Monday, April 24, 2006

Cultural Differences - In China, Ignore your Parents at Your Peril

Category: Elder Law

Most people are uncomfortable with the plight of seniors separated from their families and alone in their final years - but is there another way? In China, society and government are taking action to mandated filial loyalty and support. At the present time, there is no legal duty in the US for children to support their parents. I found this very interesting article, Charlotte Observer - Ignore parents? At your own peril that shows another road to caring for our older family members. Notably, "Only 1 percent of Chinese older than 80 are in elder care facilities, compared with 20 percent in the U.S., according to the Washington-based Center for Strategic and International Studies."

"In Shanghai, the Nanjing East Road Neighborhood Committee recently took to
public shaming to ensure that people attend to their aging parents. Anyone who
doesn't visit at least once every three months faces having his or her name posted on a community signboard.

Members of a nearby senior community announced a different approach: They
would fine offspring $5 if they didn't invite their parents home for Chinese New

And then there's the Chinese government itself: Shirkers face five years in prison for failing to support or take care of their parents.

In the battle to safeguard the tradition of filial piety, China's social watchdogs are employing many weapons: shame, fines, bribery, guilt and flattery."

The article goes on to consider how the changes of the 21st century have been acting to undermine strong traditional Chinese family values. It leads to thoughts about how we can perhaps internalize some of the elder care debate in this country - if of course there was a way to pay for it since most long term care funding options favor institutionalized care - but that is a post for another time.

Thursday, April 20, 2006

The Cost of Gifting Your Home

Category: Elder Law, Estate Planning, Tax Law and Planning

This brief article from outlines why there may be a large cost of making a gift of your home to your children now, instead of continuing to live in it an bequeathing it to your children at your death.

"First and foremost, your child or friend's basis in the house will be what you paid for the property, plus major improvements. Because this cost you paid years ago is probably much lower than today's soaring home value, there's a chance tax will be owed on a subsequent sale.

For example, if you purchased your home in 1970 for $60,000 and it is now worth $450,000, your child's basis would be $60,000 if you chose to transfer the home to the child as a gift. If the married child sells the home 10 years down the road for $760,000, their tax liability would be on $200,000 ($760,000 minus the $60,000 basis, minus the $500,000 exclusion for married couples). Taxpayers in the 15 percent tax bracket would thus owe the Internal Revenue Service approximately $30,000 in capital gains tax."


If the child did not live in the house, there would not be a "$500,000 exclusion for married couples" as outlined above. That only applies if the child and his or her spouse lived in the house for 2 years or more before sale. If you gifted the house to a child and you continued to live there, upon sale the child's basis would only be $60,000, leaving $700,000 subject to capital gain.

Also, while the federal capital gain tax rate is generally 15%, the state may have an additional capital gain rate. For example, in New Jersey, the capital gain rate is 7 1/2%, bringing the total combined capital gains tax rate to 22 1/2%, which on a $700,000 sale would be $157,500 - not chump change.


First, for Medicaid planning it may be worth the potential capital gains tax cost to remove the asset from your "available assets" so that the house does not have to be sold to provide for your long term care.

Second, it is possible to gift part of the house now, and keep enough of it to get a "step-up in basis" at your death. For example, if you give away the house, but retain the right to live there during your lifetime (a "life estate"), then the house will be part of your taxable estate. This means that your children's basis in the house upon your death would be the date of death value, $760,000 in the above example. Thus, if the children sold the house for $760,000, there would be no capital gain. But beware of the trap that keeping the asset in your taxable estate may cause an estate tax issue (New Jersey's estate tax exemption is only $675,000) just to avoid a capital gains tax issue. (A last point that here the NJ estate tax rates, which range up to 16% on amounts over $675,000 would be far less then the combined federal and state capital gains rates of 22.5% on $700,000 of gain.)

Wednesday, April 12, 2006

Medicare Drug Prescription Scam in Northern NJ?

Category: Elder Law

This disturbing story was sent to me through my membership in the Essex County Coalition for the Protection of Vulnerable Adults:

"Hi Louise,

I just had an unfortunate event that I would like to share with you, and perhaps you could alert the Coalition members.

My grandparents are lifelong residents of Essex County, and I recently enrolled them in a Medicare Prescription Drug Plan at the website. A week later, an agent who works for Diversified Senior Financial Solutions in Bloomfield showed up on their doorstep in their early evening. They, of course, cannot hear well; were confused and did not expect an evening visitor. They asked the agent if I sent him and he said yes. So they let him in, trusting that I arranged this. He misled them; took their Medicare #’s; had them sign documents; and left. Ultimately, he enrolled them in a Medicare Advantage Plan that includes health coverage, dental, hearing and supplemental Rx as well. All to be deducted from their monthly social security which is not enough to live on as it is. Luckily, I was able to rectify the situation after threatening to call the police and Better Business Bureau, but I am fearful for other unsuspecting elderly residents of Essex County.

I have reported them to Medicare Rx fraud line 877-772-3379. Their website states that there is a scam in New Jersey.

I do have more detailed information if you should need it. Have a lovely holiday and I will see you at the next meeting.

Thank you,


Monday, April 10, 2006

Applying for Medicaid in NJ? Is NJ Giving the Right Info Re: Transfer Penalties?

Category: Elder Law

Is New Jersey mis-stating the new Medicaid Law for new applicants? Rumors are that Medicaid applicants are being unfairly denied access to Medicaid by the local offices applying the new Medicaid transfer laws to transfers that took place BEFORE the new Medicaid law was passed.

The Deficit Reduction Act of 2005 was signed into law by President Bush on February 8, 2006. I have previously summarized and debated and debated the provisions of the DRA. One item that should NOT be at issue is the effective date of February 8, 2006. The law specifically says that its is effective for all transfers AFTER that date. However, it seems that the State of New Jersey seems to be ignoring that little fact.

The law governing transfers made BEFORE February 8, 2006 was that (1) any transfer created a penalty, (2) any transfer within 36 months from the date of the Medicaid application needed to be disclosed, and (3) the penalty was reduced by (approximately) $6050 for each month that passed from the month of transfer. Thus, a $20,000 gift made in January, 2006 should create a penalty period of 3 months, which would expire at the end of March, 2006, so that you would be eligible for Medicaid starting April, 2006 (assuming you otherwise qualified).

The law governing transfers made AFTER February 8, 2006 is that (1) any transfer created a penalty, (2) any transfer within 60 months from the date of the Medicaid application needed to be disclosed, and (3) the penalty is reduced by (approximately) $6525 for each month that passes starting from the date that (a) you are institutionalized, and (b) you have no other funds to pay. Thus, a $20,000 gift made in March, 2006 should create a penalty period of 3 months and 2 days. This penalty would start when (a) you are in a nursing home, and (b) your total countable assets are $2000 or less (how your care is paid for during the penalty period is a separate question).

It appears that some New Jersey counties are telling people making applications currently that there is a 60 month lookback. This 60 months transfer penalty should only apply to transfers made after 2.8.06.

Monday, April 03, 2006

Annuity Ownership OK for Medicaid Qualification - PA Court Ruling

Category: Elder Law,

My blogging has been sporadic of late, but I am now back in the blog business.

A great ruling for seniors holding annuities. Usually, an annuity is a contract to pay a certain amount a month for a period of time (ie: $100 a month for life"). Many Medicaid agencies, including those in New Jersey, took the approach that the income right (the "$100 a month") could be sold (similar to the way a personal injury settlement could be sold), so therefore the annuity was treated as an accessible resource, even though (1) under the contract, the person only had the right to a monthly income, not to liquidate the asset and take it back, and (2) the annuity had not in fact been sold on the theorectical open market. The result, a person who in fact had no access to additional assets (just the income from those assets) was denied access to Medicaid because of the theoretical value of those assets. The result is even more troubling because seniors are the target market for annuities, which means that these same seniors end up being punished for making this type of investment, and would have not way of righting the situation.

The Federal Court in Pennsylvania noticed in the inequity in this law, and ruled that such an annuity could not be counted as an asset. The summary below is from

"A U.S. District Court finds that an actuarially sound annuity is not an
available resource under federal Medicaid law even if it is marketable, and that
Pennsylvania's provisions to the contrary contradict federal law. James v.
Richman (U.S. Dist. Ct., M.D. of Penn., No. 3:05-2647, March 20, 2006).
Robert James entered a nursing home and applied for Medicaid benefits. Mr.
James's wife, Josephine, purchased an actuarially sound annuity in order to
reduce the couple's assets to the required level. The state denied Mr. James's
application, claiming that the annuity was an available resource. Under state
law, immediate annuities were presumed to be marketable and therefore available

Mr. James asked the court for a restraining order preventing the
state from denying him Medicaid benefits. In support of its position that the
annuity was marketable, the state submitted an affidavit from a potential
purchaser of the annuity.

The U.S. District Court for the Middle District of
Pennsylvania grants the restraining order, holding that the state law
contradicts federal law, which excludes irrevocable, actuarially sound annuities
from resource determinations. Because the annuity is permitted under federal
law, it is not an available resource and Mr. James cannot be denied benefits.

Mr. James was represented by ElderLawAnswers member attorney Matthew J.
Parker of the Elder Law Firm of Marshall and Associates. "