Estate and Disability Planning

1. Fanwood-Scotch Plains YMCA________________________________________________Estate and Disability PlanningPresented by Donald D. Vanarelli, Esq. Certified Elder Law AttorneyAccredited Veterans AttorneyFounding Member, Assn. of Special Needs Planners

2. Seminar Topics • Planning for Disability • Estate Planning • Planning for Long-Term Care • Government Sources for Payment of Long Term Care: Medicare, Medicaid and VA Benefits

3. Planning for Disability

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

5. Court-Imposed Substitute Decision-Making • Guardianships • Conservatorships

6. 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.

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

8. Voluntary Substitute Decision-Making • Representative Payeeships (SSA, SSI) • Joint Tenancies (Inc. joint bank accts.) • Powers of Attorney • Advance Medical Directives (Living Wills) • Do Not Resuscitate (DNR) Orders • Revocable and Irrevocable Trusts • Family Limited Partnerships and Limited Liability Companies

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

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

11. 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

12. Advance Medical Directives (“Living Wills”) The right to make decisions about medical treatment is a fundamental right protected under the federal and state constitutions.

13. Living Wills 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.

14. DNR Orders Do Not Resuscitate (DNR) orders prohibit cardiopulmonary resuscitation when the lungs or heart stop working. DNR orders are normally applicable only in hospitals, nursing homes and other facilities. EMS personnel are generally required to attempt resuscitation.

15. Practitioner Orders for Life Sustaining Treatment(POLST) • Medical orders that help give seriously ill or • frail patients more control over end-of-life care. • Signed by both the doctor and patient/surrogate. • Can prevent unwanted or ineffective treatment, • reduce patient and family suffering and ensure • patient wishes are honored.

16. POLST (cont’d) • Information included on POLST form: • Goals of care for the patient • Preferences regarding resuscitation attempts • Preferences regarding intubation and mechanical • ventilation for respiratory failure. • Preferences for artificially administered nutrition • and hydration • Other preferences regarding medical preferences

17. Psychiatric Advance Directive(PAD) Psychiatric Advance Directive: Allows a person to specify important information for caregivers in the event of a mental health crisis.

18. Psychiatric Advance Directive(cont’d) • As important as a medical directive • Helps make decision-making easier at time of • crisis • Improves communication between the individual • and family • Provides option to appoint representative • Personal preferences documented.

19. Trusts • A trust is one of the most important estate planning tools. • A trust is a legal relationship in which a person transfers property to one or more trustees who own the property as fiduciaries. The trustees must use the property only as set forth in the trust agreement, or as provided by law.

20. Providing for Personswith Disabilities:Special Needs Trusts Purpose - To preserve the disabled person’s eligibility for needs-based governmental benefits (SSI, Medicaid, DDD services) while providing a vehicle to hold funds owned by disabled person, or funds contributed by the parents or other third parties, to supplement public benefits.

21. SNT May SupplementPublic Benefits The trust assets can be used solely as a supplement to any public benefits received. The funds must be used to improve the beneficiary’s quality of life.

22. Estate Planning

23. Intestacy • Property not disposed of prior to death or by will passes in accordance with the laws of intestacy. • NJ Intestacy Statute, N.J.S.A. 3B:5-1, et. seq. - turns on identity of persons living at the time of decedent’s death and relationship to the decedent.

24. Last Will and Testament The basic document for directing the distribution of your property at death.

25. Your Will Allows You To: 1. Determine who will receive your assets when you die (spouse, children, friends, etc.) and in what manner (outright, in trust, to guardian, etc.). 2. Name the executor of your estate. 3. Appoint a guardian for your minor children. 4. Provide for disabled children. 5. Delay distribution of assets to your heirs until they reach a certain age. 6. Provide for the continued operation of your business. 7. Enjoy significant estate tax savings.

26. Probate vs. Non-Probate Estate There may be 3 types of property in any decedent’s estate: 1. Probate Estate. 2. Contract Estate. (Non-Probate) 3. Joint Ownership Estate. (Non-Probate) Your will disposes of assets in the probate estate only.

27. Federal Estate Taxes Maximum YearExempt AmountEstate Tax Rate 2001 $675,000 55% 2002 $1.0 Million 50% 2003 $1.0 Million 49% 2004 $1.5 Million 48% 2005 $1.5 Million 47% 2006 $2.0 Million 46% 2007 $2.0 Million 45% 2008 $2.0 Million 45% 2009 $3.5 Million 45% 2010 Repealed Repealed (Gift tax-35%) 2011 $5.0 Million 35% 2012 $5.12 Million 35% 2013 $5.25 Million 40% 2014 $5.34 Million 40%

28. New Jersey “Death” Taxes New Jersey Estate Tax For estates exceeding $675,000, tax rate is roughly 10%. For example, for a $1M estate, the taxable amount is $325,000, and the NJ estate tax is approx. $33,000. New Jersey Inheritance Tax Spouse, Descendants and Ancestors 0% Brothers and Sisters 11% Everyone Else: First $700,000 15% Over $700,000 16%

29. Gift Taxes 1. Federal- a. Annual Gift Tax Exclusion-$14,000 per person, per year, in 2014 b. Unified Estate and Gift Tax System 2. State- No Gift Tax in New Jersey

30. Portability There is often no need for tax planners to reduce or eliminate federal estate taxes because married couples are permitted to add any unused portion of their estate tax exemption of the first spouse to die to the surviving spouse’s estate exemption. This allows married couples to pass $10.68 M (in 2014) to heirs free from federal estate taxes with absolutely no planning at all. However, they must file a federal estate tax return on the death of the first spouse. Estate tax planning is still useful in NJ.

31. Life Insurance1. Can provide an instant estate upon death.2. Can provide needed estate liquidity.3. Proceeds can be used to pay estate taxes.4. Life insurance proceeds are included in your estate for federal estate tax purposes unless a life insurance trust is established, the policy is transferred and the owner survives the transfer by 3 years (or trustee purchases the policy).

32. Generation-Skipping Trusts (Dynasty Trusts)1. Leave exempt amount in trust for future generations. 2. Avoid estate taxes on spouse’s death.3. No distribution to children or grandchildren so no estate taxes due on their deaths.

33. Planning for Long Term Care Needs

34. Long Term Care Long Term Care refers to the kind of care a person needs when he or she is unable to care for himself or herself due to disability, frailty or cognitive impairment. Long Term Care is sometimes called Custodial Care - assistance with activities of daily living (ADLs) - bathing, eating, dressing, toileting, continence and transferring - or supervision made necessary because of severe cognitive impairment.

35. The Cost of Long Term Care Average cost of 24 hour Home Health Aides provided by an agency - $5,500 per month, or $66,000 per year. Range of costs charged by Assisted Living facilities - $5,500 - $7,500 per month, or $66,000 - $90,000 per year. Typical cost of Nursing Home care in New Jersey - $9,000 per month, or $108,000 per year.

36. Who Pays For Long Term Care? 1. Private Pay 49% 2. Medicaid 44% 3. VA Benefits 4% 4. Medicare 2% 5. Long Term Care Insurance 1%

37. Overview of Government Sources for the Payment of Long Term Care Costs

38. Long Term Care CostsCovered by Medicare 1. Home Health Care 2. Nursing Home Care

39. Medicare - Home Health Aides • Covers up to 100 home visits per “spell of illness”. • Preconditions to payment: prior hospital stay of at least 3 days and home health care initiated within 14 days of discharge. • Beneficiary must be homebound and need skilled nursing care, physical or speech therapy, NOT custodial care.

40. Medicare Payment of Nursing Home Care • Immediate prior hospital stay of 3 days • Admitted to NH within 30 days of hospital discharge • Covers skilled nursing care or rehabilitation only, NOT custodial care.

41. How Much Does NH Medicare Pay? • Maximum Coverage - 100 days • Day 1-20 - Medicare pays 100% of covered charges • Day 21-100 - Medicare pays all covered charges, except coinsurance amount. Year 2014 coinsurance payment = $152/day, or about $4,623/month • Day 101 - on your own

42. Medicaid Joint Federal and State Program Provides medical assistance for financially eligible persons who are aged, blind or disabled.

43. Income Limits Income - all income is counted in determining eligibility. Income cap - Community Medicaid programs which pay for home health aides and care in assisted living facilities have an income cap. In 2014, the cap is $2,163/month. No cap for Nursing Home Medicaid.

44. Resource Limits Countable resources - all assets in the sole name of applicant, in the sole name of spouse, or in joint names, either with the spouse or another person. Includes pension and retirement assets of BOTH the applicant and spouse. Resource Limits - $2,000 for an individual and $3,000 for a couple. Excess resources - must be spent down.

45. Transfer of Resource Rules To prevent gifting of assets, Medicaid imposes a “penalty period”, or period of ineligibility for Medicaid, for all gifts made within the “lookback period”.

46. Comparing Medicare and Medicaid Coverage for Long-Term Care Costs Medicare: covers costs of home health aides and nursing homes for those who need skilled nursing care or therapy, but for a limited time only. No financial limits. Medicaid: covers home health aides, assisted living facilities and nursing homes, but only for the aged, blind and disabled who need custodial care and who meet strict financial limits.

47. Overview of Major VA Benefit Programs • Service-Connected Compensation • Disability compensation is a monetary benefit for veterans who are disabled by an injury or disease that was incurred or aggravated during active service. • Needs-Based Pension • Pension is a monetary benefit for veterans who (1) are disabled (not service-connected) (2) have low income and resources, and (3) served during a period of wartime.

48. Basic Eligibility Criteria for VA Improved Pension Program All of the following criteria must be met before a veteran or widow(er) of a veteran can receive Improved Pension benefits: a. The veteran must have served at least 90 days of active duty service, one day of which must have been during a wartime period; In general, wartime is: World War I World War II – Dec. 7, 1941 – Dec. 31, 1946 Korean War – June 27, 1950 – Jan. 31, 1955 Vietnam War – Aug. 5, 1964 – May 7, 1975 Gulf War – August 2, 1990 through date to be set by law by Presidential Proclamation

49. Basic Eligibility Criteria for VA Improved Pension Program (cont’d.) b. The veteran must have received a discharge other than dishonorable; c. The claimant must have limited income and assets; and, d. The claimant must be permanently and totally disabled, or be over age 65.

50. VA Improved Pension Program:Three Tiers of Benefits • 1. Low Income Pension • 2. Housebound Benefits • Aid and Attendance Benefits • Housebound benefits and Aid and Attendance benefits are supplements paid in addition to the basic Low Income Pension to certain veterans to cover the additional costs of care for their added disabilities.