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., NJ Medicaid Attorney

Mary and Joe own their home and have $150,000 in savings.  They have wills leaving everything to each other and then alternatively to their children, but they have done nothing to address their long term care needs.  Joe is now about to enter a nursing home and Mary is faced with spending down to $75,000 and losing Joe’s income before he will be eligible for Medicaid.  A classic crisis planning case.  Does Mary have any options?

Actually, yes.   While she will have to spend down there are ways to spend that will be more beneficial for Mary.  Let’s go through a list of some of them.  At the top of the list is setting up an irrevocable burial fund to pay for both of their funerals.  Better to do that now.  Otherwise she’ll have to take that expense out of what Medicaid says she can keep.  Other strategies focus on exempt assets and expenditures on exempt resources.  Of the $75,000 that she has to spend down she could fix up the house.  That might include replacing an old cooling or heating system, installing new windows and/or siding and remodeling the interior.  If she makes improvements that enhance the value of the home should she decide to sell that will result in more money for her to live on.

How about her car?  Mary has a 10 year old car.  It is better for her to purchase a new car as part of the spend down.  Or perhaps she has a car loan that she is paying off over time.  Paying it off before applying for Medicaid may be the better alternative.  That applies for other debt, such as credit cards or other installment loans.  Finally, Mary ought to look at anticipated expenses.  For example, if she or Joe needs dental work now may be the time to do it.

Some of the spend down will need to go to the nursing home to pay for the cost of care at its private pay rate so it is important to determine what amount will be necessary to get Joe into a quality facility.  Knowing that, they can then work backwards to determine what they have left to spend on the other items.  Additionally, if Joe is not yet in the hospital or nursing home it may be possible for Mary to keep more than $75.

A word of caution, however.  One size does not fit all.  What is best for one person may not be right for another.  Medicaid rules are very complicated and quite technical.  Before taking any action it is best to consult with an elder law attorney well versed in Medicaid law.  But, if done properly, Mary can preserve more than the 50% of assets that Medicaid laws say she can keep.  This is especially important, given the possibility that Mary may outlive Joe by 5 or 10 years or more.

If you have any questions concerning a Medicaid matter, contact Fredrick P. Niemann, Esq. at 732-863-9900, or fniemann@hnlawfirm.com.  He is happy to answer your inquiries.

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

“Mom wants to transfer her home to me.  Do you think it’s a good idea?”  A seemingly simple question and one that is probably one of the more common questions I am asked as an elder law attorney.  But, not one that I can answer without knowing more.  One size does not fit all.

The home is typically the largest asset people have and they are frequently and understandably emotionally attached to it.  The primary residence also enjoys special tax treatment and that is what most people fail to consider when they make the decision.  Let’s run through the basics.

Real estate, like stocks, bonds and other investments, is subject to capital gains tax.  If Mom bought her home for $100,000 and sells it for $500,000 she has what is called a “realized gain” and Uncle Sam will want to tax her on that gain.  The gain is calculated by taking the amount she sold the home for and subtracting the “cost basis”.  The cost basis is her purchase price plus capital improvements (eg. addition, new roof, windows, siding) and closing costs.

In my example, if Mom made no improvements her gain is $400,000.  The capital gains tax she must pay is based on her tax bracket. The higher the bracket the higher the tax, although capital gains tax rates are lower than for regular income.  Let’s say her tax rate is 20% so her potential capital gains tax is $80,000.  I say “potential” because, if the home was her primary residence in 2 of the 5 years before she sold it then she can exclude up to $250,000 of gain.  Married couples can exclude $500,000 of gain.

If Mom transfers her home to me and I don’t make it my primary residence then when I sell I won’t be able to exclude any capital gains from tax.  But, Mom still intends to live in the home.  Should she retain a life estate?  What if I don’t want to sell it until after she passes away?  Is there a way to avoid the capital gains tax, entirely? 

Yes, by invoking something called the “step up in basis”.  If Mom owns the home when she dies and passes it to me upon her death my cost basis when I sell is not what she paid for it, but rather what it was worth at the time of her death (or, alternatively, 6 months after her death).  If I sell it immediately after she dies my capital gains may be zero or a loss, and thus, there is no tax on a refund.  If I sell after Mom dies, but she transferred it to me during her lifetime, then I will likely owe Uncle Sam capital gains tax. 

So, then that’s it, right?  Mom shouldn’t transfer the home to me.  Well, not so fast.  What if Mom gets sick and needs long term care?  We’ll tackle that one in next week’s post.

For further information and advice in any real estate matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

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., an Elder Law Attorney

So often, when working with families who are struggling to care for a loved one with dementia, the most frustrating part is the uncertainty of the condition from day to day.  A recent case in another state highlights that very clearly.

Verne Gagne was a prominent professional wrestler in his day with the American Wrestling Association, in the 1960’s and 70’s.  He eventually lost his big stars, such as Hulk Hogan and Jesse Ventura, to the World Wrestling Federation. He is now 82, and suffers from Alzheimer’s disease, residing in a nursing home.  That is where he had an altercation with a 97 year old resident and put a wrestling move on the resident, slamming his body to the ground.  The other man broke his hip and died several weeks later.  The police are investigating the incident but there is a consensus of opinion that Mr. Gagne should not be charged with a crime because he didn’t know what he was doing.  A tragic story but with similarities that are all too familiar to families who have loved ones with Alzheimer’s.  It is the uncertain, sometimes violent and erratic, behavior that can be most frustrating and frightening. 

Although no one can be sure what caused Verne Gagne to act in the way he did, we know that Alzheimer’s patients very often lose their short term memory but are able to conjure memories of events and people 40 or 50 years ago or more.  Gagne’s skill as a wrestler made him more dangerous than the average resident.  Firstly, he was more physically fit than the average resident.  Secondly, while he was losing his short term memory, he was prone to recalling events from his past, such as his days wrestling.  Perhaps it is that memory, programmed into his brain, that caused him to perform a wrestling move on his co-resident.

It is the unpredictability that often turns a family’s world upside down,.  Dad can be living comfortably in a facility one day and the next he can become extremely agitated and aggressive, causing the facility to ask the family to move him because they can’t accommodate his needs, or because of concern for the safety of other residents.

It is just another reason why families cannot wait and react to a loved one’s long term care needs.  When possible, preventative measures need to be taken.  So often, we see families plan as if Mom or Dad’s current condition, while tragic and upsetting, will remain static, unchanging.   That is usually far from the case and misjudging the situation can be worse than anyone imagined.
 
Who knows what could have been done to prevent Verne Gagne from acting out, although, there was at least one previous altercation between the two residents.  The lesson to be learned on a broader level, however, is to recognize the unpredictability of Alzheimer’s, and dementia in general.  Take action before, not after, it becomes necessary.

For further information and advice in any elder law matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., NJ Medicaid Application Attorney

Most people want to avoid nursing home care.  Many people believe that assisted living provides them with something better: choice, control, independence, and safety in a “non-institutional, community-based setting.”  What is not widely known is that the protections for nursing home residents provided by the federal Nursing Home Reform Law do not apply to Assisted Living facility (ALF) residents, even those who are eligible for nursing home care and receive Medicaid for ALF services under a home and community-based waiver. Moreover, no separate federal legislation protects ALF residents.

Over the years, Medicaid spending for long-term care services has shifted significantly from nursing home care to home and community-based alternatives, including services in ALFs. Between 1995 and 2007, Medicaid spending on nursing home care declined from 61% to 47% of all Medicaid spending in long-term care, while Medicaid spending on home and community-based waiver programs, including ALF care, increased from 9% to 27% of Medicaid’s long-term care spending.[1] In 2002, 41 states used Medicaid to pay for assisted living services for more than 100,000 residents.[2]

Earlier this month, ALF residents in Washington State suffered a set-back in legal protection, highlighting the need for federal legislation.  In Washington State, a federal district court rejected limited state law protections for ALF residents whose facilities terminate their Medicaid participation. In contrast, residents of nursing facilities that participate in the Medicaid program have the benefit of a 1999 amendment to the federal Nursing Home Reform law, which offers broader protections to residents in identical circumstances.

Assisted Living Residents Lack Protection When their Facilities Terminate Participation in the Medicaid Program.

In 2007, ALFs in Washington State and elsewhere began voluntarily terminating their Medicaid provider agreements with the States and evicting their Medicaid residents.  Not atypical was the story of a 98-year old woman who had spent more than $300,000 of her life savings, paying privately for her stay at an ALF owned by Assisted Living Concepts. She was told that the facility would not accept Medicaid for her care and that she would have to leave, despite the fact that the facility had promised repeatedly over the nine years that she had paid privately that she could stay as a Medicaid beneficiary when her private funds ran out.[3]

Although Assisted Living Concepts, the chain that owns the woman’s ALF, evicted residents from its facilities across the country, only Washington State enacted protective legislation.  The protection for residents who were being displaced from their ALFs was limited. As enacted, the Washington legislation required ALFs to keep only residents who were receiving Medicaid at the time of their facility’s withdrawal and those who had paid privately for their stays for at least two years and who became eligible for Medicaid within 180 days of the facility’s withdrawal from the Medicaid program.[4]  The law was challenged by the Washington Health Care Association, a trade association of nursing homes and assisted living facilities. In a summary judgment decision issued this month, the federal district court in Washington State sustained the industry’s challenge and struck down the law on the grounds that it violates the Contract Clause of the United States Constitution[5]

The Court described the legal question as whether the state law was a substantial impairment to a contractual relationship and, if so, “whether the impairment is reasonable and necessary to serve an important public purpose.”[6] It found, first, that the 2008 legislation impaired facilities’ contractual relationship with the state by unilaterally invalidating the contract’s termination clause, which allowed ALFs to terminate a Medicaid contract on 30 days’ notice. Next, despite acknowledging that assisted living residents “are vulnerable elderly and/or disabled adults” for whom “forced and sudden discharge poses a significant threat to the residents’ emotional and physical well-being,” the Court held that “the drastic measure of requiring boarding homes to continue to provide services” to certain Medicaid residents “in exchange for the Medicaid rate [that the Department of Health and Social Services] DSHS decided to pay” was neither “reasonable” nor “necessary.”[7] The Court suggested that alternative legislative solutions could have served the state’s purpose “equally well without impairing the State’s own contracts.”[8]

The Washington federal court decision underscores the need for federal legislation to protect assisted living residents. Significantly, similar, but broader, federal law does protect nursing home residents in the identical situation.

Protection is Available for Nursing Home Residents when their Facilities Terminate their Medicaid Participation.

A 1999 amendment to the federal Nursing Home Reform Law - “Continuing Rights in Case of Voluntary Withdrawal from Participation”[9] - was Congress’ response to the decision of the Vencor Corporation (now known as Kindred) to terminate its nursing home Medicaid contracts and evict its Medicaid residents. The federal law allows nursing facilities to withdraw from the Medicaid program, but only prospectively.  All individuals living in a nursing facility at the time of a nursing facility’s withdrawal from the Medicaid program are protected, including those who become eligible for Medicaid at some undefined time in the future. The nursing home industry did not challenge the 1999 law. Notably, the Contract Clause, an important vehicle for challenging the Washington state law, does not apply to the federal government.

Conclusion
As assisted living becomes an increasingly prominent part of the country’s long-term care system, assisted living residents need to be adequately protected.  Congress should extend Medicaid nursing home protections to assisted living residents who use Medicaid and should consider whether additional, broader federal legislation is appropriate as well.

For further information and advice in any Medicaid matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

Fredrick P. Niemann, Esq., an Asset Protection Attorney

If you are looking for a steady stream of income in retirement, an immediate fixed annuity may be the answer. An immediate fixed annuity isn’t flashy and doesn’t promise big gains, but with the stock market so uncertain, sometimes steady is better.

When you purchase an immediate fixed annuity you give a lump sum to an insurance company. The insurance company then pays you a set amount each month for the rest of your life. There are several different types of annuities, but the immediate fixed annuity has two key elements. The annuity is immediate — meaning the insurance company starts making payments right away. This is in contrast to a deferred annuity, which begins making payments at a later date. In addition, the annuity is fixed. Unlike a variable annuity, which can fluctuate with the stock market, the amount you get with a fixed annuity stays the same each month. It is sort of like having your own personal pension plan.

The benefit of an immediate fixed annuity is a steady stream of income for life. This can be helpful if payments from Social Security and your pension or 401(k) don’t cover your needs. Immediate annuities can also be used to make up missed income if you retire early.

Immediate annuities are also useful for Medicaid planning. Purchasing an immediate annuity is a way for people with assets in excess of Medicaid’s limits to turn the assets into an income stream while avoiding a penalty for transferring the assets.

Immediate fixed annuities do have some downsides and are not for everyone. First, you must have accumulated some savings to use for the annuity premium payment. Another issue is that payments are not adjusted for inflation, so over time the money you receive is not worth as much. In addition, the money in the annuity is not liquid, so if you need a large sum of money for a medical or other emergency, it will not be available. Because of the lack of liquidity, experts advise putting not more than 20 to 30 percent of your assets into a fixed annuity.

If you are planning on purchasing an immediate fixed annuity, be wary of sales agents who try to convince you to purchase a variable annuity. Many companies have come under scrutiny for unscrupulous sales tactics with regard to annuities. In addition, because the payments are meant to last a lifetime, you want to be sure the insurance company you pick will still be around. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best, Moodys, Standard & Poor’s, or Weiss.

For further information and advice, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.