Articles

Careful Planning Can Avert A Crisis

Linda S. Ershow-Levenberg, Esq.
Certified Elder Law Attorney
Certified by the Nat'l Elder Law Foundation, an organization approved
by the NJ Supreme Court and the ABA
Fink Rosner Ershow-Levenberg, LLC
1093 Raritan Road, Clark, NJ 07066
(732) 382-6070

updated 11/21/2005

FIVE KEY PRINCIPLES:

1. Careful planning can avert a crisis
2. What worked for your cousin probably won't work for you
3. The longer we live, the higher the risk of catastrophic illness and expense.
4. Failure to plan will result in a crisis if catastrophic illness occurs
5. Organize and consolidate your financial affairs now, to make it easier to manage later.

MYTHS:

1. It's not necessary to have a Will
2. It's not necessary to have a Power of Attorney
3. When you get sick, the family won't argue over who's in charge
4. It's a simple matter to terminate life support, and doctors will happily confer with all members of the family again and again to reach a consensus opinion about medical treatment
5. Medicaid eligibility is a simple process
6. You should give your house and accounts to your children in case you get sick and need nursing care.
7. You can give away your assets and be eligible for Medicaid right away
8. The nursing home "takes your house."
9. It's impossible to stay in your house if you are completely disabled and need round the clock care.

The first group of myths deals with what I call Disability Planning. It's like having insurance on your home - you wouldn't dream of not keeping up that policy, even though, in your entire lifetime, you probably won't ever put in a single claim.

WHY A WILL?

If a person dies without a Will, their surviving spouse (if any) doesn't necessarily inherit the entire estate. There are special rules if there are also surviving children of that marriage, or surviving children who are step-children. Someone has to apply to be appointed Administrator, and generally must post a bond. If there are no spouse or children, the estate gets distributed to the brothers and sisters and their descendants, or further-removed blood relations.

Why do you need a Will?

You may want to name your Executor.
You may need to appoint a Guardian for an adult disabled child.
You may want to make charitable bequests.
You may have an estate that will be big enough for death taxes.
You may have a spouse who's just entered a nursing home.
You may want to disinherit a child who you haven't heard from in many years.
You may want to set up a special trust or gift to a favorite niece or nephew. You may want to bypass your kids and give gifts directly to grandchildren. You may have a companion and not want the children to inherit the whole estate.
You may want one particular person to get the house.
You may have a child who's a gambler or an addict, so you want to put their share into a spendthrift trust.
You may have a disabled spouse or child who is on Medicaid and Social Security or SSI, and you want to leave funds in a supplemental needs trust that won't jeopardize their government benefits.
You may be in a second marriage

If you don't make a Will, or if you don't revise that Will you wrote 30 years ago, there's a good chance these wishes will not be fulfilled.

DURABLE POWERS OF ATTORNEY and GUARDIANSHIP

If you have a catastrophic injury and cannot function, no one can touch your assets unless you've given them legal authority to do so. If they are not a joint owner, your assets will be in limbo at a time when you can't take care of yourself. If anyone touches your assets, it would be theft. If you signed a Power of Attorney while you were still well. Your named Agent could immediately step into your shoes, get access to the assets, and begin managing them for your benefit.

If you never signed a power of Attorney, someone in your family would have to file in court to be appointed as your legal guardian. Doctors would have to send in reports about you. The court would have to appoint a lawyer to represent you. Another family member might challenge it and say that they should be appointed as guardian instead. The court then declares you an incapacitated person and basically takes away your rights to function independently, by appointing the guardian as your decision-maker. Only THEN your assets can be accessed and used for your benefit.

You have to be competent at the time you sign a POA. You choose your primary and your alternate Agents who you can trust to act in your best interests. You give them all the special powers they might need, such as amending or funding trusts, changing investments, and making gift transfers. You can leave the Power of Attorney with your lawyer, with instructions to deliver it if she is informed that you've become disabled.

Would you have a house without fire insurance? Never. So you shouldn't go without a Power of Attorney, which is insurance in case of disability.

WHY LIVING WILLS?

Living Wills express your wishes on whether life supports should be utilized if you suffer a life-threatening event like a heart attack or stop breathing, while you are in a severe, vegetative or terminal condition, or have advanced brain diseases which leave you unable to interact with those around you in a meaningful way.

Health Care Proxies don't express advance wishes, but appoint the designated decision-maker on health care if you cannot communicate with your doctors.

What happens if there's no advance directive or proxy?

Typically, the doctor will turn to the spouse or, if no spouse, to the one child for guidance, consent and decision-making. If there's more than one child, there is likely to be disagreement. One will see improvement where the other sees complete dysfunction. One will be willing to implement the advance wishes mom expressed in conversation, the other won't agree because he can't let go.

It is the Living Will which stands as the clearest expression of your wishes regarding resuscitation and utilization of life supports, regardless of the personal preferences of other family members. You can only sign it while you are still competent. If you don't have definite advance wishes but have multiple children, you should select one person as the spokesperson who the doctors can turn to for decisions, even if that person in turn seeks input privately from the rest of the family. If there is disagreement in the family, the hospital will likely err on the side of maintaining the person on life support.

MEDICAID

An application for Medicaid to pay for the nursing home cannot be filed until the resources (accounts, real estate, life insurance, etc.) have been "spent down," in other words, reduced to a specified level. For an unmarried or widowed applicant, all resources are "countable" as long as they are available and can be sold or liquidated. Under a few circumstances, the house may be considered "unavailable," such as if there is a child living there. The applicant can have only $2,000 or $4,000 of countable resources, depending which program he is applying for.

If the Medicaid applicant is married, the "community spouse" will also be allowed to retain a share of the marital assets. For a married couple, a few resources are non-countable. Primarily, this means the marital residence, one car, personal effects, burial plots, and irrevocable prepaid funeral trusts. All other assets are counted regardless of which member of the couple owns them. To calculate the spouse's share, all of the countable assets are added up as of the 1st day of the month at the start of the period of continuous institutionalization, and this total is divided in half. The spouse can keep half, but there is a floor and a ceiling on this half. The ceiling or maximum for the community spouse's half is $95,100 in 2005 and will be $99,540 as of January 1, 2006. The floor or minimum is $ 19,200 in 2005 and will go up to $19,908 in 2006. If the Medicaid application is filed before these levels are reached, it will be denied based on the couple having "excess resources," unless certain specialized exceptions are met.

The medicaid home care programs are Jersey Care and CCPED, Community Care for the Poor, Elderly and Disabled. These are part-time nurses' aides programs that do not provide 24/7 care. The eligibility requirements are essentially the same as above.

There is a Medicaid program for low-income residents of some Assisted Living Facilities ("ALF's"). It is a slot-based program, and once a person is eligible, s/he awaits a slot, and generally someone must continue to pay the ALF while s/he is on the waiting list. There is an income cap to be able to apply: $1,737. If a person's income exceeds the cap, it is unlikely that s/he will be eligible for Medicaid even if the resources are all used up.

If assets were transferred away as gifts during the 3 or 5 year period prior to when the Medicaid application is filed, a penalty period will be imputed to the applicant based on Medicaid's formulas. The calculation produces a "penalty" which is a period of disqualification. The penalty period must have run out before the application will be accepted.

SHOULD YOU GIVE YOUR ASSETS AWAY?

People panic at the prospect of having to use up their assets to pay for nursing home care. There's minimal insurance coverage, since Medicare coverage is limited for long-term care, and the cost is at least $6,000 per month. So many people transfer title to their house to their children, or put their children's names on their accounts, or give those accounts away to the children altogether, on the assumption that if the funds are needed, they will always be there.

So what's the problem?

1. You can be disqualified from Medicaid for up to three years if you give away the assets, depending on how and when you did so. Legal advice and planning is a crucial part of such activity. Some transfers are exempt, but most are not.
2. If you give away your house, and your child runs into financial problems, you may find yourself without a home.
3. If you give away the accounts, you may find that they've been used up despite the best of intentions.
4. The less funds you have, the less options you have for community-based caregiving.
5. If you give away your house, you won't be able to get a reverse mortgage to help provide funds to care for you in your own home.

There are lots of strategies to help families restructure the ownership of their assets in order to (1) prevent them from being used up in case of need for long-term care, (2) protect the parent's broadest options for continuing to live in the community, (3) make sure any adult disabled children are protected, (4) make sure that a surrogate decision-maker is in place in case you become disabled.

Remember, though -- The strategy that worked for your friend probably won't work for you, because each family has different objectives, money, members and medical problems.