Source: https://www.begleylawgroup.com/2017/07/financing-long-term-care-in-new-jersey-2017/
Timestamp: 2018-12-10 01:39:47
Document Index: 216446221

Matched Legal Cases: ['§1396', '§151', '§151', '§151', '§152', '§151', '§152', '§1', '§152', '§1', '§151', '§1015', '§1014', '§454', '§3306', '§121', '§2503', '§2010', '§2010', '§1014', '§2041', '§2041']

Financing Long-Term Care in New Jersey 2017 – Begley Law Group
New Jersey is an income cap state. This means that if an individual’s income exceeds $2,205 for 2017[7] (300% of the SSI individual benefit), the individual is not eligible for Medicaid. The solution is to establish a “Miller Trust.” By utilizing the Miller Trust, excess income is placed into the trust. Essentially, the income in the trust goes to pay for long-term care, but is not counted as income for income cap purposes. This is a legal fiction that makes no logical sense, but it works.
All types of income are counted including wages, social security, pensions and annuities, alimony, interest and dividends.[8]
Medicaid Regulations provide for a Minimum Monthly Maintenance Needs Allowance which is composed of $2,030 per month adjusted annually on July 1 of each calendar year, plus the community spouse’s expenses for rent, mortgage, taxes, insurance and certain utilities in excess of $609 per month. These figures are for the period July 1, 2017 through June 30, 2018.[10] The maximum MMMNA is currently $3,022.50.[11]
Home. The primary residence and lot are excluded if occupied by the institutionalized person or the community spouse. Absence of more than six months creates a presumption that the home no longer serves as the principal residence.[13] However, states may establish a cap on the equity of the home. The minimum cap is $560,000 and the maximum cap is $840,000.[14]
Transfer Penalty. To calculate the penalty, divide the amount of the transfer by the average cost of nursing home care in New Jersey, a daily rate of $332.50, in 2016.[25] Under the Deficit Reduction Act, the penalty is calculated in partial months.[26] The penalty is the period for which the institutionalized spouse would be ineligible for Medicaid. Under federal law, the penalty is unlimited.[27]
This guarantees the community spouse a minimum amount of resources without affecting the institutionalized spouse’s Medicaid eligibility. For 2017, this is the greater of $24,180 or one-half of the couple’s non-exempt resources not to exceed $120,900.[29] These figures are adjusted on January 1 of each calendar year.
Personal Dependent. If a person pays for more than 50% of the support of a relative, and the relative in calendar year 2017 has less than $4,050 of gross income for the year and has not filed a joint return with his or her spouse, then the person paying the support may claim the relative as a dependent on the person’s federal income tax return.[34] For purposes of calculating the 50% requirement, tax-exempt interest income, disability income and Social Security income, of the relative is counted. However, for purposes of calculating the $4,050 of gross income, tax-exempt interest income, disability income and Social Security income are not counted. If a person claims a relative as a personal exemption, the relative must not file a joint return.[35]
The personal exemption amount for taxable years beginning in 2017 is $4,050.[36]
Medical Deduction – Relative. Under the Federal tax code[37] a person can claim a whole or half-blood; stepbrother, stepsister; medical deduction for medical expenses paid on behalf of a relative, if the person provided over half of the relative’s total support for the calendar year. The person can deduct the medical expense of the relative, even if the person cannot claim the personal dependent exemption because the relative received $4,050 or more of gross income in calendar year 2017.[38]
A relative is defined[39] as “a child or descendant of a child; stepchild; brother, sister, by father, mother or ancestor of either (grandparent, great-grandparent, etc.); stepfather, stepmother; nephew, niece; brother or sister of father or mother (uncle, aunt); brother-, sister-, father-, mother-, son-, or daughter-in-law.”
Each person in the group contributed more than 10% signs a written declaration (Form 2120 can be used) that he/she won’t claim that individual as a dependent for any tax year beginning in the calendar year.[40]
Dependent Care Credit. This is available to a child on behalf of a dependent parent although the parent has more than $4,050 of gross income in calendar year 2017.[42] However, the parent must be physically or mentally incapable of providing self-care (i.e., cannot provide for his or her own hygiene or nutritional needs, or needs the full-time attention of another person for the parent’s safety or the safety of another). The purpose of the credit is to reimburse for care expenses related to the taxpayer leaving home to take employment. Taxpayers are usually better off taking the care expenses as a medical expense deduction.
Carryover Basis. In determining which assets to transfer and which assets to retain, consideration must be given to the fact that the donee of a gift receives a “carryover basis.”[43] This means that the cost basis of the donee is the same as the cost basis of the donor. Therefore, when the transferred assets are sold, the donee must pay capital gains tax. The best strategy is, usually, to transfer unappreciated assets to the donee, and reserve appreciated assets for the donor. That way, any gain on the sale of the appreciated assets can be offset by deducting the cost of the nursing home from income tax.
Step Up in Basis. Assets forming a part of the estate of a decedent are included in that person’s estate for federal estate tax purposes. The beneficiary of the estate receives a “step up” in basis with respect to those assets so that the beneficiary’s new basis is the fair market value of the assets as of the date of the death of the decedent.[44] The strategy, therefore, is to not sell the home during your lifetime so that your children receive a step up in basis with respect to that property on your death.
Interest on Series E, Series EE, and Series I Bonds. At the time Series E, EE or I bonds are redeemed, income tax is due on the accumulated interest.[45] The same is true if the bonds are transferred to another person. Generally, it would be better not to cash in the bonds until such time as the proceeds of sale of the bonds are needed to pay for the nursing home. This is because the medical deduction for the nursing home expense will offset the taxable income from the redemption of the bonds.
Domestic Help. Withholding of Social Security and Medicare taxes is required of all employees receiving cash wages of $2,000 or more in calendar year 2017.[46] If the employee receives total cash wages of $1,000 or more in any calendar quarter in 2017, federal unemployment taxes must also be withheld. The first $7,000 of cash wages is subject to federal unemployment (FUTA) in 2017.[47] After an employee reaches $7,000 during the year, the FUTA tax is no longer required. The employer is not required to withhold federal income taxes from the wages paid to household employees unless the employee so requests and the employer agrees. The employee must give the employer a completed W-4, an Employee’s Withholding Allowance Certificate. If there is an agreement for withholding for income taxes, either party may end it by written notice to the other.[48]
♦ Gift Tax. If transfers are made in excess of $14,000 per person per year, then a Gift Tax Return will have to be filed by April 15th of the calendar year following the date of the gift. There is an annual exclusion for gifts of $14,000 per person per year or less.[50] If a spouse consents, the annual exclusion gift may be increased to $28,000 per person per year. In addition, there is a gift tax exemption of $5,490,000 for an individual and $10,980,000 for a married couple,[51] so no tax will be due for gifts which do not exceed the amount of this gift tax exemption. There is no tax due from the recipient of the gift. The $14,000 annual exclusion gift will be indexed for inflation in the future.
♦ Estate Tax. For persons dying in calendar year 2017, there is a federal estate tax exemption of $5,490,000. This is indexed to inflation.[53]
♦ New Jersey Estate Tax. There is a New Jersey estate tax exemption equivalent of $2,000,000, which means that New Jersey estate tax is not due for estates of $2,000,000 or less in 2017.[54]
Step-Up in Basis. If the trust assets are included in the grantor’s estate, the trust principal will be included in the grantor’s estate at death and will receive a step-up in basis at that time.[55]
♦ Trust Buster Statute. The statute provides “Any provision in a contract of insurance, will, trust agreement or other instrument which reduces or excludes coverage or payment for goods and services to an individual because of that individual’s eligibility for or receipt of Medicaid benefits shall be null and void, and no payment shall be made under this act as a result of such provision.” This statute has never been tested in court. This statute appears only to apply to instruments which provide for mandatory distributions which are then cut back when the individual applies for Medicaid. Example: “Upon the beneficiary applying for Medicaid, all income payments to him shall terminate.”[56]
It is estimated that only approximately 8% of the elderly have private long-term care insurance.[63] There are four reasons why people do not buy long-term care insurance:
Seventy-seven percent of people surveyed by the American Council of Life Insurance believed they would be healthy in retirement.[64]
It is estimated that only 10% to 20% of the elderly can afford such insurance.[65]
Many people wait until they have a diagnosis before applying for long-term care insurance. At that point, they are no longer insurable. Agents estimate that approximately 25% of persons applying are rejected for health reasons.
MEDICARE[66]
The patient must spend three days in the hospital and must be admitted to a nursing home within 30 days after discharge from the hospital.
Skilled Care. The patient must be admitted to the nursing home for skilled care on a daily basis. Skilled care is defined as services that are so inherently complex that they can only be provided effectively by skilled individuals or under the supervisor of skilled personnel.[67]
Medicare will pay for up to 100 days. However, there is co-insurance from the 21st to 100th day. For 2017, the co-insurance rate is $164.50 per day,[68] which must be paid by either the patient or a Medi-gap policy. The 100 days of coverage are not guaranteed. This is a maximum, not a minimum. If the patient is receiving rehabilitation and hits a plateau, Medicare will be stopped.
A Veteran with a service-connected disability of 70% or more is entitled to free lifetime nursing coverage regardless of means. Veterans who do not have a service-connected disability are means-tested as to payment. The VA does contract with public and private nursing home facilities, in addition to using VA facilities.[69]
♦ General. New Jersey Veterans Administration operates three Old Soldiers’ Homes for New Jersey Veterans and their families. They are located in Paramus, Edison and Vineland. Veterans, spouses of Veterans, surviving spouses, and certain parents may be eligible.[70]
♦ Fee. The Adjutant General determines an “Established Rate” each year. The individual pays a portion of the cost of care based on their monthly income and ability to pay.[71] The VA monthly nursing home fee is 80% of the resident’s net income, not to exceed the Established Rate. In addition, 12% of the remaining 20% of the resident’s net income (maximum $20 per month) is set aside in a Welfare fund at the institution, and the remaining balance is placed in a personal needs account for the resident. Net income is calculated after the deductions discussed below. Income includes all income except for service-connected disability compensation. If a resident sells his home and a portion or all of the proceeds from the sale are not reinvested in a primary residence, any income earned from the investment of any or all of the proceeds will be counted as income.[72]
Certain deductions are permitted to the community spouse. For example, the community spouse receives a flat $700 exemption for food, transportation, clothing, telephone and home maintenance.[73] In addition, deductions requiring verification are permitted for rent, first mortgage payments, real estate taxes and insurance, heat and electric, water and sewer, life insurance for burial accounts, and other extraordinary expenses.
♦ Resources. The resource limit for a single person is $24,000, and for a married couple is $110,000.[74]
♦ Look-Back. The Veterans look-back period is effectively 36 months.[75]
[7] 2017 SSI and Spousal Impoverishment Standards, www.medicaid.gov.
[10] N.J.A.C. 10:71-5.7(c); 2017 SSI and Spousal Impoverishment Standards, www.medicaid.gov.
[11] 2017 SSI and Spousal Impoverishment Standards, www.medicaid.gov.
[14] 42 U.S.C. §1396p(f); 2017 SSI and Spousal Impoverishment Standards, www.medicaid.gov.
[25] N.J.A.C. 10:71-4.10(m)1; Medicaid Communication No.16-05 (Jun. 6, 2016).
[29] 2017 SSI and Spousal Impoverishment Standards, www.medicaid.gov.
[34] I.R.C. §151; Rev. Proc. 2016-55(3)(.24)(1).
[35] I.R.C. §151.
[36] I.R.C. §151; Rev. Proc. 2016-55(3)(.24)(1).
[37] I.R.C. §152(c) and I.R.S. Publication 502.
[38] I.R.C. §151; Rev. Proc. 2016-55(3)(.24)(1).
[39] I.R.C. §152(a), (b)1 and Treas. Reg. §1.151-3(a).
[40] I.R.C. §152(c).
[41] Treas. Reg. §1.152-3(c).
[42] I.R.C. §151; Rev. Proc. 2016-55(3)(.24)(1).
[43] I.R.C. §1015.
[44] I.R.C. §1014(b)(9).
[45] I.R.C. §454(c).
[46] IRS Publication 926 (For Use in 2017).
[47] I.R.C. §3306(b)(1); I.R.S. Publication 926 (For Use in 2017).
[48] I.R.S. Publication 926 (For Use in 2017).
[49] I.R.C. §121.
[50] I.R.C. §2503 (b); Rev. Proc. 2016-55(3)(.37)(1).
[51] I.R.C. §2010; Rev. Proc. 2016-55(3)(.35).
[52] N.J.A.C. 18:26-5.7.
[53] I.R.C. §2010; Rev. Proc. 2016-55(3)(.35).
[54] P.L. 2016, 657.
[55] I.R.C. §1014(b)(9).
[56] N.J.S.A. 30:4D-6F.
[57] N.J.S.A. 46:2B-8.13a.
[58] I.R.C. §2041(b).
[59] I.R.C. §2041(a)(2).
[60] In the Matter of Mildred Keri, 181 N.J. 50 (2004).
[61] The Health Insurance Portability and Accountability Act of 1996 (HIPAA).
[62] N.J.A.C. 11:4-34.1 to 34.13.
[63] J. M. Wiener, L. H. Illston & R. J. Hanley, Sharing the Burden: Strategies for Public and Private Long-Term Care Insurance, 6 (Brookings Institutions, 1994).
[64] Longevity and Retirement Survey Fact Sheet, American Council of Life Insurance. Survey conducted between August 12 and September 10, 1997.
[65] J. M. Wiener, L. H. Illston & R. J. Hanley, Sharing the Burden: Strategies for Public and Private Long-Term Care Insurance, 14 (Brookings Institutions, 1994).
[66] 42 U.S.C. 1395 through 1395xx; 42 C.F.R. Pts. 405 through 489.
[67] 42 U.S.C. 1395 through 1395xx; 42 C.F.R. Pts. 405 through 489.
[68] 81 Fed. Reg. 80062 (Nov. 15, 2016).
[69] 42 C.F.R. 409.31(b)(3), 409.33(b), 409.35.
[70] N.J.A.C. 5A:5.1 et seq.
[71] N.J.A.C. 5A:5-5.2 and 5A:5-5.3.
[72] N.J.A.C. 5A:5-2.1.
[73] N.J.A.C. 5A:5-5.3.
[74] N.J.A.C. 5A:5-2.2(c); Application for Admission (2017).
[75] N.J.A.C. 5A:5-3.1(a)1iv(3).