1. Determining the Continuation of Decedent’s Business
Special issues arise when a decedent is the owner of a business, such as a sole proprietorship, or has an interest in a partnership, a limited liability company, and/or an S corporation.

When the business owner dies, there must be a determination of whether the business should be continued, discontinued, or liquidated. In the event that the decedent was a sole proprietor or sole interest holder under a limited liability company or S corporation, it is likely that the business will be either discontinued or liquidated. If there are surviving partners or active members in a limited liability company or S corporation, the business will likely continue.

After making this initial determination, it is important to ascertain whether a buy/sell agreement exists. This agreement may also be known as a partnership agreement, shareholders’ agreement, or operating agreement (for LLCs). These agreements serve three important purposes. First, they may control valuation for federal estate tax. IRC §2703. However, such valuation might not be acceptable for New Jersey inheritance tax purposes. Second, these agreements detail the terms and conditions by which an individual’s shares will be transferred upon death. Third, operating control or administrative functions may be altered, pursuant to the terms of an agreement, as a result of death.

In the event that surviving partners, members, or shareholders are to buy out a decedent or his/her estate, buy/sell life insurance might have been obtained, and likely used, for the purchase of the business interests from the decedent’s estate by the surviving business members. In the event that such life insurance does not exist, or is not satisfactory to pay the decedent’s estate, the agreement should specify the terms and conditions by which the business is to be sold and purchased.

In the absence of a buy/sell agreement, the transfer of business shall be made pursuant to the will. In administering an estate, an executor should note whether instructions exist in the will as to the disposition of the business. If no such instructions exist, the executor generally has the authority to act on behalf of the decedent in disposing of the decedent’s business interest.

For tax purposes, a professional appraisal of the business interest should be obtained.  Despite the terms and conditions of a buy/sell agreement, the New Jersey Department of Treasury requires an independent appraisal for New Jersey inheritance tax purposes. In the event the business interests pass from one generation to the next within a family, it is often mandated that the appraisal come from an individual or entity other than the accountant who is routinely employed by the business. In making these evaluations, a qualified appraiser or forensic accountant should explore whether discounts can be obtained for lack of marketability or minority interests when appropriate.

2. Steps to Take in Dealing with Simultaneous Death
“Simultaneous death” means that two or more individuals, who were the beneficiaries of each other’s estates, die at the same time.  This term is defined as a beneficiary who fails to survive a decedent by 120 hours.  Once 120 hours elapses, the property is considered vested in the beneficiary even if he or she has not yet received the property.

When these individuals die without wills, N.J.S.A. 3B:6-3 provides that property which would have passed to intestate beneficiaries, “shall be divided in as many equal portions as there are successive beneficiaries and these portions shall be distributed respectively to those who would have taken in the event that each designated beneficiary had survived.” Further, N.J.S.A 3B:6-4 deals with property that was held either jointly with right of survivorship or as tenants by the entirety by converting such property into a tenancy in common.  Then, each individual’s interests passes through his or her own estate. If the primary beneficiary of a life insurance policy dies at the same time as the holder of the policy, N.J.S.A. 3B:6-5 provides that the proceeds pass to the contingent beneficiary.

These laws governing intestacy are superseded by any lawful provision in a will, living trust, deed, or contract of insurance. Such documents may lengthen or shorten the aforementioned period of time for survival and/or may make a presumption regarding one party predeceasing the other in the event of a simultaneous death.

3. In Kind Distributions
Personal representatives and beneficiaries often think that the job of an executor or administrator is to liquidate all of the estate assets and to distribute checks to the heirs. However, beneficiaries are entitled to “in kind” distributions as well. Pursuant to N.J.S.A. 3B:23-1, there are two forms of in kind distributions. First, a specific devisee under a will is entitled to specific bequests made to him or her. Second, if a particular asset is not devised by a will, or if the decedent dies without a will, an estate beneficiary may request an in kind distribution if three conditions are met: (1) the person has not previously demanded payment in cash, (2) the property distributed in kind is valued at fair market value as of the date of its distribution (not as of the date of death), and (3) no residuary devisee has requested that the asset in question remain part of the residue of the estate. This distribution can be made outright if it falls within the percentage of the estate that the beneficiary is entitled to. If the in kind distribution exceeds that interest, an executor or administrator may distribute it if the beneficiary is willing to pay the difference between his or her interest and the fair market value of the asset. In this event, or in the event that another residuary devisee makes the request that an asset remain part of the residue of an estate, a court order should be obtained to authorize the distribution.

4. Filing for Partition of Undivided Interests in Property

Occasionally, two or more heirs or devisees may be entitled to distribution of undivided interests in the real or personal property of an estate. This typically occurs with devises of real property.  In such a case, an action before the probate court may be initiated for partition. This action can be commenced by the personal representative or by any of the beneficiaries of the estate as well. This application should be made prior to the formal or informal closing of the estate.

Notice of a partition action must be given to all interested heirs or devisees. If a charity is a beneficiary, the Attorney General for the State of New Jersey shall be notified as well.

If possible, the court shall partition the property in the same manner as provided by law for civil actions of partition. If the court determines that a partition cannot be made without prejudice to the owners and cannot be conveniently allotted to any one particular party, the court may direct that the property be sold.

5. Petitioning the Court for Instructions
Properly drafted wills appoint executors and provide the executors with a set of instructions in order to effectively complete the administration of the estate. Unfortunately, the instructions given in wills are not always clear. Many people use software programs and the Internet to prepare wills. These types of programs are not often of high quality. Moreover, many lay people do not have a clear understanding of probate laws. Thus, the attempt to save a few dollars in estate planning costs can frequently lead to the creation of deficient estate planning documents.

An executor is responsible for proper distribution of an estate so it is important that the executor attempt to ensure that he or she is not accused of making a mistake after distributions have been made. As such, in order to remedy deficient instructions in a poorly drafted will, an executor may petition the court for directions.  New Jersey Court Rule 4:89-1 states, “If an account is to be settled, the plaintiff in the complaint may apply to the Court for directions as to the distribution of the estate…” New Jersey Court Rule 4:89-2 states,

In actions for distribution, the complaint shall state: (a) when letters, if any, were granted to a fiduciary; (b) the names and addresses of all persons interested, specifying which of them are minors or mentally incapacitated persons; and in actions for the distribution of an intestate’s estate, the manner and degree in which the next of kin severally stand related to the intestate; (c) the balance in the fiduciary’s hands for distribution, so far as the same may be known; and (d) shall have annexed to the complaint a copy of the will or other instrument, if any, pursuant to which distribution is to be made.

The issue of instructions is limited to wills and trusts. Intestate estates typically are not involved in this matter because distribution will be governed by the intestacy statutes.

Expenditure Caps and Limitations

Services provided to an individual will not exceed a lifetime total of $100,000 nor an annual total of $15,000 for any 12-month funding year.  The applicant may apply to the Fund for a waiver of those expenditure limits, if there is extraordinary hardship.  Extraordinary hardship means loss of income, extreme medical need, or potential functional decline of the applicant.

Financial Requirements

To be eligible, the applicant must demonstrate:

• An inability to pay for the requested services.  The applicant or his/her immediate family’s liquid assets shall not exceed $100,000, and those assets are otherwise committed or not available to fund the requested services.  (Liquid assets include checking accounts, savings accounts, certificates of deposit, stocks, and bonds.  Your home is not considered a liquid asset nor is your IRA or 401(k), unless you are of retirement age.)

• That there are no trust funds, settlements, gifts or donations for which the applicant is eligible and which are unavailable on a timely basis, to meet the applicant’s needs.

• That there are no other funds, insurance coverage, or public or private programs for which the applicant is eligible, to provide the requested care, services, or supports for the applicant in a timely manner.

Payment for services or supports rendered prior to the receipt of the formal committee approval shall be ineligible for reimbursement.  The Fund shall have a lien on future monies received by the person, including a personal injury settlement or payment made in connection with the traumatic brain injury.

Residential Requirements

The applicant must be a resident of New Jersey for at least 90 consecutive days and a permanent resident of the United States.

Support Services

The following support services are available:

            A.        Name on the Check Rule

Under MCCA, states must follow the “name on the check” rule.  This means that the income is deemed to belong to the person to whom it is paid.  For example, if there is a Certificate of Deposit in the name of the husband, and the interest check is paid to him, then Medicaid deems the interest to be his income.  If the check is in the name of the wife, Medicaid deems the interest to be the income of the wife.  If the certificate of deposit is in the name of the husband and the wife, Medicaid says that one-half of the income belongs to the husband, and one-half of the income belongs to the wife.  If the CD is titled in the name of the husband or the wife, Medicaid deems the entire income to the institutionalized spouse.

            B.        Minimum Monthly Maintenance Needs Allowance

Under MCCA, the community spouse is entitled to a MMMNA.  N.J.A.C. 10:71-5.7(c).  For the period July 1, 2011 through June 30, 2012, the figure is $1,838.75.  This figure is adjusted on July 1 of each calendar year.  The actual income of the community spouse is subtracted from this figure.  In addition, the community spouse is allowed an “excess shelter allowance” to the extent that the living expenses of the community spouse exceed $551.63 dollars per month.  This figure is also adjusted as of July 1 of each calendar year.

The Minimum Monthly Maintenance Needs Allowance and the excess shelter allowance combined cannot exceed $2,841 in 2012.  This is adjusted annually.

The excess shelter allowance is calculated by totaling the shelter expenses of the community spouse.  These expenses are limited to rent, a mortgage (including principal and interest), taxes and insurance, a utility standard for the individual’s utility expenses, and maintenance charges for a condominium or co-op.  N.J.A.C. 10:71-5.7.

            C.        Expansion of MMMNA

Under N.J.A.C. 10:71-5.7(e), the MMMNA may be increased at a Fair Hearing in accordance with N.J.A.C. 10:71-8.4.  It must be established at the Fair Hearing that the MMMNA is inadequate due to exceptional circumstances resulting in financial duress.  Upon such a showing, a larger MMMNA will be substituted for as long as directed in the Fair Hearing.

In E.S. v. DMAHS, OAL Dkt. No. HMA-3166-00, J.S. applied for an increase in her MMMNA based on exceptional circumstances resulting in significant financial distress.  E.S. and J.S. are married and E.S. is a Medicaid recipient.  For many years, E.S. and J.S. suffered from severe medical problems and had two loans from J.S.’s 401k.  The loans were repayable at the rate of $239.10 per month.  They also had credit card bills totaling approximately $220.00 per month.  The Administrative Law Judge held, and the Director agreed, that this constituted exceptional circumstances resulting in significant financial duress and authorized an increase in the MMMNA in the amount of $239.10 per month to pay the 401k loan.

A similar case, S.M. v. DMAHS, OAL Dkt. No. HMA-2398-01, involved S.M., who had credit card debt of approximately $22,036.30, requiring minimum payments of $455.00.  All of the debt was incurred prior to petitioner’s institutionalization.  The Administrative Law Judge found that these facts constituted exceptional circumstances resulting in significant financial duress.  The Director agreed, noting, “However, I find that repayment of the credit card debt to be an expense warranting additional income only to the extent that the debt was incurred prior to the Petitioner’s husband’s institutionalization.”

            D.        Community Spouse Resource Allowance

For individuals institutionalized on or after September 30, 1989, MCCA provides for the pooling and division of the couple’s total resources and allows the community spouse to retain a Community Spouse Resource Allowance (CSRA) as a protection against impoverishment.

The CSRA is composed only of countable resources.  The community spouse is entitled to one-half of the couple’s pooled countable resources.  For 2012, there is a minimum of $22,728 and a maximum of $113,640.  Some states have adopted the top figure ($113,640) as a maximum and minimum resource allowance.  New Jersey has not done so.

If a court of competent jurisdiction has entered an order that the community spouse is to receive greater resources than that authorized by Medicaid, the court ordered amount is recognized as the community spouse’s share.  N.J.A.C. 10:71-4.8(a)4.  Medicaid will not recognize a divorce that it perceives to be a “Medicaid divorce” done simply for purposes of expanding the CSRA.

The snapshot of the couple’s resources is taken as of the first day of the first month of the first period of continuous institutionalization beginning on or after September 30, 1989.  The individual is entitled to a resource assessment as of the beginning of the continuous period of institutionalization.  42 U.S.C. § 1396r-5(c)(1)(B).  N.J.A.C. 10:71-4.9.  The regulations differentiate between types of facilities for purposes of deeming whether an individual is “institutionalized.”  In regulation N.J.A.C. 10:71-4.10(b)2, individuals are not presumed “institutionalized” if they are residing in an acute care general hospital.  Individuals are to be deemed institutionalized, on the other hand, if they are residing in a Medicaid-certified nursing facility, an intermediate care facility for the mentally retarded, a licensed special hospital, or a Title XIX psychiatric hospital (if he or she is under age 21 or over age 65).  Individuals can also be deemed to be institutionalized if they are applying for benefits under a home or community-based waiver program.

The assessment of the couple’s resources can be made upon request of either party in accordance with N.J.A.C. 10:71-4.9 or at the time of application for Medicaid benefits.  The community spouse’s share is determined as of the first moment of the first day of the month of the current period of institutionalization.  N.J.A.C. 10:71-4.8(a).  A continuous period of institutionalization is broken by absences from the institution for 30 consecutive days.  N.J.A.C. 10:71-4.8(a)7.

The Medicaid statute is silent as to the treatment of resources acquired between the date of institutionalization and the application for Medicaid. The practice in New Jersey, however, is to take a second snapshot at the time of Medicaid application.

            E.         Expansion of Community Spouse Resource Allowance

A hearing may be requested for purposes of increasing the CSRA if it is necessary to raise the community spouse’s income to the level of the MMMNA.  42 U.S.C. § 1396r-5(e)(2)(C).  N.J.A.C. 10:71-5.7(d).  The theory is that if the community spouse’s income is below the MMMNA, the community spouse should be allowed to set aside additional assets to invest to make up the deficiency in income.

It has been questioned whether the community spouse must first look to the income of the institutionalized spouse to make up the deficiency.  The language in N.J.A.C. 10:71-5.7(d), “when the institutionalized individual’s income is insufficient to provide the maximum authorized deduction for the community spouse,” requires that the community spouse look first to the income of the institutionalized spouse.  This is known as the “income first” rule.  The Deficit Reduction Act § 6013 makes clear that the “income first” rule applies in all states.

In a case of first impression, the U.S. District Court of Appeals held that Social Security payments are non-assignable, and even if a state adopts an income first rule, it cannot apply it to Social Security benefits.  Robbins v. DeBuono, 218 F.3d 197 (2d Cir. 2000).  However, a case before the same Court, Wojchowski v. Daines, 498 F.3d 99 (2d Cir. 2007), held that attribution of an institutionalized spouse’s Social Security benefits to a community spouse does not violate the anti-alienation provisions of the Social Security Act.  42 U.S.C. § 407a.

In S.N. v. DMAHS, OAL Dkt. No. HMA-7382-00, Mr. and Mrs. N. had countable assets totaling $53,664.00.  The CSRA was $26,832.  The applicable MMMNA was $1,383.  Petitioner’s total monthly income was $1,070.00.  Mrs. N.’s total monthly income was $419.00.  They had a shelter expense of $781.00.  The Administrative Law Judge held that, utilizing a five percent rate of return, the monthly income generated from Mrs. N.’s share of resources is $120.00 which was a shortfall of $176.00 for June 2000 and $193.00 for July 2000.  The ALJ held that Mrs. N. was entitled to retain an additional $24,832, generating an income at five percent to make up the difference.  The Director agreed.

The probate process involves the administration of an individual’s assets at the time of his or her death. It is imperative to understand what the probate process covers and what it excludes. Contrary to popular opinion, the executor under a will or the administrator of an intestate estate does not handle all of a decedent’s assets. There are a variety of assets which are not subject to probate. These include the following:

- Contract assets, such as retirement plans, individual retirement accounts, annuities, and life        insurance policies.
- Transfer on death (TOD) and payable on death (POD) accounts.
- Property held jointly with a right of survivorship.
- Assets that are owned by a living trust.

Some estates can actually avoid the probate process if all assets fall into the aforementioned categories.  Some individuals even choose to retitle all of their assets and/or designate beneficiaries in order to avoid probate, often because of fears about the complexity of the probate process. However, in New Jersey, the probate process is quite simple. Further, probate is usually necessary even if all assets are retitled because, frequently, there are final pension checks or Social Security checks as well as personal effects and automobiles which are owned solely in a decedent’s name. Finally, for individuals who have substantial assets, the retitling or designation of all assets in order to avoid probate can actually waste tax planning opportunities.

The probate process is generally initiated through the establishment of a personal representative for a decedent’s estate. A representative is appointed in one of six ways:

1. Administrator of a small estate.
2. Executor of an estate under a will.
3. Administrator of an intestate estate.
4. Administrator C.T.A. of an estate pursuant to a will.
5. Administrator appointed by the Superior Court.
6. Administrator for personal injury litigation.

1. Administrator of a Small Estate. For certain very small estates, it is unnecessary to require bonding or probate fees, so New Jersey statutes allow for the appointment of a small estate administrator in certain circumstances.  If there is a surviving spouse, he or she may apply, pursuant to an affidavit provided by the Surrogate’s Court, to act as administrator if the size of the estate is less than or equal to $20,000. N.J.S.A. 3B:10-3. If there is no surviving spouse, an heir of the estate may qualify as a personal representative if the size of the estate is less than or equal to $10,000. N.J.S.A. 3B:10-4. In these circumstances, a decedent’s heirs may administer an estate without the requirement of a bond and with a reduced filing fee. The estate is typically not subject to the usual requirement of an accounting.

2. Executor of an Estate under a Will. The traditional manner in which a personal representative is appointed is through a decedent’s will, and the representative is referred to as an executor. If an individual dies with a valid will, the will may be admitted to probate pursuant to N.J.S.A. 3B:3-2, if the named executor produces the original will, a certified copy of the death certificate, the filing fee, and one of the witnesses to the will.  The witness then signs an affidavit verifying the authenticity of the will. Pursuant to N.J.S.A. 3B:3-4, the requirement of a witness is waived if the will is self-proving.

Officially, a death certificate can be obtained by the township in which a decedent was a resident at the time of his or her death. However, death certificates are traditionally ordered and provided by the funeral director who handles the burial or cremation of the decedent. Prior to filing for probate, it is imperative that the proposed personal representative review the death certificate for accuracy. Often, the decedent’s address is erroneously listed as a vacation home or nursing facility rather than the actual residence. Moreover, there are sometimes typographical errors and mistakes. Once the death certificate has been released, it can be corrected by a form of affidavit. N.J.S.A. 26:6-14.

The original, unaltered will must be delivered to the Surrogate.  Pursuant to the New Jersey Court Rules, a photocopy of the will can be admitted only upon approval of the Superior Court. R. 4:82. If the original will cannot be found, there is a legal presumption that it was revoked by the testator. This presumption can be rebutted by clear and convincing evidence that the document was not revoked, and did in fact represent the decedent’s wishes. In re Lawrence’s Will, 138 N.J.Eq. 134, 47 A.2d 322 (1946).

Probate of a will cannot occur until 10 days after the death of the testator, but the application for probate of a will may be filed at any time after death. N.J.S.A. 3B:3-22. Probate of a will may be accomplished in one of two ways: (1) common form probate, or (2) solemn form probate. Common form probate is an ex parte procedure in which the executor appears in the Surrogate’s Court without notice to anyone. For solemn form probate, a verified complaint and order to show cause to admit a will to probate is filed with the Court. Solemn form probate is typically used when an individual wishing to contest the will files a caveat. The only way to discharge the caveat and have the will admitted to probate is to file an application for its admission.

Under either scenario, before an executor can be appointed, he or she must execute a variety of forms. First, the proposed executor must execute a power of attorney which empowers the county Surrogate to accept service of process in any cause of action in which the estate or the executor is a party if personal service upon the executor cannot be affected. In this rare event, upon receiving service, the Surrogate then mails a copy of the process to the fiduciary at the address given in the power of attorney. Second, the proposed executor must also file a qualification affidavit indicating that he or she is ready, willing, and able to administer the estate according to the law.

Upon the submission of the foregoing, the Surrogate will issue Letters Testamentary, the formal document acknowledging that the will has been admitted to probate and that the executor has been appointed as the personal representative of the estate. In order to accomplish the objectives of estate administration, the executor must obtain a number of short certificates, which are miniature forms of the Letters Testamentary. These forms are proof to a third party, such as a financial institution, that the executor is lawfully empowered to handle the assets in the decedent’s estate.

3. Administrator of an Intestate Estate. If an individual dies without a will, the estate is subject to intestate succession, and distribution is governed by the intestacy statutes of the state of New Jersey. N.J.S.A. 3B:5-1 et seq. The appointment of an administrator is similar to the appointment of an executor. R. 4:80-1. Obviously, because there is no will, the only document that must be filed is a death certificate. Qualification and power of attorney forms, similar to those executed by an executor, are also filed. However, while most wills provide that an executor shall serve without bond, an administrator must obtain a surety bond before receiving Letters of Administration and Short Certificates. Unlike the executor of a will, an administrator may be appointed after five days rather than the ten-day period required for a will. N.J.S.A. 3B:5-1.

There is a statutory priority of those individuals entitled to serve as administrator. N.J.S.A. 3B:10-2. A spouse has first priority, followed by any adult children. If there is no spouse and no adult children, the priority goes to relatives, such as parents, siblings, and other more distant heirs. If none of those individuals will accept the administration, any other person who will accept the administration may be appointed.  In order to qualify for Letters of Administration, an individual must request an appointment and seek the renunciation, in writing, of any individual who has equal or statutory priority to serve.

If renunciations cannot be acquired, Letters of Administration may be granted if the applicant produces proof that sufficient notice of application has been given to any and all prospective heirs. The notice, in order to be sufficient, must be no less than 10 days for residents of New Jersey and no less than 60 days for persons residing outside of New Jersey. R. 4:80-3. However, a Surrogate may reduce the aforementioned time periods. If an objection is filed in response to these notices, an administrator may only be appointed by an application to the Superior Court through the form of a verified complaint and an order to show cause.

4. Administrator C.T.A. Administration with the will annexed is obtained when an individual has a valid will, but no named executor is available to act. N.J.S.A. 3B:10-15. Theoretically, this can occur in the rare instance where a will has dispositive provisions for the decedent’s estate, but fails to appoint an executor. A more typical case occurs when an executor and any successor executor has died, become mentally incapacitated, renounced, or otherwise failed to serve under the will. In this situation, an individual applying for Letters of Administration would be required to file a bond. However, distribution of the estate would be made pursuant to the will, rather than pursuant to the intestacy statute.

5. Administration Established by the Superior Court. For a variety of reasons, the Superior Court may appoint an administrator of an estate. R. 4:84-2. In the event of a will contest, an appointment of an administrator may be made subsequent to the filing of the complaint and prior to the ultimate determination of the validity of the will. An appointment can also be made when heirs at law cannot agree upon an administrator for an intestate estate. The Superior Court may also make an appointment in the event there is a need to remove a personal representative due to allegations of fiduciary abuse or neglect. In any of these circumstances, the Superior Court may appoint an heir, the named executor, or an independent administrator.

6. Administrator for Personal Injury Litigation. If a suit for wrongful death is brought on behalf of an estate, then an administrator for those purposes must be named. This individual is referred to as the administrator ad prosequendum. Pursuant to N.J.S.A. 3B:10-11, this administrator can be appointed in one of three ways: (1) by the Surrogate’s Court in the county in which an intestate decedent resided, (2) if a decedent resided outside of the state, by the Surrogate’s Court of the county wherein the accident resulting in death occurred, or (3) by the Superior Court. The individual who received Letters of General Administration can also receive these Letters of Administration as well. This form of administration only applies to intestate estates. An executor under a will has the right and the obligation to pursue a wrongful death action on behalf of the estate.

For several years, no statute or regulation existed to authorize this planning, nor was there any written opinion from the Appellate Division or state Supreme Court to provide direction to the Superior Courts.  Fortunately, New Jersey courts have rendered decisions over the past few years, which have validated this form of estate planning by guardians.

1. Statutory Framework

According to N.J.S.A. 3B:12, a guardianship is a “protective arrangement.”  In guardianship settings, the Court acts under the doctrine of parens patriae , which is a Latin term used to describe the Court’s role as a “surrogate parent.”  While guardianships are nominally established in order to protect both the person and the estate of mentally incapacitated individuals, the primary purpose of the guardianship has been to prevent persons from becoming public charges and from squandering their resources to the detriment of their heirs.  SAMUEL JAN BRAKEL & RONALD S. ROCK, THE MENTALLY DISABLED AND THE LAW 250 (REV. ED. 1971); MICHAEL D. CASASANTO, MITCHELL SIMON, & JUDITH ROMAN, A MODEL CODE OF ETHICS FOR GUARDIANS (1989).

Guardians cannot undertake Medicaid planning without Court approval.  While a guardian may reasonably expend or distribute the ward’s assets for the benefit of the ward, as well as those legally dependent upon the ward, and may pay for the necessary expenses for services by third parties on behalf of the ward without Court approval, most powers must be conferred by the Court, which has the authority to both expand and limit powers of guardians.  See N.J.S.A. N.J.S.A. 3B:12-37, 43, 46, and 47, 49; N.J.S.A. 3B:14-24.  The power to make gifts is contained in N.J.S.A. 3B:12-58, which states

If the estate is ample…, a guardian for the estate of an incapacitated person may apply to the court for authority to make gifts to charity and other objects as the ward might have been expected to make.

Importantly, both the statutes and case law prohibit self-dealing. Yet, asset transfers almost always benefit the guardians, so legal tension results. For many years, most Courts declined to accept applications by guardians for Medicaid planning because of this tension, and because of questions about the propriety of replacing private funds with public funds in order to pay for custodial care.

2. The Evolution of New Jersey Case Law

Before the early 1990s, very few cases addressed the ability of a guardian to make lifetime transfers for estate planning purposes. In 1972, the Court in In re Trott recognized that a guardian could make annual gifts in an amount not to exceed the annual limit subject to a gift tax. In re Trott, 118 N.J. Super 436, 288 A.2d 303 (Ch. Div. 1972). The court recognized that the guardian could prudently deplete the assets of an estate, to some degree, in order to reduce death taxes, if the following 5 criteria were satisfied:

(1)  The mental and physical condition of the incompetent are such that the possibility of her restoration to competency is virtually nonexistent;

(2)  The assets of the estate of the incompetent remaining after the consummation of the proposed gifts are such that, in light of her life expectancy and her present condition of health, they are more than adequate to meet all of her needs in the style and comfort in which she now is (and since the onset of her incompetency has been) maintained, giving due consideration to all normal contingencies;

(3)  The donees constitute the natural objects of the bounty of the incompetent by any standard …;

(4)  The transfer will benefit and advantage the estate of the incompetent by a reduction of death taxes;

(5)  There is no substantial evidence that the incompetent, as a reasonably prudent person, would, if competent, not make the gifts proposed in order to effectuate a saving of death taxes.

Id. at 442-4. In this case, the remaining income and assets of the ward were more than enough to meet all conceivable needs of the incompetent until her death. In this decision, the Court noted a line of cases and statutes in other states authorizing planning in such a way to minimize current or prospective state or federal income, estate, and inheritance taxes. The Court also stated that a guardian should be authorized to act as a reasonable and prudent person would act in the management of his or her own estate, unless there is any settled intention of the incompetent formulated during a period of capacity,  to the contrary. Id. at 441.

Medicaid planning by guardians was recognized in 1998 by the Appellate Division. In Matter of Labis, the Appellate Division reversed a lower Court’s rejection of a petition to transfer the interest of an institutionalized ward in the marital residence to his spouse. Matter of Labis, 314 N.J. Super. 140, 714 A.2d 335 (App.Div. 1998).  In its reversal, the Court noted that an interspousal transfer was a reasonable method to effectuate Medicaid and estate planning. Id. at 148.

In 2004, the authority of a guardian to undertake Medicaid planning was clarified by In Re Keri. In Re Keri, 181 N.J. 50, 853 A.2d 909 (2004).  The Supreme Court of New Jersey held that an adult child serving as the guardian of his parents may transfer to himself all or part of the parents’ assets in order to hasten the parents’ Medicaid eligibility if the 5 Trott criteria are satisfied. Id. at 53. Further, the Court found that the proposed action must be in the ward’s best interests, and must be such that the ward would have been expected to make. Id. at 57.  This effectively combined that statutory “best interests” standard and the common law doctrine of substituted judgment.  Id. at 57-8.

3. The Deficit Reduction Act of 2005

On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (“DRA”). The DRA brought major changes to federal Medicaid law and substantially affected the rights of individuals to preserve their assets in the event that they require long term care. The major changes promulgated by the DRA are as follows:

(1)  The look back period increased from three years to five years.

(2)  The penalty period for uncompensated transfers (gifts) now commences when a person is institutionalized and is otherwise eligible for Medicaid, rather than at the time the gift was made.

(3)  Equity in the home is countable if it is over $500,000, unless a state decides to increase that amount to $750,000.

(4)  Annuities may be countable if they are irrevocable, non-assignable, actuarially sound, and have equal payments with no deferral or balloon payments. In addition, the state must be named as a remainder beneficiary, and the state must be the primary remainder beneficiary unless there is a spouse or child who is either under 21 or disabled.

The Superior Court of New Jersey visited the topic of Medicaid planning after the passage of the DRA in the case E.S. v. DMAHS. E.S. v. DMAHS, 412 N.J. Super 340, 990 A.2d 701 (2010).  In this case, the Middlesex County Board of Social Services imposed a transfer penalty because the applicant for Medicaid benefits had advanced payment to her daughter under a life care contract.  The Court found that the transfer penalty was appropriate.  It is important to note that in this case the daughter held a power of attorney over her mother, not a guardianship.  Additionally, the Court distinguished this case from Keri because, here, the daughter triggered a transfer penalty without otherwise providing for her mother’s care. Id. at 353.  Further, unlike in Keri, the Medicaid applicant here had at least one other child who was left out of the distribution scheme.

Even though E.S. v. DMAHS involves an agent under a power of attorney instead of a guardian, it demonstrates that Medicaid planning by fiduciaries is acceptable in New Jersey.  However, with the passage of the DRA, Medicaid planning undertaken by both fiduciaries and the applicants themselves is coming under much stricter scrutiny.

Statistics show that approximately 60 percent of the population age 65 or over will require some form of long-term care.  Some will be there for relatively short periods of time.  These are usually stroke victims who are doing rehabilitation.  A significant percentage will remain in a nursing home for an extended period of time.  These are usually Alzheimer’s or Parkinson’s patients.

A statistic widely quoted is that the average stay in a nursing home is 2.9 years.  This statistic is somewhat misleading, because the persons receiving rehabilitation are often discharged in six months or less.  The long-term patients may stay in the nursing home for many years.

Unfortunately, as the population ages, the cost of health care is increasing, and government entitlement programs are being cut back.  The cost of a nursing home in New Jersey today is approximately $100,000/$120,000 per year.  Some nursing homes are slightly less, and some are significantly more.

There are five sources for nursing home payment.  They are:  private pay, long-term care insurance, Medicaid, Medicare, and Veterans Administration.

2.         MEDICAID

2.1.       Administration

This is a program administered by the states and funded by both federal and state governments.  Rules vary from state to state.  In New Jersey, Medicaid is administered by the County Welfare Boards.  Medicaid pays for nursing home care for eligible individuals.

2.2.       Eligibility

2.2.1.    Citizenship and Residency

Must be a U.S. Citizen or resident alien and a resident of New Jersey.[i]  An individual is not allowed to enter New Jersey solely in order to receive Medicaid.[ii]

2.2.2.    Categorical

Must be 65 years of age or older[iii] unless blind or disabled.[iv]  “Blindness” means visual acuity of 20/200 or less in the better eye with use of a correcting lens.[v]  “Disability” is defined as the inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment, which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months.[vi]

2.2.3.    Medical Eligibility

Must also be eligible from a medical standpoint.  This is done by a Medicaid nurse completing a necessary form stating the diagnosis, medication, etc.

2.2.4.    Income

2.2.4.1. Cap

New Jersey has two Medicaid programs.  If the institutionalized person’s income exceeds $2,094 per month as of January 2012 (300% of the SSI individual benefit), that person goes on a “Medically Needy” Medicaid program. Persons whose income is $2,094 per month or less have the option to elect Medically Needy or Medicaid Only.[vii]  There are a number of differences.  For example, in Medically Needy, the institutionalized person is permitted to retain $4,000 of assets, but has no in-patient hospital care under Medicaid.  Under Medicaid Only, the person can retain only $2,000 of resources,[viii] but receives in-patient hospital care.

2.2.4.2. Types

All types of income are counted includ­ing wages, social security, pensions and annuities, alimony, interest and dividends.[ix]

2.2.4.3. Name on Instrument Rule

The name on instru­ment rule applies in determining to whom income belongs.  If there is a joint “and” account, income is deemed to belong one-half to each.  If it is a joint “or” account, Medicaid takes the position that the entire account belongs to the applicant.[x]

2.3.       Minimum Monthly Maintenance Needs Allowance

Medicaid Regu­lations provide for a Minimum Monthly Maintenance Needs Allowance which is composed of $1,838.75 per month adjusted annually on July 1 of each calendar year, plus the community spouse’s expenses for rent, mortgage, taxes, insurance and certain utilities in excess of $551.63 per month.  These figures are for the period July 1, 2011 through June 30, 2012.[xi]  The figures for the period July 1, 2012 through June 30, 2013 are $1,891.25 and $567.37, respectively.[xii]  The maximum MMMNA is currently $2,841.[xiii]

2.4        Resources

2.4.1.    Cap

Resources cannot exceed $2,000 under Medicaid Only,[xiv] or $4,000 under Medically Needy.[xv]

2.4.2.    Excluded Resources

2.4.2.1. Home

The primary residence and lot are excluded if occupied by the institutionalized person or the community spouse.  Absence of more than six months creates a presumption that the home no longer serves as the principal residence.[xvi]

2.4.2.2. Automobile

One automobile is exempt.[xvii]

2.4.2.3. Personal Effects and Household Goods[xviii]

2.4.2.4. Wedding Ring and Engagement Ring[xix]

2.4.2.5. Medical Equipment

Needed by an institutionalized person or a member of his household.[xx]

2.4.2.6. Burial Fund

A prepaid funeral is permitted provided the funeral director places the payment in an irrevocable trust for this purpose or, provided that a life insurance policy is irrevocably assigned to the funeral director.[xxi]

2.4.2.7. Inaccessible Resources

Resources which cannot be liquidated are considered inaccessible resources.[xxii]

2.4.2.8. Term Life Insurance[xxiii]

Term life insurance is not countable since it has no cash value.

2.4.2.9. Whole Life Insurance with a maximum face of $1,500[xxiv]

2.5.       Pooling

Resources owned individually by the institutionalized spouse and the community spouse or owned jointly by the institutionalized spouse and the community spouse are pooled together to determine Medicaid eligibility.  However, this rule does not apply to a spouse who entered a nursing home prior to September 30, 1989.[xxv]  Transfers between such spouses, are permitted without resulting in any period of ineligibility.

2.6.       Transfer of Resources

2.6.1.    Look-Back Rule

There is a 5-year look-back for transfers of assets.[xxvi]  This means that the disposal of resources, for less than fair market value, in the 5-year period prior to the month of application must be reported at the time of the Medicaid application.  Transfers made beyond the look-back period are not penalized.  Transfers within the look-back period are penalized.

2.6.2.    Penalty

2.6.2.1. Transfer Penalty

To calculate the penalty, divide the amount of the transfer by the average cost of nursing home care in New Jersey, as it was calculated in 2008 $7,282.[xxvii]  Under the Deficit Reduction Act, the penalty is calculated in partial months.[xxviii]  The penalty is the period for which the institutionalized spouse would be ineligible for Medicaid.  Under federal law, the penalty is unlimited.[xxix]

2.6.2.2. Beginning Date

The penalty begins on the later of the date of the transfer for less than fair market value, or the date on which the individual is eligible for medical assistance under the State Plan and would otherwise be receiving institutional-level care based on an approved application for such care but for the application of the penalty period, whichever is later and which does not occur during any other period of ineligibility.[xxx]  Therefore, the penalty begins when a person is actually receiving care, has reduced his or her resources to $2,000, and has no other penalty outstanding.

2.6.2.3. Transfers by Community Spouse

Transfers by the community spouse are also subject to the same penalty as transfers by the institutionalized individual.

2.6.3.    Exemptions from Transfer Penalty

Exemptions from the transfer penalties period are:[xxxi]

(1)        Transfer to the community spouse or for the sole benefit of the community spouse.

            (2)        Transfers to a blind or disabled child or for the sole benefit of a blind or disabled child.

                        (3)        Transfer of a principal residence to:

(a)         Community spouse.

(b)        Child under 21, blind or disabled.

(c)             Child who is residing in the house for at least two years, and who had provided care for the parent, allowing the parent to stay at home.

(d)             Sibling who also has an ownership interest in the house, and who is residing in the house for at least one year.

            2.7.       Community Spouse Resource Allowance

This guarantees the community spouse a minimum amount of resources without affecting the institutionalized spouse’s Medicaid eligibility.  For 2012, this is the greater of $22,728 or one-half of the couple’s non-exempt resources not to exceed $113,640.[xxxii]  These figures are adjusted on January 1 of each calendar year.

2.8.       Snapshot

The determination of a couple’s resources is made at the time the institutionalized person enters the nursing home, or at the time of the Medicaid application, whichever first occurs.  This determination is used to establish the Community Spouse Resource Allowance.[xxxiii]

2.9.       Taxation

In doing Medicaid planning, income tax, gift tax and estate tax consequences need to be considered, including medical deductions, personal dependent exemptions, carry-over basis, and step-up in basis.

2.9.1.    Income Tax

2.9.1.1. Medical Deduction

The IRS permits an income tax deduction for medical expenses.  Medical expenses include qualified long-term care services.[xxxiv]  Qualified long-term care services are defined in the tax code[xxxv] as “necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance and personal care services, which:  (a) are required by a chronically-ill individual, and (b) are provided pursuant to a plan of care prescribed by licensed health care practitioner.”  A chronically-ill individual is a person certified by a licensed health care provider as being unable to perform two activities of daily living for a period of at least 90 days.  The activities of daily living are defined to mean “eating, toileting, transferring, bathing, dressing and continence.”  The Conference Report notes “It is intended that an individual who is physically able, but has a cognitive impairment such as Alzheimer’s disease, or other form of irreversible loss of mental capacity, be treated similarly to a person who is unable to perform at least two activities of daily living.”

A taxpayer can claim an itemized deduction for unreimbursed medical expenses to the extent such expenses exceed 7.5 percent of adjusted gross income.  Qualified long-term care services, insurance premiums and other eligible medical expenses may be aggregated.

Except for insulin, expenditures for medicine and drugs are deductible only if prescribed by a physician.

Capital expenditures are deductible if they are medically necessary and represent an unrecoverable sunk cost.  To the extent the purchase increases the value of an asset, the expenditure is non-deductible regardless of the degree of medical need.  The IRS has published a list of home modifications that are deemed not to add to a home’s value.[xxxvi]

Personal care services are tax deductible, if provided pursuant to a plan of care prescribed by a licensed health care practitioner (i.e., physician, registered nurse, geriatric care manager).  Expense must be primarily related to needed assistance with any of the disabilities for which the individual qualified as chronically ill or cognitively impaired.  Examples include expenses related to a patient’s dressing, grooming and bathing, if an individual is unable to perform those functions without assistance.  There is no deduction for what might be termed “maid” services.  These include cooking and general cleaning.

Payments for qualified long-term care services provided by an individual do not qualify as paid-for medical care if the service is provided by the spouse of the individual or by a relative, unless the service provider is a licensed professional with respect to the service.

2.9.1.2. Personal Dependent

If a person pays for more than 50 percent of the support of a relative, and the relative in calendar year 2012 has less than $3,800 of gross income for the year and has not filed a joint return with his or her spouse, then the person paying the support may claim the relative as a dependent on the person’s federal income tax return.[xxxvii]  For purposes of calculating the 50 percent requirement, tax-exempt interest income, disability income and Social Security income, of the relative is counted.  However, for purposes of calculating the $3,800 of gross income, tax-exempt interest income, disability income and Social Security income are not counted.  If a person claims a relative as a personal exemption, the relative must not file a joint return.[xxxviii]

The personal exemption amount for taxable years beginning in 2012 is $3,800.[xxxix]

2.9.1.3. Medical Deduction – Relative

Under the Federal tax code[xl] a person can claim a medical deduction for medical expenses paid on behalf of a relative, if the person provided over half of the relative’s total support for the calendar year.  The person can deduct the medical expense of the relative, even if the person cannot claim the personal dependent exemption because the relative received $3,800 or more of gross income in calendar year 2012.[xli]

A relative is defined[xlii] as “a child or descendant of a child; stepchild; brother, sister, by whole or half-blood; stepbrother, stepsister; father, mother or ancestor of either (grandparent, great-grandparent, etc.); stepfather, stepmother; nephew, niece; brother or sister of father or mother (uncle, aunt); brother-, sister-, father-, mother-, son-, or daughter-in-law.”

The taxpayer claiming the exemption must, in combination with other taxpayers (i.e., children), provide more than half of the support of the dependent individual for the calendar year.  The taxpayer claiming the dependent must have individually provided more than 10 percent of the individual’s support.  The taxpayer must sign a Multiple Support Agreement Form 2120 if:

(1)        The taxpayer provided less than half of the dependent’s support for the

calendar year; but

(2)        The group provided more than half of the support; and

(3)        No one person furnished more than half of that support; and

(4)        The taxpayer contributed more than 10 percent of the support; and

(5)        Each person in the group contributed more than 10 percent signs a

written declaration (Form 2120 can be used) that he/she won’t

claim that individual as a dependent for any tax year beginning

in the calendar year.[xliii]

All of the declarations must be attached to the return of the taxpayer claiming the dependency deduction.[xliv]

2.9.1.4. Dependent Care Credit

This is available to a child on behalf of a dependent parent although the parent has more than $3,800 of gross income in calendar year 2012.[xlv]  However, the parent must be physically or mentally incapable of providing self-care (i.e., cannot provide for his or her own hygiene or nutritional needs, or needs the full-time attention of another person for the parent’s safety or the safety of another).  The purpose of the credit is to reimburse for care expenses related to the taxpayer leaving home to take employment.  Taxpayers are usually better off taking the care expenses as a medical expense deduction.

2.9.1.5. Carryover Basis

In determining which assets to transfer and which assets to retain, consideration must be given to the fact that the donee of a gift receives a “carryover basis.”[xlvi]  This means that the cost basis of the donee is the same as the cost basis of the donor.  Therefore, when the transferred assets are sold, the donee must pay capital gains tax.  The best strategy is, usually, to transfer unappreciated assets to the donee, and reserve appreciated assets for the donor.  That way, any gain on the sale of the appreciated assets can be offset by deducting the cost of the nursing home from income tax.

2.9.1.6. Step Up in Basis

Assets forming a part of the estate of a decedent are included in that person’s estate for federal estate tax purposes.  The beneficiary of the estate receives a “step up” in basis with respect to those assets so that the beneficiary’s new basis is the fair market value of the assets as of the date of the death of the decedent.[xlvii]  The strategy, therefore, is to not sell the home during your lifetime so that your children receive a step up in basis with respect to that property on your death.

2.9.1.7. Retirement Plan

If either spouse has a retirement plan, such as an IRA or savings plan, the withdrawal of funds from that account is a taxable event.  If some period of private payment to the nursing home is required, it makes sense to use the money in the retirement plan for this purpose.  The medical deduction for the qualified long-term services can be used to offset the taxable income resulting from the withdrawal from the retirement plan.

2.9.1.8. Deferred Annuity

If either spouse has a deferred annuity, the withdrawal of funds from the annuity is a partially taxable event.  That portion of the payment representing the initial purchase price of the annuity is a return of principal and is non-taxable, but the accrued income is taxable.  If some period of private payment in the nursing home is required, it makes sense to use the money in the annuity for this purpose.  The medical deduction for the qualified long-term services can be used to offset the taxable income resulting from the withdrawal from the retirement plan.

2.9.1.9. Interest on Series E, Series EE and Series I Bonds

At the time Series E, EE or I bonds are redeemed, income tax is due on the accumulated interest.[xlviii]  The same is true if the bonds are transferred to another person.  Generally, it would be better not to cash in the bonds until such time as the proceeds of sale of the bonds are needed to pay for the nursing home.  This is because the medical deduction for the nursing home expense will offset the taxable income from the redemption of the bonds.

2.9.1.10.            Domestic Help

Withholding of Social Security and Medicare taxes is required of all employees receiving cash wages of $1,800 or more in calendar year 2012.[xlix]  If the employee receives total cash wages of $1,000 or more in any calendar quarter in 2012, federal unemployment taxes must also be withheld.  The first $7,000 of cash wages is subject to federal unemployment (FUTA) in 2012.[l]  After an employee reaches $7,000 during the year, the FUTA tax is no longer required.  The employer is not required to withhold federal income taxes from the wages paid to household employees unless the employee so requests and the employer agrees.  The employee must give the employer a completed W-4, an Employee’s Withholding Allowance Certificate.  If there is an agreement for withholding for income taxes, either party may end it by written notice to the other.[li]

If household help is obtained through an agency, the agency is generally responsible for paying the tax, but this must be verified with the agency.

2.9.1.11.            Gain on Sale of Home

2.9.1.11.1.         General

There is an exclusion[lii] from gross income for the sale of a principal residence, if the property was owned and used by the taxpayer as the taxpayer’s principal residence for two of the five years preceding the date of the sale.  The amount of the gain excluded is $250,000 for a taxpayer filing individually and $500,000 for taxpayers filing jointly.  In the case of married couples, the ownership requirement can be met by either spouse, but both spouses must meet the use requirement, and neither spouse has claimed the exclusion during the two-year period ending on the date of the sale.  This provision is applicable to sales on or after May 7, 1997.

2.9.1.11.2.         Joint Returns

In the case of joint returns, the exclusion applies if either spouse meets the ownership and use requirements.

2.9.1.11.3.         Divorce

If a taxpayer obtains property from a spouse or a former spouse incident to a divorce, the period that the taxpayer owns the property will include the period that the spouse or former spouse owned the property.  A taxpayer is treated as using the property as the taxpayer’s principal residence for any period that the taxpayer has an ownership interest in the property and the taxpayers’ spouse or former spouse is granted use of the property under a divorce or separation instrument provided that the spouse or former spouse takes the property as his or her principal residence.

2.9.1.11.4.         Determination of Use During Periods of Out-of-Residence Care

A taxpayer who owns property during the five-year period, but who resides in any facility, including a nursing home licensed by a state, counts the time residing in the nursing home as use of the property.

2.9.1.11.5.         Residences Acquired in Rollovers Under Section 1034

If a residence is acquired under a Section 1034 rollover, the time periods during which the taxpayer owned and used the former property are counted.

2.9.1.11.6.         Repeal of Non-Recognition of Gain on Rollover of Principal Residence

Section 1034 (relating to rollover of gain on sale of principal residence) is repealed.

2.9.2.    Gift Tax

If transfers are made in excess of $13,000 per person per year, then a Gift Tax Return will have to be filed by April 15th of the calendar year following the date of the gift.  There is an annual exclusion for gifts of $13,000 per person per year or less.[liii]  If a spouse consents, the annual exclusion gift may be increased to $26,000 per person per year.  In addition, there is a gift tax exemption of $5,000,000 for an individual and 10,000,000 for a married couple,[liv] so no tax will be due for gifts which do not exceed the amount of this gift tax exemption.  There is no tax due from the recipient of the gift.  The $13,000 annual exclusion gift will be indexed for inflation in the future.

New Jersey does not have a gift tax.  However, New Jersey does have an inheritance tax for assets which are left to persons other than a spouse or lineal ascendants and descendants.  If a transfer is made to someone other than a spouse or lineal ascendants and descendants within three years of the date of death, this constitutes a transfer which falls within the scope of the New Jersey Inheritance Tax.  In that situation an Inheritance Tax Return must be filed and the appropriate tax paid.[lv]

2.9.3.    Estate Tax

For persons dying in calendar year 2012, there is a federal estate tax exemption of $5,120,000.  In 2013, the exemption is reduced to $1,000,000, unless Congress act between now and then, which is likely.[lvi]                 2.9.4.    New Jersey Estate Tax

There is a New Jersey estate tax exemption equivalent of $675,000, which means that New Jersey estate tax is not due for estates of $675,000 or less.[lvii]

2.10.     Use of Trusts and General Powers of Attorney in Planning for Medicaid Eligibility

2.10.1   Advantages of Using a Trust over Outright Gifts to Other Individuals

2.10.1.1.            Control

The trust allows the grantor to direct, in advance, how the transfer of property is to be managed administered and distributed thereby allowing some control.

2.10.1.2.            Risk Avoidance

By transferring assets to trusts as opposed to outright to children, the risk of a child’s creditors attaching the transferred assets or having the assets become involved in a divorce are eliminated.  The child would not have declare the transferred assets on a financial aid application, if they are held by a trust.

2.10.1.3.            Tax Benefits

Qualification of the trust as a grantor trust allows the grantor to be taxed on the income earned by the trust at the grantor’s marginal income tax rate even if the income is not distributed to the Grantor.

2.10.1.4.            Step-up in Basis

If the trust assets are included in the grantor’s estate, the trust principal will be included in the grantor’s estate at death and will receive a step-up in basis at that time.[lviii]

2.10.1.5.            Exclusion from Capital Gain on Sale of Principal Residence

The $250,000 – $500,000 exclusion from capital gain on the sale of a principal residence can be preserved through a properly-structured trust.

2.10.2.  Trust Buster Statute

The statute provides “Any provision in a contract of insurance, will, trust agreement or other instrument which reduces or excludes coverage or payment for goods and services to an individual because of that individual’s eligibility for or receipt of Medicaid benefits shall be null and void, and no payment shall be made under this act as a result of such provision.”  This statute has never been tested in court.  This statute appears only to apply to instruments which provide for mandatory distributions which are then cut back when the individual applies for Medicaid.  Example:  “Upon the beneficiary applying for Medicaid, all income payments to him shall terminate.”[lix]

2.11.     Medicaid Transfers by Power of Attorney

It is necessary to explore the capacity of the client to make transfers.  If the client lacks the necessary mental capacity, the transfers may, nevertheless, be accomplished through a Power of Attorney, if the document so authorizes.  Under New Jersey law gifts are not permitted by an attorney-in-fact except to the extent that the Power of Attorney expressly and specifically so authorizes.[lx]

The next problem with a Power of Attorney is whether the agent has authority to make gifts to himself.  The agent is a fiduciary.  If the Principal wants the agent to be able to self-deal when making transfers for Medicaid purposes, the Power of Attorney should explicitly authorize such gifts.  However, authorization of an agent to make gifts to himself under a Power of Attorney, might be considered a general power of appointment.[lxi]  The power of appointment would then cause the assets of the principal to be includable in the agent’s gross estate for federal estate tax purposes.[lxii]  One solution would be to have the Power of Attorney name a special agent with authority to make transfers to the regular agent.  An alternative might be through obtaining court approval.  A third way might be to put conditions in the Power of Attorney as to when the agent might have the right to self-deal.

2.12.     Medicaid Planning by Guardians

Guardians are authorized to make transfers for the purpose of obtaining Medicaid eligibility.  In the case of In the Matter of Mildred Keri,[lxiii] the Supreme Court held that a guardian may make transfers for purposes of obtaining Medicaid eligibility for a ward.  The Court imposed a five-point test:

•           The spend down plan must not interrupt or diminish an incompetent person’s care.

•           The plan involves transfers to natural objects of the person’s bounty.

•           The plan does not contravene an expressed prior intent or interest.

•           The plan clearly provides for the best interests of the incompetent person.

•           The plan satisfies the law’s goal to effectuate decisions an incompetent person would make if he or she were able to act.

It is wise to consider making transfers, which are consistent with the estate planning goals of the client.  If inconsistent transfers are made, they may result in litigation from beneficiaries of the estate who consider themselves to be treated unfairly.

2.13.     Strategies

2.13.1   The Home

•           Transfer home to Community Spouse

•           Transfer home and retain life estate

•           Transfer home and reserve right to use and occupy

•           Family reverse mortgage

•           Transfer home to grantor trust

•           Sale of remainder interest in home

•           Purchase life estate

2.13.2   Spend Down

•           Pay off debts

•           Pay for services

•           Prepay real estate taxes

2.13.3   Convert Countable Assets to Non-Countable Assets

•           Buy household goods or personal effects

•           Make home improvements

•           Purchase life estate from children

•           Prepaid funeral

•           Buy more expensive home

•           Purchase Annuity?

•           Non-Negotiable Promissory Note?

2.13.4   Transfer of Assets

•           Large transfer of assets

•           Reverse half-a-loaf?

•           Care Agreement

•           Exempt transfers

•• Community Spouse

•• Child under 21 blind or disabled

•• Siblings

•• Caregiver child

•           Income Only Trust

•           Children’s Trust

•           Disability Annuity Trust

2.13.5   Divorce

2.13.6   Hardship Waiver

3.         LONG-TERM CARE INSURANCE

Long-term care insurance can be helpful to clients who are healthy enough and affluent enough to afford it.  As Elder Law attorneys, we must all be aware that Medicaid and other public assistance programs may not continue to exist in the future as we know them today.  It would be a disservice to our clients to advise them to rely on these programs in the future.  Clients who can afford long-term care insurance and who may be insurable, should be urged to consider purchasing the insurance.  Premiums for nursing home insurance can be controlled to a certain extent by the client.  The features which affect the premium cost, which can be selected by the client, are the maximum daily benefit, the elimination period, the benefit length, the inflation rider and the amount of home care covered.  There are two factors that the client cannot control, which greatly affect the premium.  These are the client’s age at application and health history.  For this reason, clients should purchase long-term care insurance at the earliest possible time.  Most experts consider that the best time to purchase long-term care insurance is about age fifty.

Congress provided tax deductions[lxiv] and tax relief for “qualified long-term care insurance contracts.”  New Jersey has regulations concerning long-term care insurance contracts.[lxv]

It is estimated that only 6 to 8 percent of the elderly have private long-term care insurance.[lxvi]  There are four reasons why people do not buy long-term care insurance:

•           Lack of Awareness – The industry has not done a good job in marketing this product.

•           Denial – Seventy-seven percent of people surveyed by the American Council of Life Insurance believed they would be healthy in retirement.[lxvii]

•           Cost – It is estimated that only 10 to 20 percent of the elderly can afford such insurance.[lxviii]

•           Insurability – Many people wait until they have a diagnosis before applying for long-term care insurance.  At that point, they are no longer insurable.  Agents estimate that approximately 25 percent of persons applying are rejected for health reasons.

3.1.       Nursing Home Insurance Factors

3.1.1.  Coverage

Policies need to be carefully analyzed to see if there are exclusions for alcohol and drug abuse related services or mental health related services.  New Jersey requires that all policies include coverage for Alzheimer’s and other organic brain disorders.

3.1.2.  Premiums

Premiums for long-term care insurance are high.  However, the cost of the premiums is relatively low compared to the cost of payment for a nursing home.  Each family must make the premium fit within its family budget.[lxix]  Long-term care insurance coverage for a $100 per day nursing home benefit and a $50 per day home health care benefit with a lifetime 5 percent compounded inflation rider, twenty day elimination period and four years of coverage averaged $798 per year for a person aged 50, $1,881 per year for a person age 65 and $5,889 for a person age 79.  Obviously, the earlier the policy is purchased, the more affordable the premium.

Most long-term care insurance policies are guaranteed renewable.  This means that coverage cannot be canceled by an insurance company, nor can premiums be raised on an individual basis, because of increasing age or declining health.  Premiums can be raised only on a class basis affecting all policyholders with that insurance company in that class, and then only with the approval of the state insurance department.  In practice, premiums are seldom, if ever, raised on this basis.

3.1.3.  Daily Coverage

Persons buying long-term care insurance usually purchase a policy which reimburses their long-term care costs up to a selected maximum amount per day.  For example, in this area many people purchase $200 per day of coverage.  The actual average cost of a nursing home in New Jersey in 2012 averages close to $350 per day for the basic rate.  Ancillary charges such as medications and incontinent care are extra.  The difference is made up by the individual’s Social Security, pension or other income.

Some policies are written as a pool of money.  An individual might purchase $456,250 of coverage.  This is the equivalent of $250 per day coverage for five years ($250 x 365 days x 5 years = $456,250).

3.1.4.  Gatekeepers

Companies can sell qualified or non-qualified policies.  Qualified policies offer certain safe harbor tax benefits.  The primary advantage of a tax-qualified policy is that the benefits paid under the policy are clearly not taxable income.  The disadvantage of a tax-qualified policy is that the figures for coverage are more difficult to achieve.  Many agents sell only tax-qualified policies.

For a long-term care insurance policy to be a qualified contract, it must provide for benefit eligibility to be determined by meeting a chronically-ill individual standard.  The term “chronically-ill individual” means an individual who has been certified by a licensed health care practitioner as being unable to perform at least two of the activities of daily living (ADLs) and whose disability is anticipated to last for a period of at least 90 days due to a loss of functional capacity; or, requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.[lxx]  There are two triggers under the new law.  The ADL Trigger and the Cognitive Impairment Trigger.

3.1.4.1.             ADL Trigger

The activities of daily living (ADLs) include eating, toileting, transferring, bathing, dressing and continence.  The long-term care insurance policy must take into account at least five of such activities.  The inability of the insured person to perform two of the five or two of the six ADLs without substantial assistance triggers eligibility under the policy.[lxxi]  The 90-day period is not a waiting period.  The 90 days can be prospective and does not affect the elimination period.

3.1.4.2.             Cognitive Impairment Trigger

Severe cognitive impairment means a deterioration or loss in intellectual capacity that is measured by clinical evidence and standardized tests which reliably measure impairment in short- or long-term memory; orientation to people, place or time; and deductive or abstract reasoning.  The deterioration or loss must place the individual in jeopardy of harming himself or others and, thereby, require substantial supervision by another individual.  A person who is physically able but has cognitive impairment such as Alzheimer’s Disease or another form of irreversible loss of mental capacity is treated similarly to an individual who is unable to perform (without substantial assistance) at least two ADLs.

The IRS defines substantial assistance as “hands-on assistance and stand-by assistance.”[lxxii]  “Hands-on assistance” means the physical assistance of another person without which the individual would be unable to perform the ADL.  “Stand-by assistance” means the presence of another person within arms’ reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as being ready to catch the individual, if the individual falls while getting into or out of the bathtub or shower as part of bathing, or being ready to remove food from the individual’s throat, if the individual chokes while eating).  An individual is chronically-ill only if a licensed health care practitioner has certified that the individual is unable to perform (without substantial assistance from another individual), at least two ADLs for a period anticipated to last at least 90 days due to loss of functional capacity.  A licensed health care practitioner is a physician, registered professional nurse, licensed social worker, or other individual who meets requirements that may be prescribed by the IRS.[lxxiii]

3.1.5.  Inflation Provisions

Nursing home costs in New Jersey increase faster than the general rate of inflation.  Some homes increase annually, some more often.  A daily benefit of $250 purchased today may be sufficient now, but may be inadequate five years from now when the client enters a nursing home.  Therefore, inflation coverage should be considered.

Some policies have inflation riders which offer increases based on the Consumer Price Index (CPI).  Insureds are offered the right to purchase additional coverage at their attained age.  Premiums increase when high coverage is elected.  Other companies offer policies with an inflation rider which increases coverage automatically at 5 percent per year, either on a simple or a compounded basis.  Automatic inflation riders keep premiums level as benefits increase.  Nursing home costs increase on a compounded basis, so an inflation rider, which increases on a compounded basis, is best.

3.1.6.  Pre-Existing Conditions

New Jersey LTC regulations define a “pre-existing” medical condition as any condition for which the applicant received advice or treatment during the six (6) month period prior to making application.  Further, if an applicant is accepted, a company cannot impose a pre-existing medical condition waiting period on the insured person for more than six months from the effective date of coverage.  Persons with diagnosed Alzheimer’s or Parkinson’s Diseases will always be denied coverage.  However, persons with histories of cancer, heart disease or similar conditions are often able to obtain coverage.  The insurance companies generally like to see a period of time during which it is clear that the condition is controlled.  In some instances, the coverage is obtained at regular rates.  In other instances, the coverage is granted, but the client is rated, which means that the client pays a higher insurance premium or is offered a shorter benefit length or a longer deductible.

3.1.7.  Benefit Length

The benefit length is the period of time which the insurance company will pay after the client starts receiving benefits for long-term care.  Coverage is available for two years, three years, four years, five years, six years or unlimited.  The longer the term of coverage selected, the more expensive the premium.  Attorneys often advise clients to obtain three or four years of coverage.  This enables the client to do public assistance planning and, under current law, all or most of the lookback period is covered by insurance.  Because Medicaid, as we know it today, may not be available in the future, it may be well to advise clients to purchase as long a term of coverage as they are able to afford.

3.1.8.  Guaranteed Renewability

It is important that a policy be guaranteed renewable.  If a client purchases a policy when healthy, and is later diagnosed as having a condition such as Alzheimer’s, the client needs to have the assurance that his coverage cannot be canceled or his premium individually raised.  Federal law now requires that qualified policies be guaranteed renewable.[lxxiv]

3.1.9.  Home Heath Care

Most companies have comprehensive, “bundled” policies which include home health care.  Some companies have home health care riders which can be added to the basic nursing home/assisted living facility coverage.  At least one company has a policy which covers only home health care.  Clients do not want to spend time in nursing homes.  They would much prefer to stay at home.  It is important to obtain home health care coverage so that the family can afford to keep the client at home.

3.1.10.  Waiver of Premium

Some policies waive the payment of premiums when benefits are being received or have been received for a given period of time, typically 90 days.  Premiums normally resume once benefits stop being paid.

3.1.11.  Case Management

Some long-term care insurance policies offer a benefit option referred to as “case management.”  Under case management a professional oversees the care and the services the insured would receive.  The case manager may be an insurance company employee.  This is managed care for long-term care insurance, and should be carefully analyzed.  Other policies allow the client to choose his own case manager.

3.1.12.  Adult Day Care and Respite Care

Most LTC policies provide benefits for adult day care services and respite care.  Respite benefits allow for immediate coverage while an informal caregiver (wife, daughter, etc.) gets a break.

3.1.13.  Quality of the Insurance Company

The quality of the insurance company is important.  After paying premiums for a number of years, the client expects the insurance company to pay the claim when made.  Because of the experience of Executive Life, Mutual Benefit Life and other insurance carriers which have experienced financial difficulties, it is wise for the attorney to counsel the client to look at the ratings of the insurance companies.  Ratings services include the following:

1.         Moody’s Investors Service

99 Church Street

New York, New York 10007

Telephone: (212) 553-1658

Fax: (212) 553-4062

Website: www.moodys.com

2.         Standard and Poor’s

25 Broadway

New York, New York 10004

Telephone: 212-208-1527

Fax: 212-208-8571

3.         Duff and Phelps

55 East Monroe Street

Suite 3500

Chicago, Illinois 60603

Telephone: 312-368-3157

4.         A.M. Best

Ambest Road

Oldwick, New Jersey 08858

Telephone: 908-439-2200

Fax: 908-439-3296

5.         Weiss Ratings

4176 Burns Road

Palm Beach Gardens, Florida 33410

Telephone: 561-627-3300 or 1-800-289-9222

Fax: 561-625-6685

3.2.       Policy Features

The features of the policy which determine cost are:

3.2.1.  Daily Benefit

The daily benefit is the maximum amount of money which the insurance company will pay to the insured for each day of long-term care services.

3.2.2.  Elimination Period

The elimination period is like a deductible.  It is the number of days which the client is willing to pay privately before the insurance begins.  Insurance is available which will pay from the first day of care.  Other options are a twenty-day elimination period up to a 100-day elimination period or even 365-day elimination period.  The longer the elimination period, the lower the premium.  A 100-day elimination period usually makes sense.  It can reduce the premium substantially at older ages, and Medicare and Medi-Gap Insurance may cover the 100 days, if the patient meets the Medicare requirements for a skilled nursing facility.  If not, the client self-insures.

3.2.3.  Benefit Length

The benefit length is the number of years the insurance company will pay the nursing home.  The term begins after the client enters the nursing home.

3.2.4.  Inflation Rider

A 5 percent compounded inflation rider is the most expensive, but affords the best coverage because the increases in nursing home rates are compounded.

3.3.       Taxation

3.3.1.  Income Tax Deduction

Under HIPAA, qualified long-term care insurance premiums are deductible from federal income tax as a medical expense up to certain limits.[lxxv]

While payment for medical services provided by relatives does not ordinarily qualify for a medical expense deduction under I.R.C. §105(b), reimbursements through insurance to a relative for such care do qualify.[lxxvi]  For example, if Dad, who has Alzheimer’s, hires his daughter, a licensed practical nurse, to care for him, payments from father to daughter are not tax deductible.  However, if the insurance company pays the daughter, the payments are not counted as income to the father.

Eligible long-term care insurance premiums for a qualified long-term care insurance contract up to the following dollar limits for 2012 qualify as tax deductible medical expenses.[lxxvii]

Attained Age by Yr. End              Annual Limit on Prem. Ded.[lxxviii]

40 or less                                   $350

41-50                                        $660

51-60                                        $1,310

61-70                                        $3,500

Over 70                                     $4,370

Unfortunately, this deduction is largely illusory, because it is subject to the overall 7-1/2 percent floor of adjusted gross income on deduction of medical expenses.  Most people who are healthy enough to purchase long-term care insurance do not have enough other medical expenses to deduct so that they can hit the 7-1/2 percent threshold.  It is likely that the tax deduction will be attained only if one spouse is ill and the other spouse has the insurance.

3.3.2.  Exclusion From Taxation of Benefits Under Qualified Contracts

Amounts received as benefit payments under a qualified long-term care insurance contract are treated as amounts received for personal injury or sickness, and as reimbursement for expenses actually incurred for medical care and are, therefore, excluded from income for tax purposes.[lxxix]  On flat indemnity policies, there is a limitation of $310 per day for 2012. [lxxx]  Amounts greater than this are tax-free to the extent they cover actual costs.  The $310 figure will be increased to reflect inflation.  It is not clear whether benefit payments made under non-qualified contracts are excludable from gross income.

4.         MEDICARE[lxxxi]

4.1.       Requirements

Medicare will pay for nursing home care provided two requirements are met:

•   Hospital.  The patient must spend three days in the hospital and must be admitted to a nursing home within 30 days after discharge from the hospital.

•   Skilled Care.  The patient must be admitted to the nursing home for skilled care on a daily basis.  Skilled care is defined as services that are so inherently complex that they can only be provided effectively by skilled individuals or under the supervisor of skilled personnel.[lxxxii]

4.2.       Coverage

Medicare will pay for up to 100 days.  However, there is co-insurance from the 21^st to 100^th day.  For 2012, the co-insurance rate is $144.50 per day[lxxxiii], which must be paid by either the patient or a Medi-gap policy.  The 100 days of coverage are not guaranteed.  This is a maximum, not a minimum.  If the patient is receiving rehabilitation and hits a plateau, Medicare will be stopped.

5.         VETERANS BENEFITS

5.1.       Federal

A Veteran with a service-connected disability of 70 percent or more is entitled to free lifetime nursing coverage regardless of means.  Veterans who do not have a service-connected disability are means-tested as to payment.  The VA does contract with public and private nursing home facilities, in addition to using VA facilities.[lxxxiv]

5.2.       State

5.2.1.  General

New Jersey Veterans Administration operates three old soldiers’ home for New Jersey Veterans and their families.  They are located in Paramus, Edison and Vineland.  Veterans, spouses of Veterans, surviving spouses, and certain parents may be eligible.[lxxxv]

5.2.2.  Fee

The Adjutant General determines an “Established Rate” each year.  The individual pays a portion of the cost of care based on their monthly income and ability to pay.[lxxxvi]  The VA monthly nursing home fee is 80 percent of the resident’s net income, not to exceed the Established Rate.  In addition, 12 percent of the remaining 20 percent of the resident’s net income (maximum $20 per month) is set aside in a Welfare fund at the institution, and the remaining balance is placed in a personal needs account for the resident.  Net income is calculated after the deductions discussed below.  Income includes all income except for service-connected disability compensation.  If a resident sells his home and a portion or all of the proceeds from the sale are not reinvested in a primary residence, any income earned from the investment of any or all of the proceeds will be counted as income.[lxxxvii]

Certain deductions are permitted to the community spouse.  For example, the community spouse receives a flat $700 exemption for food, transportation, clothing, telephone and home maintenance.[lxxxviii]  In addition, deductions requiring verification are permitted for rent, first mortgage payments, real estate taxes and insurance, heat and electric, water and sewer, life insurance for burial accounts, and other extraordinary expenses.

5.2.3.  Guardianship or Advanced Directive

A Guardianship or Advanced Directive is required for admission.

5.2.4.  Resources

The resource limit for a single person is $20,000, and for a married couple is $80,000.[lxxxix]

5.2.5.  Look-Back

The Veterans look-back period is effectively 36 months.[xc]

6.         CONCLUSION

Financing nursing home care in New Jersey is a complex enterprise.  The rules change quickly and are not always written.  Medicaid case workers often feel they have an obligation to protect the public purse, rather than to assist the applicant by suggesting various strategies.  Case workers are sometimes poorly trained and do not know various planning techniques.  Planning for Medicaid financing of nursing home care offers and excellent opportunity for elder law attorneys to be of assistance to their clients.

Currently, a federal estate tax is imposed on estates valued in excess of $5,120,000.  The rate of taxation is 35%.  If Congress does not act within the year, this exemption will drop to $1,000,000 in 2013.  Further, the tax rate will increase to 55%.

New Jersey has two taxes.  First, there is the inheritance tax, which is imposed on certain beneficiaries and paid by those beneficiaries.  Immediate family members, such as spouses, children, grandchildren, and parents are not subject to this tax.  More remote family members and friends are taxed at rates ranging from 11% to 16%.  This tax has been somewhat stable for many years and is not subject to any change at this time.

The second New Jersey tax is the state estate tax, which was originally a sponge tax.  Prior to 2002, upon an individual’s death, his or her estate would possibly be assessed a federal estate tax.  A portion of the federal estate tax would be paid to the State of New Jersey, and the balance would be paid to the federal government.

The New Jersey estate tax has changed so that now estates are taxed on assets over $675,000.  The New Jersey Estate Tax Return must be filed, and any tax due paid, within nine months of the date of death.  This tax ranges from 0% to 16%.  The tax threshold for the New Jersey estate tax has been stable for the last few years, and it is not expected to change drastically in the near future.

Read the entire story in the Moorestown Patch:
http://moorestown.patch.com/articles/legal-eagles-award-winning-firm-protects-interests-of-the-vulnerable.

Levels of Appeal

1. Regional Office Appeal

Once the regional VA office issues a determination, in the form of an award letter, the application can request reconsideration of the decision.  The claimant should provide the VA with any other relevant evidence.  For example, if the VA did not deduct unreimbursed medical expenses, such medical expenses can be submitted with a request for reconsideration.

If this request for reconsideration is unsuccessful, the application can request an evidentiary hearing at the regional office by filing a notice of disagreement, typically in the form of a letter.[1] This notice of disagreement must be filed within one year from the date of the award letter.[2] Upon receipt of this notice of disagreement, the VA will issue a statement of the case, which is the VA’s official notice detailing the basis for its decision.  This statement of the case includes a summary of all evidence that the VA received and considered, applicable laws and regulations, and the reason for the determination.

The applicant must then file a substantive, or formal, appeal with the regional office within 60 days of the date of the statement of the case or within one year of the date on the original award letter, whichever is later.[3] This appeal is filed on VA Form 9.  At this level of appeal, most applicants are represented by service organizations, but a recent change in the law now allows attorneys to represent applicants and to receive payment for services after the notice of disagreement has been filed with the VA.

2. Board of Veteran’s Appeals

Appeals to the regional office are usually unsuccessful, so the applicant can then appeal to the Board of Veteran’s Appeals (BVA).  The BVA has jurisdiction to review all questions of fact and law that are on appeal of a claim filed by a veteran, a dependent of a veteran, or a survivor of a veteran.[1] This review is de novo, and new evidence can be presented.[2]

3. U.S. Court of Appeals for Veterans’ Claims (CAVC)

Upon receipt of an unsatisfactory BVA decision, the applicant can appeal to the U.S. Court of Appeals for Veterans’ Claims (CAVC).  The CAVC has exclusive jurisdiction to review BVA decisions.[3] The notice of appeal to the CAVC must be filed within 120 days of the BVA decision and must comply with Rule 3(c) of the Court Rules of Practice and Procedure.[4] The CAVC reviews the administrative record created at the BVA, so no new evidence is presented.  Very few cases are taken to the CAVC, but there is a high success rate of those that come before the CAVC.

4. U.S. Court of Appeals for the Federal Circuit

The Federal Circuit has nationwide jurisdiction over a variety of matters, including veterans’ benefits.  The appellant must file a Form 4, and the appeal must be filed with the district clerk within 30 days after the judgment or order appealed from is received at the clerk’s office.[5] Often, VA cases decided by the Federal Circuit become precedent for future VA cases.

[2] 38 U.S.C.S. § 7105; 38 C.F.R. § 20.302(a) (2008).

[3] 38 U.S.C.S. § 7105(d)(3); 38 C.F.R. 20.302(b) (2008).

—–

[1] 38 U.S.C.S. § 7104(a); 38 C.F.R. 20.101 (2001); 38 U.S.C.S. § 5904.

[2] 38 U.S.C.S. § 7104(a).

[3] 38 U.S.C.S. § 7252(a).

[4] 38 U.S.C.S. § 7266(a).

[5] Federal Circuit, Rule 4.