1. PLANNING FOR DISABILITY AND LONG TERM CARE NEEDS Presented to 2007 National Caregivers Conference by Donald D. Vanarelli, Esq. Certified Elder Law Attorney Accredited Professional Mediator Registered Guardian Co-Founder, Elder Mediation Center of NJ

2. Decision-Making During Incapacity Elderly and disabled persons and their families should recognize the possibility that physical or mental impairments may cause incapacity and plan for substitute decision-making. Elderly and disabled persons and their families should recognize the possibility that physical or mental impairments may cause incapacity and plan for substitute decision-making.

3. Planning for Substitute Decision-Making I. Capacity - A critical threshold issue. II. Legal devices for substitute decision- making: 1. Court-supervised 2. Voluntary

4. Capacity Without the requisite legal capacity, voluntary planning may be unavailable. Rather, resort to the courts may be required.

5. Standards of Capacity n Testamentary Capacity - testator must recognize the natural objects of his bounty and the nature and extent of his estate on the date of will execution. n Contractual Capacity - contractor must understand the nature of the transaction and consequences of his acts.

6. Standards of Capacity n Donative Capacity - donor must understand the nature and effect of the transaction. n Trust Capacity - grantor must have the capacity to contract and to donate property. n Power of Attorney/Living Will Capacity - requires the capacity to contract.

7. Court-Imposed Substitute Decision-Making n Guardianships n Conservatorships

8. Nature and Use of Guardianships A guardianship is a legal mechanism designed to provide surrogate decision- making and financial management for a person who is no longer able to govern him/herself and who has not made alternate voluntary arrangements. A guardianship is a legal mechanism designed to provide surrogate decision- making and financial management for a person who is no longer able to govern him/herself and who has not made alternate voluntary arrangements.

9. Characteristics of Guardianships n Involuntary. n Imposed by Court. n Only for persons who are legally incompetent - medical evidence needed. n Alternate voluntary arrangements - either not made or ineffective.

10. Appointment of Guardians All guardians in New Jersey are appointed by the Superior Court. The process for appointment of a guardian begins when a person, usually a family member, files a petition in Court asking that a person be declared incapacitated and a guardian appointed. All guardians in New Jersey are appointed by the Superior Court. The process for appointment of a guardian begins when a person, usually a family member, files a petition in Court asking that a person be declared incapacitated and a guardian appointed.

11. Types of Guardianships 1. Guardian of the Person. 2. Guardian of the Estate. 3. Combined Guardianship. 4. Limited Guardianship.

12. Guides to Decision-Making Standards to assist guardians in making decisions for wards: 1. “Substituted Judgment” 2. “Best Interest”

13. Voluntary Substitute Decision-Making n Representative Payeeships (SSA, SSI) n Joint Tenancies (Inc. joint bank accts.) n Powers of Attorney n Advance Medical Directives (Living Wills)

14. Voluntary Substitute Decision-Making n Do Not Resuscitate (DNR) Orders n Revocable and Irrevocable Trusts (Inter Vivos and Testamentary) n Family Limited Partnerships and Limited Liability Companies

15. Trusts  A trust is one of the most important estate planning tools.  A trust is a legal relationship in which a person (“grantor”) transfers property to one or more trustees who own the property as fiduciaries. The trustees must use the property only as provided by the grantor in the trust agreement, or as provided by law.

16. Providing for Persons with Disabilities: Special Needs Trust Basics Purpose - To preserve the disabled person’s eligibility for needs-based governmental benefits while providing a vehicle to hold assets owned by the disabled person, or assets contributed by parents or other third parties, which may be used to supplement public benefits in order to improve the disabled person’s quality of life.

17. Elements of a Special Needs Trust A Special Needs Trust (SNT) is drafted specifically so trust assets are not considered to be “countable resources” in determining the disabled person’s eligibility for public benefits based on need.

18. Elements of a Special Needs Trust The SSA describes a discretionary trust as “a trust in which the trustee has full discretion as to the time, purpose and amount of the distributions.” If the beneficiary has no discretion over the distributions, the trust is not counted in determining SSI eligibility. determining SSI eligibility.

19. Elements of a Special Needs Trust Assets in a SNT will not count as a resource for public benefits purposes. The assets in the SNT may be used to supplement the beneficiary’s needs not covered by public benefits without a reduction or elimination of those public benefits.

20. Joint Bank Accounts n A form of account ownership in which an account is payable to 2 or more persons regardless of whether the account is an “and” or an “or” account, or whether there are rights of survivorship. n Since the account is payable to each person, a joint account is an alternative to a guardianship.

21. Dangers of Joint Bank Accounts n One joint account owner does not owe a fiduciary duty to the other. n One joint account owner may utilize the funds in the account for his/her own benefit. n Upon death, funds automatically may be paid to the surviving owner.

22. Joint Bank Accounts Set Up for Convenience If the joint account is intended as a “convenience account”, a power of attorney (durable, springing or bank) may be a preferable alternative. If the joint account is intended as a “convenience account”, a power of attorney (durable, springing or bank) may be a preferable alternative.

23. Powers of Attorney n The most important, simplest and least expensive estate document. n A mechanism by which the principal authorizes an agent to manage the principal’s financial affairs if the principal becomes incapacitated.

24. Characteristics of Powers of Attorney n Creates Fiduciary Relationship n General vs. Special n Durable vs. Springing n Sole Agent vs. Joint Agents n Termination- death, revocation or expiration

25. Specific Powers Conferred in Powers of Attorney Flexibility is the goal: –banking transactions –to make gifts, including gifts to the agent –prepare and sign tax returns –to create, amend and fund trusts –change beneficiaries –to execute contracts, leases and deeds –to loan or borrow money –to engage in long-term care planning

26. Abuse Powers of Attorney can easily be abused. To prevent abuse: Select a trustworthy agent Retain the power to revoke the POA Require periodic accounting Require oversight by alternate agent

27. Advance Medical Directives (“Living Wills”) n Federal Patient Self-Determination Act, 42 U.S.C. §1395, et seq. n N.J. Advance Directives for Health Care Act, N.J.S.A. 26:2H-53, et seq. n Decisions about health care are a fundamental right protected under the federal and state constitutions.

28. Advance Directives In New Jersey N.J. law recognizes 3 planning devices: 1.Instruction Directive 2.Proxy Directive - POA for Health Care 3.Combined Directive Religious preferences may be presented.

29. When to Withhold Medical Treatment N.J. law says treatment may be withheld: 1. When the treatment will merely prolong the dying process; 2. When the patient is permanently unconscious;

30. When to Withhold Medical Treatment 3. When the patient is in a terminal condition, or; 4. When the burden associated with the treatment outweighs the benefits.

31. Enforcement of Living Wills Less than half are enforced. To increase the probability that your Living Will is enforced: (1) Clearly define the types of treatment you do not want. (2) Give copies to your agent and treating doctor. (3) Carry a wallet card.

32. Enforcement of Living Wills (4) Discuss your intentions with family. (5) Carefully select your health care agent. (6) Identify those persons whose opinions you want disregarded.

33. Overview of Medicaid Payment of Long Term Care Costs

34. Planning for Long Term Care is Critical 1.Most illnesses are now manageable, resulting in chronic, or long-term, debilitating medical conditions. 2.The management of a chronic medical condition requires long-term care. 3.Long-term care is costly. In New Jersey, the cost is substantial. 4. Paying for care can deplete your savings and devastate your family.

35. Who Pays For Long Term Care? 1. Private Pay49% 2. Medicaid44% 3. VA Benefits4% 4. Medicare2% 5. Private Long Term Care Insurance1%

36. NURSING HOME MEDICAID Joint Federal and State Program Provides medical assistance for financially eligible persons who are aged, blind or disabled

37. Income All income is counted, including wages, SSA, pensions, annuities, interest, in-kind income, dividends, etc. There is an income cap on all Community Medicaid programs in New Jersey - $1,911/month.

38. Countable Resources Countable resources - all assets in the sole name of husband, in the sole name of wife or in joint names, either with the spouse or another person. Includes pension, IRA and retirement assets of the Community Spouse (if accessible).

39. Excludable Resources Home, but only if equity is less than $500,000. If equity exceeds $500,000, the excess must be used to pay care costs. Automobile Personal Effects and Household Goods Life Insurance - Face Value under $1,500.00 Medical Equipment Inaccessible Resources Irrevocable Burial Fund

40. Resource Limits 1. Medicaid Only - countable resources may not exceed $2,000 for an individual and $3,000 for a couple who both apply for Medicaid. 2. Medically Needy - countable resources may not exceed $4,000 for an individual and $6,000 for a couple who both apply for Medicaid. 3. Excess resources must be spent down.

41. Transfer of Resources Rules “Look-back period” - Period which Medicaid examines upon the submission of a Medicaid application to determine an applicant’s countable assets, and the disposition of an applicant’s assets.

42. Transfer of Resources Rules Look-back Period Under the New Medicaid Law- 5 years, or 60 months

43. Transfer of Resources Rules “Penalty period” - Period of Medicaid ineligibility imposed as a result of a transfer of assets for less than fair market value (i. e., a gift) made during the 60- month look-back period.

44. Transfer of Resources Rules The length of the penalty period is theoretically equal to the number of months that the transferred assets would have paid for care in a nursing home.

45. Transfer of Resources Rules Duration of Penalty Period - Determined by dividing the value of the transferred asset by the statewide average monthly cost of nursing home care as calculated by Medicaid = $6,942.00.

46. Transfer Penalty Start Date If a gift was made during the look-back period, the resulting penalty period starts on the day the applicant applies for Medicaid and would be eligible but for the penalty period resulting from the gift.

47. Exceptions to Transfer of Resources Rules Home - transfer of the home to the following persons is exempt: Spouse Child under age 21, or blind or disabled child Sibling with existing equity interest who resided in home for one year or more immediately preceding institutionalization “Caretaker” child

48. Exceptions to Transfer of Resources Rules Assets other than the home - Certain transfers of assets other than the home are also exempt: Transfer to the Community Spouse Transfer to a trust for the sole benefit of the Community Spouse Transfer to a minor, blind or disabled child

49. Exceptions to Transfer of Resources Rules Transfer to a trust for the sole benefit of a minor, blind or disabled child Transfer the assets of a disabled Medicaid applicant to a trust for the sole benefit of the disabled applicant as long as that applicant is under age 65 when the trust is funded Transfer to a trust established by a non-profit association Assets transferred for a purpose other than to qualify for Medicaid

50. Spousal Anti-Impoverishment Provisions CSRA - Community Spouse is entitled to a Community Spouse Resource Allowance (CSRA) equal to one-half of the countable assets, subject to limitations. The minimum which the Community Spouse may retain is $20,880 and the maximum is $104,400.

51. Spend-Down Contrary to popular belief, the amount in excess of the CSRA need not be spent on the Institutionalized Spouse. Rather, the “spend-down” can be spent for the benefit of the Community Spouse, or otherwise preserved for the heirs. This is the heart of Long Term Care Planning.

52. Planning Strategies Under the New Medicaid Law WARNING: ALL STRATEGIES ARE NEW and UNTESTED

53. New Medicaid Planning Strategies: Buy Exempt Assets Use assets to purchase exempt assets: Buy a house (but equity must be less than $500,000); make home repairs and improvements; purchase household furnishings; buy a cemetery plot or funeral trust.

54. New Medicaid Planning Strategies: Pay Debts Pay debts: Prepay your mortgage; prepay RE taxes and homeowner’s insurance; pay all outstanding debts, including credit card debt and debts owed to children.

55. New Medicaid Planning Strategies: Large Gifts Transfer Assets & Pay for 5 Year’s of Care - Retain 5 years of private pay - Consider Inflation Factor Transfer all Assets - Child Gets Medical Deduction

56. New Medicaid Planning Strategies: Reverse Mortgage Borrow down to $500,000 Use Cash to Pay for Care Transfer Home to Children

57. New Medicaid Planning Strategies: Annuities Annuities - exempt from the transfer of assets penalties under the new Medicaid rules if the annuity is: Owned by Retirement Account OR Irrevocable Non-Assignable Actuarially Sound Equal Payments/No Balloon State Primary Beneficiary

58. New Medicaid Planning Strategies: Life Care Agreement Care provided in Child’s Home or Parent’s Home Coordinate - child coordinates care like a geriatric care manager Hands-On Care Taxable Income Withholdings Document Value of Services

59. New Medicaid Strategies: Purchase Life Estate Capital Gains for Home Owner 1 Year Residency required under the New Medicaid law to be valid.

60. New Medicaid Planning Strategies: Buy LTC Insurance 5 Year Policy Inflation Factor Transfer Assets - Policy Pays for Care Applicant may be able to shield assets if New Jersey joins the Long Term Care Partnership

61. New Medicaid Strategies: Transfer Home to Exempt Person Transfer Home to Exempt Person: Spouse, Child under age 21, Blind or Disabled Child, Sibling with equity interest, or Caretaker Child.

62. New Medicaid Planning Strategies: Trusts Specialized Trusts - for spouse, disabled applicant under age 65, income trust, disabled child.

63. THANK YOU FOR ATTENDING QUESTIONS / COMMENTS?