Kirk Johnson’s article in today’s New York Times states that “More with Dementia Wander from Home” and for the first time, searches for lost adults outnumber those for lost children and adolescents in Virginia. Statistics show that “at least 6 in 10 dementia victims will wander at least once.” For more, read the full article at http://www.nytimes.com/2010/05/05/us/05search.html?ref=health&pagewanted=all.
When counseling our clients regarding Medicaid planning and uncompensated transfers, we often say that nursing homes are unlikely to sue residents’ adult children or others to recover gifts that were made.
However, we should also be advising our clients to review any nursing home admission agreements before they are signed. A nursing home resident’s son-in-law signed an admission agreement as his father-in-law’s “designated representative,” and was later sued by the nursing home for a $61,000 shortfall in Medicaid benefits.
In Wedgewood Care Center, Inc., vs. Hemda Sassouni & Ben Youdim, 68 A.D.3d 979 (2d Dept. 2009) (http://www.courts.state.ny.us/courts/ad2/calendar/webcal/decisions/2009/D25374.pdf), the son-in-law signed an admission agreement that required him to provide the nursing home “with all relevant information and documentation regarding all potential third-party payors, and that he timely apply and meet the requirements of third-party payors, including Medicaid.” There was also a clause that the son-in-law “could be held personally liable if any acts or omissions on his part caused or contributed to the nonpayment of Wedgewood’s fees.” Of course, the agreement also “explicitly stated that the execution of the Agreement did not serve as a third-party guarantee of payment, which is prohibited by law.”
The father-in-law’s Medicaid application was initially denied, based on “failure to verify and document large withdrawals from [his] bank account…and the failure to provide certain mutual fund statements.” Because of this initial denial, and the delay in obtaining Medicaid benefits for the father-in-law, the nursing home “sustained a shortfall in payment of approximately $61,000,” after which it sued the son-in-law for breach of the admission agreement.
The son-in-law argued that he had complied with the admission agreement, and Supreme Court, Nassau County, agreed with him, but the Appellate Division reversed, finding that the nursing home had raised triable issues of fact regarding whether the son-in-law had cooperated fully in the Medicaid application process.
It remains to be seen who will prevail in the underlying action, but this case is definitely a wake-up call to practitioners. Our clients should, whenever possible, review admission agreements with us before signing. And the bar needs to look at draconian nursing home admission agreements and see if either negotiation or lobbying can effect some changes.
One option for lowering Medicare costs has been to raise the copays that Medicare recipients must pay in order to receive treatment. However, a study recently published in the New England Journal of Medicine reports that raising copays led Medicare recipients to delay or skip treatments, which led them to require more expensive emergency and other hospital care. See the full story in the New York Times: http://www.nytimes.com/2010/02/02/health/02aging.html?ref=health.
As practicing estate planning attorneys, we come across clients who have set up various types of Trusts, whether with our office or with other attorneys. The problem is that many of these Trusts are unfunded – either there are no assets titled in the name of the Trust or there are some assets in the Trust and some still in the name of the client. When we meet with clients to review their estate planning situations, we always try to make sure that Trusts get funded – better late than never (and always easier when our clients are still with us).
The Surrogate of Suffolk County recently held that a Trust was valid, even though it was funded a lengthy six months after it was originally executed. Let me point out that we have clients who are funding their Trusts years after they are executed, and any other result in this case would have been a serious problem. The Surrogate was affirmed on appeal by the Second Department, in the Matter of Doman, 2009 NY Slip Op 09222 (http://www.nycourts.gov/reporter/3dseries/2009/2009_09222.htm).
A husband and wife set up separate Trusts to benefit each of their separate children from previous marriages. The husband owned a co-op apartment in New York City, which was eventually transferred to a Qualified Personal Residence Trust for the benefit of the wife. The wife was to receive the income of the Trust during her lifetime, and after her death, any remainder was to pass to the husband’s son. At some point during the wife’s lifetime, the apartment was sold and the proceeds were converted to an annuity. Again, the wife received income during her life, and at her death, the approximate $1.1 million remaining in the Trust was to pass to the husband’s son.
The wife’s daughter, who received all of her mother’s other assets, challenged the validity of the Trust because it had not been funded with the shares of the co-op apartment until 6 months after it was executed. The daughter’s argument was that since the Trust was invalid, her mother owned the apartment/annuity outright and any proceeds should go to the daughter, not the stepson.
The Second Department recites the requirements for a valid Trust in New York: “(1) a designated beneficiary, (2) a designated trustee, (3) a fund or other property sufficiently designated or identified to enable title of the property to pass to the trustee, and (4) actual delivery of the fund or property, with the intention of vesting legal title in the trustee.”
Despite the daughter’s argument that the six-month gap between execution and funding of the Trust meant that the fourth requirement above was not satisfied, the court ruled that this did not matter because the property was actually delivered to the Trustee after the six months.
Vermont amended its corporation and limited liability company statutes in 2008 to eliminate many of the traditional strictures of the business entity, to make incorporation more electronic- and internet-friendly, and to create the animal known as the “virtual corporation.”
In Virtual Incorporation: A Lawyer’s Guide to the Formation of Virtual Corporations (2009 by the American Bar Association), Julie Tower-Pierce, Paul Gillies, and Linsey Krolik review the changes to the law and how Vermont is anticipating and reacting to changes in actual business practices.
The changes to the Vermont statutes eliminate the requirement for a physical corporate address, although a registered agent for service of process is still necessary. Electronic filing of documents, digital signatures, and virtual meetings between and among shareholders are all authorized and encouraged.
However, it seems like much of the “innovation” in the Vermont statutes are already taking place in other states. The authors point out that details of the business formation don’t have to be filed with the state in the form of bylaws, but that the key (and private) organizational document is the operating agreement. That is already the case in New York, with a limited liability company.
The authors note that Vermont now allows one shareholder to hold all the offices in a corporation – again, New York already authorizes a single-member corporation or LLC. And there is also reference to a “hosting company,” which seems to be a physical brick-and-mortar corporation performing all the administrative tasks of the “virtual” corporation.
Touted as new and innovative is the theory that the organizational ownership, management, and compensation can be based on intellectual capital contributed by the shareholders or members, not just dollars and cents. I fail to see how this is particularly revolutionary – many of my clients have organizational structures where one shareholder contributes dollars and the other contributes technical skills, and they have not been limited by New York’s statutory requirement.
There are also references to forming legal entities in SecondLife (a virtual world) and “opening a bank account on behalf of a World of Warcraft guild” (a role-playing computer game) (pg. 42). I am still not sure whether the authors are serious about that bank account.
For all of the novel breakthroughs Vermont’s new law supposedly represents, there are problems inherent with the virtual company as well. There is the ever-present problem of data security – and when there is no requirement for paper copies of any documents, when everything is in electronic form, what happens in case of a loss or a breach? There are considerations of data policies, standards, and guidelines, as well as ethics and privacy on the internet, although these are things that all companies need to take into consideration, not just the virtual ones.
As an example of the virtual company as the wave of the future, the authors cite the writing of this book: apparently they never met in person during the project, but used e-mail, teleconferencing, and Twitter to keep in touch and update the book. However, the book itself is copyrighted by the American Bar Association, which, although it may have used outsourcing and technology extremely well, is still a very real, brick-and-mortar corporation.
Grandma owned savings bonds, and named Mom or one of the kids as the joint owner. In 2001, Grandma handed the bonds over to Mom for safekeeping. However, the bonds weren’t cashed in until 2005. In addition, when the bonds were cashed in, the proceeds were deposited in a joint bank account in the names of Mom and Grandma.
When Grandma applied for Medicaid later in 2005, the gift of the bonds didn’t “count” until they were actually liquidated (i.e., 2005, well within the look-back period), any money in the joint bank account was considered to belong to Grandma, and the Department of Health denied Grandma’s application.
The motto of both Medicaid planning and estate tax planning should really be “you can’t have it all.” You can’t have control of the money (i.e., have it be in your name) and also have the benefit of having given it away (i.e., have it not be in your name). Read further at Matter of Padulo v. Reed.
-This article reprinted with permission from http://nylawblog.typepad.com/suigeneris.
Thanks to all for some great comments. Over the weekend, I saw a commercial on TV for a legal document drafting website and software, that was endorsed by a well-known attorney, but one who is not licensed in New York (according to the attorney directory at nycourts.gov).
How does this affect the online will debate – i.e., a prominent attorney advertising an online product, where there is no attorney-client relationship created? Is this going to lead customers to believe they are purchasing legal counsel?
This article reprinted with permission from http://nylawblog.typepad.com/suigeneris.
A new client was recently referred to me by a colleague. The client had gone online and prepared her own Will, and my colleague was concerned that it might not be valid. I reviewed the client’s draft Will, and although it was awkwardly written and contained provisions that probably did not need to be included, it was, on its face, a valid New York Will.
I contacted the client to let her know that her online Will was fine, but that I would prefer to prepare a new one using my own format. (Due to various circumstances, there would have been no cost to the client). The client declined. She wanted to use the Will that she had created online, and wanted to come in to my office merely to have my paralegal and me serve as witnesses.
My husband (also an attorney who does a great deal of estate planning) and I visited with a close family friend earlier in the year. The friend was a successful, middle-aged woman who had recently come out of early retirement. She took obvious pleasure in telling us, repeatedly, that she had prepared her Will on the Internet and had thereby “escaped” the use of an attorney.
I just upgraded my personal financial software to a 2008 version. In addition to the updated bookkeeping software, I now have the company’s Will-drafting software installed on my computer. From a few minutes’ investigation, it looks like a Will created using the software would be adequate for some, but not all, of my clients.
These incidents bother me and I wonder if other attorneys have noticed a similar trend. I am sure that in many cases, a generic online document will serve a client well, and for fees that are much lower than the ones charged by attorneys.
I am more concerned about the few cases where an online document provider may completely miss the mark on a client’s estate plan. Revocable Living Trusts that are created but never funded come to mind immediately.
One website has a disclaimer stating that a client needs a lawyer if he or she will leave an estate worth more than $2 million, because then federal estate tax might be due. But in New York, the estate tax exemption is only $1 million – a $2 million estate might owe $100,000 to the State!
In addition, I frequently prepare additional documents as part of a client’s estate plan: Health Care Proxies, Living Wills, Powers of Attorney, Standby Guardian and Successor Custodian designations, and Health Care Proxies for the client’s minor children. What if the software does not prompt the client to create these documents?
Now many of these pitfalls could occur where a “real live” attorney prepared the client’s estate plan as well. However, when an individual attorney is involved, the client has recourse to the Attorney Grievance Committee, among other remedies. What is the client’s recourse if the “e-attorney” is wrong? Does this constitute the unlicensed practice of law? And what should the bar’s response be? Should I witness the first client’s online Will or persuade her to use one that I have drafted? I would appreciate comments from practitioners in all fields.
This article reprinted with permission from http://nylawblog.typepad.com/suigeneris.
My evidence for this is completely anecdotal, but it seems like more and more of my clients these days are considering moving out of state for estate tax reasons.
New York has an unlimited marital deduction for estate taxes, which means that assets passing from one spouse to the other upon the first death are tax-free. However, when the second spouse dies, there is a $1 million exemption, and anything over $1 million is taxed at approximately a 10-17% rate.
It’s understandable for a lot of our snowbird clients, that when the first spouse dies, the survivor moves to Florida permanently. There is currently no estate tax in Florida, but that does not seem to be the motivating factor.
However, I have a current client considering a move to Texas, and one considering a move to New Hampshire, and one of the big factors in each decision has been the New York estate tax. The clients and their children have told me it “shouldn’t be” their motivation, but admit that it is.
As a practitioner, I prepare estate tax returns, and as a New York resident, I take advantage of many state programs that they fund, and so I can’t honestly advocate in favor of abolishing them. However, it concerns me that my clients are choosing where they will spend the rest of their lives based on provisions of tax law.
I invite comments from other estate attorneys: are you seeing the same thing among your clients? Is Upstate New York losing its elderly, as well as its twentysomethings? Or am I making a mountain out of a molehill here?
This article reprinted with permission from http://nylawblog.typepad.com/suigeneris.
We’ve all heard of the “Prudent Investor” rule for Trustees and Executors of estates. But just how “prudent” does a Trustee have to be? Does a Trustee have a duty to do some possibly risky planning to avoid estate taxes on the death of the income beneficiary of a trust? Or is that something the Trustee should avoid? And whose opinion matters more, the lifetime beneficiary (in many cases, the surviving spouse) or the remainder beneficiaries (the kids)?
An interesting article in Trusts & Estates Magazine reviews a Minnesota case where the kids sued the corporate Trustee because it did not pursue an aggressive estate tax planning strategy with regard to Mom’s Trust assets. The kids disputed the requirement that they pay nearly half of their $25 million inheritance to Uncle Sam. (Spoiler alert: the kids lost.)
The court found that the corporate Trustee had no duty to invest the Trust assets in tax-avoiding vehicles. Of particular importance to the court was that during Mom’s lifetime, she made it clear that she was concerned with maximizing her own income stream and didn’t care much whether taxes would be due upon her death.
What may concern Trustees and other fiduciaries when reading this article is that the court took 177 pages of opinion to reach this conclusion. The authors of the article, Samantha E. Weissbluth and Erika Alley, both of Foley & Lardner, end by urging Trustees to document all estate planning and tax planning meetings with clients, in order to forestall additional litigation.
This article reprinted with permission from http://nylawblog.typepad.com/suigeneris.
