The Impotent Power of Attorney

The General Durable Power of Attorney (GDPOA) has a mixed reputation, judging by articles in financial magazines and newspapers. Some tout it as a powerful tool, whose broad and sweeping grant of authority to another can well serve the maker.  Others warn of its misuse by others in facilitating financial fraud.  The public is left twisted and confused. Moreover, planners and drafters often reflect, sometimes intentionally, this schizophrenic view of the document, and its attendant risks, and draft either "watered-down" documents or "springing" powers designed to capture the "best of both worlds."  Unfortunately, we know intuitively that the "best of both worlds" approach often leaves much to be desired; aren't we taught that a house divided cannot stand? 

For most estate plans, the GDPOA is employed to permit a surrogate to make decisions during a time that the principal is unavailable, incapacitated, or incompetent.  As such, the grant of authority should generally be broad and comprehensive.  Limiting the grant of authority only means that the authority of the attorney-in-fact is limited, and, therefore is his or her ability to solve problems or complete necessary tasks.  Because one never knows what decisions will be needed at some future date, limiting the attorney-in-fact means limiting the available solutions, options, and opportunities. 

Generally, then, "springing,"  "contingent," or "limited" powers should be avoided in broadly defined estate planning.  Financial institutions have a variety of incentives to reject, for their own reasons and purposes, an otherwise enforceable GDPOA.  Forcing a financial institution to "jump through hoops," in order to verify the occurrence of conditions, contingencies, or circumstances, before accepting a GDPOA only increases the likelihood that the attorney-in-fact will be thwarted. 

Springing, contingent, or limited powers make sense in specific situations and should be so tailored to fit the situation presented.  For example, an elderly homeowner desiring to grant a local grandchild authority to sell a home while the homeowner vacates with his children warrants a limited power of attorney.  An elderly business owner desiring to grant authority to vote his shares of stock in any emergency meeting called for specific purposes, such as to cause the the sale of assets, warrants a springing GDPOA.  Conditioning a GDPOA upon "unavailability," "illness," "dementia," "incapacity," ""incompetency" or any marital circumstance (separation, dissolution, or divorce) may be tantamount to no grant of authority at all.

For those with estate plans employing a revocable trust, it is important to remember that the attorney-in-fact, the person who you appoint by your GDPOA, is not necessarily your Trustee, and the authority of an attorney-in-fact is limited regarding trust assets.  In other words, an attorney-in-fact cannot, using your GDPOA, legally direct trust assets.  An attorney-in-fact will typically have the authority, if such authority is included in the GDPOA, to transfer or convey assets to the trust.  Moreover, the attorney-in-fact may have the authority to amend the revocable trust, so long as that authority is included in both the GDPOA and the trust.  In many cases, this power to amend is limited to administrative provisions of the trust and does not permit amendment to the distribution provisions of the trust. 

For those who have a revocable trust, the common question is, "why do I needa GDPOA?" There are several important objectives served by the GDPOA in an estate plan  governed by a revocable trust:

• The attorney-in-fact can convey property and assets to the trust in the event that the trustee becomes incapacitated or incompetent;

• The attorney-in-fact can manage or direct insurance policies, annuities, retirement plans, and accounts that are left out of the ownership or control of the trust;

• The attorney-in-fact can communicate with third parties, and manage debts of the estate, such as credit cards, mortgages, and utilities; and

• The attorney-in-fact can communicate with government agencies, such as the social security administration, internal revenue service, and the united states postal service. 

A GDPOA is, undoubtedly, an indispensable legal document in a comprehensive estate plan. Sadly, many people do not have one, and most of those that do have one, rely upon a document that does not contain powers and provisions that are absolutely essential in the modern world of estate planning.

Properly drafted powers of attorney should include a broad grant of authority to the attorney-in-fact.  But there are some specific "powers" that are best made specifically, and best included in almost every GDPOA. The first of these is the power to make gifts.  Tax considerations for gifts generally do not discourage gifting; there is a five-million-dollar exemption for all lifetime gifts before a gift tax is levied.  There is, nonetheless, an annual gift tax filing exemption for gifts in the amount of $14,000.00 to any one person.  Such gifts do not need to be reported. Keep in mind, that you are also permitted to make unlimited gifts for medical expenses so long as the payments are made directly to the medical care provider, as well as unlimited gifts for educational expenses so long as the payments are made directly to the educational institution.

In the event of your incapacity, however, the person holding your Durable Power of Attorney cannot legally make the tax-free gifts unless they specifically have the power to make those gifts. Moreover, the IRS does not consider a gift made under a Durable Power of Attorney that does not specifically mention the power to make gifts to be tax-free.  A general power to do “anything that I can do myself” or words to that effect is not specific enough, at least in the eyes of the IRS. You might believe that this is not an important power because you don’t commonly make gifts to your family, but this power may be more important than you think.

Consider a situation where you need long-term care and don’t have enough money to support yourself for the rest of your life. Or you might find yourself in a situation where your long-term care costs may financially ruin your family, leaving your spouse or other loved ones destitute. In this situation, the person holding your Durable Power of Attorney may need to transfer assets out of your name so that you can qualify for Medicaid, or for the veterans' benefit Aid and Attendance.  Here the power to make a transfer in the form of a gift is vitally important.

The second power is to establish and fund trusts. In a situation where you are incompetent but you need the person holding the Durable Power of Attorney to qualify you for Medicaid as I described in the last paragraph, not only must the holder of your Durable Power of Attorney need to have the ability to make transfers of your assets, but they also may need the power to create and fund trusts. Trust planning may be integral to qualifying for long-term care benefits – or minimizing taxes. Unless the Durable Power of Attorney specifically includes such powers, chances are the governmental agencies dealing with the issues will not consider it to be sufficient for the holder of your Durable Power of Attorney to create and fund your plan legally.

The third power concerns the authority to direct retirement plan assets, including, but not limited to the authority to withdraw funds from a retirement plan or IRA, to alter automatic payments, and the authority to control the minimum required distribution.   When you attain the age of 70½, the IRS mandates that you withdraw a minimum distribution from your account annually.  You may already have the minimum distribution automatically deposited into your checking account. But if there is a medical or other emergency requiring greater access to the IRA account, your Durable Power of Attorney should the power holder the ability to withdraw funds from the account, or to change your minimum required distribution.

The fourth power that might be important for your Durable Power of Attorney regards third parties.  The GDPOA should include not only provisions for your own financial and medical care and support, but provisions to authorize distributions to others, particularly if you are responsible for the financial or medical care or support of another.  A common example is when you might be financially supporting an aging parent or another relative. If you should fall ill, the person holding your Durable Power of Attorney should be expressly authorized to use your financial accounts to continue to support those that you have always supported and who may need your support.

Finally, although not a "power," the GDPOA should contain provisions encouraging third parties to accept the GDPOA when presented.  These provisions include a release of liability for third parties accepting the power of attorney, and a provision permitting the copy of the document to serve as an original.  GDPOAs are routinely rejected by financial institutions, one of the many reasons supporting use of a lifetime trust, and the document should be drafted and executed to minimize this risk.

A GDPOA does present a risk of misuse, and particularly in an estate plan where the existence of a trust does not naturally limit the attorney-in-fact, the possible damage from misuse can be substantial.  There are, of course, steps one should follow to minimize the risk. First, and foremost, only appoint someone with whom you have the utmost trust and confidence. Second, review the appointment frequently for changes in circumstances that might suggest a lack of trustworthiness or competence.  Third, appoint another fiduciary, such as a trustee of a trust, that can review the decisions of the attorney-in-fact.  Fourth, keep the GDPOA  in safe-keeping until it is needed, thereby minimizing the temptation and opportunity for misuse.        

The bottom line is that you should consider your Durable Power of Attorney an important document necessary to fulfilling the objectives of your estate plan. You simply should not accept an impotent document, unable to protect you or your estate when needed.  Read it carefully to ensure that it is drafted completely and correctly, and if not, consult an elder law attorney for revision.

Crummey Powers Targeted by 2015 Budget Proposal

President Obama's proposed budget for fiscal year 2015 includes several important tax changes, some  of which would, if adopted, impact many estate, financial, and business succession plans.  Most of the proposals that appear in each year’s budget proposal never make it into law, or even into the following year’s budget proposal.  It is worth noting the proposals, however, because they represent what the President would sign into law if unbridled by the legislative process,  and what might end up as potential bargaining chips in the legislative process.  

The latest budget proposal includes the elimination of Crummey powers in estate planning   under the misleading title, “Simplify Gift Tax Exclusion for Annual Gifts.” Crummey powers are currently drafted in a trust in order to allow a gift to the trust to qualify for the annual gift tax exclusion. By granting the beneficiary of the trust the right for a limited period of time to withdraw the gift, the Crummey powers give the beneficiary a “present interest” in the gifted property, allowing the gift to qualify for the annual exclusion.  Without the Crummey powers, the gifts would be considered incomplete or future gifts, meaning that the gifts would be taxable. Crummey powers are named for the Ninth Circuit decision in Crummey v. Comm’r, 397 F.2d 82 (9th Cir. 1968), which approved and explained the use of this tool to satisfy the present interest requirement for gifts.

Currently individuals can gift up to $14,000 a year per donee without reporting the gift for gift  tax purposes.  Under current law, everyone can each transfer up to $5.34 million tax-free during life or at death without incurring a tax of up to 40% on the gifts. That figure is called the basic exclusion amount and is adjusted for inflation. In addition, widows and widowers may be able to add any unused exclusion of the spouse who died most recently to their own, thus permitting them together to transfer up to $10.68 million tax-free.

The annual gift tax exclusion, however, does not apply to gifts to a trust unless the donor gives the beneficiaries Crummey powers.  Crummey powers are central to many estate planning trusts.  Crummey powers are used by wealthy donors, for example, to create trusts for multiple beneficiaries and gift large amounts of money to the trust tax-free.  By drafting a trust with a large number of beneficiaries, some of which will never exercise their withdrawal power or ultimately receive a distribution from the trust, each additional donee means  more property can be transferred using the annual exclusion.

But, the technique is also used by not-so-wealthy individuals to protect life insurance benefits from taxation.  The planning technique is particularly effective and commonly used in irrevocable life insurance trusts that utilize annual exclusion gifts to fund large insurance premiums on the life of the grantor.  These trusts, while also common in wealthy estates, are also popular in more modest estates where the risk of estate taxes is particularly unacceptable, such as for family farmers, or family business owners.  These insurance trusts often provide taxpayers the best opportunity to leverage their annual exclusion, and can be a key part of ensuring necessary liquidity for an estate.

The new proposal would eliminate the present interest requirement and Crummey powers altogether. Instead, there would be a new category of transfers that would allow a donor to give an additional annual maximum of $50,000 within this category and qualify for the gift tax exclusion. The new category would include transfers in trust and transfers to other entities that normally do not qualify as a transfer of a present interest. This means, however, that if the donor gave more than $50,000, the gift would be taxable, even if the total gifts to individual donees did not exceed $14,000.  It also means that existing wealth transfer trusts, such as irrevocable life insurance trusts, that currently require or intend a total annual contribution or gift in excess of $50,000, would begin to eat into the current  lifetime exclusion. 

The proposal explains the administration’s justification for the change:

"The IRS’s concern has been that Crummey powers could be given to multiple discretionary beneficiaries, most of whom would never receive a distribution from the trust, and thereby inappropriately exclude from gift tax a large total amount of contributions to the trust. (For example, a power could be given to each beneficiary of a discretionary trust for the grantor’s descendants and friendly accommodation parties in the hope that the accommodation parties will not exercise their Crummey powers.)  The IRS has sought (unsuccessfully) to limit the number of available Crummey powers by requiring each powerholder to have some meaningful vested economic interest in the trust over which the power extends. See Estate of Cristofani v. Comm’r, 97 T.C. 74 (1991); Kohlsaat v. Comm’r, 73 TCM 2732 (1997).”

The IRS has attempted for some time to challenge the broad use of Crummey powers by arguing that each beneficiary must have a reasonable chance or expectation of receiving the property held in the Crummey trust.  The Tax Court has repeatedly rejected this argument, holding that the legal right to withdraw funds creates the present interest, thus upholding the right of taxpayers to employ such trusts. 

The Proposal also notes  the administrative costs to the taxpayers who utilize this planning technique and the costs to the IRS in enforcing the rule. Of course, by administrative costs to the taxpayer the  proposal means the legal and accounting fees taxpayers willingly pay in order to avoid what they consider to be an onerous additional tax on wealth transfer, wealth acquired only after paying taxes for an entire lifetime on income and realized gain, and the taxpayer expense in fighting the IRS as it has attempted to challenge otherwise court-approved Crummey powers.  By IRS costs in enforcing the rule, the proposal ostensibly includes the cost of the IRS’s protracted battle against taxpayers to limit Crummey powers, which would undoubtedly be saved.  

To read the Proposal, click here.

One-Third of Nursing Home Residents Injured or Killed In Treatment

Photograph by:
 Chalmers Butterfield

A federal study has found that about one-third of nursing home residents receiving skilled care were harmed by the treatment in the facility. The  study, conducted by the Department of Health and Human Services, Office of Inspector General (IG), is entitled, “Adverse Events in Skilled Nursing Facilities: National Incidence among Medicare Beneficiaries.” "Adverse events" reported include medical errors and more general substandard care that results in patient or resident harm, such as infections caused by the use of contaminated equipment.   A “skilled nursing” facility (SNF) provides specialized care and rehabilitation services to patients following a hospital stay of three days or more. There are more than 15,000 skilled nursing facilities nationwide, and about 90 percent of them are also certified as nursing homes, which provide longer-term care.

According to the study, an estimated 22 percent of residents experienced at least one adverse event that resulted in a prolonged stay, transfer back to a hospital, permanent harm, a life-sustaining intervention, or death. An additional 11 percent experienced temporary harm while in the nursing home. Physician reviewers determined that 59 percent of these adverse events and temporary harm events were clearly or likely preventable. 

Projected nationally, the study estimated that 21,777 patients were harmed and 1,538 died due to substandard skilled nursing care during one month, August 2011, the month for which records were sampled.  These projections suggest that as many as 261,324 patients are harmed, and 18,456 patients killed, annually, from skilled nursing facility care and treatment.

Veterans and Their Families Missing Benefit Opportunities

According to the most recent VA demographic report, there is an estimated U.S. veterans population of over 21 million, with approximately 2 million being WWII veterans. Of the total population, approximately 322,000 of these veterans are receiving VA non-service connected pension benefits. The number of surviving spouses receiving pension benefits is roughly 318,000. These statistics begged Karen McIntyre, President Veterans Information Services, Inc., to ask, "Why so Few?"

She recently wrote in the Veterans Information Services, Inc., newsletter, Veterans Family Matters that:

Non-service connected pension benefits are a needs based VA benefit for war time veterans and their surviving dependents. These benefits have absolutely nothing to do with an injury, condition, or death related to military service. Even though these benefits are needs based, the veteran or dependent does not have to be poor to receive them, because medical expenses such as Medicare and insurance premiums, prescriptions, full costs of assisted living, doctor and hospital co-pays, etc. are used to offset income and assets. 

Although some veterans and surviving spouses are obviously not eligible due to their financial situation or non-wartime service there is a huge number who are eligible, but do not know it. Unfortunately, the ability for our veterans and their families to get financial assistance for medical care has been a well kept secret that is just now being "let out of the bag". 

A single veteran, who served 90 days active duty with even one day during a qualified war time, may be eligible for up to $1,758.00 per month to help pay for home care, assisted living, nursing home care, and other medical necessities. A married veteran may be eligible for up to $2,085.00 per month, a surviving spouse for up to $1,130.00 per month, and a veteran married to a veteran for up to $2,790.00 per month. None of this money affects Social Security or other sources of income and ALL is tax free to the claimant.

Sadly, many vets and their families are unaware of these benefits.

Others incorrectly assume that they are ineligible, or relying upon shoddy assessments and/or poor advice, believe that there is nothing that they can do to become eligible for these benefits.  Others confuse the standards for eligibility with those for Medicaid. Eligibility planning for veterans benefits is very different than planning for Medicaid eligibility, and there are, as a result, a wider array of opportunities to qualify for these benefits.

If you know a veteran, pass this information along.  At a minimum, we owe those who served, and the families that sacrificed for and with them, an obligation to ensure that they receive what is promised to them. 

 

MyRA?

President Obama announced a new retirement savings program for people who do not currently have an employer-sponsored plan during his 2014 State of the Union message. The new investment product, called myRA, is a starter savings account aimed at low- and middle- income workers.

Similar to a Roth IRA, the myRA accounts will allow workers to invest money after tax and withdraw the money in retirement tax-free. Unlike a Roth IRA, however, the savings will be backed up by U.S. Treasury bonds, so investors will have a safer investment alternative designed never to risk the principal investment. The accounts, which are voluntary, will be available to married couples with modified adjusted gross incomes up to $191,000 and to individuals earning up to $129,000.

Workers can open a myRA with a minimal initial $25 investment. The plans are funded through paycheck deductions with contributions as small as $5 at a time. Savers will earn variable interest on the accounts, and there are no fees on the account. Principal contributed to the account can be withdrawn without penalty at any time.  There will be a penalty, however, for withdrawing the earnings i.e., interest, from the account before age 59 1/2. 

Once an account holder has accumulated $15,000, the account holder must roll the account into a traditional Roth IRA, which will then be subject those rules. In addition, the accounts last only 30 years, so at the end of that time the funds must be rolled into a traditional Roth IRA, even if the $15,000 maximum limit has not been reached.  It is unclear whether an account holder can open a new account after a period of time in order to avoid contributions being rolled up, and subject to traditional Roth IRA withdrawal rules.  

Employees who switch jobs will be able to keep their myRA accounts without cashing them out. Workers would also be able to contribute to the same account from multiple part-time jobs. The new accounts will initially be offered through a pilot program with employers who choose to participate and should be available at the end of the year.

Critics contend that the myRA initiative will do little to address the retirement savings gap because enrollment will not be automatic and contributions will be invested only in low-return Treasuries.  The requirements that the myRA rolls up into a traditional Roth IRA at either the $15,000 limitation or upon thirty years is at best going to create confusion.  At worst it will cause account participants to mistake the flexibility and ease of the accounts prior to roll-up in planning, and fail to carefully consider the more cumbersome rules governing Roth IRA distributions after roll-up.  Unexpected tax consequences may follow.

"Qualified" distributions from a Roth IRA are not included in gross income for individual tax purposes. That is deceivingly simple: a "qualified" distribution from a Roth IRA is tax-free, i.e., no taxes due on the principal, and no taxes due on the earnings.

The reason that "simple" is deceiving is the rules that define a qualified distribution.  To be qualified, the distribution MUST be:

• Made on or after the date you become age 59 1/2; OR
• Made to your beneficiary, or to your estate, after you die; OR
• Made to you after you become disabled within the definition of the IRS code; OR
• Used to pay for qualified first-time homebuyer expenses.

But,  even if one of the qualifications above are met, the distribution is STILL not qualified if it is made within a five-tax-year period. Complicating matters further is that tax-years are NOT necessarily the same as five calendar years.

So, in effect, there are two sets of rules that must be met before a Roth IRA distribution becomes qualified, and therefore tax-free: The distribution rules and the five-tax-year rules. Unless both sets of rules are met, the distribution will NOT be qualified, and the earnings will be subject to tax, and possibly penalties.

The direct investment in treasuries may be a safer alternative for many investors, and it will benefit the treasury by encouraging direct investment.  But, is the myRA an example of the government giving with one hand only to take with the other?  Perhaps, only time will tell. 

For the press release detailing the new myRA account, click here.

Appealing Medicare Refusal to Cover Care

Sometimes Medicare will decide that a particular treatment or service is not covered and will deny a beneficiary's claim. Many of these decisions are highly subjective and involve determining, for example, what is "medically and reasonably necessary" or what constitutes "custodial care." If a beneficiary disagrees with a decision, there are reconsideration and appeals procedures within the Medicare program.

While the federal government makes the rules about Medicare, the day-to-day administration and operation of the Medicare program are handled by private insurance companies that have contracted with the government. In the case of Medicare Part A, these insurers are called "intermediaries," and in the case of Medicare Part B they are referred to as "carriers." In addition, the government contracts with committees of physicians -- quality improvement organizations (QIOs) -- to decide the appropriateness of care received by most Medicare beneficiaries who are inpatients in hospitals.

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What Are the House Ownership Options When Parents and Adult Children Live Together?

Bailey House,  Somers Hamlet Historic District
in Somers, NY, USA

Increasingly, several generations of American families are living together. According to a Pew Research Center analysis of U.S. Census data, more than 50 million Americans, or almost 17 percent of the population, live in households containing two adult generations. These multi-generational living arrangements present legal and financial challenges around home ownership.

Multi-generational households may include "boomerang" children who return home after college or other forays out into the world, middle-aged children who have lost jobs in the recent recession, or seniors who no longer can or want to live alone. In many, if not most, cases when mom moves in with daughter and son-in-law or daughter and son-in-law move in with mom, everything works out well for all concerned. But it's important that everyone, including siblings living elsewhere, find answers to questions like these:

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Using a No-Contest Clause to Prevent Heirs from Challenging a Will or Trust

Property of Darrellksr From Wikimedia Commons

If you are worried that disappointed heirs could contest your will or trust after you die, one option is to include a "no-contest clause" in your estate planning documents. A no-contest clause provides that if an heir challenges the will or trust and loses, then he or she will get nothing.

A simple "no-contest clause" will protect only the instrument, such as the trust or will.  An enhanced "no-contest clause" will identify and protect other estate planning decisions, such as a beneficiary designation of an annuity, retirement plan, IRA, Keogh, pension or profit-sharing plan or insurance policy,  a buy-sell agreement, a family partnership agreement, a limited liability company, or a marital agreement (pre- or post- nuptial), and may even penalize family members that conspire to frustrate the estate plan.

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Understanding the Medicaid Look-back Period

Medicaid uses a "look-back" period in determining Medicaid eligibility.  Medicaid, unlike Medicare, is a means-tested program, which means that you are only eligible for it if you do not have sufficient means, or have very few assets. The government does not permit the transfer all of a person's assets in order to qualify for Medicaid, so it has imposed a penalty on people who transfer assets without receiving fair value in return, often called a transfer penalty.  Transfers of assets for less than fair market value are considered "improper transfers."

In order to identify who has transferred assets, states require a person applying for Medicaid to disclose all financial transactions he or she was involved in during the five (5) years immediately prior to submitting the Medicaid application. This five-year period is known as the "look-back period." The Department of Medicaid or other appropriate state agency determines whether the Medicaid applicant transferred any assets for less than fair market value during this period.

Any transfer can be scrutinized, no matter how small. There is no exception for charitable giving or gifts to grandchildren. Informal payments to a caregiver may be considered a transfer for less than fair market value if there is no written private care agreement, and even these are scrutinized carefully. Similarly, loans to family members can trigger a penalty period if there is no written documentation establishing the existence and reasonableness of the loan. The burden of proof is on the Medicaid applicant to prove that the transfer was not made in order to qualify for Medicaid.

Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility even if the transfers occurred during the look-back period. These exempt recipients include the following:

• A spouse (or a transfer to anyone else as long as it is for the spouse's benefit);
• A blind or disabled child;
• A trust for the benefit of a blind or disabled child;
• A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).  

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

• The applicant's spouse;
• A child who is under age 21 or who is blind or disabled;
• Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);
• A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home;
• A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

If the state Medicaid agency determines that a Medicaid applicant made a transfer for less than fair market value, it will impose a penalty period. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.

Transfers to a person's revocable trust are not considered improper transfers, because they do not affect "ownership" for purposes of Medicaid.  In other words, a revocable trust is not a Medicaid planning trust and does not shield assets from Medicaid spend down.  In Ohio, a couple may apply for and receive Medicaid if the home is in their revocable trust, due to changes to the law in 2016.  An attorney should be consulted nonetheless because leaving a home in a trust after Medicaid eligibility can be disadvantageous and inadvisable, of course depending upon the trust terms.  Consult an attorney when applying for Medicaid, and after eligibility to ensure proper management of the assets.  

If you have transferred assets within the past five years and are planning on applying for Medicaid, consult with your attorney to find out if there are any steps you can take to prevent incurring a penalty.

Revised 12/1/16

Conveyance to Son Was Fraudulent, But His Siblings May Also Be Liable Under Filial Support Law

North Dakota is apparently utilizing its filial responsibility statute in allocating long term care liabilities.  North Dakota's highest court recently held that a nursing home resident's sale of property to his son should be set aside as a fraudulent conveyance, but the trial court should not have declared the son personally responsible for his parent's debt under the state's filial responsibility law without also deciding whether his siblings where liable under the same law. Four Seasons Healthcare Center v. Linderkamp (N.D., Nos. 20120432, 20120433, Sep. 4th, 2013).

Earl and Ruth Linderkamp owned a farm. They leased the land to one of their sons, Elden, who farmed the property. Elden claimed that he had an oral agreement with his parents that they would compensate him for improvements to the land as part of the consideration to buy the property at a later date. In 2006, the Linderkamps sold the property to Elden for $50,000, well below its market value. Elden claimed he had made more than $100,000 in improvements to the property. Soon after, the Linderkamps entered a nursing home where they remained until their deaths, leaving a total of $93,000 in unpaid nursing home charges.

After the Linderkamps died, the nursing home sued Elden to set aside the property transfer as a fraudulent conveyance. The trial court set aside the conveyance, finding the Linderkamps did not receive equivalent value in exchange for the property. The court also determined Elden was personally responsible for his parents' debt under the state's filial responsibility law, but refused to determine his siblings' liability. Elden appealed, arguing the conveyance was not fraudulent and the court should not impose personal liability against him for his parents' nursing home debt.

The North Dakota Supreme Court affirmed in part, holding the conveyance was fraudulent, but remanded the case to determine whether Elden is personally responsible for the debt. According to the court, there was no evidence of an oral agreement or improvements made to the property "and the conveyance was made when there was a reasonable belief the parents would be entering a nursing home and would not be able to fully pay for their long-term care." The court concluded, however that the trial court erred in finding Elden personally liable for his parents' nursing home debt without deciding the other children's potential liability under the filial responsibility law.

For the full text of this decision, go here.