Love is Lost - And So is Your Inheritance - Divorce Really Ends Things

A common plan among our married clients is to leave their property to their spouse, either outright or in trust - oft-referred to as the “I Love You” Will.

Sometimes, love is lost and the couple divorces. We recommend our clients update their Wills after any life-changing event, including divorce. But what happens if the client does not, and the Will in existence at the time of death leaves everything to his or her (now-ex) spouse?

New Jersey has a statute for that.

In New Jersey, in the event of a divorce or annulment, the provisions benefitting the former spouse are given effect as if the former spouse disclaimed any bequests. Any bequests to the former spouse would, in effect, skip the spouse and pass to the next named beneficiaries. N.J.S.A. § 3B:3-14.

Additionally, if the Will names the former spouse as the executor – as our “I Love You” wills often do – the statute provides that the former spouse is treated as if he or she died immediately before the divorce or annulment. The next named executor would be first in line to probate the Will.

Only certain actions will cause the bequests to the spouse or the fiduciary appointment of the spouse to be “revived:” (1) remarriage; (2) revocation or nullification of the divorce; or (3) execution of a Will or Codicil after the divorce.

The statute is not limited to Wills, either. N.J.S.A. § 3B:3-14 also revokes a beneficiary designation to a former spouse under a life insurance policy. Note, though, that if the divorcing spouses intend to continue to name each other as beneficiaries of their respective life insurance policies, the Judgment of Divorce should reflect this agreement, in which case N.J.S.A. . § 3B:3-14 would not apply.

The statue also eliminates any "survivorship" rights in a joint asset.  So, if you and your ex-spouse sill owned a piece of property together, 50% would pass under your will when you died, and not to your ex-spouse as the surviving joint owner.

CAUTION!  One thing that a divorce does not nullify is your qualified retirement plan (401(k) for example) designation. That is because your spouse had a right to be a beneficiary under federal law, which trumps state law.  Many a litigation has arisen where the ex-spouse got the qualified plan because a person didn't bother to change their beneficiary.

Personal Injury Damages and Medicaid Liens - SCOTUS Decides

You have a horrific accident and are looking at a life of extreme medical care.  The accident was caused by another person (drunk truck driver). You get a multi-million dollar award.  Does the state that you live in get a share?

First, personal injury awards are generally free from income tax.  Section 104 of the tax code excludes a personal injury award from income tax, so long it is for physical injury, physical sickness, emotional distress arising from these or for medical expenses.

So, it if's tax free, how does the state get involved?  Because sometimes people who are injured don' t have money to pay for their medical care during the lawsuit.  If so, Medicaid in that state may be forwarding funds for the person's care.  The state then files a Medicaid Lien against the award to recover its assets.

The United States Supreme Court just handed down a new ruling about what Medicaid can lien against a settlement.   Wos v. E.M.A. (U.S., No. 12-98, March 20, 2013).  The issue in this case was that when the parties settled the case, they did not allocate any part of the award to medical expenses.  Per

Under North Carolina law, the state is entitled to a lien on a Medicaid recipient's tort recovery for the lesser of the total cost of medical services provided or one-third of the recovery. Emily Armstrong settled a medical malpractice suit for $2.8 million against the doctor who delivered her -- far less than the cost of her future care. The parties did not stipulate what portion of the settlement represented payment for past or future medical expenses. The state, having already spent close to $2 million for Emily's care, asserted its lien for one-third of the settlement.

Emily objected, claiming that the mandatory lien on one-third of the settlement violated the Supreme Court's decision in Arkansas Department of Health and Human Services, et al. v. Ahlborn that limited the state's recovery from a Medicaid recipient to the funds she received as compensation for medical expenses.

The US Supreme Court agreed with Emily.  The Court found that "[a]n irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act's clear mandate that a State may not demand any portion of a beneficiary's tort recovery except the share that is attributable to medical expenses."

What does this all mean in the scope of personal injury settlements?  First, the state can only assert a lien against the portion of the award designated towards medical expenses.  Before you get too happy and think "OK- we just won't allocate any of the award to medical expenses", remember that that the state is there to protect the taxpayers' dollars.  If there is no allocation of medical expenses in the settlement, or by a judge or jury, the Court noted that the State and award beneficiary could submit the matter to a court for decision.

Smarter move?  Allocate appropriate medical expenses to satisfy the lien so that special needs planning can be done with the balance of the award. 

Four Good (?) Reasons to Contest a Will

Maybe it's the season, but I have gotten a lot of calls recently about will contests.  A will contest usually happens when your heirs are surprised by what your will says, or by what you have left when you go to the great beyond.  I have represented both heirs and estates, and in all cases there are some big misunderstandings about the reasons you can challenge a will.  And no, being disappointed is not a legal cause of action.

First, this post is an except from my new book Plan Your Own Estate:  Passing on Your Assets and Your Values Legally and Efficiently (Apress 2013).  Want to know more?  Click the link and 350+ pages of fun (I swear) estate planning knowledge is yours!

Sometimes, the heirs are surprised because something hinky is going on. Mom said all her life she was leaving her assets equally to her kids, yet daughter Donna took Mom to her lawyer and Mom suddenly (6 months before she died) named Donna sole beneficiary.

More ofter, when your heirs are surprised by what your will says, it could be they thought they were getting something, and you intended for them to get nothing.  If that's the case, make sure you are super clear about your intentions.  When you aren't, quite a good deal of money could go to defending your will.

From Plan Your Own Estate:  Passing on Your Assets and Your Values Legally and Efficiently (Apress 2013).


Four Reasons to Contest a Will

The good news is that, despite what you see on TV, there are only four limited grounds on which to contest a will:

·         The will wasn’t signed in accordance with state law. All the way back at the beginning of this book, I harped on how important it is to have a will properly executed under state law. If a will fails to meet the very stringent execution standards, then it won’t be deemed to be a will. If it’s not a will, it can’t transfer your property at death. This is one of the biggest areas of concern I have with using an online service or do-it-yourself estate planning—if you don’t get the signature section right, you don’t have a valid estate plan. This has led to many a person believing that they have a perfectly valid estate plan—but instead leaving their heirs in for a very nasty surprise because the will wasn’t executed properly.

·         Lack of testamentary capacity. This invalidates a will on the grounds that the person executing the will was incompetent to do so at the time they did it. You most often see this issue raised regarding an older person who modifies their will and removes some people who were beneficiaries under a prior will. The fact of the matter is that the level of capacity required to execute a will isn’t very high; it’s actually lower than the level of capacity needed to execute a contract. In essence, in order to be competent to execute a will, a person needs to know (1) the nature and value of their assets, (2) who would receive their assets if they didn’t have a will, and (3) the legal effect of signing the will. Someone would have a long road ahead of them to prove you didn’t have the capacity to execute your will. It’s hard to come by historic evidence of lack of capacity.

·         Undue influence. This is the biggie when it comes to will contests. The issue is that if a person is in a confidential relationship with you, then the person might be able to cause you such duress about your will that you lose your independence of thought process. What if you rely on one of your daughters to cook and clean for you, and she hints that unless she gets the house, she won’t be able to continue helping you? Or, what if a hired caregiver threatens to withhold your medication unless you change your will to benefit them? Or, perhaps your nephew helpfully drives you to his attorney to create a new will, which just happens to leave everything to him. When a will has unequal distributions, or distributions to non-family members, a court is reasonably concerned that the will was created out of fear that the favored beneficiary would cease caring for or even harm the person making out the will. Nine months before you died, were you threatened into changing your will to name your caregiver as the primary beneficiary? Or has your caregiver helped you for eight years, you don’t see your relatives, and you just got around to making out your will nine months before you died? This is such a fact-based inquiry that, again, undue influence is very hard to prove.

·         Fraud. You give a person a contract to sign, and it turns out someone slipped a will into the document and the person didn’t know they were signing a will. The will is invalid because it clearly isn’t an expression of the person’s intent. Another fraudulent situation is where somebody slips pages into the middle of the will. This is why I have the person making out a will or revocable trust initial each and every page.



Are You Part of the Billion Dollar IRS Jackpot? Act by April 15.

Guess what?  You might be one of the 1 million or so taxpayers that are due $917 million from the IRS.  Sad thing is, it's your money that they are trying to get back to you.

This pool comes from tax refunds owed to taxpayers from back in 2009.  Problem is, if you don't file a return, you can't claim your refund.  About 1 million taxpayers didn't file a return, so the money has been sitting there.

You must act now.  There is a 3 year statute of limitations on filing back income tax returns.  This is a true case of you snooze, you lose. If you don't file a return by April 15, 2013,all that money goes to the US government.  

Why didn't people file returns to get these refunds already?  Most likely because they were under the threshold for needing to file, and stopped the inquiry at that point, not going to the next step to see if there was any benefit to filing even though no taxes were due.

There is no penalty for filing a late income tax return if you didn't owe any money.  And likely the money due back to you is yours - from withholding in your paycheck.

Yahoo news reports: "People in every state and the District of Columbia are owed refunds, including 100,700 people in California and 86,000 people in Texas, the IRS said. Most of the refunds exceed $500."


Image courtesy of jannoon28 /

Sequester Cuts Hurting Seniors

Will the ridiculous gridlock in Washington that has a sledgehammer instead of scalpel being used to address the cancer of  a bloated budget affect your world immediately?  As a working adult or family, likely not,  For seniors, the cuts could have a more immediate and devastating effect.  Most seniors are living on fixed income - their resources don't change just because their expenses for necessities goes up. recently talked about what the sequester cuts could mean to seniors.  Is there a family member in  your life who might suddenly be struggling just to speak to a person to get care they need or are entitled to?

As a consequence of congressional gridlock, $85 billion in automatic, across-the-board spending cuts are starting to take effect. We’ve heard the dire warnings about the impact: air travel delays, 70,000 children forced out of Head Start, cutbacks in food inspections, understaffed fire departments, 700,000 fewer jobs created . . . the list goes on.

How will programs that seniors rely on be affected? The good news is that big chunks of the budget are exempt from the sequester’s cuts, including Social Security, Medicaid, and veterans’ programs. But while there will be no change in benefits for these programs, the federal workforce that administers them will be slashed, leading to delays and frustration.

In the case of Social Security, for example, visitors to field offices or callers to the program’s 800-number will have longer waits, and some offices may close altogether. Checks for first-time Social Security beneficiaries will take longer to arrive and the backlog of Social Security disability claims will start ballooning again.

Medicare benefits will not change either, but there could be more crowded waiting rooms and fewer practitioners participating in the program because payments to Medicare providers will be cut by 2 percent across-the-board. Doctors and hospitals say the Medicare reductions will cost their industries more than 200,000 jobs this year alone. The 2 percent cut for doctors follows a series of previous reductions, which may translate into more doctors refusing to take Medicare patients.

Where the Real Pain Would Be

The harshest impact will be on seniors who rely on federal programs to keep fed, stay warm (or cool), perform basic tasks like dressing and bathing, and keep in contact with the outside world.

Senior nutrition programs like Meals on Wheels face cuts resulting in 18.6 million fewer congregate and home-delivered meals, according to Amy Gotwals, senior director of public policy and advocacy at the National Association of Area Agencies on Aging. Meanwhile, an estimated 400,000 households will be severed from the Low Income Home Energy Assistance Program, which assists low-income seniors and other households with their heating and cooling bills.

Other vital services administered by Area Agencies on Aging will be cut, including rides to medical appointments or shopping trips, and in-home support for daily chores like dressing, cleaning, or cooking. 

More questions?  Look at AARP’s “What the 'Sequester' Could Mean for You,”  or The New York Times “Questions and Answers About the Sequester”

Image courtesy of Natara /


Real Estate Tax Appeals, Financial Powers for College Students, Fiscal Cliff - February The Fein Print

 The newest edition of The Fein Print is here!  The highlights:

  • It's real estate tax appeal season.  In the last few years many NJ residents have seen the fair market value of their home decline– often significantly – to the point where it makes good sense to file a real estate tax appeal. Here we give you some pointers.
  • Financial Planning for College Students.  it’s tough letting go, but as the apron strings get snipped it’s important to know you can still help your children protect their health and finances from uncertainty and risk.
  • The Fiscal Cliff and your Estate Plan.  The showdown is over, but now that the dust has settled, what should be done with your will, trust and estate plan?

What Does the Spouse Live Off Of When the Other Is In a Nursing Home?

So Dad is in nursing home, and has qualified for Medicaid to supplement the cost of care.  What does Mom live off of?

First, while assets are pooled together for Dad to have qualified for Medicaid in the first place, income is no pooled.  So, Mom gets to keep her own income.  But what if her income is small because Dad was the breadwinner and she the homemaker?

Next you look at the Minimum Monthly Maintenance Needs Allowance ( (MMMNA).  [Is that an acronym or what - its easier to say what it stands for than "mmmmmna"]  Mom - the "community spouse" in my example because she is living at home and Dad in the nursing home - is allowed by Medicaid  to keep some or all of Dad's - the nursing home resident’s - income through the Minimum Monthly Maintenance Needs Allowance (MMMNA). Just announced the MMMNA will be $1,938.75 in the continental US (higher in Alaska and Hawaii), effective no later than July 1, 2013. The current amount is $1,891.25.

 $1,938.75 doesn't go really far in New Jersey or metro New York.  In fact, it brings to mind Newark Mayor Corey Booker living off food stamps for a week. In this case Mom can look to keep extra income, known as the Excess Shelter Amount (“ESA”) if certain basic household expenses exceed the MMMNA by more than  more than 30% . Between the MMMNA and the ESA, the community spouse can now be entitled to as keep as much as $2,888 of the married couple’s total income.

And if that's not enough?  Mom can request a fair hearing and attempt to prove the need for more than $2,888 of the married couple’s total income.

$2,888 x 12 = $34,656 of taxable income for the year.

Advanced elder law planning may minimize this situation by creating additional security for the benefit of Mom.

Image courtesy of Stuart Miles /


Safe at Home - New Simplified Home Office Deduction

You work from home. You know that you are entitled to deduct your “home office expenses” but your accountant has warned you that it is very tricky, and that the deduction often raises a “red flag” for the irs or the state in reviewing your return because it is an often abused deduction. You don’t want to invite an audit and the expense of it (even if you are 100% within the law), but you are entitled to the home office deduction. What is a savvy business person to do?

The IRS feels your pain – no really, they do – and they have created a new “safe harbor” for the home office deduction. A safe harbor is an alternative to all the record keeping justifying the home office deduction. Instead, if you qualify you can deduct $5 a square foot, up to 300 square feet – or $1500. If you actually have a greater deduction calculated the old way is worth more than that, you can certainly continue to use the computer method. But, if $1500 is close or good enough, and all that record keeping can be reduced, this might be a good idea for you. After all, your job is to focus on the success of your business, not the some of the administrivia that comes with being a business owner.

If this might be of interest to you, on to the legal details…..

Image courtesy of Stuart Miles /

Fiscal Cliff Averted? Time Will Tell, But Here are the Details of the 2013 Tax Laws

 I am not sure how you can have great faith in the thoughtfulness of a process over hundreds of billions of dollar of our (the taxpayers) money, that happened in all of 48 hours, but here is the what is going to the president for signature as “the American Taxpayer Relief Act.”

The highlights:

  • Income Tax: The top income tax rate jumps to 39.6% (up from 35%) for individuals making more than $400,000 a year ($450,000 for joint filers; $425,000 for heads of household);
  • Estate, Gift, GST Tax: For estate, gift, and generation-skipping transfer (GST) tax purposes, for individuals dying and gifts made after 2012, there is a $5 million exemption (adjusted for inflation), and the top estate, gift and GST rate is permanently increased from 35% to 40% (whoo hoo – a permanent estate tax law!)
  •  Social Security: The two-percentage-point reduction in Social Security tax, will be allowed to expire, so the employee portion of the tax will go back up to 6.2% (has been 4.2%);
  • AMT: The alternative minimum tax (AMT) “patch” is made permanent. Sources estimated that 30 million taxpayers will escape being subject to the AMT;
  • Dividends and Capital Gains: The top dividends and capital gains tax rate goes to 20% (up from 15%) for individuals making more than $400,000 a year ($450,000 for joint filers);
  • Personal Exemption Phaseout: The Personal Exemption Phaseout (PEP), which had been suspended, is returning in 2013 with a starting threshold of $300,000 for joint filers / $275,000 for heads of household / $250,000 for single filers / $150,000 (for married taxpayers filing separately. The phaseout reduces the total amount of exemptions that can be claimed by a taxpayer by 2% for each $2,500 by which the taxpayer's adjusted gross income (AGI) exceeds the starting threshold;
  • Deduction Limitation: The limitation on deductions for high income earners, which had been suspended, is reinstated with a threshold of $300,000 for joint filers / $275,000 for heads of household / $250,000 for single filers / $150,000 for married taxpayers filing separately. This limitation reduces a taxpayer’s itemized deductions by 3% of the amount by which the taxpayer's AGI exceeds the threshold amount (subject to a maximum of 80%);
  • Tax Credits. Various tax credits are extended including research credit, energy credits, college tuition credit, earned income tax credit, child tax credit;
  • Medicare: The scheduled 27% reduction in payments to Medicare doctors has been ended.
  • Unemployment: Long term unemployment benefits are extended through 2013

Video Interview: Discussing Year-End Tax Questions with LXBN TV

Following up on my previous post on the subject, I had the chance to speak with Colin O'Keefe of LXBN regarding year-end tax questions individuals should begin asking themselves. In the brief interview, I offer my thoughts on a few important considerations, including how the fiscal cliff negotiations may change things. 

2012 Year End Tax Planning - The Time to Act is Now!

With the fiscal cliff looming, year-end tax planning is even more difficult in 2012 than ever before. "Will they or won't they" is the question being asked of Congress.  "Who knows" is my answer right now.  

While you can't do anything about Congress, you do still have time to take a look at what your tax bill might be for 2012.  

  •  Consider the amount you set aside in your employer's health flexible spending account (FSA). Starting in 2013, the maximum contribution to a health FSA will be reduced to $2,500, and you get reimbursements for over-the-counter medications.
  • If you have a health savings account (HSA) consider making a full year's worth of HSA contributions if you haven’t maxed out.  If you have an HSA, contributions are deductible, earnings are tax-deferred, and distributions are tax free for qualifying medical expenses.
  • If you are already thinking of selling assets that are likely to yield large gains because of a low cost basis, try to make the sale before year-end (considering market conditions).  The 2012 long-term capital gains rate ia a maximum of 15%, but it’s scheduled to rise to 20% in 2013. Also, if your adjusted gross income exceeds certain limits $250,000 for joint filers/$125,000 for a married individual filing a separate return/$200,000 for a single person, gains in 2013 might trigger an extra 3.8% tax (the so-called “unearned income Medicare contribution tax”).
  • You can lock in capital gains of 15% on stock you think still has plenty of room to grow by selling it and then repurchasing it. You will owe federal capital gains tax at 15%, but have a higher cost basis against any future sales at a potentially higher capital gains rate and 3.8% Medicare tax.
  • Look at contributing to Roth IRAs instead of traditional IRAs. While not tax deductible when made, Roth IRA payouts are tax-free and thus immune from the threat of higher tax rates, as long as they are made (1) after a five-year period, and (2) on or attaining age 59-½, after death or disability, or (3) for a first-time home purchase.  Also, you can look at converting a traditional IRA to a Roth.  You will need to pay taxes on the amount converted, but that might be a lower number if income tax rates go up.
  • Don’t forget to take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70-½.
  • For 2012, unreimbursed medical expenses are deductible to the extent they exceed 7.5% of your AGI.  However, starting in 2013, if you are under age 65, these expenses will be deductible only to the extent they exceed 10% of AGI. If you have a shot at exceeding the 7.5% this year, try to accelerate any costs you will need to pay next year into this year.
  • Pay state and local income taxes due April 2013 in 2012 so you can deduct them from this year’s tax return.
  • Try to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Make annual exclusion gifts of up to $13,000 per beneficiary.

Image courtesy of [Idea Go] /

2013 Key Medicaid Figures

Some Medicaid eligibility figures for seniors in need of long term care are tied to inflation. The Centers for Medicare and Medicaid Services just released the 2013 figures:

Minimum Community Spouse Resource Allowance: $23,184

Maximum Community Spouse Resource Allowance: $115,920

Maximum Monthly Maintenance Needs Allowance: $2,898

The minimum monthly maintenance needs allowance for the lower 48 states remains $1,891.25 (2,365 for Alaska and 2,176.25 for Hawaii) until July 1, 2013.

Home Equity Limits:

Minimum: 536,000

Maximum: 802,000



Hurricane Sandy Extensions of IRS Time to File

The IRS has extended time to make tax payments and file returns of taxpayers in counties that have been designated as federal disaster areas qualifying for individual assistance.

Affected taxpayers are those listed in Reg. § 301.7508A-1(d)(1) and would include any person whose principal residence, and any business entity whose principal place of business, is located in the counties designated as disaster areas.  For a trust or estate this would include any one that has its tax records in the counties designated as disaster areas.

Under Code Sec. 7508A, IRS gives affected taxpayers an extended date to file most tax returns or to make tax payments, including estimated tax payments, that have either an original or extended due date falling on or after the date of the disaster (Superstorm Sandy).

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 or 5498 series, or to Forms 1042-S or 8027.

New Jersey: The following are federal disaster areas qualifying for individual assistance on account of Hurricane Sandy: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren counties

For these New Jersey counties, the onset date of the disaster was Oct. 26, 2012, the extended date is Feb. 1, 2013 (which applies to the fourth quarter individual estimated tax payment, normally due Jan. 15, 2013; payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on Oct. 31, 2012 and Jan. 31, 2013 respectively; and tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period).

New York: The following are federal disaster areas qualifying for individual assistance on account of Hurricane Sandy: Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester counties

For these New York counties, the onset date of the disaster was Oct. 27, 2012, the extended date is Feb. 1, 2013 (which applies to the fourth quarter individual estimated tax payment, normally due Jan. 15, 2013; payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on Oct. 31, 2012 and Jan. 31, 2013 respectively; and tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period). The deposit delayed date is Nov. 26, 2012. 

Fiscal Cliff or Taxageddon?

Whatever you want to call it, the time to pay the piper is here.  Tax reform has been pushed and patched for over a decade now, and if the people in Washington can't come to a decision, then we all lose.  So what is in store if Washington can't get its act together by December 31, 2012?

·         Individual income tax brackets will change to 15, 28, 31, 36 and 39.6 percent, from the present levels of 10, 15, 25, 28, 33 and 35 percent.

·         The long-term capital gains tax rate will go from15% to 20%

·         Dividends will go from being taxed at a maximum of 15% to being ordinary income, taxed as high as 39.6%

·         The Alternative minimum tax (AMT), designed to ensure the very wealthy pay income taxes will capture a huge number of upper middle class taxpayers, all because the AMT does not adjust with inflation (how hard would that be to do Congress??)

·         Elimination of the cut in the payroll taxes.  Workers currently pay  4.2 % (a temporary reduction on the usual 6.2%)

·         Estate tax / Gift Tax/ GST Tax exemption amount will go down from $5,120,00 to $1 million and the estate and gift tax top rate will go from 35% to 55%.

·         $1.2 trillion in across-the-board cuts in federal spending since Congress couldn't come up with a deficit-cutting deal in January 2012.  Economists fear this could be saying hello to that double dip recession.

·         End of extended unemployment benefits.

·         A double-digit drop in Medicare reimbursements which could cause doctors to cease treatment of those over 65.

·         And don't forget that niggling $16.4 trillion debt ceiling we keep pushing up. 

Image courtesy of [digitalart] /

Medicare to End "Improvement Standard"

For years I have counseled clients that if they enter rehab after a hospital stay that for a practical perspective they will only get 20 days of skilled cared (covered under Medicare) unless they can show they are "improving". This so-called "improvement standard" was never law, and now Medicare is changing its rules to make it clear that no such standard exists.

Why was this happening.  My best guess is that most acute care facilities are in nursing homes.  When you are providing "skilled care' you are covered by medicare, and the nursing home must accept the medicare rates. However, the sooner "skilled care" ends, and "companion care" begins the sooner the nursing home can get paid the private pay rate, which may be more profitable.

A quick summary care of this sweeping change from

In a major change in Medicare policy, the Obama administration has agreed to end Medicare’s longstanding practice of requiring that beneficiaries with chronic conditions and disabilities show a likelihood of improvement in order to receive coverage of skilled care and therapy services. The policy shift will affect beneficiaries with conditions like multiple sclerosis, Alzheimer’s disease, Parkinson’s disease, ALS (Lou Gehrig’s disease), diabetes, hypertension, arthritis, heart disease, and stroke.

For decades, home health agencies and nursing homes that contract with Medicare have routinely terminated the Medicare coverage of a beneficiary who has stopped improving, even though nothing in the Medicare statute or its regulations says improvement is required for continued skilled care. Advocates charged that Medicare contractors have instead used a "covert rule of thumb" known as the “Improvement Standard" to illegally deny coverage to such patients. Once beneficiaries failed to show progress, contractors claimed they were delivering only "custodial care," which Medicare does not cover.

In January 2011, the Center for Medicare Advocacy and Vermont Legal Aid filed a class action lawsuit, Jimmo v. Sebelius, against the Obama administration in federal court, aimed at ending the government’s use of the improvement standard. After the court refused the government’s request to dismiss the case, and the administration lost in a similar case in Pennsylvania, it decided to settle.

As part of the settlement, Medicare will revise its manual to make clear that Medicare coverage of skilled nursing and therapy services “does not turn on the presence or absence of an individual’s potential for improvement” but rather depends on whether or not the beneficiary needs skilled care.