Friday, December 28, 2012

Keeping Your Affairs a "Secret" From Your Children is Likely a Big Mistake

Some people freely share their financial information with their adult children, and often will invite them to participate in meetings with their estate planning attorneys and financial advisers. When the inevitable occurs and the parents become incapacitated or die, the children are able to step in and handle the parents' financial affairs. They will have at least a reasonable idea as to the nature and location of the parents' assets, and will typically be designated as the parents' attorneys-in-fact under a Power of Attorney, and successor Trustees under the parents' revocable and irrevocable trusts, as applicable. The designated children will then be able to step into the parents' shoes and handle their personal affairs with the least disruption and confusion possible.

Other parents, however, prefer to maintain a cloak of secrecy regarding their personal and financial affairs. Just yesterday I was contacted by a woman whose mother recently died.  Despite being in poor health, the mother repeatedly told her children that her affairs were in order, and that her attorney (who she did not name) had all of her papers. With the mother's passing, her children have been left with chaos. A thorough search of their mother's home turned up disorganized bank account records, and no copy of a Will. Her daughter found some keys that may be to a safe-deposit box, but the bank where the mother had her checking account will not divulge any information to the children without a court order.

Even worse, perhaps, is the children's discovery that their mother -- who of course had her "affairs in order" -- owned real estate and was on title to bank accounts with another relative, with title being held as joint tenants with rights of survivorship. Since the other relative is living, that relative now takes complete ownership of all the jointly-owned assets, including the real estate.

The decedent's children are certainly frustrated by the state of affairs left behind by their mother.  As her daughter said to me, "I'd like to be able to grieve for my mother -- but right now I'm just angry at the mess she left behind."

The fact is that the cost to untangle the mother's affairs after her death will likely far exceed the cost she would have incurred to truly put her affairs in order. Just as critical, an estate planning attorney would have identified the problem inherent with the mother's joint ownership of property, and could have helped the woman take affirmative steps to re-title the assets to ensure that her children received their mother's share of the jointly-owned assets.

Thursday, December 6, 2012

‘Irrevocable’ Medicaid Asset Protection Trusts Offer the Best of Both Worlds

An Irrevocable “Medicaid Asset Protection Trust” is one of the best planning tools in the elder law attorney’s toolbox. Assets transferred to a properly structured Medicaid Asset Protection Trust will be rendered “unavailable” for nursing home Medicaid eligibility purposes so long as the person creating the trust (the “Trustmaker”) does not apply for nursing home Medicaid coverage for at least five years after funding the trust. The trust must provide that the Trustmaker relinquishes access and control over the trust principal, but can retain rights to the trust income. While the Trustmaker is prohibited from receiving distributions of trust principal, other beneficiaries – typically children and grandchildren -- are permitted beneficiaries of trust principal.

Medicaid Asset Protection Trusts have become especially popular with clients at or near retirement who have a reliable income from Social Security, pensions, IRAs and other retirement vehicles. Clients are often concerned about exposing their assets to the accelerating costs of long-term care, and they are happy to gain the protection afforded by the Medicaid Asset Protection Trust for certain assets, often including their primary residence.

NYS Law Permits Termination of ‘Irrevocable’ Trusts

For all the benefits afforded by the Medicaid Asset Protection Trust, however, clients are often understandably hesitant to do something “irrevocably.” No matter how much income they have, they often ask, “but what if I really need to get at the principal in the trust?” Or, there always remains the concern regarding a possible need for nursing home care within five years of funding the assets to the trust, which results in the trust assets being deemed “countable resources” for Medicaid purposes.

Fortunately, New York law provides a simple method of revoking even an irrevocable trust. To revoke a trust created pursuant to New York law, Section 7-1.9(a) of the Estates, Powers & Trusts Law (EPTL §7-1.9) simply requires the written consent of the Trustmaker and all the trust beneficiaries. Once the trust is revoked, the trust assets can be returned to the Trustmaker, thereby effectively “undoing” the property transfers. There may be gift tax consequences for a revocation,but this is rarely an issue, as very few estates in which a Medicaid Asset Protection Trust are used are large enough to require the payment of gift taxes.

Possible Hurdles & How to Handle Them

A practical problem arises, however, when the trust includes minor beneficiaries (typically grandchildren). Revocation under EPTL §7-1.9 cannot be utilized with minor beneficiaries, since they are legally incapable of consenting to a revocation. Fortunately, there is an easy fix for this problem. The Trustmaker may retain a lifetime “power of appointment” to remove or add additional principal beneficiaries during the Trustmaker’s lifetime. Should the need arise to terminate a trust, the Trustmaker can simply exercise the power of appointment to eliminate the minor beneficiaries from the trust, after which the trust can be revoked by the Trustmaker and the adult beneficiaries.

Another possible hurdle is the circumstance in whiche a trust revocation is necessary because the Trustmaker has a sudden health crisis, such as a stroke, but the Trustmaker is incapable of consenting to the revocation. This problem is easily solved by including in both the trust and in the Trustmaker’s Durable Power of Attorney a provision authorizing the agent under the Power of Attorney to terminate any trusts created by the Trustmaker. This technique was recently sanctioned by the Appellate Division for the Second Department in Matter of Perosi v. Legreci. In that 2012 case, the court held that a Trustmaker may authorize an attorney-in-fact designated under the Trustmaker’s power of attorney to act under EPTL §7-1.9. This attorney-in-fact may amend or revoke the Trustmaker’s irrevocable trust, so long as the power of attorney grants the attorney-in-fact power broad enough, as well as the general authority, to act.

By virtue of New York’s powerful revocation powers, the use of a Medicaid Asset Protection Trust provides seniors with a wonderful vehicle of protecting selected assets while retaining the right to income from the assets, as well as significant control over the disposition of the trust principal. The ability to retain such benefits, however, requires coordinated planning that is best provided by an elder law attorney well versed in this planning technique. The Estate Planning, Probate and Elder Law department at the law firm of Blustein, Shapiro, Rich & Barone, LLP  is fully prepared to aid you in all areas of your elder law and estate planning needs.

Wednesday, October 24, 2012

Dramatic Change in Medicare Rules a Potential Boon To Seniors and the Disabled

For many years, nursing homes and home health care providers have routinely terminated Medicare coverage for rehabilitation and related care on the theory that the patient has “ceased to improve”, notwithstanding the skilled nursing care.

While the patient has always had the right to appeal such a determination, many patients, when faced with the legal costs and emotional strain, simply throw in the towel and accede to the decision.  After Medicare is terminated because a patient has allegedly flunked the “improvement standard” - and thus no longer remains covered by “skilled” care - the patient is deemed eligible only for custodial care, which is not covered under Medicare.

In those cases, the patient (assuming that they do not have long-term care insurance) either needs to privately pay for their care, or apply for Medicaid if they meet the financial eligibility criteria.

These seemingly arbitrary determinations by health care providers have been especially troubling, since nothing in the Medicare statutes or enabling regulations includes anything resembling an improvement standard. Rather, the improvement standard had become ingrained as standard operating procedure by the vast majority of nursing facilities and health care providers.

In January 2011 a class action lawsuit, Jimmo v. Sebelius, was filed by the Center for Medicare Advocacy in conjunction with Vermont Legal Aid on behalf of patients affected by this draconian policy. The Obama administration initially defended the use of the improvement standard.  But after the government lost not only the motion to dismiss, but also two similar Federal Court cases brought in Pennsylvania and Vermont, the administration agreed to settle the class action lawsuit by conceding that the “failure to improve standard” has no basis in law. They agreed to no longer apply – or ask other health care providers to apply – any type of improvement standard in determining the Medicare eligibility for a sick or disabled patient receiving skilled nursing care.

As a result of the proposed settlement - which still requires the judge’s approval - the government will revise its procedure manual to specifically provide that skilled nursing care shall not be dependent on a determination that the patient has or has not shown improvement as a result of the care, but instead that skilled nursing care will be provided solely because the beneficiary needs such care as a result of the patient’s condition, regardless of any actual improvement of their condition.   

Medicare will continue to cover skilled nursing care even in circumstances where the patient’s condition were to deteriorate during the receipt of such care, so long as the care is determined to have slowed such deterioration.

While it is unclear at this early stage as to the actual impact of this policy change, it is likely that a significant percentage of people who enter a nursing facility for rehabilitation purposes will be covered by Medicare for the duration of the Medicare coverage period for facility rehabilitation, which currently is a maximum of 100 days.

Note that Medicare will only pay 100% of the cost for such services for the first 20 days. Most Medicare supplements will cover the cost for most if not all of days 21-100, but those without supplemental insurance will be on the hook for the co-pay, which presently runs a hefty $144.50 per day.

Perhaps even more dramatically, we may see a significant increase in Medicare-funded home care services for patients with chronic conditions such as Alzheimer’s, Parkinson’s, traumatic brain injuries, and multiple sclerosis.

Going forward, patients with these conditions should find greater access to Medicare-covered services such as physical, occupational and speech therapies in their home setting.  While the costs to Medicare for such services is almost certain to increase in the near term, we can hope that the greater availability of home-based care will reduce the number of people who need to be placed in nursing homes, where the costs of care are even greater than in the home setting.

Further information regarding this landmark settlement can be found at the Center For Medicare Advocacy, Inc.'s website.

Thursday, October 4, 2012

Second Circuit Court of Appeals Smacks Down Connecticut's Claim that a Non-Assignable Annuity is a Resource for Medicaid Purposes

In a definitive decision released on October 2, 2012, the 2nd Circuit Court of Appeals affirmed a prior determination by the Federal District Court for the District of Connecticut that held that a non-assignable immediate annuity purchased by a "Community Spouse" in fact properly converted an "excess resource" to a stream of income.  I had previously discussed the District Court's opinion in this prior post from December 2011.

In the case -- Lopes v. Department of Social Services, the Court of Appeals gave great deference to the brief filed by the Department of Health and Human  Services in support of Mrs. Lopes' claim that the a Community Spouse's purchase of an immediate non-assignable annuity was consistent with the Medicaid's purpose of supporting the indigent and protection Community Spouse's from impoverishment.

Although New York's Department of Social Services have not taken the aggressive posture as we have seen in Connecticut, the 2nd Circuit's ruling -- which is legal precedent for New York as well as Connecticut -- provides us with the assurance that spousal annuity planning remains a viable strategy for New York Medicaid planning.

The Court's full opinion can be found here.

Thursday, September 13, 2012

Beware the Pitfalls of Making Large Gifts or Loans to Your Kids

In counseling clients, I am always concerned when learning that parents have made, or are proposing to make, large monetary gifts or loans to their adult children.  The reasons for such gifts or loans vary.  Perhaps a child finds him or herself in financial difficulty, often as a result of a job loss, divorce, business failure, or dependency addiction.  Few parents, even those of limited means, turn away a child in need.

As the father of two children myself, I have nothing against such a parental "bailout" where a child is in genuine need. After all, family is family.  But frequently I see situations where an adult child convinces his or her parents into transferring to a child significant portion of the parents' life savings for non-essential needs, often for a questionable business venture.  In a perfect world, the child should first look to a bank for financing.  If a bank won't provide financing, that should be a red flag to the parent that they should think twice before providing the requested funds to a child, unless the parent is prepared to permanently part with the money.

For example, in one recent case my client had given her son $300,000 so that the son could purchase a sports bar.  The transaction was deemed a "loan," and the son gave to his mother a rudimentary promissory note.  However, the mother did not retain an attorney, so she did not have a mortgage placed upon the property,  leaving her loan unsecured.   In relatively short order the son's "can't miss" sports bar went bust, and mom's chances of getting the $300,000 back is uncertain at best.

In other cases, money may be given to a child in drips and drabs.  Typically the child in such cases has chronic financial problems, and even as an adult is largely dependent upon the parent for support.  Sometimes the child is just unlucky in life, but all too often I see cases where a parent enables a lazy or unmotivated child to live off of the parent's resources.

In cases where a parent is providing "help" to an only child, my main concerns are typically (i) to ensure that the parent retains sufficient resources to maintain their standard of  living, (ii) to understand the estate and gift tax implications of the transfers, and (iii) to understand the implications of such asset transfers on the parent's potential Medicaid eligibility should long-term care someday be necessary.  If those three issues are satisfactorily addressed, then a parent can make such transfers without significant concern.

But when there is more than one child in the picture, the situation takes a much different turn. In a situation where parents who have multiple children are financially assisting fewer than all the children, it is important that the clients understand the potential for significant strife among their children if the parents haven't made clear in their estate plan how such lifetime payments are to be treated after the parents' deaths.

Often the most equitable approach is to provide in the parents' will or living trust that the lifetime transfer to a child is to be deemed an "advance" on that child's inheritance.  That's what was done in the case mentioned above where mom gave her son $300,000 for his ill-fated sports bar.  Mom's estate plan provides that to the extent that the son hasn't repaid the loan, his share of the inheritance is to be offset by the unpaid amount.  For example, if mom's total estate is $1,000,000 at her death, the client's son and daughter would have otherwise been entitled to one-half of the assets, or $500,000 apiece.  But mom's plan provides that the $300,000 loan amount (or any remaining unpaid amount) is added to the total estate for determining each child's equitable share.  If the son's entire $300,000 loan remains unpaid at mom's death, then mom's total "estate" for distribution purposes is $1,300,000, with each child to be allocated from that sum the amount of $650,000.  Since the son has already received $300,000 of that amount, he would only receive $350,000 of the $1,000,000 from mom's estate, with his sister to receive the other $650,000.  Under this scenario, each sibling will have received substantially equal amounts of their mother's estate, including the large lifetime transfer to the son.  Such an equitable solution is far more likely to be palatable to the children, and is far more likely to result in harmonious sibling relations than in the case where large lifetime gifts and/or unpaid loans are not factored into the estate planning design.

Thursday, August 16, 2012

Second Circuit Affirms Private Right of Action Against Dilatory Medicaid Agency

There exist countless Federal and State statutes and regulations that require governmental agencies to act within certain time frames. All too often, however, agencies ignore the deadlines, leaving the citizen requesting action frustrated and seemingly with no recourse.

Persons denied Medicaid benefits may file for "fair hearings" before an Administrative Law Judge.  Under Federal law, a fair hearing must be held within 90 days of the date that the fair hearing is requested. See 42 C.F.R. Sec. 431.244(f)(l)(ii).  In New York, fair hearings are administered through the Department of Health ("DOH").

All too often, the DOH has failed to hold the requested fair hearings within the 90-day time frame.  A group of aggrieved New Yorkers, in the case of Shakhnes v. Berlin,  filed a class-action lawsuit in U.S. District Court for the Southern District of New York requesting a determination that the DOH must comply with Federal law in timely holding fair hearings after a Medicaid denial.

Evidence during the trial showed that in at least 36 percent of the cases the DOH failed to hold fair hearings within 90 days, and that the average time to resolved cases took a whopping 326 days. The District Court found in the plaintiffs favor and issued an injunction ordering the DOH to hold fair hearings and implement the relief ordered at the hearings within the statutory 90-days window.  The DOH appealed the ruling to the Second Circuit Court of Appeals.

On August 13, 2012, the Second Circuit affirmed the District Court's ruling, but held that the District Court's decision was overbroad in requiring the DOH to not only hold fair hearings within 90-days, but to actually implement relief ordered in the fair hearing within the same 90-day time frame.  The Circuit Court held that Federal law does not impose an obligation for the state Medicaid agency to implement the relief ordered with in such 90-day window, and thus remanded the case to the District Court with instructions to "craft an order of injunctive relief consistent with this opinion."

Click here to read the full Circuit Court opinion.

Monday, July 30, 2012

Insufficient Recordkeeping Under Personal Services Contract Contributes to Loss of Medicaid Benefits

Long-term care Medicaid benefits are a valuable commodity, and will be provided by the government only upon proof that the applicant has met the strict eligibility criteria.  The recently decided case of Swartz v. NYS Dep't of Health (App. Div., 3rd Dep't., June 17, 2012) emphasizes the importance for an applicant to have all their ducks in a row when submitting an application for institutional care.

In Swartz, two parents in declining health moved in with their daughter.  At the time of the move the parents and daughter entered into a "personal services contract" under which the daughter agreed to provide custodial care and related services to her parents on a 24-hour basis.  The contract specified that the daughter was to maintain contemporaneous records as to the dates and nature of services provided.  The contract further specified that the daughter was to be paid at rates between $15.50 and $17 per hour, depending upon the type of services she provided to her parents.

The use of a personal services contract between a parent and a child (or any other caregiver with the exception of a spouse) is a permitted means of transferring wealth from the parent to the caregiver without incurring a Medicaid "penalty period" that would otherwise result if assets were simply transferred to a child as a gift.  Under present law, any nonexempt asset transfers within 60-months of filing a nursing home Medicaid application results in a period of Medicaid ineligibility.  For example, a $100,000 gift made by a Medicaid applicant residing in Orange County to anyone other than their spouse during the 60-month "look back" period will result in a period of nursing home Medicaid ineligibility, or "penalty period," for 9.7 months.  If, however, the same $100,000 were paid to a caregiver for documented care provided for the Medicaid applicant pursuant to a written personal services contract, that wealth transfer should not result in the imposition of a Medicaid penalty period.

Despite the existence of a valid personal services contract, the Court in Swartz held that the Broome County Department of Social Services was justified in determining that a portion of the payments to the daughter were in fact disqualifying gift transfers.  The main flaw in the personal services agreement was that while the contract called for the daughter to be paid for 24-hour care, the Court noted that, "the record contains no detailed contemporaneously-prepared records documenting the services that [the daughter] allegedly provided each night of the week between the hours of 10:45 P.M. and 6:00 A.M."  Accordingly, the Court held that $36,000 of the daughter's "salary" attributed for nighttime care was not supported by the documentary evidence, and was properly considered a gift rather earned compensation by Broome County.

The Swartz decision follows a line of cases that have consistently held that if you are going to utilize a personal services contract, it is imperative that the caregiver maintain complete and contemporaneous time records to document the type and extent of services to be provided under the agreement.  Merely "being there" during the night does not appear sufficient justification to charging a "fee" for the entire night.  This result seems a bit harsh in that a non-related caregiver such as a private home care agency will certainly charge a fee for being available all night even if services are not required.  But the Courts pay especially close scrutiny to caregiver arrangements between related parties, and failing to document actual care provided will almost certainly result in a determination that the pay for any undocumented periods will be considered an uncompensated gift transfer for Medicaid purposes.

I am more troubled by the Court's holding that it was acceptable for the Broome County Department of Social Services to determine that the appropriate hourly rate for home healthcare rates was $9.22, which according to U.S. Department of Labor statistics is the mean hourly wage rate for a personal home healthcare aide in New York; the Swartz family had asserted that the appropriate rate to apply was $15.50, which is the rate they claimed would have been paid to a local home healthcare agency.  Most caregivers are provided by home healthcare agencies, and personal services contracts routinely provide that hourly rates are pegged to those of local home healthcare agencies. It is unfair to penalize family caregivers who often sacrifice their own careers to take care of a parent or other loved-one by limiting compensation to what is essentially poverty-level subsistence.

Wednesday, July 11, 2012

Federal Court Approves Community Spouse's Purchase of Annuity to Shelter Excess Resources

Earlier this week, the United States Tenth Circuit Court of Appeals issued what might be considered a landmark decision in the realm of "crisis" Medicaid planning.  In Morris v. Oklahoma Dept. of Human Resources (10th Cir., No. 10-6241, July 9, 2012), the Court held that a Community Spouse may use assets in excess of the Community Spouse Resource Allowance ("CSRA") to purchase an immediate annuity, which effectively converts non-exempt resources into an income stream. This strategy allows a Community Spouse to avoid having to spend down all of their excess resources in order for a sick or disabled spouse to be eligible for nursing home Medicaid coverage.

In New York, community spouses are presently permitted to retain excess resources by executing a "spousal refusal," which effectively renders the assets and income of a refusing spouse as unavailable for determining a community spouse's Medicaid eligibility.  However, many counties are now actively bringing post-Medicaid approval "support actions" against refusing community spouses who retain assets in excess of the CSRA.  Like the community spouse in Morris, a community spouse residing in New York may consider purchasing an immediate annuity to convert excess resources into an income stream, thereby rendering that spouse less of of a target for a spousal recovery lawsuit.

The entire Morris opinion can be read here.

Friday, June 15, 2012

Finders Keepers? Arizona Court Says Not So Fast

An Arizona appellate court recently held that the estate of a man who hid $500,000 cash in the walls of his dilapidated house, rather than the subsequent homeowners, was entitled to the money.  In Grande v. Jennings,  the court held that the original homeowner, Robert Spann, had not in fact abandoned the cash that he had hid in the walls of his home.  Apparently Mr. Spann had made a habit of hiding cash and other values throughout  the home where the cash in dispute was found, as well as other homes that he had owned.

Sometime after his death, Spann's daughter, Karen Spann Grande, as personal representative of her father's estate, sold the home to a couple, Sarina Jennings and Clinton McCallum.  During the course of renovations undertaken by the new homeowners, the $500,000 in cash was discovered hidden in various walls throughout the home.  The contractor initially failed to tell the homeowner's about the cash, but he was eventually ratted-out by one of his employees. After Jennings and McCallum  sued the contractor seeking to recover the cash, Grande sued Jennings and McCallum, claiming that her father's estate was in fact entitled to the money.

After the cases were consolidated, Grande won at trial.  On appeal, the appellate court agreed with the trial court that under Arizona law, to be deemed to have abandoned personal property, "one must voluntarily and intentionally give up a known right."  In this instance, the court ruled, no such voluntary and intentional relinquishment of the cash had been proven, and thus the estate was entitled to the money.  

While the estate ultimately prevailed in this case, Mr. Spann's "method" of estate planning surely left something to be desired. 

Click here to read the decision in its entirety.

Friday, June 8, 2012

GAO Recommends Imposition of Asset Transfer Penalties for VA Pensions

After a year-long investigation, the United Stated Government Accountability Office ("GAO") is recommending that Congress enact legislation that would impose asset-transfer penalties for veterans applying for VA pensions.  Presently, there are no asset-transfer restrictions for the VA pension program

Under current law, veterans who served during war time (they need not have served in combat or even in a combat theater) and who have high medical-related expenses (including the costs for home health aids or assisted living) may be eligible for a VA pension that can pay up to $2,019 per month.  The key requirements are that (i) the monthly out-of-pocket medical expenses must exceed the household income, and (ii) the veteran's assets (and his/her spouse's, if applicable) cannot be "excessive". Unlike the Medicaid program, which has a defined maximum resource limit of $14,250, the VA pension program has no fixed number.  Rather, a "safe" range is often considered to be $20,000 to $50,000, although the VA examiner has wide discretion in determining asset eligibility.

The GAO report claims that over 200 organizations have been identified that claim to assist veterans to obtain a VA pension.  The report alleges that many of these organizations sell veterans unsuitable products in order to become pension-eligible.

While there are almost certainly abuses among certain organizations or companies that purport to assist veterans in navigating the VA pension system, in my view the report unfairly lumps skilled elder law attorneys with the "snake oil salesmen" that produce the worst abuses of the system.  Nonetheless, it appears that there is growing bipartisan support in Congress to implement asset transfer penalties similar to the transfer penalties currently imposed for other means-tested programs such as SSI and nursing home Medicaid.

Click here for the New York Times story on the GAO report.

Thursday, June 7, 2012

Forbes Article Highlights Key Estate Planning Mistakes

Rob Clarfeld, a CPA and Certified Financial Planner who writes periodically for Forbes, recently highlighted seven major estate planning errors.  In my view, he couldn't be more on point.   Number two on his list is the ever-increasing use of "do it yourself" estate planning through LegalZoom and similar websites.  As he says, doing your own estate planning "is a recipe for disaster."

Clarfeld also underscores the importance of ensuring that your beneficiary designations and asset titling must be consistent with your estate plan; far too often the client's planning documents (e.g., wills and trusts) provide for a particular result, but the assets are titled incorrectly (e.g., often jointly titled with another owner), and the beneficiary designations listed on the clients retirement accounts, annuities and life insurance are inconsistent with the client's planning goals.

Clarfeld's final "major" error -- "Leaving assets outright to Adult Children" -- parrots what I have been advocating for the past 13 years; namely, that one of the best gifts we can provide to our adult children is to leave their inheritance in trust.  These lifetime trusts need not at all be restrictive or otherwise prevent the children from having use and access of the inheritance.  To the contrary, a child's trust can be designed as a "beneficiary controlled trust" that allows the child to serve as his or own trustee having access to the trust assets.  If, however, the child were to someday go through a divorce or have creditors knocking at their door, the trust assets -- assuming the trust is properly structured and maintained -- would be deemed off-limits to those "creditors and predators."

Monday, May 14, 2012

State-by-State Estate Tax Survey

The American College of Trust and Estate Counsel has just released this comprehensive Death Tax Chart summarizing the estate and inheritance tax laws currently in effect in the 50 states and the District of Columbia.  Of the local jurisdictions, New York, New Jersey and Connecticut each have a state estate tax distinct from the federal estate tax, while Pennsylvania has a state inheritance tax.

Signing a Nursing Home Admissions Agreement may be Hazardous to Your Wealth

Admitting a parent into a nursing home is a traumatic experience on many levels. Not only do children often deal with guilty feelings when making at such a decision, the nursing home admissions process is replete with paperwork and bureaucratic jargon that only adds to the stress.
Sometimes nursing homes will “require” the child to guarantee payment for the cost of a parent’s care in the nursing home.  Under the Federal Nursing Home Reform Act, however, a nursing home is prohibited from requiring a third party to guarantee payment to the facility as a condition of admission of another party.  Any child who signs such a guarantee can later disavow the guarantee without consequence.  

But even though a child cannot be required to guarantee payment for a parent’s nursing home care with the backing of the child’s assets, a recent New York appellate court case makes clear that a child can be held responsible for reneging on a written promise to a nursing home to apply the parent’s own assets towards the cost of the parent’s nursing home care.

In Troy Nursing & Rehabilitation Ctr., LLC v. Naylor, (N.Y. App. Div., 3d Dept., No. 512311, March 20, 2012) Diana Gaetano signed an agreement with Troy Nursing & Rehabilitation Center in which Ms. Gaetano promised, as agent under her father’s power of attorney, to use her father’s assets to pay for her father’s care in the facility.  After Ms. Gaetano reneged on that promise, the nursing home filed suit against her, seeking damages of over $80,500 plus interest.

In March 2011, Judge Hummel of Rensselaer County Supreme Court granted summary judgment in favor of the nursing home.  Ms. Gaetano appealed.  In its opinion, the Third Judicial Department of the Appellate Division of the New York Supreme Court agreed with Judge Hummel that Ms. Gaetano was in fact liable for the cost of her father’s nursing home care. Specifically, the Court distinguished between a child’s guarantee to use her own assets to pay for care, which as noted above is prohibited under federal law, and a promise to use the nursing home resident’s own assets to pay for care, which the court held is an enforceable obligation.  The Appellate Court noted that federal law expressly authorizes a person “who has legal access to a resident’s income or resources available to pay for care in the facility, to sign a contract (without incurring personal financial liability) to provide payment from the resident’s income or resources for such care.” Ms. Gaetano’s agreement with the nursing home, said the Court, clearly met that definition. 

What’s the lesson to be learned from this case?  A child signing admission papers for a parent entering a nursing facility that participates in the Medicaid program (which the vast majority of nursing homes do) should avoid signing an agreement promising to use the resident’s assets to pay for the cost of care.  While a nursing home may refuse to accept a resident for failing to disclose assets, no facility that accepts Medicaid can prohibit a family from engaging in legitimate asset preservation techniques after the resident is admitted to the facility.  If the child signs an agreement like the one signed by Ms. Gaetano, however, the facility may subsequently assert a claim against the child that will be enforced by the courts, rendering ineffective any asset preservation planning that has been instituted.

Thursday, April 19, 2012

Estate Disputes -- Are They Really About the Money?

In an excerpt from his new book Blood & Money: Why Families Fight over Inheritance and What to Do About it, attorney P. Mark Accettura argues that estate disputes are really less about "the money" than they are about psychological and physiological characteristics such as an innate disposition for conflict and the yearning for approval from a deceased parent that an inheritance is seen to represent.

When counseling clients regarding how to best pass their assets to their children or other loved ones, I spend considerable time delving into the background of the family and each individual member.  It is critical that as an estate planning attorney I learn everything I can about the relationships between and among family members so that I can help the client plan to minimize the possibility for conflicts among the family after the client is gone.  I don't take at face value any client's statement that "everyone gets along fine, and always will."  Instead I emphasize to them that, while it's certainly possible that family harmony will continue after the client's death, it is also as likely that the client has served as the "glue" who has helped smooth over simmering tensions among children or other family members. I emphasize that when the "glue" is gone, the tensions that have festered under the surface for years -- even decades --  may explode into a battle that may work it's way through court system for years, costing tens of thousands of dollars and leaving the family irrevocably broken.

Click here for the excerpt from Accettura's book.

Wednesday, March 28, 2012

New York's Expanded Estate Recovery Rules to be Repealed

Yesterday it was announced that Governor Cuomo and the New York Legislature had reached a deal on the 2012 New York State Budget.  Included in the new budget is a repeal of the expanded estate recovery rules that were enacted in last year's budget in an attempt to "recover" assets from the estates of Medicaid recipients.  As I explained in a previous post describing the estate recovery rules, the expanded estate recovery rules, among other things, would have unfairly penalized those thousands of New Yorkers who had years ago transferred title to their homes to their children while retaining a life estate in the home.

Prior to last year's enactment of the expanded estate recovery rules, a home transferred with a retained life estate would have been deemed an asset exempt from Medicaid recovery, so long as the Medicaid "look back period" (currently five years from the date of transfer) had elapsed.  Under the expanded estate recovery rules, the parent's life estate interest in the home was deemed an "asset" subject to recovery should the parent receive Medicaid benefits, even if the life estate transfer had been made years or even decades prior to the parent receiving Medicaid!  

The expanded estate recovery rules would have also played havoc with IRA's and similar retirement accounts, and would surely have led to expensive and protracted litigation.

Stay tuned, however, as New York will be looking for other means to raise revenue that will almost surely affect the elderly, the disabled and the poor.

Wednesday, March 14, 2012

News and Notes

I apologize for my readers -- I'm a bit behind in posting to the blog.  To get you up to speed, here's a few recent developments in the world of estate planning, estate administration and elder law:

  • An Executor is not absolved from liability for late filing of estate tax returns notwithstanding attorney's obvious malpractice (and even criminal conduct) -- In Thomas Friedman vs. U.S., 109 AFTR 2d 2012-723, the executor of an estate hired an attorney who claimed to be experienced in estate administration matters to file the federal estate tax return.  The attorney apparently suffered from a myriad of "physical and mental ailments" resulting in the attorney's neglect in properly handling the administration, including the filing of the estate tax return.  Only three years after the filing due date did the executor learn that the estate tax return had not in fact been filed.  The executor then paid the tax due, as well as interest and significant late filing penalties. The executor subsequently sought a refund of the penalties and interest, relying on the doctrine   that he reasonably relied upon the attorneys' assurances that the attorney was taking care of the filing.  The Federal District Court in Pennsylvania, citing the precedent of a 1985 Second Circuit  decision, held that a taxpayer's duty to file a timely tax return is nondelegable, and that misplaced reliance upon professional assistance will not fall within the safe harbor of reasonable cause.
  •  Mere retention of a testamentary power of appointment in a irrevocable "Medicaid Trust" alone may not be sufficient to render the trust "incomplete" for gift tax purposes.  The IRS recently issued this memorandum, which provides that transfers of assets to an irrevocable trust in which the grantor retains a testamentary power of appointment, without more, constitutes a completed gift of the transferred assets and requires the filing of a federal gift tax return (assuming the value of the transferred assets exceeds $13,000).  Although when Medicaid planning for a modest estate there would be no payment of gift taxes, the troubling issue with such a determination is that if there is a completed gift during lifetime, the trust assets would not be included in the grantor's estate at their death, and thus the trust assets would not be eligible for "step up in basis" treatment.  So, in the common situation where a primary residence is transferred to such a trust, the heirs (typically the grantor's children) will inherit the home at the parent's death with the parent's "carryover" cost basis, not the (usually much higher) date of death cost basis.  If, for example, the parents have a cost basis in the home (e.g., purchase price plus capital improvements) of $50,000, and the children sell the home after the parent's death for $250,000, without the benefit of the step-up in basis, the children will pay capital gains tax on the full $200,000 gain.  One solution to this issue is to include in the trust that the grantor(s) will retain some lifetime rights over the transferred property.  Such control might include a right to trust income, or the retention of a lifetime (rather than after-death) power of appointment.  Fortunately, our firm already routinely includes such lifetime income and power of appointment powers in our "Medicaid" trusts, so I am confident that clients for whom we have created such trusts will gain the benefit of the step-up in cost basis for the trust assets upon the grantor's death.
  • The options for purchasing long-term care insurance continues to shrink. Prudential recently announced that it is following other prominent companies (including MetLife and Travelers) in abandoning the individual long-term care insurance market (Prudential will still sell group long-term care policies).  This excellent Wall Street Journal article discusses the increasing difficulty consumers will have in purchasing affordable long-term care insurance, and includes tips on how to shop for those policies that remain available.

Friday, February 24, 2012

Estate Planning Comes to Hollywood

As discussed in this excellent article in Forbes, the Oscar-nominated film The Descendents, starring George Clooney, is replete with estate planning-related issues.  While I thought the movie was overrated, I did think the film makers did a good job in their handling of such concepts as the need for a living will to handle end-of-life care; the complexity of intra-family relations  as it pertains to real property held in a long-term trust; the common law requirement that requires termination of a trust under the Rule Against Perpetuities;  and how best to pass an inheritance to a child in a manner that will not impair his or her incentive to be a productive citizen (also known as the condition of "affluenza"). 

I am pleased that the producers consulted with a law professor who teaches estate planning to ensure that the estate planning issues were handled appropriately.

Tuesday, February 14, 2012

Obama's Budget Proposal and Estate Taxes -- Back to the Future

As has been widely reported, President Obama's proposed 2013 budget would eliminate the Bush-era income tax cuts for the "wealthy," and would require those earning more than $1 million per year to pay at least 30% of their earnings in Federal income taxes.  In addition, the capital gains rate for higher income earners would increase to 20%.

Less widely reported are some of the key estate and gift tax related proposals:

  • a $3.5 million per person estate and gift tax exemption
  • elimination or restriction of several advanced estate and gift tax reduction techniques, including the use of minority discounts and Grantor Retained Annuity Trusts ("GRATs").
  • elimination of the "Intentionally Defective Grantor Trust" ("IDGT") technique that presently allows for the sale of assets to a trust in which the trust assets grow outside of the grantor's taxable estate, with the grantor paid by the trust for the assets sold to a trust via a promissory note.  Since under the current grantor trust rules the sale of the assets to the IDGT is considered for income tax purposes a sale to the grantor himself, there is no recognition of gain on the transfer.
Elimination of some or all of these advanced estate and gift tax planning techniques would certainly pose challenges to estate planners in helping their clients reduce exposure to estate and gift taxes.

Given that we are in an election year, and given the acrimony between the Republicans and the President, the chance of Obama's proposed budget passing largely intact is virtually nil.  That being said, Congress faces a December 31st deadline for the repeal of all the existing Bush tax cuts, so something will have to give between now and the end of the year.  We shouldn't be surprised, then, if the estate and gift tax exemption is reduced  to $3.5 million, and if some if not all of the advanced estate and gift tax planning techniques are eliminated.

With all the uncertainty, we are advising all of our high-net worth clients to plan now at a time when we can rely on some wonderful planning techniques to achieve significant estate and gift tax savings.

If you're a true policy wonk, an explanation of the proposed budget can be found here.

Friday, February 3, 2012

Cautionary Tales of Estate Planning Failure -- and the Need to Update Your Planning

A recent article in Forbes uses estate planning disasters of the rich and famous to highlight the importance of getting your affairs in order -- and the pitfalls for leaving things to chance.  The article describes how Eva Gabrielsson, the long-time girlfriend of Stieg Larsson -- author of the wildly successful Girl With The Dragon Tattoo series -- ended up fighting with his family over Larrson's estate. Larrson died at age 50 without a will. Under Swedish law -- which apparently is similar to the intestacy laws in New York -- Gabrielsson was entitled to none of Larsson's estate, notwithstanding that they were a couple for 32 years prior to Larrson's death.  The very public fight over Larrson's estate quickly became ugly, with each side hurling nasty charges at the other.

The Larsson saga and others described in the article highlights an issue I run into frequently: how to answer the question, "when should I see you about my estate planning?"  My (tongue-in-cheek) answer is, "call me six months before your are going to be disabled or will die, and we'll be able to get your affairs in order."

This type of conversation points out the concern many people have about estate planning; namely, a fear that they might get their planning done "too soon" or "too late".  As the Forbes article points out in describing the Michael Crichton estate fiasco, the solution to that dilemma is to ensure that your estate plan is updated regularly. In our practice, we offer an annual maintenance program that ensures that our clients' plans are reviewed and modified every year to keep current with changes in our clients' lives, changes in the law, and changes in our knowledge and experience.  By participating in a formal maintenance program, you are assured that you will never do your estate planning "too early," as your planning will be modified to keep up with the many changes affecting your estate plan.

Click here for the link to the Forbes article.

Tuesday, January 31, 2012

Nursing Home Bed Shortage For Men

Yesterday's New York Times highlighted a little-discussed issue that I have seen grow worse as the total number of nursing home beds has decreased:  an absolute shortage of beds for men seeking a nursing home placement.  As noted in the article, the majority of nursing home beds are in semi-private rooms.  Since over 75% of nursing home residents are women, that leaves precious few available beds for our elderly male population.

I have seen a number of instances recently in the Hudson Valley where a family has had to scramble to find a nursing home bed for an elderly male parent or other relative.  With the possibility that Valley View may be shut down this summer, and the general decline in nursing home beds throughout the region, I don't see the problem improving anytime sone. 

Friday, January 13, 2012

I Should Have Gone To Nursing School

Not that I'm complaining about my career choice, but practicing elder law seemingly pales in comparison to serving as a private nurse for a wealthy client.  

Hadassah Peri was the long-time private nurse for eccentric copper heiress, Huguette Clark.  Ms. Clark, who died childless in May 2011 at the age of 104, had a $400 million fortune that she inherited from her father, former U.S. Senator and copper magnate William A. Clark. 

During the last five years of Clark's life, Peri received "gifts" of approximately $26 million. In addition,  Clark's will left Peri another $30 million.  This information has come to light during the administration of Clark's estate.  Clark's accountant, Irving Kamsler, and her attorney, Wallace Bock, were recently suspended from serving as executors for the estate by New York Surrogate Kristen Booth after evidence surfaced that both men engaged in tax fraud by failing to pay to the IRS $90 million in unpaid gift taxes, interest and possible penalties.

Both Kamsler and Bock claim they at all times acted in Clark's best interest, and have denied the allegations.   The Manhattan D.A. is investigating, and it is likely that the Justice Department will launch an investigation into the alleged tax fraud.  It probably won't help Kamsler's case that he is already a convicted felon and registered sex offender, having plead guilty in 2008 for attempting to distribute child pornography.

Click here to read more details about this case.