Three Democratic Senators, led by Bernie Sanders of Vermont, are sponsoring legislation to include a 65% "billionaire surtax" for estates in excess of $500 million. The trio makes the argument that in an era of increasing federal debt, the largest estates should pay their "fair share."
Although it is unclear in this article, it appears that the intent of this proposal would be to add this surtax on top of whatever estate tax is ultimately enacted by Congress.
The proposal would also make the estate tax retroactive to January 1, 2010; such a result would almost certainly lead to constitutional challenges from estates that, at present, would have no federal estate tax obligation in 2010.
Monday, June 28, 2010
Friday, June 18, 2010
Big Change Under NY Law: Lawyer May be Sued By Estate for Malpractice in Drafting Will
On June 17, 2010, the New York State Court of Appeals issued a ruling that permitted an Executor of an estate to bring a legal malpractice action against an attorney who allegedly committed malpractice in drafting the decedent's will. According to the executor, the attorney's malpractice caused the estate to owe estate taxes that could have been avoided with proper drafting. The ruling in the case of Estate of Schneider v. Finmann, et.al.,, overturned New York's longstanding rule that required an allegedly injured party to have "privity" -- essentially, a contractual or other relationship with attorney -- in order to have standing to bring a claim of legal malpractice.
In estate cases, the problem for parties claiming to be aggrieved by an attorneys' alleged malpractice in drafting a will or a trust is that the only party that would typically have privity with the attorney is the decedent who engaged the attorney to draft the estate plan. Since the attorney's "error" is typically not made apparent after the decedent's death, the parties that suffer the real injury -- the estate and its beneficiaries -- would lack privity with the attorney and thus have no recourse.
Over the years a majority of states have modified or eliminated the strict privity rule for estate planning matters. With this decision, the Court of Appeals is recognizing that privity in this context is out-of-step with a more modern approach in determining liability for professional negligence.
One important qualifier in this case is that only the Executor or other fiduciary may bring a claim on behalf of the estate; individual beneficiaries still would need privity to maintain a claim against the attorney. The Court reasoned that the Executor "stands in the shoes" as Personal Representative of the decedent, who in fact had privity with the attorney. Permitting individual beneficiaries who do not have privity to bring claims, the Court concluded, "would produce undesirable results -- uncertainty and limitless liability."
I hope that one consequence of this decision is that it will convince many attorneys who only "dabble" in the field to realize that it's not worth the risk to continue doing estate planning without a thorough knowledge of the field.
In estate cases, the problem for parties claiming to be aggrieved by an attorneys' alleged malpractice in drafting a will or a trust is that the only party that would typically have privity with the attorney is the decedent who engaged the attorney to draft the estate plan. Since the attorney's "error" is typically not made apparent after the decedent's death, the parties that suffer the real injury -- the estate and its beneficiaries -- would lack privity with the attorney and thus have no recourse.
Over the years a majority of states have modified or eliminated the strict privity rule for estate planning matters. With this decision, the Court of Appeals is recognizing that privity in this context is out-of-step with a more modern approach in determining liability for professional negligence.
One important qualifier in this case is that only the Executor or other fiduciary may bring a claim on behalf of the estate; individual beneficiaries still would need privity to maintain a claim against the attorney. The Court reasoned that the Executor "stands in the shoes" as Personal Representative of the decedent, who in fact had privity with the attorney. Permitting individual beneficiaries who do not have privity to bring claims, the Court concluded, "would produce undesirable results -- uncertainty and limitless liability."
I hope that one consequence of this decision is that it will convince many attorneys who only "dabble" in the field to realize that it's not worth the risk to continue doing estate planning without a thorough knowledge of the field.
Tuesday, June 15, 2010
Not All Gifts Will Disqualify You From Medicaid Eligibility
It is commonly believed that if a senior makes gifts to family members and subsequently needs long-term care services within five years after making the gifts (the five-year window being commonly referred to as the “look-back” period), such gifts will automatically cause a period of Medicaid ineligibility. While the statutory presumption is that all gifts during the look back period will affect the donor’s subsequently Medicaid eligibility, there are a number of exceptions to the general rule.
One important exception to the transfer penalty rules is set forth in Section 366.5(d) of the New York Social Services Law. Under that provision, gifts made during the look back period will not create a period of Medicaid ineligibility for the donor if a “satisfactory showing is made that … the asset was transferred exclusively for a purpose other than to qualify for Medicaid.”
A 2009 case out of Suffolk County shows the importance of this rule. In that case, an 83 year-old widow (“Mrs. X”) suffered a fall in late 2008 and needed nursing home care. Prior to the fall the woman had been in good health and lived comfortably in her own home.
Beginning in March 2006 and continuing through July 2007, Mrs. X made gifts to various children and grandchildren totaling $71,000. Critically, the testimony showed that Mrs. X’s children were going through various financial hardships – one son was in and out of the hospital and had significant medical bills; another son had lost a job and was teetering on the edge of bankruptcy. Other children and grandchildren needed help to keep up with their own living expenses. The Hearing Examiner noted that even after the gifts, Mrs. X remained financially solvent and was able to comfortably meet her living expenses.
Shortly after Mrs. X entered the nursing home in December 2008, she applied for Medicaid coverage to cover her nursing home expenses. The Suffolk County Department of Social Services (“DSS”) approved her eligibility, but under the transfer penalty rules imposed a six month “penalty period” on account of the $71,000 gifts made by Mrs. X to her family. After DSS’s determination, Mrs. X’s daughter was able to recover from some of the children only $28,000, leaving Mrs. X without the means to cover the nursing home costs during the bulk of the penalty period.
Mrs. X challenged DSS’s imposition of the penalty period, claiming that her gifts were made for a purpose other than to qualify for Medicaid and fell under the exception to the transfer penalty rules found in Social Services Law Section 366.5(d). In her decision, the Hearing Examiner agreed with Mrs. X’s claim that, despite her relatively advanced age, “the gifts were made at a time when there was absolutely no indication that [Mrs. X] would need nursing home level of care,” and that “the record failed to establish that [Mrs. X] made any of the gifts in order to qualify for Medical Assistance.” Accordingly the Hearing Examiner reversed DSS’s imposition of a six month penalty period, rendering Mrs. X immediately eligible for nursing home Medicaid.
Implicit in this decision is the importance of having the right facts. If Mrs. X had evidence of chronic health conditions (e.g., early dementia, arthritis, etc.) at the time the gifts were made, it is almost certain that DSS imposition of a penalty period would have been upheld. But in a circumstance such as Mrs. X’s case where a senior in seemingly good health has made gifts to family members but then suffers a sudden decline in health, a strong argument can be made that the statutory exemption under Social Services Law Section 366.5(d) should apply, precluding DSS from imposing a Medicaid penalty period.
One important exception to the transfer penalty rules is set forth in Section 366.5(d) of the New York Social Services Law. Under that provision, gifts made during the look back period will not create a period of Medicaid ineligibility for the donor if a “satisfactory showing is made that … the asset was transferred exclusively for a purpose other than to qualify for Medicaid.”
A 2009 case out of Suffolk County shows the importance of this rule. In that case, an 83 year-old widow (“Mrs. X”) suffered a fall in late 2008 and needed nursing home care. Prior to the fall the woman had been in good health and lived comfortably in her own home.
Beginning in March 2006 and continuing through July 2007, Mrs. X made gifts to various children and grandchildren totaling $71,000. Critically, the testimony showed that Mrs. X’s children were going through various financial hardships – one son was in and out of the hospital and had significant medical bills; another son had lost a job and was teetering on the edge of bankruptcy. Other children and grandchildren needed help to keep up with their own living expenses. The Hearing Examiner noted that even after the gifts, Mrs. X remained financially solvent and was able to comfortably meet her living expenses.
Shortly after Mrs. X entered the nursing home in December 2008, she applied for Medicaid coverage to cover her nursing home expenses. The Suffolk County Department of Social Services (“DSS”) approved her eligibility, but under the transfer penalty rules imposed a six month “penalty period” on account of the $71,000 gifts made by Mrs. X to her family. After DSS’s determination, Mrs. X’s daughter was able to recover from some of the children only $28,000, leaving Mrs. X without the means to cover the nursing home costs during the bulk of the penalty period.
Mrs. X challenged DSS’s imposition of the penalty period, claiming that her gifts were made for a purpose other than to qualify for Medicaid and fell under the exception to the transfer penalty rules found in Social Services Law Section 366.5(d). In her decision, the Hearing Examiner agreed with Mrs. X’s claim that, despite her relatively advanced age, “the gifts were made at a time when there was absolutely no indication that [Mrs. X] would need nursing home level of care,” and that “the record failed to establish that [Mrs. X] made any of the gifts in order to qualify for Medical Assistance.” Accordingly the Hearing Examiner reversed DSS’s imposition of a six month penalty period, rendering Mrs. X immediately eligible for nursing home Medicaid.
Implicit in this decision is the importance of having the right facts. If Mrs. X had evidence of chronic health conditions (e.g., early dementia, arthritis, etc.) at the time the gifts were made, it is almost certain that DSS imposition of a penalty period would have been upheld. But in a circumstance such as Mrs. X’s case where a senior in seemingly good health has made gifts to family members but then suffers a sudden decline in health, a strong argument can be made that the statutory exemption under Social Services Law Section 366.5(d) should apply, precluding DSS from imposing a Medicaid penalty period.
Sunday, June 13, 2010
Fun and Games with Gary Coleman's Estate
It is reported that the late actor Gary Coleman executed a 2005 will that would supersede the 1999 will that has already been submitted for probate in a Utah court. Neither Coleman's parents nor his ex-wife (who claims she and Coleman were still married under common law marriage at the time of his death) are named as beneficiaries or executors under the will.
I have no idea what type of estate Coleman might have had at his death, but it seems a lot of people are awfully interested in the proceedings.
Stay tuned for updates.
I have no idea what type of estate Coleman might have had at his death, but it seems a lot of people are awfully interested in the proceedings.
Stay tuned for updates.
Is Long-Term Care Insurance Too Expensive? Not Necessarily
A new survey shows that more than a third of recent purchasers of long-term care insurance are paying less than $1,500 per year for their policies. All things being equal, long-term care insurance is the best tool for protecting against the depletion of assets if you someday need long-term care.
The cost of a LTC policy will depend upon a myriad of factors, including your age, your health, the daily benefit you are seeking, and the term of years that you are hoping to ensure.
One caveat to the survey: since the cost of long-term care in New York is higher than the national average, the cost of an adequate long-term care insurance policy for a New York resident will typically be more costly as well.
The cost of a LTC policy will depend upon a myriad of factors, including your age, your health, the daily benefit you are seeking, and the term of years that you are hoping to ensure.
One caveat to the survey: since the cost of long-term care in New York is higher than the national average, the cost of an adequate long-term care insurance policy for a New York resident will typically be more costly as well.
Monday, June 7, 2010
LegalZoom Sued For Misleading Its Customers
I previously posted a critical review of three legal document creation websites, including most prominently LegalZoom.com. As noted here, a class action lawsuit has been filed in a California court against LegalZoom claiming that the website falsely tells customers that users get "customized" legal documents when in fact the only "customizations" involve the entry of the customers' names and other identifying information.
The lawsuit also claims that the website's promise of "unlimited customer support" does not include access to a lawyer.
The lawsuit also claims that the website's promise of "unlimited customer support" does not include access to a lawyer.
Friday, June 4, 2010
Estate Planning For A Vacation Home
With summer’s arrival, many families are planning gatherings at the family vacation home, whether it’s on a lake, in the mountains, at the shore, or at points in between.
While mom and dad are around, they will be the final arbiters regarding use of the vacation home by the children and other family members. Essentially, the parents serve as the “glue” that keeps the peace among potentially fractious children (not to mention their spouses).
But what happens after the parents are gone? If the parents hope that the vacation home will remain “in the family” for future generations, then the typical “simple” will that leaves that property equally to the children after both parents’ deaths is likely not the answer. Many times the children will find themselves in different economic and geographic situations. Suppose one child lives 50 miles from the vacation home, while another child lives 500 miles away. It is likely that the more distantly located child will have less opportunity to use the vacation home. Perhaps that child says to his siblings, “well, I’m not using it anyway, and I can’t afford the property taxes -- let’s just sell the place.” If the other children want to keep the home, but the reluctant child doesn’t contribute for taxes or other expenses, friction between the siblings is almost a certainty.
The situation gets even murkier if the property passes to the succeeding generations. What if child #1 has three children and child #2 has only one child? As title to the property passes to the grandchildren, the three children of child #1 will divide their parent’s 50% share, while child #2’s daughter will inherit her parent’s entire 50% share. It is almost certain that disputes will arise over issues such as usage of the property, as well as the financial contributions expected from the various owners.
While such potential trouble spots abound, there are viable ways for the parents to plan to keep the vacation home in the family for generations to come. The parents should consider placing the vacation home into either a “vacation home trust” or a limited liability company (“LLC”). Both planning tools have similar features. After the parents’ deaths, title to the vacation home would not pass to the children; rather, the home would remain titled to the entity, with the trust agreement or LLC operating agreement setting forth the family members’ rights and responsibilities, through all the generations.
For example, if the parents have three children, the trust agreement might provide that each child – regardless of how many children any particular child may have -- would have a single vote on all major decisions affecting the vacation home. Each child’s single vote could be passed on to their respective children, so no child would be benefited, or disadvantaged, by having more or fewer children than their siblings. The agreement might also provide for a “draft” of preferred dates for uses of the home, with each child (or their offspring) getting first choice annually on a rotating basis. The agreement can also provide for consequences – including restrictions on use of the home -- if one of the family “branches” fails to pay for property taxes or other expenses.
The types of provisions that can be included in a vacation home trust or LLC agreement are limited only by the imagination of the parents and their estate planning advisor. But failing to address this critical planning issue is almost certain to lead to the end of the family retreat – and may even result in a permanent rupture of the children’s relationships.
While mom and dad are around, they will be the final arbiters regarding use of the vacation home by the children and other family members. Essentially, the parents serve as the “glue” that keeps the peace among potentially fractious children (not to mention their spouses).
But what happens after the parents are gone? If the parents hope that the vacation home will remain “in the family” for future generations, then the typical “simple” will that leaves that property equally to the children after both parents’ deaths is likely not the answer. Many times the children will find themselves in different economic and geographic situations. Suppose one child lives 50 miles from the vacation home, while another child lives 500 miles away. It is likely that the more distantly located child will have less opportunity to use the vacation home. Perhaps that child says to his siblings, “well, I’m not using it anyway, and I can’t afford the property taxes -- let’s just sell the place.” If the other children want to keep the home, but the reluctant child doesn’t contribute for taxes or other expenses, friction between the siblings is almost a certainty.
The situation gets even murkier if the property passes to the succeeding generations. What if child #1 has three children and child #2 has only one child? As title to the property passes to the grandchildren, the three children of child #1 will divide their parent’s 50% share, while child #2’s daughter will inherit her parent’s entire 50% share. It is almost certain that disputes will arise over issues such as usage of the property, as well as the financial contributions expected from the various owners.
While such potential trouble spots abound, there are viable ways for the parents to plan to keep the vacation home in the family for generations to come. The parents should consider placing the vacation home into either a “vacation home trust” or a limited liability company (“LLC”). Both planning tools have similar features. After the parents’ deaths, title to the vacation home would not pass to the children; rather, the home would remain titled to the entity, with the trust agreement or LLC operating agreement setting forth the family members’ rights and responsibilities, through all the generations.
For example, if the parents have three children, the trust agreement might provide that each child – regardless of how many children any particular child may have -- would have a single vote on all major decisions affecting the vacation home. Each child’s single vote could be passed on to their respective children, so no child would be benefited, or disadvantaged, by having more or fewer children than their siblings. The agreement might also provide for a “draft” of preferred dates for uses of the home, with each child (or their offspring) getting first choice annually on a rotating basis. The agreement can also provide for consequences – including restrictions on use of the home -- if one of the family “branches” fails to pay for property taxes or other expenses.
The types of provisions that can be included in a vacation home trust or LLC agreement are limited only by the imagination of the parents and their estate planning advisor. But failing to address this critical planning issue is almost certain to lead to the end of the family retreat – and may even result in a permanent rupture of the children’s relationships.
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