Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

Fredrick P. Niemann, Esq., a Real Estate Attorney

In one of my last posts I explained how Mom’s transferring her home to a child(ren) during her lifetime will result in capital gains tax whereas passing the home after she dies can reduce or even eliminate the tax.  However, Mom considered transferring the house because she wanted to protect it from being consumed completely by the cost of long term care, especially important where other family members live in the home.

Right there is the dilemma.  What to do?  Capital gains tax, at worst, will never consume the entire proceeds of sale.  Long term care, however, could easily exceed the home value if it is needed for several years.  But do I have to really choose between the two?  Well, maybe there is another way.

Putting the home in a trust, if set up properly, can accomplish both goals.  The home is removed from the parent’s name and, if done 5 years or more before needing long term care, will be outside the Medicaid lookback, that time frame within which Medicaid looks to confirm that you have in fact spent all your money and haven’t given it away.  At the same time, the trust can be set up in such a way that the assets it holds will be part of Mom’s estate and she will be able to take advantage of both the capital gains tax exclusion and the step up in basis that I discussed in my last post.

We accomplish the best of both worlds.  The home can be protected and tax advantages will not be lost.  But, there are even more potential benefits.  Since the home is not in the child’s name but in the trust, it is not subject to the child’s creditors, or to being split with the child’s spouse in a divorce.  Additionally, if Mom needs care within 5 years of the transfer, the home can be sold or borrowed against to help pay the cost of care.  In other words, some of the asset can be used for care but not all of it need be consumed.

As you can see, a simple question, or so you thought.  Is home transfer right for you and your family?  Well, that depends on many factors, including the health of the parent, what other assets exist to pay for long term care and what goals the parent and child want to accomplish.  One thing is for sure.  Planning early makes things easier and the outcome so much better than waiting until a crisis hits.

For further information and advice in any real estate matter, do not hesitate to contact me at 888-800-7442, or email fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., an Elder Law Attorney

Mom and Dad are living in their home but their health is failing.  They do not yet need nursing home level care, but do need some assistance on a daily basis.  Their children are running back and forth helping to provide care but it is just too difficult to do on a long term basis.   The plan is to move them to an assisted living facility.  The problem, however, is that they have limited funds to pay for that care.  While they intend to sell the home, that won’t happen overnight.

An option that has worked well in the past is to take a home equity line of credit and use it to pay the monthly assisted living fee and real estate taxes, insurance and maintenance until the home is sold.  Except, in today’s economy  with the financial industry itself being bailed out, banks are no longer approving these loans, concerned about the creditworthiness of borrowers and the risk of default.  So what now?

It may be time to look at a reverse mortgage.  Increasingly, this is the only option for seniors.  The concern about defaulting loans is not an issue because, by its terms, a reverse mortgage won’t be repaid until the borrower dies or sells the home.  The ability of the borrower to repay isn’t a factor because he/she makes no monthly payments.  Hence the term “reverse”.

Over the years I have seen cases where reverse mortgages have enabled seniors to stay in homes they really couldn’t afford any longer and probably should have sold.  If they outlive the funds borrowed, typically they are in poor health and now have exhausted their assets completely.   It is also true that these loans carry higher transactional fees than traditional mortgages.

However, here, the plan is to sell the home as soon as possible to pay for the next level of care, not hang on too long.   And, if a traditional mortgage isn’t an option any longer, the higher fees become acceptable given the alternative of the children taking money from their own savings to pay the cost of Mom and Dad’s care.  With an economy in recession and unemployment rates at their highest in a generation many children don’t have the funds to pay for their parents’ long term care. 

That’s why for many, it may be time to take a closer look at the reverse mortgage.

For further information and advice in any elder law matter, do not hesitate to contact me at 888-800-7442, or email fniemann@scarincihollenbeck.com.

Fredrick P. Niemann, Esq., a Medicaid Attorney

As the current economic crisis deepens, it is becoming increasingly clear that we are heading into uncharted waters, in so many respects.  Specifically, however, I am talking about the long term care arena.
Dad owns a home in which he lives.  Home health aides come into the home to assist Dad but as his health deteriorates, he needs increased care.  His son, John believes that Dad will very soon need to move to a nursing facility.  Now, here is where it gets interesting.

Dad took a reverse mortgage for $300,000 and he took it in a lump sum.  John’s plan was to invest the money in the market, get a decent rate of return that would help meet Dad’s expenses.  Well, we know what has happened in the past year.  The stock market has headed south.  Dad’s investment headed south too.  He lost roughly half of his investment.  That’s bad enough.  But here is the problem.  John transferred the money to an account in his name.  Not because he intended to keep it, but because it was just easier to manage the funds that way.

When he did that, however, he caused a Medicaid transfer penalty.  In New Jersey that penalty is approximately 3 and ½ years.  So what happens when Dad sells his home and uses the sale proceeds (less the amount he pays back to the bank) for his nursing home care?  He will be ineligible for Medicaid unless John transfers back the money.  Except that he doesn’t have all of it.

I know.  You’re thinking, “Will Medicaid really deny Dad’s application if John can show that the loss in value occurred in the market, and that he didn’t take the money?”  I don’t know.  Maybe, maybe not.  You see, we are living in unusual times.  Many states are struggling with budget deficits.  Medicaid is one of the biggest, if not the biggest, program for most states.  If they don’t have the money to fund these programs I can certainly see New Jersey applying the Medicaid rules as written and impose a penalty.  If Dad is ineligible for 3 and ½ years he may never live to receive Medicaid, something the government no doubt may consider when trying to balance its budget.

And just another reason why you can’t afford to be unprepared when it comes to long term care.

For further information and advice in any Medicaid matter, do not hesitate to contact me at 888-800-7442, or email fniemann@scarincihollenbeck.com.

Fredrick P. Niemann, Esq., an Elder Law Attorney

Dad has been living in an assisted living facility for 3 years at a cost of $4500 per month.  He likes it there, is safe and well cared for.  There is one small problem.  He is running out of money and the family is becoming desperate.
 
Fortunately, some states have Medicaid programs that cover assisted living care but the rules can vary significantly from nursing home Medicaid. In New Jersey, for example, if income exceeds the Medicaid cap ($2022 per month in 2009) the assisted living program won’t, under any circumstances, be an option.  For those needing nursing home care, on the other hand, we have two Medicaid programs, one for those who do not exceed income limits and a second for those who do. 

The application process for Medicaid can take months or longer.  If, for example, Dad becomes eligible and applies for Medicaid beginning in February, it might take until April, or longer in some cases, for him to receive approval.  In the case of nursing home Medicaid whenever Dad is approved payments will be made on his behalf retroactive to when he first applied (assuming of course that he was eligible in that month).  Not so for assisted living Medicaid.  Approval is not retroactive.

As an elder law attorney, our focus with clients is on the financial requirements of Medicaid.  I always, however, remind clients that we can’t forget about the medical requirement.  The applicant must meet the test of medical necessity for nursing home level care as determined by a Medicaid nurse who visits the applicant.  In New Jersey, this is true even in the case of assisted living.  It bears repeating.  The assisted living Medicaid applicant must be certified as needing nursing home level care.  Fail that test and the asset and income levels are irrelevant.

So, if Dad can’t get Medicaid, what then?  If he can’t pay the bill he generally won’t be able to stay in the assisted living facility unless the family pays for his care.  Not a great result but one the family could have avoided.  Before he entered the facility a plan should have been put in place to cover the possibility that he could run out of money.  In some cases that may involve planning, determining what public benefits he can or cannot receive and when, (such as VA Aid and Attendance benefits) or negotiating a contractual modification with the assisted living residence before initial entry.

The mistake that Dad and his family made is in not looking far enough down the road and failing to sit down with someone knowledgeable about the various issues and pitfalls, such as an elder law attorney.  The lesson to be learned is that you can’t wait until the money runs out to then answer the question “What do I do now?”

For further information and advice in any elder law matter, do not hesitate to contact me at 888-800-7442, or email fniemann@scarincihollenbeck.com.

Fredrick P. Niemann, Esq., a New Jersey Medicaid Attorney

Jane calls us to relate the same problem that many Americans today are coping with, trying to care for aging parents.  She calls because Dad’s health is rapidly deteriorating and she fears he will need nursing home care.  I ask about Mom’s health.  Jane replies that she is healthy.  And here is the twist, where the story becomes more complicated.

Jane tells me that Mom and Dad have been separated for years, never divorced, just living separate lives under separate roofs, with separate assets.  “Dad was never easy to live with”, she tells me, “but Mom wasn’t the type to file for divorce.  It wasn’t acceptable.”  “So”, she asks me, “we can spend down Dad’s assets and then qualify him for Medicaid, right?”

“Well”, I tell her, “it is a bit more complicated than that”.  Under Medicaid rules, because they are still married, all their assets are combined for purposes of calculating how much to spend down.  Mom may have to spend some of her assets for Dad’s care even though they have been living single lives for years.  “Is there anything we can do,” Jane asks, as I hear the desperation in her voice.

Divorce is still an option, although it could be considerably more difficult if Dad doesn’t have the mental capacity to understand the legal process and consent to a divorce settlement.  There is also the matter of the State scrutinizing the divorce, especially if Mom has accumulated and wants to keep more than 50% of the combined assets.  You see, the State assumes the divorce was obtained for the purpose of qualifying for Medicaid.  If Mom keeps more than half of the assets Dad would probably be turned down for benefits.  There may also be other strategies that we have discussed for married couples that could be employed to preserve assets for Mom but, although they are married under the law, they are not really “together”.  So preserving Dad’s assets for Mom and vice versa is not the goal.

As Jane puts it, “Mom and Dad have lived separate lives for many years.  Mom has struggled to accumulate her own assets and become self sufficient.  How can I tell her that she will lose some of her hard earned money?”  An answer is not easy to give.  I do, however, have one for others who may one day be in that situation.  If any of Jane’s story sounds familiar to you, don’t wait till long term care is staring you in the face.  Plan ahead and solve the problem before it reaches crisis proportions or you’ll be faced with the dilemma that Jane and her family face.

For further information and advice in any Medicaid matter, do not hesitate to contact me at 888-800-7442, or email fniemann@scarincihollenbeck.com.