EXECUTORS AND ESTATE ADMINISTRATORS BEWARE! NEW JERSEY WILL FILE A LIEN ON THE PROBATE ESTATE

By Fredrick P. Niemann, Esq. of Hanlon Niemann a Monmouth, Ocean County New Jersey Probate Law Attorney

In addition to the right to recover from the estate of the Medicaid beneficiary as a creditor of the estate, New Jersey Medicaid must place a lien on real estate owned by a Medicaid beneficiary during his or her life unless certain dependent relatives are living in the property. If the property is sold while the Medicaid beneficiary is living, not only will the beneficiary cease to be eligible for Medicaid due to the cash from the sale, but the beneficiary will have to satisfy the lien by paying back the state for its coverage of his or her care to date. The exceptions to this rule are cases where a spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house is living there at the time the home is sold.

Whether or not a lien is actually placed on the house of the state, the lien’s purpose is for New Jersey to recover the Medicaid long term care expenses if the house is sold during the beneficiary’s life. The lien will not be removed upon the beneficiary’s death, only when the home is sold and the debt repaid.

If you are an executor or administrator of an estate subject to probate and your decedent was a beneficiary of New Jersey Medicaid, contact me personally today to discuss this matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

FUNDING A SPECIAL NEEDS TRUST IN NEW JERSEY

By Fredrick P. Niemann, Esq. a New Jersey Special Needs Trust Attorney

If you are contemplating the creation of a Special Needs Trust, it is likely that a number of issues will arise with respect to how much to fund the trust. First, how much money will your child with special needs require over his or her life? Second, should you leave the same portion of your estate to all of your children, no matter what their need(s)? The first question is a difficult one.  It depends on the assumptions you make about your child’s needs and the availability of other resources to fulfill those needs. A financial planner or life care planner with experience in this area can help make projections to assist with this determination. But in all cases it’s better to err on the side of more money rather than less. You can’t be certain current benefit programs will continue indefinitely. And you have to factor in paying privately for services, such as case management, therapy, etc. that you provide to your child free-of-charge today. If these assumptions mean that your child with special needs will require a large percentage of your estate, how will your other children feel if they receive less than their pro rata share? After all, your estate may already be smaller than it would be otherwise due to the time and money spent providing for the child with special needs. And your other children may have received less of your attention growing up than they would have otherwise had they not had a child with special needs. One solution to the question of fairness is the purchase of life insurance. You can divide your estate equally among your children, but supplement the amount going to the special needs trust for your child with special needs with life insurance. The younger you are when you start, the more affordable the premiums will be. And if you are married, the premiums can often be lower if you purchase a policy that pays out only when the second parent dies.

Contact me personally today to discuss your New Jersey Special Needs Trust.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

Breaking news! Legislation repeals some of the worst of Governor Walker’s Medicaid recovery expansion.

On Thursday, November 14, 2013, the legislature passed an update to the Wisconsin Trust Code. This update has been in the works for well over a year now. However, at the last minute, the bill that had been crafted as an adoption of the Uniform Trust Code, was changed so that it also included provisions repealing some of the worst aspects of the Medicaid Estate Recovery and Divestment changes that were passed in Act 20, and that I have written about at length in this blog. This is good news! At the same time, some of the Act 20 changes were left intact.

This new bill was signed by Governor Walker on Dec. 13, 2013 as Wis. Act 92. The majority of the bill’s trust provisions will not be effective until 7/1/14, however, the Medicaid provisions I am going to talk about below are effective as of the date that the original provisions were effective, and thus, it is as though they never happened.

Here is a summary of the Medicaid changes, including what was repealed by this newly-signed law, and what parts of the prior Budget Act changes are still on the books. I am not going into the many changes that affect trust law and that were the main focus of the act.

WHAT WAS REPEALED. Act 92 repeals:

  • The prohibition on transfer of excluded resources that I wrote about here.  What this repeal means, is that the threat to family farms and businesses is off the table. It also means that other exempt resources, such as burial plots and cars, would not cause a penalty period if transferred.
  • The prohibition on loans between family members that I mentioned here. This means that now, the simple fact that funds were loaned to a son or daughter will not create a divestment penalty. The loan does, however, have to meet all of the existing requirements of state law: it must be payable over the Medicaid applicant’s life expectancy, it must provide for fixed regular payments such as monthly, quarterly, or annually, and it must include interest at the applicable federal rate.
  • It eliminated the cumbersome property notice requirements that I wrote about here.
  • It eliminated the state’s ability to “void” certain property transfers.
  • It repealed the statute that defined property available for estate recovery as “all real and personal property in which the nonrecipient surviving spouse had an ownership interest at the recipient’s death and in which the recipient had a marital property interest with that nonrecipient surviving spouse at any time within 5 years before the recipient applied for medical assistance or during the time that the recipient was eligible for medical assistance.” This means that the state cannot recover property by using a time frame that goes all the way back to five years prior to the application. The time frame is narrowed to that property that the Medicaid recipient has an ownership interest in at the time of death.
  • It eliminated the cumbersome reporting requirements for trustees of living trusts that I wrote about here.
  • It added a restriction that prohibits the state from recovering funds from irrevocable trusts.

The objectionable parts of the Budget Act that still remain are:

  • The provision stating that if the community spouse transfers any resources within five years after the nursing home spouse becomes eligible for Medicaid, the community spouse’s transfer will create a divestment penalty for the nursing home spouse. This will still leave many couples in situations where the actions of the community spouse could create negative consequences for the nursing home spouse.
  • The provision that requires any divested funds to be returned in full before a divestment penalty will be reduced or cancelled.
  • Expansion of estate recovery to include many non-probate assets, such as life estates and living trusts. I wrote about this here and will write more about it at a later date.
  • Expansion of estate recovery to allow recovery of assets at the time of the community spouse’s death, if he or she dies after the nursing home spouse. However, Act 92 does make some positive changes to this process. I wrote about the law in its original state  here.There is a presumption that all of the assets owned by the community spouse at the time of his or her death also belonged to the institutionalized spouse and therefore can be recovered. However, this presumption can be rebutted. The positive changes to the process of spousal estate recovery are as follows:
    • First, it includes the requirement that the presumption that all of the assets owned by the community spouse at the time of his or her death also belonged to the institutionalized spouse must be consistent with Ch. 766.31 and therefore incorporates marital property law into the determination.
    • Also, it changes the proof needed to rebut the presumption by removing the “clear and convincing” standard.
    • Finally, it reinstates the undue hardship waiver provision that was removed.

    Therefore it will be extremely important to carefully document assets at the time of the first death. This is not something that many couples give much thought to, since most assets are owned jointly. In plain words, if you carefully document what assets belonged to the institutionalized spouse, such as bank account, etc., and continue to keep those assets separate from the community spouse’s assets even after death, you have a way to rebut the presumption that everything is recoverable. An elder law attorney can help you with this.

  • The provision in prohibiting “spousal refusal” by stating that the department “may” deny eligibility if the institutionalized spouse and the community spouse do not provide the total value of their assets and information on income and resources to the extent required under federal Medicaid law, or do not sign the application for Medical Assistance. I wrote about the effect of this here.
  • Expansion of estate recovery for Family Care Services, to include the full capitated rate instead of that actual cost of services the participant received. I wrote about this here.

Many advocates worked tirelessly to pursue the repeal of the terrible government overreaching that was included in Act 20, the biennial budget. This bill shows that the hard work paid off, at least in large part. Wisconsin Residents still have reason to be concerned, and to be careful. That being said, there are still many opportunities to plan well to preserve assets to the fullest extent possible.

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BEWARE OF ANNUITY SALES AND MARKETING PRACTICES: THEY MAY QUALIFY AS ELDER FINANCIAL EXPLOITATION

By Fredrick P. Niemann, Esq. a NJ Elder Abuse and Financial Exploitation Attorney
What are the types of annuities you should be careful of?

Fixed Annuity

A fixed annuity is a deferred annuity that grows by interest alone.  Here, the issuing insurance company offers the annuitant a guaranteed rate of return over the life of the annuity.  However, many fixed annuities do not have a fixed rate of return for the entire life of the contract, but rather a guaranteed minimum rate or “teaser rate” for a short duration in order to attract more consumers.  A typical fixed annuity for example, might offer the annuitant 3% interest over 15 years – in other words, for the investment to appreciate 3%, the original amount invested in the annuity must be left undisturbed for the entire 15 years or harsh surrender charges are imposed.  In addition, these annuities assess yearly maintenance fees, early surrender fees, and other creative “administrative” fees imposed by insurance companies to reduce the amount actually received by the annuitant when the annuitant matures.
Variable Annuity

A variable annuity is basically a tax-deferred investment vehicle that comes with some sort of insurance contract.  However, gains in variable annuities, once distributed, are taxed as ordinary income tax rates, which can be as high as 35%.  For most investors, the ordinary income tax rate is substantially higher than the maximum 15% capital gains tax rates assessed on long-term mutual fund investments and dividend income.  The tax difference between ordinary income and capital gains tax rates can easily eat up the advantage of the annuity’s tax-free compounding.

Variable annuities are notorious for the fees they charge.  Indeed, the average annual expense on variable annuity sub-account currently stands at 2.3%.  The average mutual fund, on the other hand, charges just 1.44%.  Unfortunately, variable annuity fees do not stop there.  Many variable annuities also have loads on their sub-accounts, surrender charges for selling within, for example, seven years and annual contract charges.
Equity Indexed Annuity

Equity-indexed annuities are annuity contracts tied to a stock index provide a minimum rate of return–typically 3% that is guaranteed by an insurance company, but after fees are paid, the guaranteed rate is usually much less than the risk-free rate of return guaranteed by U.S. Treasury securities with the amount invested and often without compounding.

With an equity-indexed annuity the insurance company invests in a mix of bonds and stock options designed to give a targeted participation rate (explained below) on the return of a particular index e.g. the SP 500 index.  While the purchaser has no choice in the investment itself, he or she is able to participate, to a very limited extent, in stock market gains during a rising market.  If stocks fall, then the insurance company guarantees a minimum return.  Because of that guarantee, the equity-index annuity has less downward volatility than the variable annuity.
Contact me personally today to discuss your New Jersey elder abuse and/or financial exploitation matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.