The Medicaid Income Gap and Divorce: An Injustice Remedied

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Medicaid Attorney

There is troublesome phenomenon which exists in the Medicaid world which is known as the “Medicaid Gap.”  This is a term that is used to describe an income level that is just above the Medicaid cut-off yet too low to cover the cost of nursing home care.  In L.M. v. State Div. of Medical Assistance Health Services, a person applied for Medicaid benefits to cover the cost of the nursing home he was staying at.   The application was denied because his combined income from Social Security and his pension put him above the income level for eligibility.  His income was greater than the cost of private care at the nursing home. In order to get around this, L.M. and his wife, who he was married to for a period of 53 years, divorced in order to lower his income below the income cutoff.  The way this works is that by divorcing his wife, L.M.’s pension would necessarily be distributed in part to her, since she was his wife for over 50 years.  When L.M. reapplied for Medicaid benefits, the Department of Human Services decided that his full pension should be included in the income eligibility assessment process.  Once again, they denied L.M.’s application for benefits.  In short, the divorce tactic did not work either.

On appeal, the court reversed the ruling in L.M.’s favor.  Ultimately, there was a policy reason that they emphasized was the reason they reversed the lower court’s decision.  The court said, “The government and the court are equally concerned about federal and state Medicaid policies that are so restrictive that they encourage married couples, like L.M. and his wife, to seek judicial authorization to sever the bonds of a fifty-three-year-old marriage that they would otherwise preserve at all costs.”  Basically, the court is saying, the departments overseeing those who are eligible to receive Medicaid benefits should be more relaxed in applying the rules for eligibility.  Otherwise, elderly married couples will have to uproot their lives simply to be eligible for Medicaid.

To discuss your NJ Medicaid matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

What is the Law In New Jersey When a Decedent Fails to Maintain Mandatory Life Insurance to Pay Alimony and Child Support?

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Estate Probate and Litigation Attorney

A recent Appellate court case provides some strong guidance to estate representative(s) (executor, trustee, administrator) when life insurance is mandated in a judgement of divorce for the benefit of a surviving beneficiary and it either lapses or incorrectly names the mandatory beneficiary. In this case a couple married and had a child. They were later divorced. When the husband died, he was survived by his minor child as well as an emancipated adult child from a prior relationship.

Before the marriage, the decedent enrolled under a group life insurance policy through the police and firemen’s retirement system of New Jersey, naming his parents as beneficiaries and his ex-spouse as the contingent beneficiary. When they divorced, the couple entered into a settlement agreement, later incorporated into a Dual Final Judgment of Divorce, which made the following provision with respect to the life insurance policy:

LIFE INSURANCE – The Husband presently has life insurance on his life with a face amount of approximately $200,000.00. He shall name the minor child as beneficiary of $150,000.00 of that policy naming Wife as trustee. Husband shall continue this policy until the child is emancipated. Husband shall also maintain $50,000.00 of said policy naming Wife as beneficiary to secure his alimony obligation. This requirement for Husband to maintain life insurance naming Wife as beneficiary shall terminate upon the termination of alimony.

Husband died intestate (meaning without a Last Will) and his adult son was named administrator of the estate.

At the time of his death, he had not named his minor child as the beneficiary of the life insurance policy. His parents (the primary beneficiaries under the original policy language) had predeceased him and his ex-spouse as contingent beneficiary under the original policy language was revoked upon their divorce, pursuant to N.J.S.A. 3B:3-14. The policy provided that in the absence of a beneficiary, the policy proceeds would be payable to the insured’s estate.

The administrator sought an order distributing the insurance proceeds pursuant to the judgment of divorce. The chancery judge granted this relief, finding that the decedent’s failure to revise the beneficiary designation to secure his child support and alimony obligations did not defeat the judgment of divorce. The chancery judge reformed the policy accordingly.

The judge also ordered that the remaining proceeds be paid to the minor child’s mother as trustee for the minor child. In so doing, the judge noted that the child’s projected child support through emancipation would probably equal that amount; therefore, there would be no windfall to the child as a result of the order. The adult child appealed.

The Appellate Division affirmed and stated the following proposal, “when support is secured by a life insurance policy and the policy fails to provide such security because the policy names an incorrect beneficiary, the court may impose a constructive trust on all or a portion of the life insurance proceeds after the obligor’s death.” A constructive trust is warranted when the following two-prong test is satisfied:

First, a court must find that a party has committed “a wrongful act”. The act, however, need not be fraudulent to result in a constructive trust; a mere mistake is sufficient for these purposes. Second, the wrongful act must result in a transfer or diversion of property that unjustly enriches the recipient.

Here, the Appellate Division noted that the decedent’s failure to amend the policy beneficiary was a “wrongful act” that would result in the diversion of proceeds that would trump the property settlement agreement, and would constitute an unjust enrichment.

For these reasons, the Appellate Division concluded that the chancery judge’s reformation order was a proper exercise of her judicial authority to impose a constructive trust on the police proceeds.

This Appellate case affirming a similar outcome in a case I argued before the Appellate Division in 2010 which involved an estate that had significant life insurance and assets and where the decedent failed to name his minor child as beneficiary.

To discuss your NJ Estate Probate and Litigation matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

Issues Arising Out of Life Insurance Policies and Beneficiaries

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Estate Planning and Probate Attorney

Gary and Sharon divorced in 1998.  Gary had two life insurance policies from Prudential and two from State Farm.  He also had a separate Met Life group term life policy. The judgment of divorce stated that Sharon was to remain the primary beneficiary of one third of the face value of all of his insurance policies.  They also agreed to designate the children as primary beneficiaries of all life insurance policies except for the Prudential and State Farm policies.

At the time of the divorce, Gary made Jeffrey and Christopher, the couple’s two adult sons, the primary beneficiaries under the two Prudential and one of the State Farm policies, leaving ex-wife Sharon as the beneficiary of the other state farm policy.

Gary’s son Christopher died unexpectedly.  In 2004, Gary married Donna. Once married to Donna, Gary removed Jeffrey and Christopher as beneficiaries of both Prudential policies and made Donna the primary beneficiary.  He designated Donna and Jeffrey as beneficiaries on one of the State Farm policies while ex-wife Sharon remained the beneficiary of the other State Farm policy.  Donna was designated as the only beneficiary of the Met Life Policy.

Once Gary passed, the proceeds of one State Farm policy were paid in full to ex-wife Sharon.  Donna and Jeffrey then filed legal claims for the two Prudential and the other State Farm policy.  The Met Life policy proceeds went to Donna.  Jeffrey argued that he was entitled to these proceeds as well.

The court had to decide the following issue: Whether the divorce decree’s obligation to name Jeffrey a beneficiary of Gary’s life insurance policy was temporary or permanent. The court reasoned that because there was no language limiting the duration of the beneficiary, the decree’s effect was permanent – Jeffrey was in fact a beneficiary.  After the court came to this decision, they ordered the parties to provide information to the court to determine how much of the benefits Jeffrey was entitled to receive.

What’s the bottom line here?  Divorce settlements are often not clear about many different things.  In this case, it was unclear about when the insured could change the beneficiaries under his existing life insurance policies.  The divorce paperwork also did not mention anything about what happens when one of the children die before the death of parent whose life insurance policy it is.

To make sure you don’t find yourself in a similar mess, make sure that if you become separated or divorced, all your important documents are reviewed and changed according to your new circumstances and goals.  Each state has different laws regarding these things, so each beneficiary designation must be specifically evaluated. Finally, the most obvious, but also the most important – always think twice about naming someone as a beneficiary of a life insurance policy.

To discuss your NJ Estate Planning and Probate Litigation matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

Are Personal Injury Payments Included in Your Estate for Tax Purposes Under New Jersey’s Death Tax Laws?

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Estate Administrate and Probate Attorney

In 2011 a decedent died with an estate of $1,000,000 which was closed out and all inheritance and estate taxes paid. The estate has been closed for 4 years, but recently her wrongful death claim case settled after a jury trial. A NJ Inheritance/Estate Tax Auditor informed the family that a certain portion of the settlement is taxable and the other portion is not. So the issue is whether the wrongful death portion of the jury verdict ($250,000) is subject to NJ Inheritance/Estate Tax. One commentator offered the opinion that pain and suffering, expenses of care, nursing, medical and hospital expenses, other charges incident to the injury, and funeral expenses are exempt while any amount recovered in excess of these expenses are included in the Estate Tax.

My take is that any sum recovered under the New Jersey Death Act as compensation for wrongful death of a decedent is not subject to the New Jersey Inheritance Tax except as provided below:

  1. Any sum recovered under the New Jersey Death Act representing damages sustained by a decedent between the date of injury and date of death, such as the expenses of care, nursing, medical attendance, hospital and other charges incident to the injury, including loss of earnings and pain and suffering are to be included in the decedent’s estate.
  2. Where an action is instituted under the New Jersey Death Act and terminates through the settlement by a compromise payment without designating the amount to be paid under each count, the amount which must be included in the inheritance tax return is an amount, to the extent recovered, which is equal to specific expenses related to the injury. These expenses are similar to those mentioned in sections 1. above and include funeral expenses, hospitalization and medical expenses, and other expenses incident to the injury. Any amount which is recovered in excess of these expenses is considered to be exempt from the taxable damage amount (for the decedent’s pain and suffering). Damages that go to the next of kin for loss of society, consortium or support are not subject to estate tax.

In cases like these interested parties should review the Settlement Agreement to see if the allocation of damages is “in sync” with the damages asked for in the complaint and can be supported. For example, if the damages under the Wrongful Death claim only comprised 25% of the total amount sought, but the Settlement Agreement allocated 75% of the amount to the Wrongful Death claim (to avoid paying death taxes on the Wrongful Death portion), you’re probably going to have a fight with NJ that the allocation was improper.

To discuss your NJ Estate Probate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

VA Health Benefits and Healthcare Services Are Available To Certain Qualifying Veterans

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Veterans Benefit Attorney

VA health benefits can offer a more economical health care option for Veterans who are underinsured because with the VA they have greater access to healthcare nationwide, as a veteran can seek care at any VA health care facility in the U.S. once enrolled in the VA health care system.

What Is A VA Health Care Facility?

When you enroll in VA health care, you are eligible (if approved and qualify) for what is termed a Medical Benefits Package. This package consists of hospital, outpatient, and extended care services providing basic and preventive care, as well as prescription drugs, emergency care and even in some cases, services like: rehabilitative services, professional counseling and mental health services; durable medical equipment, including eyeglasses and hearing aids; home health services; reconstructive (plastic) surgery; hospice care; and dental care.

What exactly is available to the recipient of VA health benefits will depend on the veteran’s eligibility status and whether such services are deemed medically necessary by VA health care providers. You receive a booklet called the Veterans Health Benefits Handbook after enrollment that gives you the specifics of your individual Medical Benefits Package.

Who qualifies for the benefit?

If you served in the active military, naval or air service and were discharged under any condition other than dishonorable, you may qualify for VA health care benefits. There is a minimum duty requirement for veterans who enlisted after September 7, 1980, but there are also many exceptions both before and after this date. Although family members, (with very limited exception) cannot access the VA health care system, family members of veterans may be eligible for CHAMPVA. This is a program that provides health insurance coverage to dependents of a qualifying veteran who is, or was at the time of death, rated permanently and totally disabled due to a service-connected disability or who died of a service-connected disability.

How do you enroll?

You can apply for VA health care by completing VA Form 10-10EZ Application for Health Benefits and submitting it in person or by mail to the enrollment coordinator at any VA Medical Center.

More information

As part of enrollment, the applicant is assigned to a Priority Group based on the severity and nature of the applicant’s disability and/or income. There are eight Priority Groups for enrollment, from highest priority at #1 to the lowest at #8. The Priority Group assignment will determine what the VA Health Benefits enrollee will pay, if anything, in copayments for their health benefits. Generally, the cost of care is free when related to service-connected disabilities, but there may be a copay for all other services, to include prescriptions.

To discuss your NJ Veterans Benefits matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.