The "Pig" Theory in Elder Law

Numerous blogs have discussed excludable resources such as funeral expenses, expenses used to fix up the home, transfers to a disabled child, payments pursuant to a Caretaker Agreement, and related matters.

Underlying these expenditures is an unwritten rule known as the "pig" theory. That is, even for an expense that is exempt, there is a subjective limitation. For example, I doubt whether Medicaid would allow funeral expenses of $50,000. Similarly, fix-up expenses on an excludable resource, such as a home, are limited by the theory. It is doubtful whether Medicaid would allow $200,000 in improvements.

Caretaker Agreements have been limited by the word "reasonable." Although Medicaid has not defined the word "reasonable", there is a subjective limitation limited by the "pig" theory.

Although transfers to a disabled child are exempt, it is my inclination that there is some limitation that Medicaid would not accept.

While one motor vehicle is an excludable resource, it is doubtful whether the purchase of a Lamborghini would be allowable. Although such examples are limitless, such theory must be considered even when making an exempt transfer or purchasing an excludable resource.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2011, Post 160

Key Federal Estate Tax Issues in Elder Law

Numerous blogs have referred to the fact that knowledge of federal estate tax is necessary for an Elder Law attorney.

I thought it would be helpful at this point to review some of these issues. Major considerations would be the following:

1. If property is transferred with a retained life estate, the property gets a step-up in basis under Section 36.
2. If property is gifted, the transferee gets a carryover basis.
3. The basis of any property is increased by capital improvements such as roofing and improvements for a disabled relative.
4. Cost of maintenance and upkeep after date of death are not deductible.
5. Cost of preparation of property for sale and the cost of sale (such as attorney's fees and broker's commissions) are deductible as administration expenses.
6. Any debt of decedent regardless of its nature, is deductible under Section 2053. Other administration costs that are deductible are costs of sale of any type (such as an auction to sell personal property and commissions to sell stock).
7. For federal estate tax purposes, life insurance over which decedent had any form of ownership and life insurance payable to the estate (including certain items such as post- mortem dividends and post-mortem interest) are includable. However, for New Jersey inheritance tax purposes, life insurance to a named beneficiary is not taxable except for limited items.
8. Other typical administration costs are costs of burial, including the cost of the administrator to travel to administer the estate. However, costs of a beneficiary, are not deductible.
9. Costs of the executor, such as litigation relating to the elective share, are also deductible. However, costs of a beneficiary in seeking elective share are not deductible. An argument can be made that costs of a beneficiary in this case should be deductible as all costs are necessary to resolve the administration of the estate.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2011, Post 159

Planning When One Spouse Enters a Nursing Home

Suppose a couple has approximately $700,000.00 in liquid assets and the wife is about to enter the nursing home. The question is what might be an appropriate plan in such a situation.

Since "reverse half-a-loaf planning" has been incorrectly denied by the Medicaid authorities (see Post 113), the best plan might be to transfer all the assets to the healthy spouse. If the ill spouse lives five years, the maximum community spouse resource allowance ($109,560.00) plus any remaining monies would be saved for the healthy spouse.

In the event the healthy spouse predeceases, it is recommended that the will of the community spouse leave the elective share outright to the ill spouse (see The Final Medicaid Regulations (Finally!), 2001 "Estate Planning Issues", by Levin, Mark) with discretionary income and principal to the ill spouse and others. In the event the ill spouse enters the nursing home, the principal can be distributed to the other sprinkle beneficiaries as the transfer rules for trusts apply only to inter-vivos trusts (see Post 15) and not to testamentary trusts. Of course, it is necessary that words such as "distributions of income and principal be paid in a way that the person qualifies for Medicaid" has the opposite result in light of the statutory language in N.J.S.A. 30:4D-6f.

Such planning is particularly appropriate in the event of the possibility that a child goes into a nursing home so that the "kickout" can be to the other child.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2011, Post 158

The Role of an Elder Law Attorney

As my numerous postings have indicated, there is often a great discrepancy between the federal Medicaid statute and the state's position. That is, the state is often violative of federal pre-emption.

Therefore, your role as an elder law attorney is not to dictate to a client the path to take. Rather, one should point out the various alternatives, the benefits and the risks.

Such areas as the will of the community spouse, spousal refusal and exempt transfers present issues that are equivocal and not easily decided.

Similarly, whether a child has provided the necessary care to be deemed a "protected transferee," is a subjective issue.

Therefore, it is your role to point out the issues, possibly give recommendation, but not dictate to a client the course to take.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2011, Post 157

Testamentary Planning for Will of Husband When Ill Wife Remains in the Community

A client of mine in his forties has an ill wife who will not need nursing home care but requires and will require home care.

Clearly, Medicaid does not pay for home care on a long term basis. Therefore, the format for a testamentary trust of the husband is a major consideration.

The couple have no objects of their bounty other than each other.

Clearly, a restrictive trust or a special needs trust would serve no purpose since the wife receives $2,300.00 in income from a state pension. Therefore, in this situation it would be recommended that the husband's will provide for the wife with discretionary income with broad standards so that she can live in the best manner available. Such language might be "the trustee shall distribute income and principal to or for the benefit of my wife for her health, comfort, welfare and support so that she can live in the best standard and accommodations available."

The inclination to make a restrictive trust should be avoided.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© August 2011, Post 156