Elder Law Today Podcast

As I often tell clients, one of the most important documents that everyone should have is a power of attorney.  A power of attorney allows you to designate someone to conduct financial and other transactions on your behalf.  The ease with which anyone can execute such a document is a positive but can also be a negative because of the risk of it being abused.  And therein lies the problem when it comes to being accepted by a third party, such as a financial institution or bank.

 When we prepare a power of attorney for a client we draft it with the client’s needs in mind as well as the mindset that we may not have another opportunity to redo it later so it must be as broad as necessary to cover all possible scenarios in which it may be used by the agent.  We also tell clients that when their agent presents the document to a bank or other financial institution the first reaction may be that the bank will want our client (the “principal”, that is, the person signing the power of attorney in favor of the “agent”) to execute another power of attorney on their own form.

The bank’s reason is usually a concern about liability – being sued for honoring an invalid power of attorney.  However, the law provides a measure of protection for both the principal and the bank.  New Jersey law states that a bank must accept a power of attorney that conforms to the law unless the principal’s signature is not genuine or the bank has actual notice that the principal has died, the power of attorney has been revoked or the principal was under a disability when the document was signed, meaning he/she wasn’t competent to sign it.

The problem presented to clients is that the bank employee is usually following bank policy set by their legal department that they want the principal to sign their own document, typically in front of one of their own employees.  Obviously, this makes it easier for them to be sure the document is valid but it  frustrates the purpose and benefit of the law, that the principal can sign one document to cover all scenarios.  Persistence with the bank employee and sometimes intervention by the elder law attorney will usually overcome this resistance and convince the bank to honor a valid power of attorney. 

It helps to know a little bit about the law because the person you are dealing with at the bank probably doesn’t and will tell you they are simply “following bank policy”.  But this policy is not at all helpful to the client, especially in situations in which physical frailties prevent him/her from physically appearing at each bank to execute a separate power of attorney.  That’s not to say that there aren’t legitimate concerns about agents abusing their power.  It’s just that a “one size fits all” approach is the easy way out, instead of a careful examination of the facts of each case.

A common scenario that I am seeing with increasing frequency is the following fact pattern.  Dad owns a home but not much else.  He needs nursing home care but can’t get a mortgage to tap into the equity to pay for the care.  The home is listed for sale but in today’s market, homes aren’t moving quickly.  So the children pay the nursing home bill and the cost to maintain the home, with the expectation that when they sell the home they will repay themselves.  The family doesn’t have any written documentation to reflect this arrangement and that’s where the problem starts.

 So, the children pay for Dad’s care and expenses.  Maybe they pay by credit card,  sometimes, by check.  Some expenses, such as lawn care, they pay cash.  Often times they don’t keep records to back up the expenses and if more than one child is helping out no one is keeping a running tally of who is paying what.  “We’ll figure it all out later”, they say.  Finally, the house is sold.  Dad gets $200,000 from the sale.  The kids estimate that they have spent $150,000 on Dad’s behalf and take that amount to repay themselves.  Dad then spends down the rest for his care.

 Now, it’s time to file a Medicaid application.  As part of the application Dad must produce financial records for each account he had in existence, going back to February, 2006 (soon to be a 5 year lookback).  The State will examine the home sale and discover the transfer from Dad to children.  It will treat the transfer as subject to a Medicaid penalty, unless the children can prove the money was repayment for goods or services that Dad received.  And that proof must be by documentary evidence.   Dad won’t be eligible for benefits for a year or more, depending on the state he lives in.  “Bring the money back and spend it down”, the State will say.  So what can this family do?

 There are a few options.  Some involve applying for Medicaid immediately.  Others involve family members paying for Dad’s care and then getting reimbursed later.  However, the one common element to each option is that there is a written agreement in the form of a note and a mortgage on Dad’s home to secure the loan. The paper trail is the key.  Without it the children will never be able to prove that the transfer was for value, and won’t be able to recoup the money, in some cases hundreds of thousands of dollars, advanced for their parent’s care.

 And if you have been a frequent reader of this blog you know that the earlier in the process you seek proper advice and guidance the better off you are.  You don’t want to wait until filing the application to find all this out because, of course, by then it is too late.

A few months ago I wrote about the difficulties qualifying for assisted living Medicaid.  (See 3/23/09 blog post).  Last year I wrote about the risks of trying to handle a Medicaid application yourself.  (See 10/5/09 blog post).  A recent case we handled in our office illustrates both issues.

 John had been in an assisted living facility for several years. His wife, Mary was living at home and private paying for his care.  She had numerous conversations with the assisted living facility about Medicaid and was told that qualifying wouldn’t be a problem and that John could remain in the facility on Medicaid.  Pretty simple, or so it seemed.

 Mary began the long winding journey that we have come to know as the Medicaid application process.  Similar to the couple I wrote about in March, Mary did not understand the timing aspect of Medicaid, that she had to reach a target level of assets before John could qualify and that each month she missed that target was a lost month, never to be recaptured.  This was of paramount importance to her, since she is several years younger than John and will need to preserve as much as she can to live on after he is gone.

 The Medicaid application process dragged on as the caseworker asked for each follow up piece of documentation, all very confusing to Mary.  She finally sought assistance and we were able to help her finally achieve financial eligibility.  At that point Medicaid sent a nurse out to the facility to evaluate John medically, to determine that he needed nursing home care.  Mission accomplished.  John received the go ahead.  Now, all that remained was for the facility to complete its required form, indicating that it would OK John for a Medicaid slot.  Imagine the surprise when we received word of Medicaid’s denial.

 When we followed up, we learned that the facility refused to make a Medicaid slot available, resulting in the denial, despite the promises made to John and Mary.  We were told, however, by Medicaid that John could still be approved if the facility simply changes its stance and agrees to make a slot available.

 John and Mary’s experience is a cautionary tale for families.  Qualifying for Medicaid is anything but simple, especially so when it comes to assisted living.  It requires the cooperation of families and the facilities caring for their loved one.  It is confusing and time consuming and best not handled without the guidance of a qualified professional, such as an elder law attorney.  And keep in mind that much of this is state specific.  While the long term care options are complicated no matter where you live, each state has its own system and set of laws so make sure you consult with someone familiar with the process in the state where your loved one lives.

As I have written previously, in speaking with families, overwhelmingly the desire is for elderly family members to remain in their own home as they age and face declining physical and mental health.   But, is that always the best thing?  Perhaps, not for everyone.

 I was reading a recent post on the New York Times New Old Age blog (www.newoldage.blogs.nytimes.com) which highlighted two cases in which elderly parents were living at home in declining health.  One was a 95 year old woman living in her own home with a team of aides and other assistance, all coordinated by her overwhelmed daughter.  The other was an elderly man suffering from Alzheimer’s Disease, living in the basement of his son’s home.  The woman had visitors and activity in her home every day.  The man did not, spending most of the day alone watching television.

 The two cases raise some interesting questions.  Would the elderly man be better served in an assisted living facility or at least, adult day care?  He is not getting any mental stimulation through most of the day, which, if received, could slow down the progression of his disease.  There is the safety issue as well.  He remains at home in the basement for long hours unsupervised.  What if there is an emergency?   Will help arrive in time?

 The elderly woman would seem to be better cared for.  She has visitors in and out of her home throughout the day.  But, her daughter is coordinating all this care.  It sure sounds like a full time job.  And then we learn that the daughter, herself, is 74 years old.  How is this affecting her health and what happens if she needs care?  Finally, I wonder what Mom’s finances are?  All this assistance can approach and exceed the cost of care in a facility.  Will she run out of money and if so, what happens then?

 As 77 million babyboomers begin turning 65 in 18 months, long term care will continue to be a major issue families will have to wrestle with.  And, I am not saying that remaining at home shouldn’t be the goal for many.  However, as with most complex problems a one size solution does not fit all.  Assisted living facilities and nursing homes will always have a place in the continuum of care and may just be the right fit for some.  Food for thought and a different perspective to consider.

Some months ago I wrote about the couple who, not understanding the peculiarities of the Medicaid rules, did not spend down in a timely manner and, as a result, lost six months of Medicaid eligibility.  Even though the money was eventually spent those lost months could not be recovered and the wife was stuck with a nursing home bill of $60,000 she should not have had. (See 10-5-08 blog post)

 The ins and outs of Medicaid are complex and confusing.  Another example which we recently addressed in our office highlights that point.  Mr. Jones was in a nursing home and we were applying for institutional Medicaid.  Under Medicaid rules the applicant needs to be below $2000 in assets as of the first moment of the first day of the month in order to qualify for Medicaid for that month.  We tell clients that they must be below this number as of the last day of the preceding month.

 Spending down means making transfers for value, that is to say, a purchase of goods or services for fair or equal value.  Very often this spend down occurs right up until the last day of the month.  So, what happens if I write a check to pay a bill on the 31st of the month but the person or business I give it to doesn’t cash it until the next month?  As long as it is dated the 31st (or earlier) and you give it to that person or business no later than the 31st, then it is counted as being spent even though it will not clear your checking account until the next month.

 Now, this all sounds very trivial, and I would agree with you, but don’t think for a minute that the State will overlook these transactions.  They won’t.  They scrutinize them very carefully.  If you’re over the Medicaid limit by a dollar, you’re over for that month and have to wait until the next month.  (See above)

 Let’s go back to Mr. Jones.  His son was spending down Dad’s assets.  He had credit card, rent and utility bills to pay.  We spoke on the 31st and Son confirmed that Dad’s 3 accounts totaled $1200 after accounting for payments.  Now, we didn’t have statements yet for one of the accounts so we had to rely on Son’s statement.  We filed the application and several weeks went by before we heard from the Medicaid office.  They wanted missing statements from one of the accounts at an out of state bank.  With some difficulty (because the bank at first balked at accepting the power of attorney Dad had executed in Son’s favor) we obtained the statements but were surprised to learn that some of the bills were not paid by check, but rather by electronic transfer on the first of the month.  So, while Son kept telling us that Dad’s accounts totaled $1200 that was not, in fact, true.  He was counting these electronic debits which Medicaid would not.

 As it turned out, we still were under $2000 in Mr. Jones’ case, but not by much.  (We tell clients we want them to be well below $2000 to leave room for just these types of surprises.)  The next case may not work out so favorably.  Just another example of how tricky the Medicaid rules really are and why you don’t want to go it alone.

Ever since Congress passed the current estate tax legislation in 2001 it was the belief of many, including myself, that legislators would have to go back and pass changes to the law before 2010.  You see, in 2010 there is no federal estate tax.  But, the elimination of the tax applies only to that one year.  In fact, in 2011 the federal exemption, the amount one can pass free of federal estate tax, goes back to $1,000,000.  It doesn’t take much imagination to see why that can be a dangerous thing. A little explanation is required.

 

            In 2001 the federal exemption amount was $675,000 and heading towards $1,000,000 by 2006.  President Bush came to office having promised during his presidential campaign in 2000 to push for legislation eliminating the estate tax.  However, he couldn’t get his bill passed through Congress and had to reach a compromise.  That is why the current law gradually raises the exemption until, in 2010, the tax is eliminated.  But, the law contains a “sunset provision”, meaning it expires on December 31, 2010.  The previously law becomes effective once again.  Bush intended to go back and eliminate the tax permanently after midterm Congressional elections, which he hoped would increase the Republican majority in Congress.  As we all know, 9/11 and the Iraq war changed everything and in the last year the economy has sunk into recession.

 

            The federal estate tax is a pretty hefty one.  The tax rate is 45% so the tax can very quickly reach six and seven figures.  So, if Dad dies in 2010 there is no tax, but if he dies in 2011 the tax can be hundreds of thousands or millions of dollars.  Legislators often change the tax laws to influence public behavior.  We make so many financial decisions based on the tax impact (too many, in my opinion).  So, what will happen if families know that they can save millions in taxes if Mom or Dad dies on December 31, 2010, rather than January 1, 2011? 

 

            That is one reason why I always felt that change would happen before 2010.  Well, we’re 6 months away and still, no change.  Last year there was some talk about extending the exemption through 2015 at $3,500,000.  With the economy worsening, and government deficits increasing, however, that doesn’t seem likely.  The latest proposal is to put the exemption amount at $2,000,000.  But what if change doesn’t happen this year?  Can the law be passed after the beginning of next year?  Experts believe it can because estate tax is due 9 months after death, meaning the first 2009 returns are due October 1, 2009.

 

            Things will certainly be interesting so stay tuned.  And keep in mind that even if your estate is below $1,000,000 many states have their own estate tax which kicks in at amounts lower than the federal exemption amount.

Continuing care retirement communities can be a great option for many people.  I can move into one community that can meet all my needs, from independent housing to assisted living to nursing home care as I need it.   

In Show 18 of his monthly elder law podcast, Yale Hauptman, a practicing elder law attorney, provides an overview of CCRCs, the pros and cons.  So often, he sees people enter into these financial arrangements without closely examining the 40+ page contract that typically the resident must sign.  The contracts often require a large upfront financial commitment.  What will the CCRC agreement cover?  What won’t it cover?  What happens if you run out of money?  What if the facility runs out of money? 
 
If you are considering a CCRC for yourself or a loved one you’ll definitely want to tune in first.

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Continuing Care Retirement Communities (CCRCs), are communities that provide a full continuum of care for their residents.  They have flexible accommodations designed to meet their resident’s health and housing needs as those needs change over time, offering independent living, assisted living and nursing home care, usually all in one location.

            As a requirement for admission to most CCRCs, residents are required to pay an entrance fee or a lump sum “buy-in” which, in addition to other things, guarantees the resident’s right to live in the facility for the remainder of his/her lifetime.  In addition to the entrance fee, residents pay a monthly service fee. 

            The entrance fee is often, but not always, reimbursable (at least partially) if the individual moves from the facility, passes away while a resident at the facility, or otherwise terminates the contract.  Many contracts also contain a provision wherein an individual is able to use a portion of the entrance fee towards monthly resident charges if the resident exhausts his resources and becomes otherwise unable to pay.

            The concept is a very appealing one.  The resident knows that as he or she ages and needs increased care it will all be provided by the same organization, usually in the same location.  There are certain risks, however, that make it unsuitable for many. 

The CCRC is promising to provide care over a potentially long time frame without knowing exactly how much it will cost or when it will be needed.  The concept is something akin to insurance.  The company must make projections as to how many of its residents will need what level of care at any one time.  But so many things can go awry.  What happens if too many people need nursing home care at one time?  What about the rising cost of long term care?  What happens if residents run out of money?  Or the CCRC runs out of funding?  Certainly possible in today’s world, where not even big financial companies like Prudential or AIG are safe.

            Because of all these contingencies the CCRC contracts have many so called “out” clauses.   When you buy into the community there isn’t an iron clad guaranty that no matter what you’ll be able to stay.   Under some scenarios you may run out of money and be asked to leave.  This risk is especially present when husband and wife move to the community together.  If one spouse needs nursing home care for an extended period the couple may spend down their assets towards that care, leaving the health spouse with not enough to cover his/her care.  In some cases the entrance fee can be used for that care but then what?  Is Medicaid a possibility?  Maybe, but usually the resident must satisfy certain conditions imposed by the CCRC in addition to Medicaid eligibility rules.  It depends on the terms of the contract.

            It is, therefore, very important to review the contract (which can be 40 pages or more) with an elder law attorney before signing and go through these different scenarios.  If you put all your financial eggs into the CCRC basket, what happens if that basket springs a leak?  It is a good idea to have an emergency plan in place.

 Medical science has made great strides in the last 30 years.  We are certainly living longer.  Illnesses and injuries that in the past resulted in death, now do not.  However, the recovery period can be a long one, especially for the elderly, whose recuperative abilities are not the same as younger patients.  As a result, patients remain hospitalized longer and bounce back and forth between nursing home and hospital, in so many cases.

 That’s where the long-term acute care hospital or LTACH, comes in.  General hospitals are typically paid a standard fee for a diagnosis so they earn more for a quicker patient discharge.  At the same time, the patient may not quite be ready for a subacute facility in a nursing home, which focuses primarily on rehabilitation but can’t provide the medical care of a hospital.  The LTACH can bridge that gap.  Patients receive the benefit of physicians on duty around the clock as well as nurses, respiratory therapists, case managers, physical and occupational therapists, dieticians and pharmacists, all on staff.  LTACHs provide more nursing care than on a medical-surgical floor of a hospital but less than is provided in an intensive care unit.

 Many LTACH patients use ventilators to breath and are recovering from multiple medical conditions such as heart failure, major surgery, etc.  They may have developed complications such as bed sores.  The specialty hospital can concentrate on weaning the patient off of the ventilator or providing wound care, for example, that can require weeks of care, that the general hospital won’t receive payment for.  For those on Medicare, LTACHs are covered under Part A.  The average stay in an LTACH is 25 days.

 There are over 400 LTACHs nationwide and 8 in New Jersey.  Most are housed in general hospitals, however, some are freestanding, such as Select Specialty Hospital in Rochelle Park, New Jersey which is owned by the same company that also owns Kessler Institute, the facility that specializes in the treatment of spinal cord injuries.  The long term acute care hospital is definitely an option families should explore for their critically ill or catastrophically injured loved one.  It may very well improve the recovery process and increase the chance that a loved one can ultimately return home, the end result that we all want to achieve.

Last week I wrote about Dad who gifted a large sum to his children and within 6 months needed long term care.  Because the money had been spent and could not be returned I had to explain to the daughter that Dad would not be eligible for Medicaid for 4 and ½ years.  A complete disaster.  But this week let’s take a look at a success story, one in which we were able to work to fix the mistakes that were made, long before long term care and Medicaid were needed.

Two years ago Mary contacted me concerning her mom who was living in an assisted living facility with an aide that she and her sisters were paying cash.  Mom had transferred her assets to her 3 daughters.  They had begun to spend some of the money on Mom’s care but had also opened and closed accounts, moving, combining and commingling assets.  Over time it would have been very difficult to follow the paper trail and establish with Medicaid that Mom’s money had been spent for her care, and not gifted to the children.  Unlike last week’s family, however, Mary reached out to me within a few months after the initial transfers and, as it turns out, almost 2 years before we applied for Medicaid.

We quickly counseled Mary that the assets had to be returned, and, thankfully, although some had been spent on Mom’s care, she and her sisters still had possession of the balance.  We then guided Mary on the records that she needed to obtain in preparation for the anticipated Medicaid application.  While she still employed the aides we were able to prepare invoices and documentation showing that the cash withdrawals were not gifts, but payment for services, including a statement from the facility.  Mary had been paying the facility bill on her credit card and then taking money from Mom’s account (which was titled in Mary’s name).  We had her go back through her records and copy the credit card bills with those charges and match up payments back to her from “Mom’s account”.  We also counseled her on a better way to make those payments.

Finally, Mary and her sisters had moved money from one account to another, for convenience, a better interest rate or to keep FDIC insurance coverage.  Without recognizing it, however, they were muddying the paper trail.  You see, Medicaid requires as many as 5 years of financial records to show how money has been spent.  Mary and her sisters didn’t realize the problems they were creating. We painstakingly had to document all the transfers from one account to another and transfers in and out of each account.

As I said, this was a success story.  2 months ago we applied for Medicaid.  We provided Medicaid with details of each transaction, backed by supporting documentation.  Last week the family received Medicaid approval without a hitch.  Every dollar had been accounted for and we achieved a smooth transition to Medicaid with no ineligibility period.  Financially, the family can rest easy that Mom’s care is paid for and the nursing facility, which receives those Medicaid benefits, is happy that their resident went from private pay to Medicaid without interruption of payment.  An example of the way things can work if you have someone with knowledge guiding you through the process.