Since We're Going to Spend Money on Health Care, Spend it Wisely!

As noted in my last post, the CLASS Act -- a provision of the Obama health care law that included modest long-term care benefits (not exceeding $75 per day) for those willing to pay the premiums -- has been scrapped as financially unsustainable.  The fact that has gone largely unspoken, however, is that their is money available to cover a substantial portion of long-term care expenses.  As former New York Times reporter Jane Gross points out recently in this excellent column, it's not that we lack the funds to cover a substantial portion of long-term care costs; rather, Medicare spends too much on the wrong type of care. 

As but one example supporting her argument, Gross points out that Medicare will cover the costs for a hip replacement for a frail senior citizen who will likely require long-term care with our without the procedure.  If the senior ends up in a long-term care facility, however, Medicare will at most cover a portion of the cost for 100 days' of rehabilitation.  Once Medicare stops paying the tab, if the senior is already of limited means -- or becomes impoverished as a result of an asset spend down -- then taxpayers, through the Medicaid program, will be on the hook for the senior's long-term care costs for the rest of her life. 

Why, you may ask, does it matter whether Medicare or Medicaid covers the cost of care -- both of federal programs, right?  As Gross points out, however, Medicare is supported by payroll taxes and thus at least has a significant element of being a self-funded program.  Medicaid, in contrast, is essentially a pure "welfare" program that is completely taxpayer supported.

The solution, Gross argues, is to have a serious national conversation about the reallocation of our precious health care dollars away from pointless and wasteful procedures (hip replacements for Alzheimer's patients) and towards the costs of custodial long-term care that is increasingly bankrupting our seniors.  Of course such a conversation will inevitably lead to the "R" word -- that is a discussion of the rationing of health care services.  I am continually amazed that conservatives who  complain about runaway government spending will decry rationing of health care -- even raising the phony spectre of "death panels" -- and seem unwilling to have a serious conversation about the irrational nature of spending on health care in this country.

Long-Term Care Program Scrapped by Obama Administration

The Community Living Assistance Services and Supports Act (commonly referred to as the "CLASS" Act) was one of the many controversial components of the 2009 federal health care legislation.  As implemented, the CLASS Act would have allowed any American who paid premiums into a long-term care fund for five years to be then eligible for long-term care benefits of between $50 and $75 per day for various long-term care services, including home care.

Even at those modest numbers -- full-time home care runs about $250 per day in the Hudson Valley, while most local nursing homes average about $350 per day on a private pay basis -- the CLASS Act was deemed financial unsustainable by the Department of Health and Human Services.  The concern was that people most likely to require the services would pay the premiums, while healthier people would opt-out, thereby putting too big a strain on the system.  Apparently concerned that our nation could ill-afford another expensive federal government program, President Obama's administration has decided to halt implementation of the CLASS Act.

To learn more, check out this article at Elder Law Answers.

New Decanting Statute Facilitates Transferring Assets Out of a "Bad" Trust

In 1992, New York became the first state to enact a statute that expressly permitted a trustee to move assets from one trust to another trust.  These trust to trust transfers – known as “decanting” – provides flexibility that is often desired to address changing circumstances and in correcting errors that might otherwise defeat the trustmaker’s intent.

Since 1992, however, many states have enacted decanting statutes that provide trustees with far greater flexibility than has been possible under New York’s decanting statute.  In response to criticism from trustees and attorneys that New York’s law was too restrictive, New York recently amended the state’s decanting statute to provide a much-needed expansion of a trustee’s decanting authority.

The statute, which was signed into law by Governor Cuomo on August 17, 2011, applies to all existing trusts as well as trusts created after enactment of the legislation. The law includes the following significant changes from the prior decanting statute:

• Previously, a trustee could move assets to a new trust only if the original trust document provided the trustee with the “absolute discretion” to invade trust principal. Under the amended law, however, a trustee may transfer principal to a new trust so long as the principal invasion powers in the new trust are at least equivalent to the invasion powers in the original trust.  For example, many trusts permit principal invasions for the beneficiaries’ “health, education, maintenance and support” (commonly referred to as the “HEMS” standards).  Under the prior “absolute discretion” standard, a trustee had no authority to transfer assets from a trust utilizing the HEMS standards to another trust, even if the new trust provided for HEMS distributions.  Under the revised law, a trustee may transfer the trust principal from one HEMS trust to another trust also following a HEMS standard.   
• If in fact the existing trust provides the trustee with “absolute discretion” to make distributions to one or more trust beneficiaries to the exclusion of other trust beneficiaries, then the trustee may transfer the principal from the original trust to a new trust that may include any one or more of the beneficiaries of the original trust; the new trust need not include all the beneficiaries from the original trust.  If, however, the trustee in the original trust does not have unlimited discretion as to distributions of trust principal, then the beneficiaries of the new trust must be the same as the beneficiaries of the original trust.
• Trust assets may be decanted to a new trust that has a longer term than that of the original trust, which provides expanded opportunities for multi-generational estate planning.
• The new trust can be established by the trustmaker of the original trust or by the trustee of the original trust.
• For a “living trust,” there is no longer a requirement to file the decanting document with the Surrogate’s Court, unless proceedings involving the original trust have previously been commenced with the Court.

While the new decanting rules may prove useful in an array of situations, here are two common scenarios where the new decanting rules might be especially helpful: first, with existing “Medicaid” trusts that may not conform to new regulations implemented in New York in September 2011; and second, with old irrevocable life insurance trusts that no longer meet the family’s planning objectives. If you have created an irrevocable trust that you believe no longer fulfills your intent, or if you are a beneficiary of such a trust, you may want to consult with an estate planning attorney to determine whether the new decanting rules might prove useful in your situation.

New York's Expanded Estate Recovery Rules Complicate Medicaid Planning

New York law has long provided that only a Medicaid recipient’s probate assets (i.e., those titled solely in the name of the Medicaid recipient) were subject to “estate recovery” after a Medicaid recipient’s death.  Other types of dispositions, including popular planning tools such as joint tenancy, “life estate” deeds, and assets held in revocable and irrevocable trusts were excluded from the reach of estate recovery.

Last March, however, the New York State Legislature’s 2011 budget included “expanded” estate recovery rules that will allow the county Departments of Social Services to recover more assets from the estates of deceased Medicaid recipients.  These new rules were made subject to regulations to be promulgated by the New York State Department of Health.  On September 8, 2011 the Department of Health finally promulgated the regulations required by the statute.

Traditionally, the use of a life estate deed for a primary residence has been one of the most popular planning tools used to protect assets from a Medicaid “spend down.”  So long as the deed in which the grantor retained a life interest was executed at least five years prior to a Medicaid application being filed, the entire interest in the residence would be deemed “exempt” from a Medicaid spend down.  This planning tool has long been popular largely because it is easy to quickly implement, and is considered inexpensive compared to other planning strategies such as irrevocable trusts.

 

The new regulations, however, specifically include as assets subject to estate recovery those owned by the decedent “through joint tenancy, tenancy in common, survivorship, life estate, living trust or other arrangement, to the extent of the decedent’s interest in the property immediately prior to death” (emphasis added).  The value of the life estate subject to recovery is deemed to be the “actuarial life expectancy of the life tenant” as of the date of death.  For an 80-year-old, for example, that value is deemed under the life estate tables used by Medicaid to be worth 43.6%.  Assume Mrs. Jones, an 80-year-old long-term nursing home resident on Medicaid, executed a life estate deed in 2003 leaving her residence to her children upon her death. Mrs. Jones dies in September 2011, with the fair market value in her home valued at $300,000.  Under the new regulations, 43.6% of the home value – or $130,800 – would have to be repaid to the Department of Social Services, with the children to receive the remainder.

Some may argue that it is good public policy to permit the government to recoup as many assets as possible from the estates of Medicaid recipients.  But what may trouble many people is that the regulations do not provide any “grandfathering” for pre-existing life estate deeds – even those drafted decades ago.   This provision of the new regulations is sure to spark legal challenges, so it is too soon to tell if this particular rule will “stick.”

Fortunately, the irrevocable “Medicaid Trusts” remains an important planning tool that can used to help protect assets if created and funded well before the time long-term care may be needed.  Under the regulations, estate recovery from any irrevocable trust is limited “to the extent that the person was entitled to the distribution of …principal and interest pursuant to the terms of the trust.”  Since a Medicaid Trust will always restrict the grantor from receiving any of the trust principal, the trust assets may pass at the grantor’s death to the trust beneficiaries without risk of estate recovery, even if the grantor received Medicaid benefits during his or her lifetime.  Also, while the issue is not fully resolved, it appears that these trusts will still permit the grantor retain the STAR, veteran’s and other property tax exemptions without exposing the value of the residence to any form of estate recovery.

While long-term care insurance remains the best way to protect your assets in the event you ever need long-term care, the policies can be expensive and not everyone can qualify medically for the insurance.  With the ever-shrinking state and federal budgets putting the squeeze on Medicaid benefits, it is more important than ever that people looking to help protect assets against the high cost of long-term care seek the advice of an experienced elder law attorney to investigate the alternatives.

What Is Wrong With The Banks?

This past week I met with a woman for whom we had done some estate planning in 2008.  At that time her husband was in failing health but was still living at home.  We prepared wills, powers of attorneys and health care documents for each spouse, and educated them on long-term care planning and asset preservation issues. 

In 2010 Mr. Simpson's condition deteriorated to the point that he needed to move into nursing home. Since the Simpson's already met the Medicaid eligibility criteria, Mrs. Simpson was able to file the Medicaid application on her own, and the application was approved. 

Sometime after Mrs. Simpson completed the Medicaid process she stopped into her bank.  Because she was now "on her own,"  the "helpful" person at the bank suggested that Mrs. Simpson add her daughter "Sally's" name to Mrs. Simpson's bank account just in case Mrs. Simpson needed help with her financial affairs.  However, in 2008 Mrs. Simpson had executed a comprehensive financial Power of Attorney that provided another of Mrs. Simpson's children with all the authority needed to assist Mrs. Simpson with her financial affairs.

Why, you might ask, does it matter whether a child is put on the account as a joint owner, or instead only has legal authority to act under a Power of Attorney?  Well, when a child's name is added to a parent's bank account, they immediately acquire an ownership interest in the account assets, including the right to immediately withdraw all the funds in the account.  Just as important, even if the child has no intention of withdrawing the account assets, if the child has judgments against them, the child's creditors can effectively gain control of the assets by "freezing" the jointly owned bank accounts. 

And, that's exactly what happened in Mrs. Simpson's case.  Sally happened to have run up significant credit card debt, and one of her creditor's had obtained judgments against her for non-payment.  As soon as Sally's name was added to her mother's account, Sally's creditor's pounced and were able to have Mrs. Simpson's account frozen.  Only after much effort and aggravation was Mrs. Simpson able to convince Sally's creditor that Sally was on Mrs. Simpson's account for "convenience" purposes only and have the account unfrozen.

I wish I could say that this was an isolated incident, but it happens all too frequently.  It seems that many bank employees have no concept regarding the interplay between creditor's rights and title of ownership, nor do they seem to understand that a durable Power of Attorney provides the named agent with all the legal authority needed to administer a principal's affairs without exposing the principal to the agent's creditors.    

In establishing these joint-tenancy accounts, bank employees are essentially practicing law without a license -- and doing poorly at it.

Obama Favors "Compromise" Position on Future of Federal Estate Tax

In response to a question during a recent public event in an Illinois farm community about the impact of the federal estate tax on family farms , President Obama reiterated his position that a "fair" federal estate tax exemption would look something like the $3.5 per person exemption that existed in 2009.  The President stated that he did not favor a return to the "2001 level" which provided only a $1 million per person exemption, but that a $3.5 million exemption -- or a $7 million combined exemption for a married couple -- "would exempt most - almost all family farms and nevertheless would still hit folks like Warren Buffett and make sure that he is able to pay what he wants to pay in terms of passing on something not only to his family, but also to the country that has blessed him so much."

To read  more on this issue, click here.

When Failing To Do Any Estate Planning REALLY Hurts

Last Friday afternoon I had the good fortune of playing golf on a glorious day with members of a local accounting firm. When I stopped into the office on Saturday  to check my messages and mail (with son and dog in tow), I had a rather desperate voice mail from a woman who was calling on behalf of her aunt.  When I returned the call, this young woman -- I'll call her "Anna" -- explained  that her aunt "Susan" had lived with a man for 33 years who passed away last week, but they had never gotten married and Anna's "uncle Ralph" never executed a will.  Anna said that the couple had attempted to get married but Ralph's condition deteriorated too quickly to permit the wedding to take place.

Anna was understandably concerned for her aunt's well-being, and she asked me what rights Susan has under New York law regarding Ralph's estate.  I asked Anna how Ralph and Susan's assets were titled, hoping that most of their assets were titled as joint tenants with rights of survivorship.  Unfortunately, Ralph has a number of assets in his name only, including the house where he and Susan had lived for many years.

I told Anna that New York, unlike many states, does not recognize "common law" marriage, except in the limited circumstance where a couple represented themselves to be husband and wife in another state that does recognize common law marriage.  About 20-years ago I was involved in just such a case, where a couple in a long-term relationship had traveled to Pennsylvania and registered in a hotel as "Mr. and Mrs. Robert Jones."  Since Pennsylvania does recognize common law marriage, we were able to convince the Sullivan County Surrogate that "Mrs. Jones" was entitled to spousal rights under New York law.  I explained to Anna that unless her Aunt Susan were to be able to present similar proof, she would be entitled to none of Ralph's assets.  Under such a scenario, all of Ralph's assets would pass to Ralph's children (who are not Susan's) children. 

Since Anna told me that Susan does not get along with Ralph's children, I had the sad duty to inform her that Susan might be at risk for being evicted from the home that she has lived in for many years.  To avoid such a result, Susan might be able to show that she contributed to the expenses and maintenance of the home for during her residency, and thus in fact has a reasonable claim to an equity interest in the home.

Unfortunately, all of Susan's options fall under the guise of "hopefully" or "maybe".  All of this could have been avoided had Ralph executed even a rudimentary estate plan consisting of a simple will that designated Susan as the beneficiary of the bulk of his estate, especially the home.