The middle of the year is a natural time to review whether your estate plan and any special needs planning arrangements are still working the way you intended. Family situations change, laws get updated, and circumstances that seemed settled can shift in ways that affect how your plan functions. This issue covers several topics that elder law and special needs planning clients should have on their radar as we move through 2023.
The elder law and special needs planning team at Mandelbaum Barrett PC prepared this newsletter to keep clients and families informed about developments that may affect their planning. We welcome questions about any of the topics covered here.
Medicaid Planning and the Five-Year Look-Back
One of the most important and misunderstood aspects of long-term care planning is the Medicaid five-year look-back period. When someone applies for Medicaid to cover nursing home or other long-term care costs, the state reviews all asset transfers made within the five years prior to the application date. Transfers made during that period for less than fair market value can trigger a penalty period during which Medicaid will not pay for care.
Many families discover the look-back period only after a care crisis has already begun, at which point the most powerful planning strategies are no longer available. Irrevocable trusts, which can be used to protect assets from Medicaid’s asset calculations, must be established well before the five-year window opens to be fully effective. Families who wait until a nursing home admission is imminent have few options left to protect the assets they have worked to accumulate.
New Jersey’s Medicaid rules follow federal guidelines with some state-specific variations. Anyone who owns a home or has accumulated meaningful savings and is concerned about long-term care costs should discuss options with an elder law attorney before a health crisis makes the timeline irreversible.
Special Needs Trusts and Benefit Eligibility
A special needs trust, sometimes called a supplemental needs trust, is a legal arrangement designed to hold assets for the benefit of a person with a disability without disqualifying them from means-tested government benefits like Medicaid and Supplemental Security Income. The trust supplements what government benefits provide rather than replacing them, and the trustee has discretion over distributions for goods and services that improve quality of life without substituting for covered benefits.
There are several types of special needs trusts, and the right type depends on factors including the source of the trust assets, the age of the beneficiary, and the family’s long-term goals. First-party trusts funded with the beneficiary’s own assets, such as a personal injury settlement or inheritance received directly, have different requirements than third-party trusts funded by parents or other family members.
The ABLE Act created another option, the ABLE account, which allows individuals with disabilities who developed their disability before age 26 to save modest amounts in a tax-advantaged account without affecting benefit eligibility. ABLE accounts and special needs trusts can be used together as part of a coordinated plan. According to the ABLE National Resource Center, these accounts provide meaningful savings flexibility for qualifying individuals and their families.
Updating Your Estate Planning Documents
Powers of attorney and healthcare directives are among the most important documents in any estate plan, and they are also among the most frequently overlooked when it comes to updates. A power of attorney executed many years ago may still be legally valid, but the agent named may no longer be the right person for the role, or the document may not reflect current wishes or current law.
New Jersey’s Revised Durable Power of Attorney Act made changes to how third parties, including financial institutions, are required to honor powers of attorney. Documents drafted before those changes may be questioned by banks and other institutions even when they remain technically valid. Reviewing your documents with an attorney every few years, or after any significant life change, helps ensure they will function as intended when they are needed.
Contact Mandelbaum Barrett PC
Whether you are beginning the planning process for the first time or reviewing arrangements made years ago, the elder law and special needs planning team at Mandelbaum Barrett PC works with families throughout New Jersey and New York on Medicaid planning, special needs trusts, estate planning documents, and comprehensive plans designed to protect both individuals and the families around them.
To speak with a member of our team, contact Mandelbaum Barrett PC today. Our elder law attorneys are ready to assist you with your planning questions.