for hospitalization, rehab and therapy, but not for long-term care at home or in a facility, we must counsel them on Medicaid, which does pay for custodial long-term care.
To qualify for Medicaid, an onerous application must be filed with the county social services agency, and if there have been any gifts/transfers within the past five years, a penalty period of ineligibility will be assessed. It is therefore unwise to file a Medicaid application prior to seeking legal advice/representation who can assist you with effective Medicaid planning strategies.
If the application is denied, there is an appeal process that is time-consuming and far more expensive than any legal fee for representation on the initial application. The final decision on an appeal is made by the director of the state Division of Medical Assistance and Health Services (DMAHS), whose policies caused the denial in the first place. Not very comforting! Let’s look at each step:
Medicaid Planning
The federal government offers a program for elders and the disabled called Medicaid, which will pay for custodial nursing home care that Medicare and Medicare Supplement Plans don’t cover. However, there is a financial and clinical precondition. To qualify for Medicaid, you have to spend all of your own assets first. When you have less than $2,000 left, the government will pay for nursing home costs and you must sign over your income. The Medicaid restrictions will reduce the quality of your life unless you have a plan to supplement/avoid this impoverishment legally …
Medicaid Applications
It is critical to evaluate if/when a person will be eligible before filing a Medicaid application. If this is not done, the information volunteered could result in a denial and longer period of ineligibility than necessary. The Medicaid application is extensive and should never be filed before seeking legal advice or representation.
Medicaid Appeals
A Medicaid appeal is filed with the state Division of Medical Assistance and Health Services (DMAHS) and the denied applicant, alone or with an attorney, appears before an administrative law judge (ALJ). The judge’s decision, however, is only a recommendation for a final decision filed with the DMAHS director. Should the director affirm the denial, the client must then file another expensive appeal in the appellate division of the New Jersey Superior Court and wait approximately 1½ years before the case is heard.
Is Elder Care Always Crisis Planning?
Elder law planning usually begins with a crisis. As the result of a catastrophic illness or disability, a spouse or parent faces admission to a long‑term care facility. The family fears that everything the infirmed person had worked for and accumulated during a lifetime may be at risk.
The US does Not Have Long Term Plan for Elderly
Everything you own is at risk because the United States does not have an adequate long-term care plan for the elderly.
Many believe that Medicare will pay for nursing home care. Medicare pays for hospitalization, rehabilitation and therapy. When rehabilitation and therapy are over, you become a custodial patient. Neither Medicare nor Medicare Supplement Plans pay for custodial care. Medicare covers a maximum of 100 days of rehab and therapy. After 100 days, you become insured by the Y.O.U. insurance company, with convenient offices in your left or right pocket!
With the current cost of 24/7 in home care at $7,000 per month; assisted living costs at $8,000 a month and nursing home costs of $12,000 per month or $144,000 a year, the estate you spent a lifetime building can be wiped out. While long-term care insurance policies will pay for nursing home costs, these policies need to be purchased years in advance of need. If you wait until you need long-term care, the cost will be prohibitive or coverage unavailable.
The basic rule to become eligible for public benefits is quite simple: you spend all your of your resources down to $2,000 and then you’re eligible for Medicaid.
Now The Good News
The good news is that health care impoverishment does not have to happen and your “fair-share” of the cost will be far less than the 100% Medicaid requires. Most people believe that once you are in a long-term care facility, it’s too late to preserve assets. Wrong. Our lawyers can still preserve and protect some of your assets, including your home. The sooner you come to us, the more we can shelter. If you wait until you are admitted to a long-term care facility, our lawyers can protect only some assets. Had you started earlier, you would have been able to preserve a much higher percentage of your assets. There is no question you will be able to preserve resources, the fact is merely how much. The planning we use to protect your assets is called asset preservation and it is a legal way to preserve them.
Understanding Guardianship And Conservatorship
Guardianship as a last resort, when, due to Alzheimer’s, dementia, Parkinson’s or other mental deficiencies, no other alternative is available. Rushing someone into guardianship without that person’s cooperation can make the process difficult and complex as well as pit child against parent and/or other siblings. In New Jersey, the sole legal ground for seeking guardianship over another person is incapacity. Previously, the statute used the word “incompetency.” Changing the term to incapacity was a conscious effort by legislators to make the guardianship concept less derogatory and demeaning. New Jersey is a recognized leader among states in modernizing guardianship concepts to be less restrictive. Part of this effort led to the introduction of limited guardianships.
It is possible to avoid the need for guardianship by establishing a power of attorney while competent.
A Time-Consuming And Expensive Process
In New Jersey, you will need three lawyers for a guardianship proceeding: a court-appointed one for the allegedly incapacitated person (AIP), one for the person seeking guardianship and a personal one for the AIP. The estate of the AIP pays for the costs of all three attorneys as well as court costs. The process of obtaining a guardianship can take months and easily exceed $8,000.
Guardianship is the only alternative if the AIP does not have the legal capacity to designate a power of attorney. While a person who serves as power of attorney is answerable to the person who appointed him or her, a guardian is answerable to the court. Thus, the AIP loses control over his or her own care choices and finances with a guardianship.
Guardianship And Conservatorship
There are two types of guardianship in New Jersey: guardian of the person and guardian of the property. The guardian of the person handles all care planning and other nonfinancial decisions. The guardian of the property handles financial matters. While one person usually serves as both, different people for each role may be appointed. Increasingly, our firm represents clients seeking a limited guardianship or conservatorship, where the elder or disabled party has the capacity to make his or her own care decisions, but needs an overseer to assist with financial affairs.
In some states, the term conservator and guardian are the same. In New Jersey, if a person is not incapacitated, he or she can voluntarily choose to have a conservator handle financial affairs.
Will Review
We review the wills of clients who are concerned about asset protection during life time to provide for their loved ones upon their demise.
If your will is like most seniors’ (some drafted over 20 years ago), it says that when the husband dies, he leaves everything to his sweetheart/wife; the wife’s will is vice versa. When both are gone, the estate goes to the kids. These “sweetheart” wills work fine for the first 65 years of life. After that, they don’t. Why?
What’s Wrong With The Sweetheart Will?
Here’s an example of what can go wrong with the sweetheart will:
Suppose the husband is in a nursing home or assisted living facility or on public benefits and then the wife dies. She leaves her entire estate to her sweetheart/husband. Now he will have to spend down all of the spousal estate she left before he is eligible for public benefits or Medicaid to pay for his nursing home expenses.
Such couples have unintentionally made a long term care facility the beneficiary of their wills! This result can be avoided with a properly drafted health care trust. When you reach retirement age, you need to also protect your assets from disability or catastrophic illness, in addition to the usual tax planning.
What Estate Planning Do I Need?
The term estate planning, reduced to basics, means every person needs the following documents:
- A last will and testament that addresses tax and long-term care planning
- A durable power of attorney, the MOST important document you need
- A health care directive (living will) so that you, not the medical providers, direct your health care wishes
- A financial plan to calculate the amount of your estate that can be protected/preserved/saved/sheltered from medical or tax spend-down
Depending on the amount of assets you have and your age, you may also use trusts to protect and preserve your assets.
Drafting A Proper Living Will
A living will (known as a health care directive in New Jersey) will provide you and your family members with the peace of mind of knowing your medical care wishes at the end of life will be honored. It also provides direction to medical professionals, who are ethically and legally bound to keep you alive unless you have a legal document in place that instructs them otherwise.
Without a living will or health care directive in place, strangers or a court may decide if you live or die. Terri Schiavo was a Florida woman who spent 15 years in a persistent vegetative state before being allowed to die by court order in 2005. With a comprehensive living will in place, her family would never have needed a court to make that decision.
What Is A “Proper” Living Will?
As an example, living wills before Terri Schiavo’s case asked when and if you wanted a feeding tube. After that case, elder law attorneys acknowledged that there is no simple “yes or no” answer to that question.
A “fill in the blank” form is seldom adequate. One size does not fit all. Our form presents options for you to choose from, allowing you to tailor your living will to match your life care wishes.
Why You Need A Power Of Attorney
A current and comprehensive durable power of attorney is the most important legal document an elder needs. For a modest fee, you can name a trusted person to act for you and protect your financial interests without bearing the costly and time-consuming anguish of a petition for guardianship if you become incapacitated. Most existing power of attorney documents that we have reviewed do not sufficiently address transfers or gift planning. “Durable” means it is effective even if you later become disabled or incapacitated. Thus, a durable power of attorney can avoid the need for a court-appointed guardianship at a cost of 10 times the power of attorney.
New Jersey significantly changed its power of attorney law in 2004 to require asset preservation planning and gifting to be specifically authorized in that document. If you have a New Jersey power of attorney that was drafted prior to 2004, the document may be missing crucial language to permit your agent to protect assets. We can review your power of attorney, will and living will as part of our fee-free consultation.
The Importance Of A Power Of Attorney Document
A power of attorney is a written document in which you appoint another person to act to protect your assets if you require long-term care in an assisted living facility or nursing home. The party you select has a fiduciary duty to preserve and protect your assets, enforceable by a court. He or she is not a replacement for you but adds an assistant to help you.
The power of attorney that our attorneys will draft for you is not a boilerplate document or computer form where you fill in your name and sign at the bottom. One size does not fit all when it comes to a power of attorney. We will tailor the document to fit your needs based on your age, your health and the size of your estate.
Power Of Attorney Vs. Guardianship
If you have a power of attorney in place, your loved ones will not have to go through the anguish and humiliation of seeking a guardian to be appointed by a court if you become incapacitated. Someone may also contest the guardianship. Often, you can authorize a power of attorney to do everything a guardian could do and assure that if a guardian must be appointed, your personal choice for that role will be considered by a court.
If you wait too long and become incapacitated, you may not be considered legally capable to appoint a power of attorney/agent since a higher degree of legal capacity is required to name a power of attorney than to do a will.
Lifetime Trust Planning
Once the client’s testamentary estate is protected, trusts should be used for lifetime planning. Qualification for Medicaid public benefits continues to allow transfers by an individual, typically to the same beneficiaries/children as the will. The child may elect to establish a living Supplemental Benefits Trust (SBT). While transfer planning is subject to the Medicaid five-year look-back, the penalty need not be five years and certain “sole benefit of” (SBO) trusts are not subject to the Medicaid 5 year look-back penalty, provided the funds are paid out over the beneficiary’s lifetime. Further, the amount that is transferred to an SBO trust is not countable should the parent or grandparent funding the trust or the trust beneficiary need future Medicaid or public benefits, provided the trust meets the complicated rules imposed by Medicaid law.
Another example of a lifetime trust is a special-needs trust (SNT) funded by a claimant after an auto accident, malpractice or court award or by a disabled person. This is a self-funded trust with the recipient’s own funds. Although the trust provides the benefit of not being countable should the recipient seek public benefits, the trust requires that upon death any balance must repay any public benefits paid, unless the trust has fully paid out during the beneficiaries’ lifetime.
While these techniques are legal and available, they will not be found in form books or on LegalZoom on the internet.
Common Trust Myths
- Trusts have too many rules that impair my access to the funds – Wrong: In fact, subject to conforming with certain legal provisions, you make the rules for the trust.
- You need a revocable trust to avoid the high cost of probate – Wrong: This is the mantra of trust mills selling “one size fits all” trusts that insert your name into the boilerplate documents. The usual cost of probate in N.J. counties is under $200. Whereas the cost of a revocable trust is $2,000. Not a wise investment!
- We preserve your assets … without losing control. How? By use of the appropriate tailored trusts described above.
Pre and Post Retirement Planning. The Phases Of Retirement Planning
As retirement-age children are typically present when we counsel their parents on LTC, we often ask them how they plan to avoid the “crisis planning” their parents are currently experiencing. We find that they are equally shocked and unaware that their retirement insurance plan of Medicare and supplements will not address long-term care needs. We advice them that the 3 goals of retirement planning are to minimize income & death taxes, achieve high rates of return on their retirement investments and preserving assets from long term care spend down without losing control.
Retirement has changed radically over the past several decades in America. Years ago, you expected to work most of your life for a single, large employer and you then would count on a pension in addition to your Social Security upon retirement. Today, in all likelihood, you may be financing retirement with money you saved through IRAs, 401(k)s and investments. Pensioners are now the exception the norm.
All federal employees and 80 percent of state and municipal employees — but only 20 percent of private-sector employees — are enrolled in pension plans.
Consider these five phases of Retirement Planning:
PHASE 1: ACCUMULATION
This period lasts your entire working career and includes choices of employers that contribute to your retirement savings and may have a pension plan, along with your ability to contribute the maximum allowed throughout your career. As an example, $100,000 in savings invested at 5 percent compounded annually will grow to $168,000 in 10 years and will double in 15 years.
PHASE 2: PRERETIREMENT
This phase begins when you reach 50 or are 15 years away from retiring, whichever happens first. Although you may not wish to do so, this is the stage to begin thinking of end-of-life provisions and estate planning.
PHASE 3: EARLY RETIREMENT
This phase lasts from the day you retire until you are 72 years old. A key detail in this phase is to make your family aware of your financial plan, living choices and long-term health care wishes in a calm, supportive way. To be conservative, you should project your needs to age 100 and consider the growth of your savings, inflation, taxes, living expenses and, most importantly, health care costs and how to manage them until then. You must also consider how to use the MRD (minimum required distribution) of your tax deferred accounts such as IRAs, 401(k)s, etc., which require withdrawals at 70½.
PHASE 4: MID-RETIREMENT
This phase begins at age 72 and lasts as long as you are able-bodied and high-functioning. Despite your good health, you must advise your family how you wish your health care to be rendered should your condition decline significantly. Conversely, the loss of certain mental abilities is a natural consequence of the aging process and by our nature, we resist letting go of our autonomy and control. This is usually characterized by denial and refusing to consider/discuss the impacts of these age consequences. This is where an elder care attorney’s prior or current asset protection planning actually plays out to your benefit. Remember that there is a potential five-year penalty of ineligibility on transfers to qualify for long-term care benefits. Don’t wait for a crisis and then lament, “I could have/should have planned, but I didn’t.” Time is of the essence to do so by age 70.
PHASE 5: LATE RETIREMENT
This phase begins when your health has declined and there is little likelihood of it being fully restored. It is common that one spouse will become the primary caretaker for the other. In this stage, it is critical that elder care and asset preservation planning, hopefully begun during the earlier phases, will produce fruitful benefits to avoid “Crisis Planning” in order to protect against impoverishment of the healthy spouse due to the health care needs/costs of the infirmed spouse.
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