New Jersey Special Needs and Elder Law Planning

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  • 1. Special Needs and Elder Law PlanningLori I. Wolf, Esq.Mary W. Browning, Esq.
  • 2. I. Government BenefitsA. Four Critical Government Benefit Programs 1. Supplemental Security Income (SSI) 2. Medicaid 3. Social Security Disability Insurance (SSDI) 4. Medicare
  • 3. A. Means-Based Programs
  • 4. 1. Supplemental Security Income (SSI)
  • 5. a. Federal income program administered by Social Security Administration and funded with general tax revenues that pays benefits to disabled adults and children who have limited income and resources and people age 65 and older who are not disabled but have limited financial resources i. Benefit amount for single person per month - $698 from federal government and additional minimal amount from New Jersey ii. Any earned income reduces SSI
  • 6. a. $2,000 resource limit for single person ($3,000 for couple)b. The receipt of SSI (any amount) automatically qualifies the SSI recipient for Medicaid in New Jerseyc. Definition of “disabled”
  • 7. 1. Medicaid
  • 8. a. Funded jointly by the federal and state government for the aged, blind and disabled who are indigent and meet certain eligibility requirementsb. State administered program
  • 9. – New Jersey’s eligibility requirement for Medicaid: i. Asset Test – No more than $2,000 of countable assets for an applicant or $3,000 for a couple where both are applying for Medicaid
  • 10. 1) Community Spouse Resource Allowance (CSRA) – the greater of 50% of the applicant’s countable resources or $22,728, up to $113,640 unless increased by a judge’s order
  • 11. – Available Assets Counted in the asset test, whether owned by the applicant or the applicant’s spouse, or owned by either of them jointly with someone else: a) Checking accounts b) Savings accounts c) Brokerage accounts d) CDs e) Stocks and bonds f) U.S. savings bonds
  • 12. a) Primary residence if applicant does NOT intend to return home or if equity in home is greater than $786,000b) Retirement funds
  • 13. – Excluded Assets Not counted in the asset limit: a) Primary residence if equity is less than or equal to $786,000 and applicant intends to return home b) Primary residence, regardless of equity, if spouse, child under age 21, or blind or disabled child of any age lives there c) One vehicle d) Life insurance with no cash value or cash value less than or equal to $1,500 e) $2,000 worth of household goods plus a wedding ring and engagement ring
  • 14. i. Income Test 1) Applicant cannot have more than $2,094 of income per month for 2012 a) Social Security b) Pension, including Veterans Administration (VA) pension c) Annuity payments d) Retirement accounts e) Interest f) Alimony g) Rental income h) Life insurance proceeds
  • 15. 1) Community spouse - Minimum Monthly Maintenance Needs Allowance (MMMNA) - $1,839 plus excess shelter amount up to $2,8412) There are some limited exclusions from income, including VA allowance for Aid and Attendance or Housebound Allowance (but VA pension is included as income).
  • 16. • Non-Means Based Programs (Benefits that do not have to be protected from an inheritance or personal injury recovery)
  • 17. 1. Social Security Disability Insurance (SSDI) a. disability income based on work history, under age 65 b. a child who is disabled prior to age 22 can get SSDI benefits beginning at age 18 based on that child’s parents prior earnings (continues as long as child is disabled)
  • 18. 1. Medicare – health insurance for those over 65 or disabled
  • 19. I. Special Needs Planning
  • 20. A. Planning by the Parents of a Child with Special Needs
  • 21. 1. Third Party Special Needs Trust (“SNT”) or Supplemental benefits trust a. Set up by a third party who is seeking to help a beneficiary while maximizing government benefits b. Trust assets can supplement but not replace government benefits
  • 22. – Can be an inter vivos trust to receive gifts or inheritance from parents or others during the parents’ lifetimes, or can be a testamentary trust created under the parents’ Wills– Consider appropriate trustees– Can be revocable or irrevocable
  • 23. a. Create flexibility where the needs of a beneficiary are unknown i. Example – lifetime discretionary trust that is convertible to a special needs trust if necessary. ii. Can terminate special needs trust if beneficiary recovers and/or no longer needs government benefits– For a lifetime trust, consider ability to fund the trust with out triggering a gift tax or use of applicable exclusion
  • 24. 1. Benefits of a Special Needs Trust a. Protects eligibility for government benefits b. Provides for a higher quality of life c. Provides framework for care and management of assets d. Allows the parent to express their desires e. Protects assets from creditors and predators
  • 25. 1. Use of a Special Needs Trust avoids many of the costly mistakes people make when planning for their child with special needs, such as: a. Disinheriting the child b. Relying on your other children to provide for the child with special needs
  • 26. 1. Funding of Special Needs Trust a. Allocation to SNT before other children receive assets or divide assets equally among all children b. Cap amount to child with special needs c. Consider funding necessary amount with insurance d. The disabled individual can have no control or access to the trust funds
  • 27. 1. What are we trying to protect? a. A beneficiary’s current Medicaid or SSI benefits b. The possibility of needing these benefits in the future
  • 28. 1. Coordination of Assets with Special Needs Trust a. Retirement Plan Assets b. Life Insurance c. Annuities
  • 29. 1. Distributions from Special Needs Trust
  • 30. a. Permissible Distributions i. Purchase of home or condo, as long as rent is paid ii. Home improvements iii. School tuition, books and supplies
  • 31. i. Vacationsii. Entertainmentiii. Insurance premiumsiv. Transportation (such as purchase of a car or train tickets)
  • 32. i. Telephone expensesii. Dental care and other medical costs not covered by any benefit programiii. Medical equipment
  • 33. a. Distributions Which May Reduce or Eliminate Government Benefits
  • 34. i. Shelter expenses, such as mortgage payments, utilities, etc., if rent is not paid by occupantsii. Foodiii. Clothingiv. Cash paid directly to the special needs person
  • 35. 1. Typical Mistakes People Make
  • 36. a. §529 Plansb. Custodial Accountsc. Bondsd. Coordination of Parents’ and Siblings’ Planning with the Special Needs Trust
  • 37. 1. Letter of Intent
  • 38. A. Planning for the Child with Special Needs
  • 39. 1. First Party Special needs trust (for those under 65) a. Set up by parent, grandparent, legal guardian or a Court b. To or for the sole benefit of a person who is disabled (as defined and determined by the Social Security Administration) and under age 65 c. Protects disabled person’s Medicaid or SSI benefits d. Established with the disabled person’s own money
  • 40. a. Payback provision - Medicaid lien at deathb. Bond requirementc. No expenditure over $5,000 without noticed. Review of trust by state agencies
  • 41. 1. Pooled Trusts a. Alternative to a special needs trust b. Can be self-settled or contain assets of a third-party c. The trust is maintained and established by a non-profit association
  • 42. a. Separate accounts, pooled investmentsb. Pooled trusts typically retain a certain amount of the beneficiary’s account at death (usually 50%, but could be more)c. Reimbursement to Medicaid
  • 43. 1. Durable power of attorney2. Health care proxy and health care directive3. Guardianship a. Full guardianship b. Limited guardianship – Process to Attain Guardianship – When to Apply
  • 44. I. Elder Law Planning (for those over 65)
  • 45. A. Long term care insurance
  • 46. A. Plan for Medicaid eligibility – 5 year lookback on gifts 1. Community Spouse a. CSRA b. MMMNA
  • 47. 1. Gifts made within the 5 year period are subject to a transfer penalty period. To determine penalty period upon transfer, determine value of assets transferred and divide by penalty divisor ($7,282) a. Penalty period starts when the donor: i. Is in a nursing home ii. Has no more than $2,000 of assets iii. Has submitted an application for Medicaid • If Penalty period is longer than five years, simply wait five years before applying for Medicaid and then apply for Medicaid
  • 48. 1. Medicaid Asset Protection Trust
  • 49. a. Create trust to be the owner of some or all of an elderly person’s assetsb. In NJ, grantor cannot be a beneficiary of this trust (differs from many other states)
  • 50. a. Beneficiaries are typically children or other family members i. Need to ascertain creditor problems and other issues of the beneficiaries ii. Family dynamicsb. If home is transferred to trust, prepare a right to reside agreement
  • 51. 1. Can retain exempt assets, but may be subject to estate recovery a. Medicaid lien
  • 52. 1. Outright gifting
  • 53. 1. Spenddown a. Caregivers Agreements b. Retain five years worth of expenses c. Purchase exempt automobile d. Make repairs to home if retaining home outside of trust e. Pay off existing debt f. Purchase prepaid funeral plan
  • 54. 1. If income is in excess of the Medicaid limit (currently, $2,094 per month), consider eligibility under the Medically Needy Program
  • 55. a. Resource Test of $4,000
  • 56. a. Maximum monthly income of $367 after spending down excess of income on medical bills and health insurance premiums
  • 57. a. Medically Needy Program covers most medical costs and in-home and institutionalized care. *It does not cover the cost of hospitalization or prescription drugs
  • 58. 1. New Jersey Elder Care Limitations
  • 59. a. Spousal refusal
  • 60. a. Qualified Income Trust (Miller Trust)
  • 61. 1. Downside of Elder Care Planning
  • 62. a. Reliance on family
  • 63. a. Exposure of assets to creditors of the recipient if not in a trust
  • 64. a. Need to recognize income tax on pre-tax monies before transfer of funds
  • 65. a. Medicaid is not always the best alternative
  • 66. Lori I. Wolf, Esq. 201-525-6291Mary W. Browning, 201-525-6247