THE DEFICIT REDUCTION ACT OF 2005: THE EFFECT ON NEW JERSEY’S SENIOR POPULATION

By: BENJAMIN D. ECKMAN, ESQ.
Elder Law Attorney

On February 8, 2006 President Bush signed into law the Deficit Reduction Act of 2005, which among other provisions places severe new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. The new federal law applies to all transfers made on or after the date of enactment, February 8, 2006.

On February 2, 2006, the U.S. House of Representatives passed the Deficit Reduction Act of 2005 (S. 1932) by a vote of 216 to 214. The Senate had already passed the bill by a vote of 51 to 50, with the Vice President flying back from the Middle East to break the tie.

Medicaid is the state and federal program that pays toward the cost of long-term care. Nursing home care currently costs between $8,000 – $12,000 per month and, without financial assistance, can quickly leave people impoverished. This law will dramatically change the way individuals can become eligible for Medicaid assistance.

The primary purpose and intent of this law is to ensure that senior citizens who have assets to pay for their own nursing home care, do just that. The effect of these regulations will be that individuals, who had hoped to save their money for their children and not pay for nursing home care themselves, will have to plan in advance rather than waiting till the last minute. No longer will government programs such as Medicaid be available to them, since additional legal obstacles have been included in this piece of legislation.

1. INCREASE THE LOOK BACK PERIOD TO 60 MONTHS FOR ALL TRANSFERS
Under the old law, there was a two tiered look-back period. For transfers to or from certain trusts the look-back period was 60 months. For all other transfers, the look-back period was 36 months. The new legislation creates a single look-back period of 60 months for all transfers.

2. CHANGE THE DATE THE PENALTY PERIOD BEGINS TO RUN
Under old law, the date of commencement of the penalty period was the month in which an asset transfer was made. Under the new rule, the penalty period would commence when the individual transferring the assets enters a nursing home and would otherwise be eligible for Medicaid coverage. In other words, the penalty period does not begin until the nursing home resident is out of funds, meaning he or she cannot afford to pay the nursing home. Innocent gifts to grandchildren, donations to a church or synagogue, birthday or anniversary gifts could, years later, result in extended periods without any long-term care coverage of any kind. What does this mean for you? If you have considered protecting some assets for your loved ones in case you later require long-term care, you should contact a qualified elder law attorney now.

3. HOMESTEADS WITH EQUITY ABOVE $500,000 WOULD RENDER AN APPLICANT INELIGIBLE
The law also makes any individual with home equity above $500,000 ineligible for Medicaid nursing home care, although states may raise this threshold as high as $750,000. This is particularly difficult in some parts of the state where home values have soared and the price paid for the property many years ago could be a fraction of what it’s worth today. This provision would not apply if a spouse or child under 21 or child who is blind or disabled, reside in the home. Homeowners could reduce their equity through a reverse mortgage or home equity loan.

4. ANNUITIES
Another change applies to the treatment of annuities. Annuities would have to name the State as a remainder beneficiary and balloon payment annuities would be a countable asset. The government will require the person to change the beneficiary from their children (or others) to the government before they can be eligible for Medicaid or they will be denied coverage.

5. INCOME FIRST RULE
The “Income First” Rule would be mandatory so that community spouses will appeal for an increased resource allowance based on their need for more funds to meet their minimum income requirements. Income from both spouses will be used to determine eligibility for Medicaid. The new law imposes the “Income-First Rule” on the wives and husbands of Medicaid applicants. This rule allows the government to count the income of both spouses to justify the spouse having to spend more of the couple’s money before either will be eligible for Medicaid.

If you have considered protecting some assets for your loved ones in case you later require long-term care, you should consult with Benjamin Eckman, a qualified elder law attorney now, to discuss the provisions of this new law and how it may affect you and your family. The bottom line is if you have been hesitating about seeing an attorney about long-term care planning, hesitate no longer.

Benjamin D. Eckman, Esq. concentrates his practice on Elder Law & Estate Planning. Elder law is intended to broadly assist “extended living”. An elder law practitioner provides the legal information necessary for persons whose lives will extend or have already extended beyond the time when all children are usually out of the house and when regular employment ceases. After the elder law attorney and client complete their work, legal documents have been drafted, tax considerations have been analyzed, and a plan to protect the elder’s estate has been implemented.

Benjamin D. Eckman’s practice focuses on Estate Planning & Elder Law – legal issues facing senior citizens. Benjamin D. Eckman received his Bachelor’s Degree in Business/Accounting from Touro College and his law degree from Seton Hall University School of Law. He is a member of the New York State Bar Association, the New Jersey State Bar Association, the National Academy of Elder Law Attorneys, the Elder Law Section and Real Property, Probate and Trust Section of the New Jersey State Bar Association, the Union County Bar Association, Passaic County Bar Association and the Bergen County Bar Association. He can be reached at (973) 709-0909, (908) 206-1000 or (201) 263-9161

Benjamin D. Eckman, Esq. concentrates his practice on Elder Law & Estate Planning. Elder law is intended to broadly assist “extended living”. An elder law practitioner provides the legal information necessary for persons whose lives will extend or have already extended beyond the time when all children are usually out of the house and when regular employment ceases. After the elder law attorney and client complete their work, legal documents have been drafted, tax considerations have been analyzed, and a plan to protect the elder’s estate has been implemented.

Benjamin D. Eckman’s practice focuses on Estate Planning & Elder Law – legal issues facing senior citizens. Benjamin D. Eckman received his Bachelor’s Degree in Business/Accounting from Touro College and his law degree from Seton Hall University School of Law. He is a member of the New York State Bar Association, the New Jersey State Bar Association, the National Academy of Elder Law Attorneys, the Elder Law Section and Real Property, Probate and Trust Section of the New Jersey State Bar Association, the Union County Bar Association, Passaic County Bar Association and the Bergen County Bar Association. He can be reached at (973) 709-0909, (908) 206-1000 or (201) 263-9161.