PLANNING FOR DISABILITY PLANNING FOR DISABILITY AND AND

LONG TERM CARE NEEDSLONG TERM CARE NEEDS

Presented toPresented to2007 National Caregivers Conference2007 National Caregivers Conference

by by Donald D. Vanarelli, Esq. Donald D. Vanarelli, Esq.

Certified Elder Law AttorneyCertified Elder Law AttorneyAccredited Professional Mediator Accredited Professional Mediator

Registered GuardianRegistered GuardianCo-Founder, Elder Mediation Center of Co-Founder, Elder Mediation Center of

NJNJ

Decision-Making During Decision-Making During IncapacityIncapacity

Elderly and disabled persons Elderly and disabled persons

and their families should recognize and their families should recognize

the possibility that physical or the possibility that physical or

mental impairments may cause mental impairments may cause

incapacity and plan for substitute incapacity and plan for substitute

decision-making.decision-making.

Planning for Substitute Planning for Substitute Decision-MakingDecision-Making

I. Capacity - A critical threshold issue.

II. Legal devices for substitute decision-making:

1. Court-supervised

2. Voluntary

CapacityCapacity

Without the requisite legal Without the requisite legal capacity, voluntary planning may capacity, voluntary planning may be unavailable. Rather, resort to be unavailable. Rather, resort to the courts may be required.the courts may be required.

Standards of CapacityStandards of Capacity

Testamentary Capacity - testator must Testamentary Capacity - testator must recognize the natural objects of his recognize the natural objects of his bounty and the nature and extent of his bounty and the nature and extent of his estate on the date of will execution.estate on the date of will execution.

Contractual Capacity - contractor must Contractual Capacity - contractor must understand the nature of the transaction understand the nature of the transaction and consequences of his acts.and consequences of his acts.

Standards of CapacityStandards of Capacity

Donative Capacity - donor must Donative Capacity - donor must understand the nature and effect of the understand the nature and effect of the transaction.transaction.

Trust Capacity - grantor must have the Trust Capacity - grantor must have the capacity to contract and to donate capacity to contract and to donate property.property.

Power of Attorney/Living Will Capacity - Power of Attorney/Living Will Capacity - requires the capacity to contract.requires the capacity to contract.

Court-Imposed Court-Imposed Substitute Decision-Substitute Decision-

MakingMaking

GuardianshipsGuardianships

ConservatorshipsConservatorships

Nature and Use of Nature and Use of GuardianshipsGuardianships

A guardianship is a legal mechanism A guardianship is a legal mechanism designed to provide surrogate decision-designed to provide surrogate decision-making and financial management for a making and financial management for a person who is no longer able to govern person who is no longer able to govern him/herself and who has not made him/herself and who has not made alternate voluntary arrangements.alternate voluntary arrangements.

Characteristics of Characteristics of GuardianshipsGuardianships

Involuntary. Involuntary. Imposed by Court.Imposed by Court. Only for persons who are legally Only for persons who are legally

incompetent - medical evidence incompetent - medical evidence needed. needed.

Alternate voluntary arrangements - Alternate voluntary arrangements - either not made or ineffective.either not made or ineffective.

Appointment of Appointment of GuardiansGuardians

All guardians in New Jersey are All guardians in New Jersey are appointed by the Superior Court. The appointed by the Superior Court. The process for appointment of a guardian process for appointment of a guardian begins when a person, usually a family begins when a person, usually a family member, files a petition in Court asking member, files a petition in Court asking that a person be declared that a person be declared incapacitated and a guardian incapacitated and a guardian appointed.appointed.

Types of Types of GuardianshipsGuardianships

1. Guardian of the Person.1. Guardian of the Person.

2. Guardian of the Estate.2. Guardian of the Estate.

3. Combined Guardianship.3. Combined Guardianship.

4. Limited Guardianship.4. Limited Guardianship.

Guides to Decision-Guides to Decision-MakingMaking

Standards to assist guardians in Standards to assist guardians in making decisions for wards:making decisions for wards:

1. “Substituted Judgment”1. “Substituted Judgment”

2. “Best Interest”2. “Best Interest”

Voluntary Substitute Voluntary Substitute Decision-MakingDecision-Making

Representative Payeeships (SSA, SSI)Representative Payeeships (SSA, SSI) Joint Tenancies (Inc. joint bank accts.)Joint Tenancies (Inc. joint bank accts.) Powers of AttorneyPowers of Attorney Advance Medical Directives (Living Wills)Advance Medical Directives (Living Wills)

Voluntary Substitute Voluntary Substitute Decision-MakingDecision-Making

Do Not Resuscitate (DNR) Orders Do Not Resuscitate (DNR) Orders Revocable and Irrevocable Trusts Revocable and Irrevocable Trusts

(I(Internter V Vivosivos and Testamentary) and Testamentary) Family Limited Partnerships and Family Limited Partnerships and

Limited Liability CompaniesLimited Liability Companies

TrustsTrusts A trust is one of the most important A trust is one of the most important

estate planning tools.estate planning tools. A trust is a legal relationship in which a A trust is a legal relationship in which a

person (“grantor”) transfers property person (“grantor”) transfers property to one or more trustees who own the to one or more trustees who own the property as fiduciaries. The trustees property as fiduciaries. The trustees must use the property only as provided must use the property only as provided by the grantor in the trust agreement, by the grantor in the trust agreement, or as provided by law.or as provided by law.

Providing for Persons Providing for Persons with Disabilities:with Disabilities:

Special Needs Trust Special Needs Trust BasicsBasics

Purpose - To preserve the disabled person’s eligibility for needs-based governmental benefits while providing a vehicle to hold assets owned by the disabled person, or assets contributed by parents or other third parties, which may be used to supplement public benefits in order to improve the disabled person’s quality of life.

Elements of a Elements of a Special Needs TrustSpecial Needs Trust

A Special Needs Trust (SNT) is drafted A Special Needs Trust (SNT) is drafted specifically so trust assets are not specifically so trust assets are not considered to be “countable considered to be “countable resources” in determining the disabled resources” in determining the disabled person’s eligibility for public benefits person’s eligibility for public benefits based on need.based on need.

Elements of a Elements of a Special Needs TrustSpecial Needs Trust

The SSA describes a discretionary trust The SSA describes a discretionary trust as “a trust in which the trustee has full as “a trust in which the trustee has full discretion as to the time, purpose and discretion as to the time, purpose and amount of the distributions.”amount of the distributions.”

If the beneficiary has no discretion If the beneficiary has no discretion over the distributions, the trust is not over the distributions, the trust is not counted in counted in

determining SSI eligibility.determining SSI eligibility.

Elements of a Elements of a Special Needs TrustSpecial Needs Trust

Assets in a SNT will not count as a Assets in a SNT will not count as a resource for public benefits purposes.resource for public benefits purposes.

The assets in the SNT may be The assets in the SNT may be used to supplement the beneficiary’s used to supplement the beneficiary’s needs not covered by public benefits needs not covered by public benefits without a reduction or elimination of without a reduction or elimination of those public benefits.those public benefits.

Joint Bank AccountsJoint Bank Accounts

A form of account ownership in which an A form of account ownership in which an account is payable to 2 or more persons account is payable to 2 or more persons regardless of whether the account is an regardless of whether the account is an “and” or an “or” account, or whether “and” or an “or” account, or whether there are rights of survivorship.there are rights of survivorship.

Since the account is payable to each Since the account is payable to each person, a joint account is an alternative person, a joint account is an alternative to a guardianship.to a guardianship.

Dangers of Dangers of Joint Bank AccountsJoint Bank Accounts

One joint account owner does not owe a One joint account owner does not owe a fiduciary duty to the other.fiduciary duty to the other.

One joint account owner may utilize the One joint account owner may utilize the funds in the account for his/her own funds in the account for his/her own benefit.benefit.

Upon death, funds automatically may be Upon death, funds automatically may be paid to the surviving owner.paid to the surviving owner.

Joint Bank Accounts Joint Bank Accounts Set Up for Set Up for

ConvenienceConvenience

If the joint account is intended as a If the joint account is intended as a “convenience account”, a power of “convenience account”, a power of attorney (durable, springing or bank) attorney (durable, springing or bank) may be a preferable alternative.may be a preferable alternative.

Powers of AttorneyPowers of Attorney

The most important, simplest and The most important, simplest and least expensive estate document.least expensive estate document.

A mechanism by which the principal A mechanism by which the principal authorizes an agent to manage the authorizes an agent to manage the principal’s financial affairs if the principal’s financial affairs if the principal becomes incapacitated.principal becomes incapacitated.

Characteristics of Characteristics of Powers of AttorneyPowers of Attorney

Creates Fiduciary RelationshipCreates Fiduciary Relationship General vs. SpecialGeneral vs. Special Durable vs. SpringingDurable vs. Springing Sole Agent vs. Joint AgentsSole Agent vs. Joint Agents Termination- death, revocation or Termination- death, revocation or

expirationexpiration

Specific Powers Conferred Specific Powers Conferred in Powers of Attorneyin Powers of Attorney

Flexibility is the goal:Flexibility is the goal:– banking transactionsbanking transactions– to make gifts, including gifts to the agentto make gifts, including gifts to the agent– prepare and sign tax returnsprepare and sign tax returns– to create, amend and fund truststo create, amend and fund trusts– change beneficiarieschange beneficiaries– to execute contracts, leases and deedsto execute contracts, leases and deeds– to loan or borrow moneyto loan or borrow money– to engage in long-term care planningto engage in long-term care planning

AbuseAbuse

Powers of Attorney can easily be abused.

To prevent abuse:

• Select a trustworthy agent

• Retain the power to revoke the POA

• Require periodic accounting

• Require oversight by alternate agent

Advance Medical Advance Medical Directives (“Living Wills”)Directives (“Living Wills”)

Federal Patient Self-Determination Federal Patient Self-Determination Act, 42 U.S.C. §1395, Act, 42 U.S.C. §1395, etet seqseq..

N.J. Advance Directives for Health N.J. Advance Directives for Health Care Act, Care Act, N.J.S.A.N.J.S.A. 26:2H-53, 26:2H-53, etet seqseq..

Decisions about health care are a Decisions about health care are a fundamental right protected under the fundamental right protected under the federal and state constitutions.federal and state constitutions.

Advance Directives In New Advance Directives In New JerseyJersey

N.J. law recognizes 3 planning devices:N.J. law recognizes 3 planning devices:1.1. Instruction DirectiveInstruction Directive2.2. Proxy Directive - POA for Health CareProxy Directive - POA for Health Care3.3. Combined DirectiveCombined Directive

Religious preferences may be presented.Religious preferences may be presented.

When to WithholdWhen to Withhold Medical Treatment Medical Treatment

N.J. law says treatment may be withheld:

1. When the treatment will merely prolong the dying process;

2. When the patient is permanently unconscious;

When to WithholdWhen to WithholdMedical TreatmentMedical Treatment

3. When the patient is in a terminal condition, or;

4. When the burden associated with the treatment outweighs the benefits.

Enforcement of Living Enforcement of Living WillsWills

Less than half are enforced. To increase the probability that your Living Will is enforced:

(1) Clearly define the types of treatment you do not want.

(2) Give copies to your agent and treating doctor.

(3) Carry a wallet card.

Enforcement of Living Enforcement of Living WillsWills

(4) Discuss your intentions with family.

(5) Carefully select your health care agent.

(6) Identify those persons whose opinions you want disregarded.

Overview of Medicaid Overview of Medicaid Payment Payment

of of Long Term Care CostsLong Term Care Costs

Planning for Long Term Care Planning for Long Term Care is Criticalis Critical

1. Most illnesses are now manageable, resulting in chronic, or long-term, debilitating medical conditions.

2. The management of a chronic medical condition requires long-term care.

3. Long-term care is costly. In New Jersey, the cost is substantial.

4. Paying for care can deplete your savings and devastate your family.

Who Pays For Long Term Who Pays For Long Term Care?Care?

1. Private Pay 49%2. Medicaid 44%3. VA Benefits 4%4. Medicare 2%5. Private Long Term Care Insurance 1%

NURSING HOME NURSING HOME MEDICAIDMEDICAID

• Joint Federal and State Program

• Provides medical assistance for financially eligible persons who are aged, blind or disabled

Income Income

All income is counted, including wages, SSA, pensions, annuities, interest, in-kind income, dividends, etc.

There is an income cap on all Community Medicaid programs in New Jersey - $1,911/month.

Countable ResourcesCountable Resources

Countable resources - all assets in the sole name of husband, in the sole name of wife or in joint names, either with the spouse or another person.

Includes pension, IRA and retirement assets of the Community Spouse (if accessible).

Excludable ResourcesExcludable Resources

Home, but only if equity is less than $500,000. If equity exceeds $500,000, the excess must be used to pay care costs.

Automobile

Personal Effects and Household Goods

Life Insurance - Face Value under $1,500.00

Medical Equipment

Inaccessible Resources

Irrevocable Burial Fund

Resource LimitsResource Limits

1. Medicaid Only - countable resources may not exceed $2,000 for an individual and $3,000 for a couple who both apply for Medicaid.

2. Medically Needy - countable resources may not exceed $4,000 for an individual and $6,000 for a couple who both apply for Medicaid.

3. Excess resources must be spent down.

Transfer of Resources Transfer of Resources RulesRules

“Look-back period” - Period which Medicaid examines upon the submission of a Medicaid application to determine an applicant’s countable assets, and the disposition of an applicant’s assets.

Transfer of Resources Transfer of Resources RulesRules

Look-back Period Under the New Medicaid Law- 5 years, or 60 months

Transfer of Resources Transfer of Resources RulesRules

“Penalty period” - Period of Medicaid ineligibility imposed as a result of a transfer of assets for less than fair market value (i. e., a gift) made during the 60-month look-back period.

Transfer of Resources Transfer of Resources RulesRules

The length of the penalty period is theoretically equal to the number of months that the transferred assets would have paid for care in a nursing home.

Transfer of Resources Transfer of Resources RulesRules

Duration of Penalty Period - Determined by dividing the value of the transferred asset by the statewide average monthly cost of nursing home care as calculated by Medicaid = $6,942.00.

Transfer Penalty Start Transfer Penalty Start DateDate

If a gift was made during the look-back period, the resulting penalty period starts on the day the applicant applies for Medicaid and would be eligible but for the penalty period resulting from the gift.

Exceptions to Transfer Exceptions to Transfer of Resources Rulesof Resources Rules

Home - transfer of the home to the following persons is exempt:

• Spouse

• Child under age 21, or blind or disabled child

• Sibling with existing equity interest who resided in home for one year or more immediately preceding institutionalization

• “Caretaker” child

Exceptions to Transfer Exceptions to Transfer of Resources Rulesof Resources Rules

Assets other than the home - Certain transfers of assets other than the home are also exempt:

• Transfer to the Community Spouse

• Transfer to a trust for the sole benefit of the Community Spouse

• Transfer to a minor, blind or disabled child

Exceptions to Transfer Exceptions to Transfer of Resources Rulesof Resources Rules

• Transfer to a trust for the sole benefit of a minor, blind or disabled child

• Transfer the assets of a disabled Medicaid applicant to a trust for the sole benefit of the disabled applicant as long as that applicant is under age 65 when the trust is funded

• Transfer to a trust established by a non-profit association

• Assets transferred for a purpose other than to qualify for Medicaid

Spousal Spousal Anti-Impoverishment Anti-Impoverishment

ProvisionsProvisions

CSRA - Community Spouse is entitled to a

Community Spouse Resource Allowance

(CSRA) equal to one-half of the countable

assets, subject to limitations. The minimum which

the Community Spouse may retain is $20,880 and

the maximum is $104,400.

Spend-DownSpend-Down

Contrary to popular belief, the amount in excess of the CSRA need not be spent on the Institutionalized Spouse. Rather, the “spend-down” can be spent for the benefit of the Community Spouse, or otherwise preserved for the heirs.

This is the heart of Long Term Care Planning.

Planning Strategies Under the Planning Strategies Under the New Medicaid LawNew Medicaid Law

WARNING: ALL STRATEGIES WARNING: ALL STRATEGIES ARE ARE

NEW and UNTESTEDNEW and UNTESTED

New Medicaid Planning New Medicaid Planning Strategies: Buy Exempt Strategies: Buy Exempt

AssetsAssets

Use assets to purchase exempt assets: Buy a house (but equity must be less than $500,000); make home repairs and improvements; purchase household furnishings; buy a cemetery plot or funeral trust.

New Medicaid Planning New Medicaid Planning Strategies: Pay DebtsStrategies: Pay Debts

Pay debts: Prepay your mortgage; prepay RE taxes and homeowner’s insurance; pay all outstanding debts, including credit card debt and debts owed to children.

New Medicaid Planning New Medicaid Planning Strategies: Large GiftsStrategies: Large Gifts

• Transfer Assets & Pay for 5 Year’s of Care - Retain 5 years of private pay

- Consider Inflation Factor

• Transfer all Assets

- Child Gets Medical Deduction

New Medicaid Planning New Medicaid Planning Strategies: Reverse Strategies: Reverse

MortgageMortgage

• Borrow down to $500,000

• Use Cash to Pay for Care

• Transfer Home to Children

New Medicaid Planning New Medicaid Planning Strategies: AnnuitiesStrategies: Annuities

Annuities - exempt from the transfer of assets penalties under the new Medicaid rules if the annuity is:

• Owned by Retirement AccountOR

• Irrevocable• Non-Assignable• Actuarially Sound• Equal Payments/No Balloon• State Primary Beneficiary

New Medicaid Planning New Medicaid Planning Strategies: Life Care Strategies: Life Care

AgreementAgreement

• Care provided in Child’s Home or Parent’s Home• Coordinate - child coordinates care like a geriatric care manager • Hands-On Care• Taxable Income• Withholdings• Document Value of Services

New Medicaid Strategies:New Medicaid Strategies:Purchase Life EstatePurchase Life Estate

• Capital Gains for Home Owner

• 1 Year Residency required under the New Medicaid law to be valid.

New Medicaid Planning New Medicaid Planning Strategies: Buy LTC Strategies: Buy LTC

InsuranceInsurance

• 5 Year Policy• Inflation Factor• Transfer Assets

- Policy Pays for Care

Applicant may be able to shield assets if New Jersey joins the Long Term Care Partnership

New Medicaid Strategies: New Medicaid Strategies: Transfer Home to Exempt Transfer Home to Exempt

PersonPerson

Transfer Home to Exempt Person: Spouse, Child under age 21, Blind or Disabled Child, Sibling with equity interest, or Caretaker Child.

New Medicaid Planning New Medicaid Planning Strategies: TrustsStrategies: Trusts

Specialized Trusts - for spouse, disabled applicant under age 65, income trust, disabled child.

THANK YOU FOR ATTENDINGTHANK YOU FOR ATTENDING

QUESTIONS / COMMENTS?QUESTIONS / COMMENTS?