Trouble afoot for Special Needs Trusts in New Jersey

A trend is developing in the State of New Jersey when it comes to the State’s review of the payments made by Trustees of Special Needs Trusts. Trustees are reporting that the State is raising objections to numerous types of disbursements made by the trustees. New Jersey rules require the trustee to file an annual accounting with the Division of Medical Assistance and Health Services, as well as a notification when a trust disbursement exceeds $5,000. Long after the fact, Trustees are receiving letters objecting to disbursements, threatening to disqualify a beneficiary from benefits if payments aren’t reimbursed by the trustee or by the third party vendor who received the payment.

The fundamental problem here is that the very purpose of a Special Needs Trust under federal and state law is to hold funds owned by and deposited by the disabled person before his/her 65th birthday, to be used for “sole benefit of” the disabled person “to supplement but not supplant” (replace) the services and benefits that are available from the governmental programs. Trustees are already diligent to make sure that the trust beneficiary has applied for all available services and supports. This is the express requirement of the New Jersey instructions. Yet now the State is saying that the trustees can’t spend trust funds to provide services that go beyond what the State programs authorize!

Consider for example the MLTSS [Medicaid] Home-and-Community-Based Program.  The State only allocates enough dollars to cover part-time care in a home setting. Even a person who would otherwise be in a nursing home will only receive enough of an allocation to cover part-time care. The criteria for clinical eligibility for MLTSS-nursing home care and MLTSS-home care are identical. But due to its budgetary choices, New Jersey will not pay for 24/7 services even for an individual who is bed-bound, or wheel-chair bound, who cannot feed themselves or bathe themselves or move their wheelchair on their own. A person like this may require a specially-equipped vehicle, which may cost a lot more than a conventional vehicle. The person may be receiving a modest income of $1500/month or less, of which 70% is consumed on the cost of shelter alone. There may be a person who will provide the necessary extra hours of service for a fee. But the State is now warning trustees that it cannot use SNT funds to pay for any hours in excess of what the Managed Care Organization authorizes — which is obviously not 24/7 care. This would result in the need to confine such persons to a nursing home – the most restrictive alternative, probably a violation of the Americans with Disabilities Act and the US Supreme Court’s Olmstead decision.

Trustees are encountering other problems as well, such as State objections to legal advice, or refusal to approve the trustee’s payment for preparation of income taxes which are a legal obligation of the beneficiary. The State is suggesting that if the Trustee pays a third party vendor a fair market fee for services, the trust isn’t for “sole benefit” of the disabled beneficiary and instead is “benefitting” the vendor. The result of all this is that the State is threatening to count disbursements are either income or a resource for the beneficiary, which will wreak havoc with his/her benefits, cause overpayments of benefits and disrupt contractual arrangements and payments that were already made.

If you are encountering objections by DMAHS (or SSI) to SNT expenditures, I encourage you to get in touch with the New Jersey Chapter of the National Academy of Elder Law Attorneys (NJ-NAELA) to report the issues. Contact the current President Lauren Marinaro at lmarinaro@finkrosnerershow-levenberg.com.

Call us for advice about special needs trusts … 732-382-6070

Tenancy by the Entirety – a form of ownership with special protections

In the recent case of  Jimenez v. Jimenez, N.J. Super. App. Div.(MAY 8, 2018) (approved for publication), the NJ Superior Court, Appellate Division rebuffed the efforts of a creditor to force the sale of a home owned by the debtor and his spouse as tenants by the entireties. Relying upon a New Jersey statute, the Court held that the legislature has prohibited spouses from severing their tenancy without the written consent of the other spouse, and therefore, the creditor of one spouse may not force such a severance in order to satisfy the debt. The statute is NJ Rev Stat § 46:3-17.4 (2013), which says: “Neither spouse may sever, alienate, or otherwise affect their interest in the tenancy by entirety during the marriage or upon separation without the written consent of both spouses. ” Before that statute was adopted in 2013, the Courts had discretion as an equitable matter to order a partition under certain circumstances. Newman v. Chase, 70 N.J. 254, 262 (1976).  The Jimenez Court did make a cautionary point: “That said, we do not preclude a remedy by a creditor against property held by tenants by the entirety when the title was deeded as a fraudulent conveyance in order to avoid known debts to creditors.”

What is Tenancy by the entireties? This  is a form of real property ownership reserved for lawfully married couples. The Deed normally uses language such as “X and Y, husband and wife,” or “X, married and Y his wife,” or perhaps “X and Y, wife and wife.” It must designate the marital relationship. In New Jersey, a couple who reside together but are not married cannot own property by the entireties. They may own the property jointly with survivorship, or they may own it together as “tenants in common” without survivorship. If the property is owned by a married couple by the entireties, then they each own 100% of all rights in the property, as neither spouse can transfer his/her interest without consent of the other spouse.  State law presumes that if a married couple acquire property, it is held by the entireties unless the Deed expressly states that they have a different form of ownership.

There are times that a married couple will choose to “sever” their ownership by transferring the property from entireties to tenants in common. However, all angles should be considered, since certain creditor protections could be lost while other objectives are accomplished.

Call for advice about senior care planning and property transfers ……… 732-382-6070

 

 

 

 

Who’s doing that Medicaid application?

An application for Medicaid to pay for nursing home care can be filed by the individual himself, his spouse, another relative by blood or marriage, a staff member of an agency of which the person is a client, the person’s physician, the person’s attorney, or a designated staff member at the nursing home. Of course, a court-appointed Guardian or Agent under Power of Attorney could also act on behalf of the applicant. Anyone other than the applicant him/herself is referred to as the “authorized agent.”  Whoever takes on that task should also accept the responsibility to monitor the file, collect the necessary verifications, take any necessary action to compel a third party to release records, file the application on time, and file appeals in a timely way. Potential legal hazards are lurking around every corner. There have been a series of cases recently involving authorized representatives which had disastrous results.

Sometimes the individual or family member appointed the nursing home or its affiliated application preparers to assemble and file the application, expecting to be relieved of any obligation to collect records. Sometimes it was the Agent under Power of Attorney or family member who started the application, but didn’t follow through due to difficulties collecting records and their own busy life. Sometimes the family member was led to believe that the County Board of Social Services would “assist with the application” by reaching out to get verifications that the family member couldn’t produce. In other cases, there were communications breakdowns between the affiliated authorized representative and the nursing home, or the representative and the family member. Either way, Medicaid eligibility is denied again and again for “failure to produce required verifications” or “failure to cooperate” with the application process. The individual is left holding the bag — with a huge debt and no source of ongoing payment — and the nursing home discovers that it has provided services without compensation.

Several recent cases illustrate the problem. The decisions are “not approved for publication,” which means they are not precedential and not binding on lower courts, but they do provide a window into what can go wrong in these situations.

In P.B. vs DMAHS and Atlantic County, a daughter of the applicant took on the obligation to file the application. The documentation was incomplete and after multiple communications to the daughter, the application was denied for failure to provide required documents.

In A.D. vs DMAHS and Cape May County, Future Care Consultants was the designated representative. The caseworker was sending his/her requests for more documentation to the nursing home, and the decision does not say anything about the communications between those two. However, the representative failed to investigate the questions at hand and therefore, did not provide the available verifications.

In V.S. vs DMAHS, (Passaic County), the Agent under Power of Attorney designated the nursing home as the Authorized Representative. The necessary documents weren’t all provided, and the application was denied. The nursing home neglected to appeal within the 20 day window, and filed the request for hearing 7 months later. DMAHS refused to grant a waiver of the 20-day appeal deadline, and this denial was upheld.

In W.S. vs DMAHS and Atlantic County Board of Social Services, the individual’s authorized representative  was the nursing home. It applied four times and each application was denied for failure to provide the necessary proofs. The Court held that the county agency had no affirmative duty to acquire the needed documents.

In J.H. vs. DMAHS and Ocean County Bd. of Social Services, the authorized representative was Future Care Associates. They failed to procure all of the necessary verifications, with the result that the application was denied.

An application for Medicaid in New Jersey requires copious financial records for every single asset owned by the individual or spouse during the 5 year look-back. Copies of cancelled checks, deposit slips, credit card statements, explanations for ATM withdrawals … everything is being scrutinized. Once the county board asks for more records, the turnaround time is pretty short.  The applicant probably doesn’t have those records lying around, and it can take months for the Authorized Representative to get the records. The Authorized Representative may not even know where to start looking, and may need help from immediate family members. It could become necessary to file a court petition to compel third parties to produce documentation.

What’s the solution? Advance preparation is vital. We encourage our clients to come in three to six months before the date they plan to apply, so there is time to gather up the necessary proofs. Also, if a family member or POA  is appointing somebody as the representative, s/he should make sure that it is crystal clear as to who is doing what, and that all necessary authorizations have been provided so that the  representative can do their job. The family member should certainly insist that the representative keep them informed of the status, including any threatened denials. And the contract with the representative should spell out the representative’s responsibilities.

Call us for advice about Medicaid eligibility, asset preservation and the application process .. 732-382-6070

 

 

 

 

Questions the Executor should ask the Estate’s Accountant

The house is sold, the estate’s debts and bills have all been paid, the accounting has been presented to the beneficiaries, they have signed off on the Release & Refunding Bonds, and now it’s time for the estate’s Executor or Administrator to distribute the estate to the beneficiaries according to the Will or according to the requirements of the law. The estate may have acquired dividends or interest or rents on which income tax must be paid. An income tax return has to be filed for the Estate if more than $600 in gross income was received, and in fulfilling his/her fiduciary duty, the Executor/ Administrator wants to be sure to investigate all available income-tax saving opportunities.

Here are a few of the questions to ask when you call the estate’s accountant: :

  1. What is the estate’s expected marginal tax bracket?
  2. Is it beneficial to pass the estate’s income and losses (if there is a loss on sale of assets such as stock or real property) through to the beneficiaries?
  3. Can income or loss be passed through in a year that the property isn’t actually distributed?
  4. If assets have to be distributed out in order to pass thru the tax liability, which plan saves the most taxes — distributing or holding?
  5. Is there any limit on the amount of losses that can be passed through to the beneficiaries?

Serving as Executor or Administrator is a job with many responsibilities. It’s vital that the fiduciary get advice on all of the steps required so that the interests of the beneficiaries are protected, and so that the fiduciary can be protected as well.

Call us for complete advice “A to Z” about the estate administration for decedents’ estates … 732-382-6070

CMS confirms that transfer penalty for Medicaid home care applicants starts to run at time of application

Followers of this blog know that when a person applies for Medicaid under the New Jersey MLTSS program or other state programs that pay for nursing homes, assisted living or home health care services, there is a 5-year look-back that is done by the agency to determine if a transfer penalty should be imposed for gifts made during the 5 years preceding the application. The penalty is a period of time in which the State won’t pay for the care. The greater the amount that was gifted, the longer the penalty period.

There has been a problem for years that was inadvertently created when the Medicaid law was amended by the Deficit Reduction Act of 2005 (“the DRA”). The problem was caused by an interpretive guidance memo called State Medicaid Director Letter (SMDL #06-018) published on July 27, 2006 by CMS. The DRA itself specified that the start date of the penalty was to be “the later of (1) the month during or after which a transfer is made or (2) the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care services.” See Secn. 1917(c)(1)(D) of the Act. However, the 2006 explanatory SMDL stated that the start date was “…the date on which the individual is eligible for Medicaid and is receiving institutional level of care services.” (emphasis added). The problem was obvious — it created a catch-22 in which the penalty wouldn’t start to run until the individual was receiving services, yet no services could be provided until a penalty period had ended! Also, the memo was at odds with prior positions that applied resource rules and transfer penalty rules uniformly to people applying for Medicaid in different settings.

Well it only took 12 years, but the good news is that CMS has just published SMD # 18-004 which clarifies the point once and for all: the start date for applicants for home and community services is the date on which they’d be receiving services were it not for the penalty period. Here it is: CMS SMD # 18-004

Asset protection is feasible even when a person is right on the verge of applying for Medicaid. Houses and other assets can be protected with proper senior care planning. Call us first, to advise you and prepare your Medicaid application…. 732-382-6070