Life Estate Renders Medicaid Applicant Ineligible

Life estates are frequently used by seniors to gift real property to family members because the seniors are assured that the retained life estate secures their use and enjoyment of the property for the remainder of  their life.  These estates, however, present complicated tax and legal issues rarely considered and resolved prior to the gift.  

Life estates often complicate Medicaid eligibility.  See, for example, my prior article, "Entire Value of Property in Which Medicaid Recipient Had Life Estate is Recoverable in Idaho."    In a more recent example, North Dakota's highest court ruled that a Medicaid applicant who had a life estate in property is entitled to the income generated from that property, even though she argued she permanently gifted the income to her son. Bleick v. North Dakota Dept. of Human Services (N.D., No. 20140103, March 24, 2015).

Shirley Bleick transferred property to her son in 1988, reserving a life estate for herself, and then she moved off the property.  In 1992, her son leased a portion of the property to another farmer for $8,200 a year. The rental income went to Ms. Bleick's son. In 2011, Ms. Bleick applied for Medicaid benefits, but the application was denied. The state determined that Ms. Bleick should be receiving a portion of the rental income, so her countable assets exceeded the maximum limit.

Ms. Bleick appealed the state's decision, arguing she gifted the right to the income to her son. The trial court affirmed the state's decision to deny Medicaid benefits, and Ms. Bleick appealed.

The North Dakota Supreme Court affirmed, holding that the income stream from the life estate exceeds the asset limits for Medicaid benefits. According to the court, if Ms. Bleick intended to gift all the income from the property to her son, she could have released the life estate and transferred title to the property. The court ruled that the rental income, if it is viewed as a gift, is an annual gift. One justice dissented, arguing that all the evidence indicates that Ms. Bleick intended to permanently gift the income to her son.

The lesson could not be more clear: consult with an elder law attorney before making gifts in order assure that the consequences of the transaction are fully understood and considered. For more information, see "Six Questions to Ask Before Making Gifts."    

For the full text of this decision, go to: 

http://www.ndcourts.gov/court/opinions/20140103.htm

NAELA Says the VA Could Be Sued If Proposed Transfer Regs Are Enacted

In its response to the Department of Veterans Affairs’ proposed regulations that would establish a look-back period and asset transfer penalties for pension claimants, the National Academy of Elder Law Attorneys’ (NAELA) raises the prospect that the VA could be sued if the rules take effect.  

As previously reported, proposed Section § 3.276 would establish a 36-month look-back period and a penalty period of up to 10 years for those who dispose of assets to qualify for a VA pension. Currently, there is no prohibition on transferring assets prior to applying for needs-based benefits, such as Aid and Attendance. 

“[W]e express the serious concern that the proposed rule’s 3-year look-back period and transfer of assets penalty exceed statutory authority, opening up VA to future litigation and causing additional uncertainty for Veterans and their families,” write Bradley J. Frigon, NAELA’s president, and Victoria Collier, Chair of NAELA’s VA Task Force, in March 17, 2015, comments on the proposed rules.

Frigon and Collier argue that the proposed rules do not meet the standard of either an explicit or implicit delegation by congressional statute that the U.S. Supreme Court set forth in Chevron USA, Inc. v. NRDC, Inc., 467 U.S. 837 (1984).  They point out that Congress had the opportunity from 2012 to 2014 to create Medicaid-like transfer rules but that each proposal died in session.

NAELA’s comments also maintain that the proposed transfer penalties exception is too narrow.  “Veterans and their surviving spouses will be unjustly penalized for prior transfers that had absolutely nothing to do with VA pension eligibility," Frigon and Collier write. “Gifts to children at holidays and birthdays will be penalized. Donations to places of worship will be penalized. Contributions to charities will be penalized. All because there is a presumption that the transfer was made for the purpose of qualifying for VA pension. . . . The final rule should require that transfers only made for the sole purpose of qualifying for VA pension be penalized.”

The 27-page comments highlight a number of other flaws in the proposed regulation, including that it should allow for partial cures, that the time allowed to cure transfers should be expanded, that the rule disproportionately harms surviving spouses of veterans, and that the proposed net worth limits are harsher than Medicaid’s limits.

Alimony Obligation May Require Involuntary VA Admission

Victor Rizzolo and Barbara Jones divorced when Mr. Rizzolo was 84 years old. The court ordered Mr. Rizzolo to pay Ms. Jones alimony. Five years later, Mr. Rizzolo's health began to fail, so he moved in with son, who hired a caregiver for him.

Mr. Rizzolo asked the court to end the alimony payments, arguing that his income -- which was limited to VA disability payments and Social Security -- was needed to pay the caregiver. The trial court ruled against Mr. Rizzolo, finding that he had not done all that he could to meet his alimony obligations; if he entered a VA facility, the court found that he would be able to receive care and pay the alimony.  Because the court did not end the alimony obligation, Mr. Rizzolo appealed.  Perhaps he wishes he had not appealed, because, although the appeals court ruled in his favor, the court remanded the case describing an ominous potential outcome- his involuntary institutionalization in order to preserve his income for payment of alimony. 

The New Jersery Superior Court, Appellate Division, reversed, holding that the trial court did not hear evidence about whether entering a VA facility was really appropriate. According to the court, "although the [trial] court may on remand conclude that it is equitable to require [Mr. Rizzolo] to enter a VA facility against his wishes in order to use his limited income to continue to pay alimony, allowing [Ms. Jones] to preserve her assets until [Mr. Rizzolo's] death makes alimony no longer available, it may only do so upon consideration of competent evidence and a qualitative analysis of both parties' circumstances."

The court ruled that the trial court must first consider all the evidence before it can order an 89-year-old veteran in failing health to enter a Veteran's Administration (VA) facility against his will in order to ensure he had enough assets to pay alimony. Sometimes one can only exclaim, "wow!"  See, Rizzolo v. Jones (N.J. Super. Ct., App. Div., No. A-1800-13T2, March 2, 2015).  

Hopefully, his son will seek to introduce evidence regarding the relative quality of care available at home versus that available in an institution, and the court will consider carefully his quality of life concerns vis-a-vis his financial obligations. See, for example my articles, "One-Third of Nursing Home Residents Harmed In Treatment," Hapatitis Infection Risk in Nursing Homes Up 50%; Infection Risk Across the Board Increases, and "Most Terminal Dementia Patients in Nursing Homes Given Pointless and Potentially Dangerous Drugs"

For the full text of this decision, go to:
http://njlaw.rutgers.edu/collections/courts/appellate/a1800-13.opn.html

White House Proposes New Rules to Protect Investors Saving for Retirement

You might think that the top priority of the broker or financial adviser managing your retirement funds is to maximize your returns, but that’s not always the case.  Some steer their clients to bad retirement investments with high fees and low returns because they get higher commissions or other incentives to do so.  And there’s nothing currently in the law that requires advisers to put their clients’ interests first.

The Obama Administration has proposed new rules to change this and require financial advisers to act in the best interests of their clients. The move is designed to increase the amount investors receive in retirement.

Americans may lose as much as $17 billion every year because of bad financial advice from advisors with conflicts of interest, according to a report by the President's Council of Economic Advisors. Many financial advisors have a sales incentive to steer clients into investments that offer higher payments to the advisor but are not necessarily the best option for the client. According to the report, a retiree getting advice from an advisor with a conflict of interest when rolling over a 401(k) balance at retirement can lose an estimated 12 percent of the value of his or her savings.

To confront this problem, President Obama has directed the Department of Labor to promulgate new rules that require financial advisors to act like fiduciaries. This means they must put their clients' interests above their own. The new rules would prevent brokers and financial advisers from rolling over retirement accounts unnecessarily or putting clients' savings into investments with high fees and low returns when there are better options.

The Department of Labor will publish the new rules and then hold a hearing on the rules and accept public comments. The financial industry is fighting the proposed rules, arguing that they will disadvantage small savers by increasing costs. 

“What they are saying,” says business columnist Darrell Delamaide writing in USA Today, “is that they are currently willing to offer their services to the low-income bracket because they will reap even higher profit from hidden costs and fees. Their opposition to the rule is virtually proof that it is necessary.”

For more information about the new rules, click here and here. 

To read the report from the Council of Economic Advisors, click here. 

Retiring Abroad with a Long-Term Care Insurance Policy

As more people consider retiring abroad, questions arise regarding how an overseas retirement will affect long-term care insurance benefits. If you are planning to relocate out of the country and want to purchase or already have long-term care insurance, the first and best advice is to read carefully the fine print on your policy.

Not all long-term care insurance policies cover care in other countries.  Even if care is covered, the benefits are often severely limited. Some companies pay benefits overseas, but the benefit is less than the amount an insured getting care in the U.S. receives. For example, one insurer pays up to 50 percent of the nursing home benefit purchased for care received outside the United States. Other companies provide  a full benefit amount, but for a limited time (for example, one year).  Once you reach the limit, you will be required to move back to the U.S. to continue your remaining coverage. Still other companies limit both the benefit and the time covered, or they may cover you only if you relocate to an English-speaking country.

To find out whether your policy covers long-term care in other countries, first look at the exclusions. Next look for a section called "international benefits" or "out of country coverage." If your policy does limit care overseas, you should not cancel it immediately because it can be hard to get coverage again. Talk to your insurance agent, attorney or financial advisor first. Instead of cancelling, it may make sense to lower your premium by reducing your benefits.

For more information on what to consider before moving to another country, click here. 

For more about long-term care insurance, click here.

Scientists have found that non-invasive ultrasound technology can be used to treat Alzheimer's disease and restore memory. Researchers discovered that the innovative drug-free approach breaks apart the neurotoxic amyloid plaques that result in memory loss and cognitive decline.  The Report was published  in Science Translational Medicine,  Vol. 7, Issue 278, pp. 278ra33 (March 11,  2015), and reported in Science Daily.

Art Collector's Estate Claims Attorney's Drafting Error Cost It $25 Million

The estate of a prominent art collector has sued the attorney who drafted the art collector's will for legal malpractice. The lawsuit, filed in the New York Supreme Court, claims the attorney's error will cost the estate $25 million in taxes.

Collector Robert Ellsworth, whom The New York Times once called “the king of Ming” for his renowned collection of Asian art, hired attorney George Bischof to draft his will. In 2010, Bischof drafted a will that left Ellsworth's estate outright to his friend, Masahiro Hashiguchi, with six charities as contingent beneficiaries. In 2013, Ellsworth changed his will to name Bischof as the sole trustee of a residuary trust. Under the new will, the residue of the estate was left to a discretionary trust that benefited Hashiguchi during his life and then the remainder of the trust was left to charity.

The lawsuit alleges that Bischof drafted the will in a manner that did not allow the trust to qualify as a charitable remainder trust and therefore meet the criteria for the federal estate tax charitable deduction. According to the lawsuit, because of the "negligently and carelessly" drafted trust, the estate will have to pay $25 million in estate taxes that it wouldn't have had to pay if the trust had been properly drafted.

For more about this case from artnet, click here. 

Some Senior Living Facilities Discriminating on the Basis of Disability

Continuing Care Retirement Communities (CCRCs) sound like a great idea, and in many ways they are.  They offer residents access to the entire residential continuum -- from independent housing to assisted living to round-the-clock nursing services -- under one "roof."  Residents pay an entry fee and an adjustable monthly rent in return for the guarantee of care for the rest of their life.

But while the transition from one level of care to another may be advertised as seamless, anyone considering a CCRC should be aware that moving to a higher level of care could mean losing access to privileges and amenities they once enjoyed and took for granted.  Depending on its policies, a CCRC may mandate separate facilities and activities for those requiring different levels of care. Although such restrictions may be illegal, they are not uncommon.

For example, the New York Times recently reported on the case of Ann Clinton, a resident of a CCRC in Huntsville, Alabama, who found herself barred from her cherished bingo games when she moved to the facility’s nursing unit while rehabilitating after back surgery. 

Clinton and her husband moved to the CCRC in 2012, paying a deposit of $351,424, and about $4,600 a month in fees.  Mr. Clinton shifted to the assisted facility unit and then to the nursing unit, where he died in September 2014. Through it all, Ms. Clinton, 80, looked forward to her weekly bingo game with friends and other residents of the CCRC’s independent living unit.

After her back surgery, Ms. Clinton was still able to attend the games using her motorized scooter.  But to her shock and surprise, she was eventually barred from them because she was living in the nursing unit.  

This isn’t the first time the Times reported on such a policy. In 2011 it covered the controversy that erupted when a CCRC in Norfolk, Virginia, declared that a popular waterfront dining room was off-limits to those in the assisted living and nursing units, and could be used only by independent living residents.  Suddenly longtime friends and even some married couples could no longer eat together because they lived in separate parts of the facility.  After residents contacted a lawyer and the news media, the CCRC reversed its policy.

The same thing had happened to the Clintons, according to the Times.  After Mr. Clinton moved to the CCRC’s assisted living wing, he was denied admission to the main dining room to eat with his wife, who was still in the independent living section.  The facility eventually changed its policy, allowing assisted living residents to use the dining room if independent living residents invited them.  

The CCRC has since suspended the bingo game that Ms. Clinton was barred from attending.  Ms. Clinton’s son says he plans to file a lawsuit on his mother’s behalf and is looking for a lawyer.

Attorneys who advocate for the elderly believe that excluding residents based on the level of care they require violates anti-discrimination laws like the Fair Housing Act and the Americans With Disabilities Act.  Admittedly, CCRCs may be trying to segregate residents in the belief that some residents would prefer not to have contact with those who are more incapacitated. 

“But that’s why we have anti-discrimination laws,” Eric Carlson, an attorney with the National Senior Citizens Law Center, told the Times. “You don’t want to capitulate to people’s prejudices.”

For more about CCRCs, click here. 

For more about senior living options, click here.

Daughter Who Signed as Trustee Has Authority to Bind Mother to Nursing Home Agreement

A Kentucky appeals court recently held that a daughter who signed a nursing home's financial agreement in her capacity as trustee of her mother's irrevocable trust has authority to bind her mother to the agreement. King v. Butler Rest Home (Ky. Ct. App., No. 2012-CA-000789-MR, March 13, 2015).

When Geneva King entered a nursing home, her daughter, Diana Livengood, signed the financial agreement as trustee of Ms. King's trust. Ms. King initially paid privately for her care, but when she decided to apply for Medicaid, she stopped making payments to the nursing home. The state subsequently denied Ms. King's Medicaid application.

The nursing home sued Ms. King and Ms. Livengood in her representative capacity, seeking payment of the outstanding balance. Ms. Livengood responded that Ms. King hadn’t signed the contract and that Ms. Livengood did not have authority to bind her. The trial court granted summary judgment to the nursing home and ordered Ms. King and Ms. Livengood to pay $87,413.32. 

One of the important aspects of this decision is that Livengood seems to have been arguing that only the trust could be held responsible, and not her mother's larger non-trust estate. The court rejected the argument.

The Kentucky Court of Appeals affirmed, holding that Ms. Livengood has the capacity to bind her mother to the financial agreement. The court notes that the signature line on the financial agreement that Ms. Livengood signed referred to the signer as the responsible party. According to the court, by signing the agreement in this way, "[Ms.] Livengood represented that she had the capacity to bind her mother. [The nursing home] admitted [Ms.] King in reliance upon this signature."

For the full text of this decision, click here. 

Groups Charge That New HUD Policy Gives Little Relief to Surviving Spouses of Reverse Mortgage Holders

Consumer advocacy groups are denouncing the U.S. Department of Housing and Urban Development’s (HUD) latest attempt to protect the spouses of reverse mortgage holders from being forced out of their homes when the mortgage holder dies. 

HUD’s plan, outlined in Mortgagee Letter 2015-03, “will not protect surviving spouses from displacement and will lead to more foreclosures,” the National Consumer Law Center charges in comments on the new policy filed on behalf of its low-income clients and five other advocacy groups.

As I previously reported, couples often fail to put both spouses on the reverse mortgage loan, either because one spouse is under age 62 or they are urged to do so by aggressive lenders in order to get a bigger loan. Few couples are aware of the potentially catastrophic implications.  In the past, if only one spouse's name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.  

In 2013 a U.S. district court ruled that in not protecting spouses from foreclosure, HUD was violating the reverse mortgage statute, and the court ordered that the agency find a way to shield surviving spouses from foreclosure and eviction.  In response, HUD began by issuing a new rule in 2014 to help protect spouses left off loans written after August 4 of that year.  But the rule did nothing for non-borrowing spouses on loans that had been written before that date.

Mortgagee Letter 2015-03, issued in January 2015, was aimed at this group.  Under the new policy, when the borrowing spouse dies reverse mortgage lenders have the option of assigning the loan to HUD, a move that would allow an eligible surviving spouse to remain in the home.  However, the consumer groups charge that HUD’s guidance is so unclear that most lenders will choose the safer alternative of foreclosure, and that even if lenders do opt for the assignment route, few surviving spouses will qualify for it.  This is because the spouses will have to come up with a large sum of money to quickly pay down the loan in order to pass a HUD-prescribed loan limit test, a feat that will prove “impossible for many newly widowed non-borrowing spouses.”

The National Consumer Law Center and the other groups recommend alternative options that they say will provide true relief to non-borrowing spouses facing foreclosure while protecting the integrity of the insurance funds.

To read the Center's comments on the new HUD policy, click here. 

Inherited IRA Not Part of New Jersey Resident's Bankruptcy Estate

A U.S. bankruptcy court determined recently that, at least under New Jersey law, an inherited IRA is not part of the bankruptcy estate, notwithstanding the recent U.S. Supreme Court ruling in Clark v. Rameker. In re: Andolino, (Bankr. D. N.J., No. 13-17238, Feb. 25, 2015).

Christopher Andolino inherited an IRA worth $120,000 from his mother. He later filed for Chapter 13 bankruptcy, and claimed the IRA was an exempt asset.

The bankruptcy trustee objected to Mr. Andolino's bankruptcy plan, asserting that under the Supreme Court's decision in Clark v. Rameker (U.S., No. 13-299, June 13, 2014), inherited IRAs are property of the estate.  To read my previous article on the decision in Clark v. Rameker, click here.

The U.S. Bankruptcy Court, District of New Jersey, held that the inherited IRA is not property of the estate. According to the court, "whereas the inherited IRA at issue in Clark was determined to be an asset of the bankruptcy estate pursuant to nonbankruptcy law, i.e., Wisconsin law, this Court first must apply relevant New Jersey law to determine whether [Mr. Andolino's] inherited IRA is property of the bankruptcy estate." The court determined that under New Jersey law, an inherited IRA does not lose "qualified trust" status, so it is exempt from the bankruptcy estate under federal bankruptcy law.

For the full text of this decision, click here.

Early Onset Alzheimer's Information and Assistance from the ADEAR Center (Alzheimer’s Disease Education and Referral Center)

Early-onset Alzheimer's disease, occurring in people age 30 to 60, is rare but complicated. People living with early-onset Alzheimer’s (like Julianne Moore’s character in the movie “Still Alice”) may face particular challenges in dealing with work, raising children, and finding the right support groups.

A new online resource list from the National Institute on Aging’s Alzheimer’s Disease Education and Referral Center may assist younger people with Alzheimer’s, their families, and caregivers to find information and help. Topics include:

• Living with early-onset Alzheimer’s
• Legal and financial planning
• Caregiving
• Clinical trials and studies

All of the resources on this list are free and accessible online.

Visit the ADEAR Center website for other resources like free publications, caregiving resources, and more information about Alzheimer’s.

Share this resource via social media with the following message:

New resource list for people living w/ early-onset #Alzheimers & their #caregivers from @Alzheimers_NIH  http://1.usa.gov/1CiQi0Y