Newsletter: August 2009

A Thank You

As I was vacationing in Ocean City recently, wave jumping with my son, my glasses fell off into the sea (there is now a very focused and dapper clam off the shore of Ocean City, NJ).

Being half blind is no fun so I rushed to Shore Optical at 1300 Asbury Avenue in Ocean City, NJ. Within an hour Stan and his crew had me seeing clearly again and at a fair price. I want to thank them and recommend them to all for their prompt and courteous service and getting me back on the beach to play with my boys.

What Does Medicare Really Cover in a Nursing Home

A Medicare’s 100 Days: How Useful?

Many people believe that Medicare covers nursing home stays. In fact Medicare’s coverage of nursing home care is quite limited. Medicare covers up to 100 days of “skilled nursing care” per illness, but there are a number of requirements that must be met before the nursing home stay will be covered. The result of these requirements is that Medicare recipients are often discharged from a nursing home before they are ready.

In order for a nursing home stay to be covered by Medicare, you must enter a Medicare-approved “skilled nursing facility” or nursing home within 30 days of a hospital stay that lasted at least three days. The care in the nursing home must be for the same condition as the hospital stay. In addition, you must need “skilled care”. This means a physician must order the treatment and the treatment must be provided daily by a registered nurse, physical therapist, or licensed practical nurse. Finally, Medicare only covers “acute” care as opposed to custodial care. This means it covers care only for people who are likely to recover from their conditions, not care for people who need ongoing help with performing everyday activities, such as bathing or dressing.

Note that if you need skilled nursing care to maintain your status (or to slow deterioration), then the care should be provided and is covered by Medicare. In addition, patients often receive an array of treatments that don’t need to be carried out by a skilled nurse but which may, in combination, require skilled supervision. For example, the potential for adverse interactions among multiple treatments may require that a skilled nurse monitor the patient’s care and status. In such cases, Medicare should continue to provide coverage.

Once you are in a facility, Medicare will cover the cost of a semi-private room, meals, skilled nursing and rehabilitative services, and medically necessary supplies.

Medicare covers 100 percent of the costs for the first 20 days. Beginning on day 21 of the nursing home stay, there is a significant co-payment ($130+ a day in 2009). This copayment may be covered by a Medigap policy. After 100 days are up, you are responsible for all costs (or your Medigap is).

If you are in a nursing home and the nursing home believes that Medicare will no longer cover you, it must give you a written notice of non-coverage. The nursing home cannot discharge you until the day after the notice is given. The notice should explain how to file an expedited appeal to a Quality Improvement Organization (QIO). A QIO is a group of doctors and other professionals who monitor the quality of care delivered to Medicare beneficiaries. You should appeal right away. You will not be charged while waiting for the decision, but if the QIO denies coverage, you will be responsible for the cost. If the QIO denies coverage, you can appeal the decision to an Administrative Law Judge (ALJ). It is recommended that you hire a lawyer to pursue an appeal.

Why Not Just Use an Off-the-Shelf Power of Attorney Form

A durable power of attorney is one of the most important estate planning documents you can have. It allows you to appoint someone to act for you (your “agent” or “attorneyin-fact”) if you become incapacitated. Without a power of attorney, your loved ones would not be able to make decisions for you or manage your finances without asking the court to appoint a guardian or conservator, which is an expensive and time-consuming process.

There are many do-it-yourself power of attorney forms available; however, it is a good idea to have an attorney draft the document for you. There are many issues to consider and one size does not fit all.

The agent’s powers: The power of attorney document sets out the agent’s powers. Powers given to an agent typically include buying or selling property, managing a business, paying debts, investing money, engaging in legal proceedings, borrowing money, cashing checks, and collecting debts. They may also include the power to consent to medical treatment. Some powers will not be included unless they are specifically mentioned. This includes the power to make gifts and the power to designate beneficiaries of your insurance policies.

The power to make gifts of your money and property is a particularly important power. If you want to ensure your agent has the authority to do asset protection planning on your behalf in the event you need to enter a nursing home, then the power of attorney must give the agent the power to modify trusts and make gifts. The wording in a power of attorney can be significant, so it is necessary to consult an attorney. Also, if you do not want your agent to have these powers, the power of attorney must be clear.

Springing or immediate: The power of attorney can take affect immediately or it can become effective only once you are disabled, called a “springing” power of attorney. While a springing power seems like a good idea, it can cause delays and extra expense because incapacity will need to be determined. If the power of attorney is springing, it is very important that the method for determining incapacity is clearly spelled out in the document. Even then this can create problems. We generally do not use springing powers in our office.

Joint agents: While it is possible to name more than one person as your agent, this can lead to confusion. If you do have more than one person named, you need to be clear whether both parties need to act together or whether they can each act independently.

Appointing a guardian: Another use of a power of attorney can be to nominate a guardian in case guardianship proceedings become necessary. Including your preference for a guardian can allow you to have some say over who will be managing your affairs. Usually, the court decides who will be chosen as a guardian, but in most circumstances the court will abide by your nomination.

Executing the power of attorney: To be valid, a power of attorney must be executed properly. Some states may require a signature, others may require the power of attorney to be notarized, and still others may require witnesses. It is important to consult with an estate planning attorney in your state to ensure your power of attorney is executed properly.

Accepting a power of attorney: Even if you do everything exactly right, some banks and other institutions are reluctant to accept a power of attorney. These institutions are afraid of a lawsuit if the power of attorney is no longer valid. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute the forms offered by the institutions with which you have accounts but a properly drafted power of attorney must be accepted by a bank or financial institution.

Status of Joint Bank Accounts in Pennsylvania

Many older adults use joint bank and other accounts for many reasons. One reason is convenience; they assume that putting a child’s name on the account as co-owner makes it easier to help with bill paying. Others use it as a means of informal estate planning.

A major decision out of our state Supreme Court is likely to be decided this year. The case involving the Estate of Novosielski, 937 A.2d 449 (Pa. Super 2007) has tremendous implications for those of you who are engaged in estate planning, financial planning or a practice that is exposed to the creation of joint accounts.

The case revolves around how the intent expressed in the creation of a will affects the disposition of assets in later created joint accounts. Prior to her death, Alice Novosielski suffered from various psychotic disorders along with dementia. She had signed a power of attorney giving Thomas Proch authority to handle her financial affairs. Mr. Proch proceeded to consolidate Alice’s substantial assetsabout $500,000 into one account. Mr. Proch created the account jointly with Alice. The court record suggests that due to her illness, there is some doubt as to whether Alice understood the nature of the investment, let alone the impact of the joint ownership.

In Pennsylvania, joint accounts are controlled by the Multiple Parties Account Act, which provides that any sum remaining in a joint account at the death of a party belongs to the surviving party and not the estate of the decedent unless there is clear and convincing evidence of a different intent at the time the account is created. In this case, Alice had a will, drafted prior to the creation of the joint account wherein Alice left her estate to her surviving siblings and only $5,000 to Mr. Proch.

The will was challenged by the surviving siblings when they realized that Mr. Proch had named himself as the joint owner on the Treasury Bill and was claiming the rightful heir of $500,000. The case proceeded to the Superior Court in 2007 where the Superior Court developed some very unusual reasoning to rule against Mr. Proch. The Court concluded that the disposition set forth in a validly executed will can have the effect of altering a later created joint account. That is, a will can represent clear and convincing evidence that the creator of a joint account does not intend the funds in the joint account to pass to the surviving owner.

This ruling baffled most estate planners, including me. A will has the effect of disposing of solely owned assets at the time of your death. Assets held pursuant to a contract, such as joint accounts, life insurance, annuities, trusts or other such arrangements pass pursuant to that contract. The law has always been that a will only expresses one’s intent with regard to solely owned assets, not those held in a joint account with the right of survivorship. After the decision in Novosielski, estate planners in Pennsylvania had to take steps to ensure that a will did not undermine other estate planning that employed joint accounts. Clients often want to leave a child’s name on a bank account or certificate of deposit with the intent that a specific child receive those funds. But pursuant to Novosielski, those transactions would be undone by a previously executed will that had a different disposition.

The Supreme Court agreed to hear the Novosielski case, a sign that they may think the Superior Court erred at least on the basis for their conclusions. There are other ways to rule against Mr. Proch, if it is the Court’s intent to bring some justice to the Novosielski family. This case has resulted in several other similar court decisions, including the Superior Court case – In the Estate of Piet.

Hopefully the Supreme Court will clear this up quickly and properly.

Tax Help in Caring for Your Aging Parent

They took care of you for years. Now it’s your turn. Millions of adult children find themselves looking after aging parents. Tax laws offer some help, as long as you and your folks meet the criteria.

The key to Internal Revenue Service assistance in caring for an elderly relative is whether you can claim the person as a dependent. Any dependent must meet certain tests. While there is a little flexibility when dealing with children, fewer exceptions are granted when the potential dependent is older. Despite the qualification obstacles, it doesn’t hurt to explore whether you can claim your parent as a dependent. If you and your parent meet IRS requirements, you’ll be able to claim an added personal exemption on your income tax return. This filing season, each exemption allows you to reduce your taxable income by $3,400.

Then there are possible deductions and credits. If you pay medical expenses for a dependent parent, you may be able to deduct some of those costs. Hire a caregiver to help you out and a credit could cut your tax bill a bit more.

Dependency Hurdles: The highest dependency hurdle is the amount of income your older parent earns. A dependent parent cannot make more than the exemption amount. This is that $3,400 mentioned earlier. (Here’s where kids get a break. This is not a test for a young dependent under the uniform definition of a qualifying child.)

Social Security normally is excludable, but if they have other income, which in many cases means interest and dividends, some is taxable. So you want to start with that first in determining if the parent meets the income test. If, however, you and your parent meet the income standard the next consideration is how much support you provide.

Paying For More Than Half: To be deemed a dependent for tax purposes, your parent must get more than half of his or her support from you.

When the parent lives in your home, to reach the 50-percentplus threshold, you should take into account the fair-market room rental, food, medicine and other little support items. This is where Social Security does come into play. If a parent is using benefits to pay for some of these support items, it goes into the calculation of whether you cover more than half of your parent’s support costs.

Say mom doesn’t have $3,400 taxable income, but gets $15,000 in Social Security and uses it to pay for some medicine and buy clothes. In that case, your contribution to her support may not come up to half.

The one bit of wiggle room here is that your parent doesn’t have to live with you. When a parent is able to remain in his or her own house, in an assisted living facility or a nursing home, costs you pay for parental support at those locations count toward meeting the IRS requirement.

Be careful, though, in determining what is support. Uncle Sam may not agree with what you and your parent consider vital. Check IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for details and examples. The booklet also contains a work sheet to help you figure your support contributions. And hire a CPA to help. This is complicated and the cost of a good CPA will be well worth it.

Counting Medical Care and Other Costs: Once your parent does meet the IRS dependency tests, you can use any medical expenses you pay for mom or dad toward this itemized deduction. Because medical costs must exceed 7.5% of your adjusted gross income before you can claim them, a parent’s added expenses could help you meet the requirements. And the IRS offers a little leeway here. If your parent isn’t considered a dependent for exemption purposes simply because he or she earned too much but met the other tests, the IRS says mom or dad could still be counted as a dependent for medical deduction purposes.

When adding up those parental medical costs, don’t forget premiums for supplementary Medicare coverage or long-term care insurance. Once your parent is your dependent, some of these payments that you make can be counted toward your deductible medical expenses.

But the precise amount of long-term care policy payments that you can add to your medical expenses is limited by your parent’s age. They range from a low of $290 for coverage of a parent age 40 or younger to $3,680 for a policy beneficiary age 71 or older. In between, the IRS says you can count $550 spent on a policy for someone between ages 41 and 50; $1,110 for coverage of a person from ages 51 to 60 years; and $2,950 for a dependent aged 61 to 70.

And if your dependent parent lives with you and requires continual care, Roth says, you may be eligible for another tax break. What you spend for this attention generally won’t count toward the medical deduction. But if it’s necessary so that you can go to work, you can claim the dependent care credit. There is a limit to the amount of care costs you use to figure the dependent care credit; this tax year it could be as much as $3,000. Even then, you can only claim a percentage of your costs based on your income level.

But since it’s a credit, it’s a dollar-for-dollar tax break. There also are a growing number of elder care day facilities that would count toward the credit.

Sometimes you don’t have to shoulder the load alone. Many adult children get help from siblings in caring for mom and dad. Not only does this help maintain your day-to-day bank balance, it also spreads out any tax breaks. Where none of you solely pays for half of a parent’s support, but each contributes at least 10 percent toward parental care, take a look at the IRS’s multiple-support declaration. This form helps you account for the tax implications of a shared-care arrangement.

An example: Mom is in a nursing home. Her Social Security covers 40% of the facility’s costs, and you and your two brothers split the remainder, each paying 20%. Since more than half of her support comes from her three kids, she can be claimed as a dependent — but by only one of you. That choice is left to you and your brothers.

After you and your brothers agree that you can claim Mom as a dependent this tax year, file Form 2120, Multiple Support Declaration with your tax return. This form indicates that while several siblings contributed to mom’s support, the others waive any tax-exemption claim.

You also need to get signed statements from your brothers acknowledging that they waived their tax claims. You don’t have to send these documents with your 1040, but keep them in your records in case the IRS ever questions your exemption or medical deduction claims.

And the best news about a multiple support agreement is that it’s not permanent. You can rotate it around from tax year to tax year. The next year, another sibling takes the responsibility and the third brother the next year. It softens the blow, but it’s not going to cover all that it’s going to cost you. Our firm can help you compare long-term care and life insurance products. Please call us at (610) 940-0650 with any questions or for a quote.

Real Estate and Mortgages

Despite recent rates in the low 5% range for a 30 year mortgage, there has been a spike to the high 5% range in early June. Good, but not as good as we have seen. This is likely to come down towards year end as the recent refinancing activity slows down.

Another factor is that there are still many adjustable mortgages for prime borrowers that will adjust in the next few years. Many people with excellent credit have been unable to refinance their current adjustable mortgages into fixed mortgages for a variety of reasons. Further, while foreclosures may moderate in the near term which has firmed up pricing somewhat, most of the foreclosures have been for subprime borrowers. Now that unemployment is likely to reach 10%+ by 2010, many people with previously good credit may lose their jobs causing a wave of new foreclosures. This will put a lid on price increases on homes for a few years at least.

In addition to Elder Law, our firm practices real estate law and originates mortgages. Please call us at (610) 940-0650 with any questions or for rate quotes.