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East Hanover New Jersey Elder Law Blog

Elder law and estate planning: what is 'power of attorney'?

People in East Hanover may have heard of the phrase power of attorney, but may not know exactly what this term means. A power of attorney is a legal document a person executes that dictates who will be able to make legal decisions on behalf of the person should the person become incapacitated. The person executing the power of attorney is the principal, and the person chosen as power of attorney is the agent. The two main types of power of attorney are a health care power of attorney and a financial power of attorney. The person executing the power of attorney will determine what their agent will and will not be able to do.

Executing a power of attorney is relatively straightforward. To execute a power of attorney, the principal must be age 18 or above, willing to give power of attorney to the agent and the principal has to be of sound mind -- that is, they understand the terms of the power of attorney they are signing and what powers the agent will have.

How your will and your trust work together

If you are a savvy New Jersey resident who has a living trust that protects your assets, it may surprise you to find out that by itself, your trust is insufficient to ensure that your trustee has the ability to distribute your assets as you wish after you die. If you have not already done so, you also need to make a pour-over will to complete your estate plan.

One of the very few disadvantages of a living trust is that it only contains the assets you put into it when you execute it. Any new assets you subsequently acquire do not automatically become part of your trust. If you make a pour-over will, however, you solve that problem. A pour-over will is a simple legal document instructing your executor to place whatever assets you own at the time of your death in your living trust.

What counts as income for Medicaid purposes in New Jersey?

One thing that will be considered when a person in New Jersey applies for Medicaid benefits is that person's income. There is a limit to the amount of income a person can make for the purposes of receiving Medicaid benefits. Of course, income includes any wages earned. However, it can include other financial resources as well.

If a person receives a pension or funds from retirement accounts, these may be considered income. In addition, if a person receives Social Security benefits, this may also count as income. If a person is receiving workers' compensation benefits or disability benefits, this may also count as income. Income also includes any unemployment benefits a person receives or any amount of money they earn through self-employment.

Boomers should address elder law issues in a proactive manner

As the baby boomer generation ages, their need for legal services will also grow in ways that they may not initially expect. With longer lifespans and advancements in the medical field comes the fact that a person in New Jersey could be physically or mentally incapacitated for months or even years before passing away. Baby boomers need to prepare for this possibility by ensuring they have the proper legal documents in place that will dictate what their wishes are.

For example, if a person believes they will be depending on Medicaid to pay for their medical needs as they age, they may need to have the proper long-term care plan in place that will allow them to do so while still retaining as much of their estate as possible. In the event that they can no longer take care of their own affairs, individuals should have the proper legal documents that determine who will have guardianship of their person and estate. And, of course, if a person has a will or trust, then probate or trust administration will become an issue that can be addressed beforehand.

How can one make long-term care insurance more affordable?

Long-term care planning is essential if a person wants to ensure they will be able to afford the help they'll need in their old age. Some people will need in-home care. Others might live in an assisted living facility or a nursing home. While some may be relying on Medicaid and their retirement savings to afford such care, there are other means for paying for elder care.

For example, many baby boomers in New Jersey may have purchased long-term care insurance while they were still working. Now, those who have retired and are living off their retirement savings may have concerns about those long-term care insurance policies they bought years ago. Will there be enough coverage under their policy to meet their future needs? Or, if their premiums are ever-increasing, will they even be able to continue to afford long-term care insurance?

Make estate planning and care planning a priority

Young or even middle-age adults in New Jersey may think that since retirement is decades away, they can wait to execute an estate plan or care plan, and even retirement planning in these early years is not so important. However, retirement planning and estate planning should be done as soon as one is able to do so. This way, they can protect themselves and their loved ones once they have retired and are physically or mentally unable to care for themselves.

Retirement begins first with the accumulation of savings while working. These savings may accumulate in a 401(k) or, less likely, through a pension. Following that comes the preretirement phase. In general, this starts once a worker is around 15 years away from retirement or is 50-years-old. Estate planning, if it hasn't already started, should be made a priority at this phase.

What to do – and not do – in a Medicaid spend-down

If your parents live in New Jersey and you think they may need to move to a nursing home or an assisted living facility in the future, it is in their best interests and yours to start planning early for this eventuality. Why? Because annual costs for these facilities have skyrocketed in recent years and show no signs of reversing. At this point, only very wealthy people can afford the cost of long-term care.

For “normal” people, Medicaid is the alternative. This governmental program, a joint federal and state venture, pays for an elderly person’s in-home, nursing home or assisted living care. The catch? The person must be indigent in order to qualify. For Medicaid purposes, “indigent” means that each of your parents must have no more than $2,000 in assets.

Qualified income trusts can be part of Medicaid planning

Medicaid benefits can be very important for those who need long-term care, but applicants must have a limited income in order to qualify. New Jersey residents in such situations may fear that they will be ineligible for Medicaid, because their income is too high. However, there are means for a person to retain income in a way that still allows them to qualify for Medicaid.

A qualified income trust serves as an estate planning vehicle in which a person's income can be placed. A trustee (who cannot be the person seeking Medicaid benefits) for the QIT will open a bank account for the trust. Income that is placed in a QIT is not counted when determining whether a person is eligible for Medicaid. QITs are a type of irrevocable trust.

A power of attorney may be preferable to a court-ordered guardian

Throughout our lifetimes, we will make many important financial decisions. From the first time we open a bank account as a teenager, to funding a retirement plan as a working adult, to making simple decisions about how to spend our hard-earned money, most people in New Jersey might take for granted the fact that they are in charge of their finances and can do with them what they think is important.

Unfortunately, as we age sometimes a person becomes so ill, either physically or mentally, that they are totally unable make appropriate financial decisions anymore. In anticipation of such an event, a person may want to execute a durable power of attorney while they are still in good health, in order to avoid having to seek a court-appointed guardian once one is incapacitated.

An irrevocable trust may be part of Medicaid planning for some

As our nation's population ages, more and more people will need care in their older years. Whether they choose in-home care, an assisted living facility or a traditional nursing home, paying for such care can easily deplete a person's financial resources. Some people in New Jersey may assume that when the time comes, they'll utilize Medicaid to pay for their long-term care needs. The issue with this is that a person must have little in the way of "countable assets," the amount of which is set by the state, in order to qualify for Medicaid. This means that before they can start using Medicaid to pay for their long-term care needs, they will need to have exhausted nearly all their other sources of assets and income. This could be problematic if a person was hoping to leave an inheritance to loved ones.

It is possible, however, to both qualify for Medicaid while still retaining at least some of one's assets to pass onto one's loved ones. A person can do so through the creation of certain types of trusts. In general, trusts can be either revocable or irrevocable. Revocable trusts can be changed during a person's lifetime. Therefore, Medicaid will include assets placed in such a trust when determining a person's eligibility.

McHugh & Macri
49 Ridgedale Avenue
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East Hanover, NJ 07936

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