Medicaid Expansion Signups Hindered By Fear of Estate Recovery

A fear that the government will seize their house after they die is causing some people to not sign up for expanded Medicaid under the Affordable Care Act (ACA). A long-standing provision in Medicaid law allows states to recoup Medicaid costs by putting a claim on the home or other assets of older deceased Medicaid recipients.

For more information, click here to travel to my newsletter article!

In 1993, Congress passed a law requiring that states try to recover from the estates of deceased Medicaid recipients whatever benefits they paid for the recipient's long-term care. But the law allows states to go further and recover all Medicaid benefits from individuals over age 55, including costs for any medical care, not just long-term care benefits.

The ACA gives states the option of expanding Medicaid eligibility to individuals and families with incomes up to 133 percent of the poverty line, and so far 26 states have taken this option. Now that more people are becoming eligible for Medicaid under the ACA, there are potentially more people who may have their houses (or other valuable assets) sold after they die to pay off Medicaid debt. People subject to this estate recovery would have to live in one of the 26 states, and their state would have to be recovering the costs of all Medicaid benefits, not just long-term care. Still, there are protections: the state cannot take a house if there is a surviving spouse, a child under age 21 or a child of any age who is blind or disabled.

According to the Washington Post, the realization that their house might be subject to estate recovery is giving some with low incomes second thoughts about signing up for Medicaid, even though not doing so will likely mean going without any insurance at all. ACA plans bought in the regular marketplace are not subject to estate recovery, but individuals who qualify for expanded Medicaid coverage are not able to get a subsidy to buy coverage in the marketplace. If someone doesn't want to be subject to estate recovery, there are two options: buy a plan from the marketplace without a subsidy, or buy no insurance at all.

In order to encourage people to sign up for Medicaid, both Oregon and Washington have changed their rules to allow estate recovery only for long-term care debt. In addition, advocates are asking the federal government for clarification on whether Medicaid estate recovery will apply to people who purchase expanded Medicaid coverage.  A spokesman for the Centers for Medicare and Medicaid Services told the Post, "We recognize [the] importance of this issue and will provide states with additional guidance in this area soon." 

For the Washington Post article, click here.

For more on Medicaid's estate recovery rules, click here.

Key 2014 Dollar Limits for Medicaid Long-Term Care Coverage Released

The Centers for Medicare & Medicaid Services (CMS) has released the 2014 federal guidelines for how much money the spouses of institutionalized Medicaid recipients may keep and the limit on how much a home can be worth for its owner to still qualify for Medicaid.

The Centers for Medicare & Medicaid Services (CMS) has released the 2014 federal guidelines for how much money the spouses of institutionalized Medicaid recipients may keep and the limit on how much a home can be worth for its owner to still qualify for Medicaid.

In 2014, the spouse of a Medicaid recipient living in a nursing home (called the "community spouse") may keep as much as $117,240 without jeopardizing the Medicaid eligibility of the spouse who is receiving long-term care. Called the "community spouse resource allowance," this is the most that a state may allow a community spouse to retain without a hearing or a court order. While some states set a lower maximum, the least that a state may allow a community spouse to retain in 2014 will be $23,448.

Meanwhile, the maximum monthly maintenance needs allowance for 2014 will be $2,931. This is the most in monthly income that a community spouse is allowed to have if her own income is not enough to live on and she must take some or all of the institutionalized spouse's income. The minimum monthly maintenance needs allowance – the income level below which a state may not allow a community spouse to fall if income from the institutionalized spouse is available -- is $1,938.75 in the lower 48 states ($2,422.50 for Alaska and $2,231.25 for Hawaii).  This figure took effect July 1, 2013, and will not rise until July 1, 2014.

In determining how much income a particular community spouse is allowed to retain, states must abide by this upper and lower range. Bear in mind that these figures apply only if the community spouse needs to take income from the institutionalized spouse. According to Medicaid law, the community spouse may keep all her own income, even if it exceeds the maximum monthly maintenance needs allowance.

Home Equity Limits

Medicaid will not cover long-term care services for applicants whose homes are valued above a certain limit.  For 2014, that limit is $543,000, although states have the option of increasing this equity limit to $814,000. But the house may be kept with no equity limit if the Medicaid applicant's spouse or another dependent relative lives there.

These new figures (except for the minimum monthly maintenance needs allowance) take effect on January 1, 2014.

For more on protections for the healthy spouse, click here.  For more on Medicaid’s asset rules, click here.

Banks Can Report Abuse of Elderly Without Violating Privacy Laws

UC Irvine's Center of Excellence on Elder
Abuse and Neglect - committed to eliminating
 abuse of the elderly

The Federal Government has issued new guidelines aimed to help banks understand how to report suspected financial elder abuse without violating privacy laws. It was co-authored by eight federal agencies, including the FTC, SEC, FDIC, and the new Consumer Financial Protection Bureau. The privacy protection law in question is the 1999 Gramm-Leach-Bliley Act (GLBA).

As the Guidance explains, GLBA allows banks to disclose private information “to comply with…state laws that require reporting by financial institutions of suspected abuse.” It may also be released to respond to a government investigation or to respond to judicial process. The guidance was issued to reassure financial institutions that they will not run afoul of federal law by reporting suspected abuse as required under state law.

Ohio law protects the disabled and elderly from abuse, neglect, and exploitation, and requires certain professionals, including doctors, nurses, lawyers, physical therapists, social workers, law enforcement and emergency response personnel. having reasonable cause to believe that an elderly person is in need of protective services to report such information.

Ohio law does not currently require financial professionals such as tellers to report.  Ohio law does, however, protect any person that does report suspected abuse, whether or not required to report.  Any person who makes a report with reasonable cause to believe that an adult is suffering abuse, neglect or exploitation is immune from civil or criminal liability under Ohio law.

The importance of banking professionals in identifying abuse and exploitation cannot be overstated.  According to Richard Cordray, Director of the Consumer Financial Protection Bureau:

"Many older consumers are known personally by the tellers in their local banks and credit unions. These employees may be able to spot irregular transactions, abnormal account activity, or unusual behavior that signals financial abuse sooner than anyone else can. Today’s guidance makes clear that reporting suspected elder financial abuse generally is not subject to these same concerns and does not violate the Gramm-Leach-Bliley Act.

The guidance mentions repeated large withdrawals, debit transactions uncommon for an older adult, random attempts to wire large amounts and the closing of CDs or accounts despite penalties as possible signs of elder financial abuse. 

  

For more information on the new federal guidance, see here, or see the full document here.

Medicaid Applicant Penalized for Assignment of Life Insurance to Funeral Trust

An Illinois appeals court recently held that a Medicaid applicant who purchased a life insurance policy that was assigned to a trust designed to pay funeral expenses is subject to a transfer penalty because the funds could be used for something other than funeral expenses pursuant to the terms of the trust.. Evans v. State (Ill. Ct. App., No. 4-12-1082, Dec. 24, 2013).

Nursing home resident Peggy Evans applied for Medicaid benefits and several days later purchased a life insurance policy for $12,000. The proceeds of the policy were assigned to an irrevocable trust. The trust provided that the trustee pay Ms. Evans' funeral and burial expenses if a bill was presented within 45 days of Ms. Evans' death.  The trust provided further  that in the event that a bill was not presented within that time frame, the assets would be distributed to Ms. Evans' children. The state approved her Medicaid application, but assessed a penalty period based on the transfer.

Ms. Evans' appealed, arguing the transfer to the life insurance policy was exempt from a penalty because the funds were for funeral and burial expenses. Normally, transfers to a funeral trust do not result in a penalty because the funds are used to for satisfying  funeral and burial expenses   The the Department of Human Services denied her appeal, and the trial court affirmed the decision. Ms. Evans appealed.

The Illinois Appeals Court affirmed, holding that the transfer to the life insurance policy was not exempt, so the state correctly assessed a penalty period. According to the court, in order for prepaid burial expenses to be exempt from a transfer penalty there has to be a burial contract in place, which was not the case here. In addition, "the funds can only be used to pay funeral expenses, also not the case here, as the structure of the trust could allow the funds to pass to Evans' children instead of paying funeral expenses."

The decision did not disclose who drafted the trust, or whether counsel reviewed or approved the trust.  Nonetheless, the decision underscores the importance of crafting a funeral trust with appropriate and effective limitations.

For the full text of this decision, go here.

Filial Responsibility- Complicating Estate, Retirement and Asset Protection Planning

Twenty-eight states currently have laws making adult children responsible for their parents if their parents can't afford to take care of themselves. While these laws are rarely enforced, there is growing pressure upon states to use these laws as a way to save on Medicaid expenses.

These laws, called filial responsibility laws, obligate adult children to provide necessities like food, clothing, housing, and medical attention for their indigent parents. According to the National Center for Policy Analysis, a conservative research organization, 21 states allow a civil court action to obtain financial support or cost recovery, 12 states impose criminal penalties on children who do not support their parents, and three states allow both civil and criminal actions. (For a list of the states and citations to state statutes, click here.  Note that Idaho's and New Hampshire's statutes have since been repealed.)

Generally, most states do not require children to provide care if they do not have the ability to pay. States vary on what factors they consider when determining whether an adult child has the ability to pay. Children may also not be required to support their parents if the parents abandoned them or did not support them.

The passage of the Deficit Reduction Act of 2005 made it more difficult to qualify for Medicaid, which means there may be more elderly individuals in nursing homes with no ability to pay for care. In response, nursing homes may use the filial responsibility laws as a way to get care paid for. For more information, click here.

For a discussion of filial responsibility laws in the New York Times's "New Old Age" blog, click here.

Tragic Consequences Result from Simple or Do-It-Yourself Medicaid Planning

Simplistic or Do-It-Yourself Medicaid planning is a "cure worse than the disease."  Yet another in a long line of tragic cases illustrates why seniors should not engage in reckless transfer of assets to children in the hope of avoiding long term care or nursing home costs. Too often, they witness their fortune lost, wasted, or appropriated.  Perhaps the only thing worse than losing a hard earned fortune to nursing home cost, is being rendered penniless and potentially homeless as a result of a simple transfer of wealth to a trusted child.

In 2002, Dorothy Stutesman transferred $142,742 to her daughter, Holly Woodworth, so she would not have assets in her name if she ever needed Medicaid. In April 2010, Woodworth transferred the money to a trust designed to protect the assets from creditors. The entire corpus of the trust was used to purchase an annuity to benefit Woodworth. In February 2011, Woodworth filed for bankruptcy.

The bankruptcy trustee sought to void the trust, arguing it was a fraudulent transfer under bankruptcy code. Woodworth did not dispute that the transfer was fraudulent, but she argued that the property was never part of her estate because she was holding it in a constructive trust for her mother.

The U.S. Bankruptcy Court for the Eastern District of Virginia entered judgment for the bankruptcy trustee, holding that Woodworth clearly had complete ownership of the funds. According to the court, “Ms. Stutesman can’t have it both ways — she can’t part with title for purposes of Medicaid eligibility, and at the same time claim that she retained an equitable title to the asset. To allow this kind of secret reservation of equitable title would be to sanction Medicaid fraud.”

Read More

Source: Habiger, Richard, "Daughter who declared bankruptcy must repay $142,742," Southern Business Journal, http://thesouthern.com/business/daughter-who-declared-bankruptcy-must-repay/article_deae48d0-2aa4-11e3-8086-0019bb2963f4.html

Pennsylvania's Filial Support Law Survives Federal Challenge

Pennsylvania's filial support statute has survived a multi-faceted challenge in federal court. Filial responsibility includes the legal responsibility of a child to care for an indigent parent.  Pennsylvania recently began enforcing its filial responsibility laws, wielding the the legal obligation as a sword in Medicaid resource recovery, in effect requiring a child to reimburse the State for paying through Medicaid the cost of the parent's long-term care. Simply, a child may remain responsible for a parent's long term care costs.  

The U.S. District Court, Western District of New York upheld Pennsylvania's use of filial responsibility in Medicaid resource recovery holding that it was not preempted by  the federal Nursing Home Reform Act, and that collection of a Medicaid  debt created by the statute does not give rise to a Fair Debt Collection Practices Act claim.  Eades v. Kennedy, PC Law Offices (U.S. Dist. Ct., W.D. N.Y., No. 12-CV-6680L, Dec. 3, 2013).  Levere Pike, a New York resident, placed his wife in a Pennsylvania nursing home. After Mr. Pike's wife died, the nursing home hired a law firm that attempted to collect payment from him and his daughter, Joni Eades. The law firm eventually filed a lawsuit in Pennsylvania that is still pending.

Mr. Pike and Ms. Eades sued the law firm, arguing that the attempts to collect the debt violated the Fair Debt Collection Practices Act (FDCPA). They also argued that Pennsylvania’s filial responsibility law is preempted by the portion of the Nursing Home Reform Act (NHRA) that prohibits a nursing home from requiring a third-party guarantee as a condition of admission. The law firm filed a motion to dismiss.

The U.S. District Court, Western District of New York, granted the motion to dismiss, holding the court does not have jurisdiction over Mr. Pike and Ms. Eades' claims. The court went on to conclude that even if it did have jurisdiction, debts created by filial support statutes do not give rise to claims under the FDCPA.  In addition, according to the court, the filial support statute is not preempted by the NHRA because the two laws do not "cover the same territory."  Although arguably the decision is mostly dicta, the court's decision illuminates how federal courts are likely to view filial responsibility in the event that more states follow Pennsylvania in applying filial responsibility to Medicaid recourse recovery.

For the full text of this decision, go here.  

Medicare Ends ‘Improvement Standard’ which Required 'Likelihood of Improvement' in Chronic Conditions before Coverage of Skilled Care and Therapy Services

The Centers for Medicare & Medicaid Services has updated the program manuals used by Medicare contractors in order to “clarify” that coverage of skilled nursing and skilled therapy services does not depend on a beneficiary’s potential for improvement but rather on the beneficiary’s need for skilled care.  The manual update is part of the January 2013 settlement agreement in Jimmo v. Sebelius, No. 11-cv-17 (D. Vt.), which ended Medicare’s longstanding practice of requiring beneficiaries to show a likelihood of improvement in order to receive coverage of skilled care and therapy services for chronic conditions.

The Center for Medicare Advocacy, which along with Vermont Legal Aid represented the plaintiffs in Jimmo, announced that the Medicare Policy Manuals have been revised pursuant to the Jimmo settlement.  The Center and Vermont Legal Aid have been reviewing and providing input on drafts of the manual revisions.

“As with all components of settlement agreements, the Jimmo revisions are not perfect,” said Judith Stein, the Center’s Executive Director. “But they should go a long way to ensuring that skilled care is covered by Medicare for therapy and nursing to maintain a patient’s condition or slow decline – not just for improvement.”

CMS states in the Transmittal announcing the Jimmo Manual revisions: 

No “Improvement Standard” is to be applied in determining Medicare coverage for maintenance claims that require skilled care. Medicare has long recognized that even in situations where no improvement is possible, skilled care may nevertheless be needed for maintenance purposes (i.e., to prevent or slow a decline in condition). The Medicare statute and regulations have never supported the imposition of an “Improvement Standard” rule-of-thumb in determining whether skilled care is required to prevent or slow deterioration in a patient’s condition. Thus, such coverage depends not on the beneficiary’s restoration potential, but on whether skilled care is required, along with the underlying reasonableness and necessity of the services themselves. The manual revisions now being issued will serve to reflect and articulate this basic principle more clearly. [Emphasis in original.]

The next step in the Jimmo settlement is an educational  campaign that CMS will soon mount to explain the settlement and the revised manual provisions to Medicare contractors, providers, adjudicators, patients, and caregivers. CMS’s educational campaign should consist of national calls, forums, written materials, training, and changes to its website.

At a session on the Jimmo settlement that was part of the National Aging and Law Institute in November, Stein urged attorneys to inform the Center of any cases where coverage has been denied because the patient was not improving.  The Center would also appreciate any feedback on the upcoming educational campaign.  E-mail cases or comments toimprovement@medicareadvoacy.org 

The CMS Transmittal for the Medicare Manual revisions, with a link to the revisions themselves, is posted on the CMS website.  The CMS MLN Matters article is also available there under “Downloads.”

Supreme Court to Decide Whether Inherited IRA's Protected from Creditors

The U.S. Supreme Court has agreed to hear a case that will decide whether inherited individual retirement accounts (IRAs) are available to creditors in bankruptcy. The decision in Clark v. Rameker will resolve a split between the lower courts.

Heidi Heffron-Clark inherited a $300,000 IRA from her mother. Inherited IRAs must be distributed within five years. During the five-year period, Mrs. Clark and her husband filed for bankruptcy. The Clarks argued the IRA was exempt from creditors because bankruptcy law protects retirement funds. A district court agreed with the Clarks, but the 7th Circuit U.S. Court of Appeals reversed in Clark v. Rameker (714 F.3d 559 (2013)), holding that the money in the IRA no longer constituted retirement funds.

Meanwhile, the 5th Circuit U.S. Court of Appeals decided in In re Chilton (674 F.3d 486 (2012)), that funds from an inherited IRA should be exempt. The U.S. Supreme Court will resolve this issue later this term.

For more information about this case, click here.

Ambulance Driver Charged with Homicide in Death of Nursing Home Resident

McKnight's reports that the New York Attorney's General office has indicted a former medical transport driver for criminally negligent homicide related to the death of a nursing home resident.  

Driver Juan Garcia was working for Maeleen Ambulette Transport Inc. while transporting an elderly nursing home resident back to the facility from a dialysis appointment, when he came to an abrupt stop. The resident apparently was thrown from her wheelchair in the August 2010 incident. Garcia, 49, has admitted he had not buckled the resident's seatbelt, according to the attorney general's office.

Even though a certified nursing assistant in the ambulette asked Garcia to take the resident to the hospital, he proceeded to drive to the Gold Crest Care Center, the charges state. The resident subsequently underwent surgery for a fractured hip and died about a month later from complications.

“Had [Garcia] taken the most basic safety precautions, this vulnerable nursing home resident would not have died in this horrific way,” Attorney General Eric T. Schneiderman stated.  Garcia was arraigned in Bronx County Supreme Court and released on his own recognizance, according to Schneiderman's office. He faces up to four years in prison if convicted.

Debt Owed to Nursing Home Is Dischargeable in Bankruptcy Court

A bankruptcy court rules that a nursing home cannot claim debt owed by the husband of a nursing home resident to the nursing home is nondischargeable as a domestic support obligation. In re Langan (Bankr. Dist. S.D., Nos. ADV-13-3003, BR 13-30001, Oct. 18, 2013).

Anna Langan died owing debt to the nursing home that provided her care.  The nursing home sued Mrs. Langan's husband, Francis Martin Langan, and Mr. Langan settled, agreeing to pay the nursing home $28,000. The settlement provided that Mr. Langan would not file for bankruptcy within 91 days following the nursing home's receipt of the settlement payment. Mr. Langan filed for bankruptcy one month later.

The nursing home filed a claim with the bankruptcy court, seeking a determination that its claim against Mr. Langan is nondischargeable debt. The nursing home alleged that Mr. Langan failed to pay for his wife's care even though he had assets to do so. Under bankruptcy law any debt "for a domestic support obligation" is exempted from a debtor's general discharge. Mr. Langan asked the court to dismiss the nursing home's claim.

The United States Bankruptcy Court, District of South Dakota, grants Mr. Langan's motion to dismiss, holding that the debt is not exempt from discharge. According to the court, because the nursing home "is not [d]ebtor's spouse, former spouse, or child, and the debt did not arise from a divorce or separation agreement," the debt does not fall under the "domestic support obligation" exception from discharge.

For the full text of this decision, click here.

Mishandling of Nursing Home Trust Accounts a Growing Problem

Many nursing home residents have have "resident trust funds" or "personal accounts" managed by the facility. It may be that the residents have no family members or family members do not want the responsibility, or the nursing facility prefers to manage the resident’s income. Recently, USA Today did an investigative report in which 1,500 facilities have been cited for mishandling of funds in such resident trust accounts. Most of the deficiencies were related to failing to pay interest on the money held, inadequate accounting, or failure to give residents sufficient access to their money. However, there were egregious cases where funds were misappropriated by those who were intended to protect them. Go here to read the full article.   

The USA Today article explains the problem, describes specific examples of account misuse, and provides some practical solutions to  minimize the risk of loss associated with these accounts.  In every case, the resident should have an effective General Durable Power of Attorney in place naming a trusted agent and  alternates. Many nursing home residents are unable to monitor their own accounts, or may be unable to monitor their own accounts during periods of illness, disability, or incapacity. An attorney-in-fact empowered by a Power of Attorney document can monitor the resident account, and even minimize its use by keeping a limited amount of funds in the account. If the agent is willing and able to pay the resident’s bills, the use of the account will be limited to small purchases and will be less tempting to those who are using the accounts for their own purposes.

Fortunately, the resident fund accounts are usually insured.  An attorney-in-fact can make a claim against the insurance company is a loss is discovered.  Such a claim may be frustrated if the resident is unable to prosecute a claim.  It is important that losses are identified quickly, and claims made timely.  

The attorney-in-fact should also make sure that ultimate disposition of the account is provided for, either by an assignment of the account to the resident's revocable trust, or by a transfer upon death or payable upon death designation.  Otherwise the account may require probate court disposition.    

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

North Dakota's highest court determined that a nursing home resident's sale of property to his son should be set aside as a fraudulent conveyance, and that the son was personally responsible for his parent's debts under the state's filial responsibility law. But the court also held that 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 were 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 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.

Many Consumers Will Lose Their Insurance Under Affordable Care Act

From Kaiser Health News: 

Rod Coons and Florence Peace, a married couple from Indianapolis, pay $403 a month for a family health plan that covers barely any of their individual medical care until each reaches up to $10,000 in claims. And that’s just the way they like it.

"I'm only really interested in catastrophic coverage," says Coons, 58, who retired last year after selling an electronic manufacturing business. Since they're generally healthy, the couple typically spends no more than $500 annually on medical care, says Coons.

"I'd prefer to stay with our current plan because it meets our existing needs."

That won’t be an option next year for Koons and Peace. In 2014, plans sold on the individual and small group markets will have to meet new standards for coverage and cost sharing, among other things. In addition to covering 10 so-called essential health benefits and covering many preventive care services at no cost, plans must pay at least 60 percent of allowed medical expenses, and cap annual out-of-pocket spending at $6,350 for individuals and $12,700 for families. (The only exception is for plans that have grandfathered status under the law.)

Plans with $10,000 deductibles won’t make the cut, say experts, nor will many other plans that require high cost sharing or provide limited benefits, excluding prescription drugs or doctor visits from coverage, for example.

According to the Department of Health and Human Services, based on the 10 states and the District of Columbia that have so far proposed individual market premiums for next year, the average individual monthly rate will be $321 for a mid-level plan.

Many policyholders don't realize their plans won't meet the standards set by the Affordable Care Act next year, say experts.

Read the rest of the article here.

Woman Prevails in Guardianship to Protect Her Wishes

Momentous news from the Washington Post:

In a victory for the rights of adults with disabilities, a judge declared Friday that a 29-year-old woman with Down syndrome can live the life she wants, rejecting a guardianship request from her parents that would have allowed them to keep her in a group home against her will.

The ruling thrilled Jenny Hatch and her supporters, who included some of the country’s most prominent disability advocates.  For more than a year, Margaret Jean Hatch, whom everyone calls Jenny, had been under a temporary guardianship and living in a series of group homes, removed from the life she knew. Hatch wanted to continue working at a thrift store and living with friends Kelly Morris and Jim Talbert, who employed her and took her into their home last year when she needed a place to recover after a bicycle accident.

                                                             *      *     *

Legally, Hatch’s case came down to two questions: Was she an incapacitated adult in need of a guardian, and, if so, who would best serve in that role — her mother and stepfather, or Morris and Talbert?

But for national experts on the rights of people with disabilities, several of whom testified on Hatch’s behalf, the case was about much more. It was about an individual’s right to choose how to live and the government’s progress in providing the help needed to integrate even those with the most profound needs into the community.

In the end, Newport News Circuit Court Judge David F. Pugh said he believed that Hatch, who has an IQ of about 50, needed a guardian to help her make decisions but that he had also taken into account her preferences. He designated Morris and Talbert her temporary guardians for the next year, with the goal of ultimately helping her achieve more independence.

“For anyone who has been told you can’t do something, you can’t make your own decisions, I give you Jenny Hatch — the rock that starts the avalanche,” her attorney, Jonathan Martinis, exulted after the decision.

The decision is momentous because it is so rare that a person deemed incompetent or incapacitated is given any legal ability to direct his or her guardianship, or direct decisions of the guardian.  Guardianship, unfortunately, impacts the disabled, including the aged as they confront short-term and long-term disabilities.  Too often, seniors do not consider carefully this issue in crafting an estate and financial plan.

For a prior article regarding this case, go here. 

For more information regarding guardianship, see the following articles:

• Estate Plans Should Consider and Attempt to Resolve Guardianship;
• Illinois Permits Guardian Authority to Petition for Termination of a Ward's Marriage; 
• GAO reports on Guardianship Abuse;
• National Groups Acknowledge Need for Guardianship Reform;
• Report on Abuse by Guardians and the Guardianship Process Released;
• Another Reason for Guardianship Planning: Guardian Convicted of Homicide in Death of Ward 

Woman Prevails in Guardianship to Protect Her Wishes

Momentous news from the Washington Post:

In a victory for the rights of adults with disabilities, a judge declared Friday that a 29-year-old woman with Down syndrome can live the life she wants, rejecting a guardianship request from her parents that would have allowed them to keep her in a group home against her will.

The ruling thrilled Jenny Hatch and her supporters, who included some of the country’s most prominent disability advocates.  For more than a year, Margaret Jean Hatch, whom everyone calls Jenny, had been under a temporary guardianship and living in a series of group homes, removed from the life she knew. Hatch wanted to continue working at a thrift store and living with friends Kelly Morris and Jim Talbert, who employed her and took her into their home last year when she needed a place to recover after a bicycle accident.

                                                             *      *     *

Legally, Hatch’s case came down to two questions: Was she an incapacitated adult in need of a guardian, and, if so, who would best serve in that role — her mother and stepfather, or Morris and Talbert?

But for national experts on the rights of people with disabilities, several of whom testified on Hatch’s behalf, the case was about much more. It was about an individual’s right to choose how to live and the government’s progress in providing the help needed to integrate even those with the most profound needs into the community.

In the end, Newport News Circuit Court Judge David F. Pugh said he believed that Hatch, who has an IQ of about 50, needed a guardian to help her make decisions but that he had also taken into account her preferences. He designated Morris and Talbert her temporary guardians for the next year, with the goal of ultimately helping her achieve more independence.

“For anyone who has been told you can’t do something, you can’t make your own decisions, I give you Jenny Hatch — the rock that starts the avalanche,” her attorney, Jonathan Martinis, exulted after the decision.

The decision is momentous because it is so rare that a person deemed incompetent or incapacitated is given any legal ability to direct his or her guardianship, or direct decisions of the guardian.  Guardianship, unfortunately, impacts the disabled, including the aged as they confront short-term and long-term disabilities.  Too often, seniors do not consider carefully this issue in crafting an estate and financial plan.

For a prior article regarding this case, go here. 

For more information regarding guardianship, see the following articles:

• Estate Plans Should Consider and Attempt to Resolve Guardianship;
• Illinois Permits Guardian Authority to Petition for Termination of a Ward's Marriage; 
• GAO reports on Guardianship Abuse;
• National Groups Acknowledge Need for Guardianship Reform;
• Report on Abuse by Guardians and the Guardianship Process Released;
• Another Reason for Guardianship Planning: Guardian Convicted of Homicide in Death of Ward 

Disabled Woman's Guardianship Battle Draws Attention to Guardianship Risks

A 29-year-old Virginia woman with Down syndrome is fighting her parents' attempt to obtain guardianship in a case that has drawn attention to the inherent conflict existing in the laws regarding adult guardianship. These laws seek to protect persons who cannot help themselves, but inherently risk the freedom and independence of those persons who are capable of helping themselves.

There seems to be little question that Ms. Hatch wants to make decisions independently. Before August 2012, apparently, neither of Margaret Jean Hatch's divorced parents wanted to care for her. According to published reports, her father claimed that he couldn't provide an appropriate level of care, and her mother claimed that her relationship with her daughter was too contentious. Consequently, Ms. Hatch, who has an IQ of 52, moved back and forth between friends' apartments and group homes, eventually living with her employers, Kelly Morris and Jim Talbert, owners of a retail shop.

Ms. Morris and Mr. Talbert determined that Ms. Hatch would have a better chance of qualifying for Medicaid waiver services if she was homeless, so they encouraged her to move into yet another group home until her Medicaid application was approved. Ms. Hatch moved back in with the couple once she began receiving waiver services, but two days later, her mother, Julia Ross, and her stepfather, Richard Ross, filed for guardianship. According to the Washington Post, the Rosses claimed that Ms. Hatch "lies, causes confusion, is inappropriate behaving with men, contacts neighbors relentlessly, and is obsessed with others who are nice to her."

Ms. Hatch chose to contest the guardianship, and she has drawn support from members of her community who insist that she should have the right to live where she wants. Her supporters have gone so far as to start a "Justice for Jenny" campaign. The case has drawn the interest of national advocates, including Jennifer Mathis of the Bazelon Center for Mental Health Law, who told the Post, "[t]here is a default assumption that people with intellectual disabilities and people with mental illness need people to make decisions for them, that they can’t, with aid, fend for themselves. Which just isn’t true."

The Hatch case illustrates the inherent conflicts that arise under guardianship laws, especially for people who may need some assistance, but who may not require full guardianship and do not, therefore, deserve the complete loss of control of their lives and affairs.  

President Obama's 2014 Budget Includes Troubling Changes Affecting Estate Planning

The celebration following the federal government's increase in the estate tax exemption to $5.25 million is, perhaps, destined to be short lived.  President Obama’s proposed budget plan for 2014 came out on April 10, and proposes substantial changes to the estate and income tax code.  These changes would mean real changes in estate planning. 

According to the budget plan, the federal estate tax rate will increase from 40 to 45 percent. The individual exemption equivalent will be reduced from $5.25 million to $3.5 million, and it will not adjust upward over time to keep pace with inflation. This means that as time goes on and inflation increases, people will surpass the exemption mark due to appreciation in the value of their estate, and be subject to federal estate taxes. Further, these changes are proposed  as "permanent changes" meaning that they will not sunset or lapse in time.  

The lifetime gifting exemption equivalent is also affected, since the gift and estate taxes use a unified exemption.  The maximum amount that a person can leave his or her family in combined taxable lifetime gifts and inheritance is thus reduced from $5.25 million, which increases with inflation, to a non-adjusting maximum of $3.5 million.

Limiting Grantor Retained Annuity Trusts

More surprising and substantive changes are proposed for sophisticated estate plans. A GRAT (grantor retained annuity trust) is a tax-reducing trust popular for giving assets to family members while retaining an income benefit for some defined period of time.  The grantor puts his or her assets into the trust and receives  an annuity which pays a fixed amount each year. Gift tax is paid when the GRAT is created and the tax is based upon the present value of the remainder of the trust, meaning that the value of the gift, for gift tax purposes is substantially less than the actual fair market value of the assets.  One of the real challenges in such planning is that if the grantor dies before the trust ends, the assets become part of the grantor's taxable estate,and the purpose for the trust, reducing estate taxes, is frustrated.. If the grantor survives the term of the trust, any assets left to the beneficiary — usually the grantor’s children — are tax free. GRATs have typically been short-term trusts to make it more likely that the grantor survives beyond the term of the trust.

The proposed budget will require a minimum trust term of ten (10)  years for all GRATS. This defined longer term makes it more likely that the grantor may die during the trust’s existence, and increases the chances that the trust does nothing to reduce the value of the taxable estate. If death of the grantor occurs within the ten year term, the trust is taxed as part of estate, effectively losing nearly half its value to federal estate taxes.  The proposed budget, therefore, limits greatly the attractiveness of  GRATS as an estate planning option.

Eliminating Intentionally Defective Grantor Trusts

The proposed budget also effectively eliminates intentionally defective grantor trusts (IDGT).  An IDGT  is used to freeze the value of appreciating assets for tax purposes. This strategy allows the grantor to be the owner of the assets for income tax purposes but it removes the value of the assets from the grantor’s taxable estate. As the value of the trust increases, the transferor receives the income earned by the assets (and pays tax on the income) but the assets grow outside of the transferor’s estate.

Under proposed budget:, there would be no separation in the tax codes for this trust. Estate or gift tax would have to be paid on the trust at the time of the owner’s death. This would make the IDGT obsolete.

Signalling a Change?

Perhaps the most significant change reflected in the proposed budget is that the federal government has, once again, returned to a  lack of appreciation for the benefits of certainty and stability in estate and business planning.  Among the reasons that many celebrated the recent changes to the estate tax code (recent being changes adopted at the last minute, less than six months ago), is that the inflation adjustment and portability provisions signaled, to some,  an appreciation for long-term stability and certainty.  It appeared to some that having resolved the estate tax exemption amount, and having adjusted it automatically for inflation over time,  the federal government was, in effect, acknowledging the need for stability and certainty, eschewing uncertainty, and detrimental periodic and last minute legislative changes.  

Of course, perhaps the proposed budget is really the "same as it ever was."  

This article is based in large part on an article by Phoebe Venable, entitled "Obama's Budget Plan would Hit Estate Plans Hard," published May 11, 2013, in the Tennessean, and available online here.   

Adult Children Could Be Responsible for Parents' Nursing Home Bills

The adult children of elderly parents in many states could be held liable for their parents' nursing home bills as a result of the new Medicaid long-term care provisions contained in a law enacted in February 2006. The children could even be subject to criminal penalties.

The Deficit Reduction Act of 2005 includes punitive new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. Essentially, the law attempts to save the Medicaid program money by shifting more of the cost of long-term care to families and nursing homes.

One of the major ways it does this is by changing the start of the penalty period for transferred assets from the date of transfer, to the date when the individual would qualify for Medicaid coverage of nursing home care if not for the transfer. In other words, the penalty period does not begin until the nursing home resident is out of funds, meaning there is no money to pay the nursing home for however long the penalty period lasts. (For the details, click here.)

With enactment of the law, advocates for the elderly predict that nursing homes will likely be flooded with residents who need care but have no way to pay for it. In states that have so-called "filial responsibility laws," the nursing homes may seek reimbursement from the residents' children. These rarely-enforced laws, which are on the books in 29 states (the figure was 30 but Connecticut's statute has since been repealed), hold adult children responsible for financial support of indigent parents and, in some cases, medical and nursing home costs.

For example ,Pennsylvania recently re-enacted its law making children liable for the financial support of their indigent parents. 

According to the National Center for Policy Analysis, 21 states allow a civil court action to obtain financial support or cost recovery, 12 states impose criminal penalties for filial nonsupport, and three states allow both civil and criminal actions.

Medicare Proposes Rules On Hospital Observation Care

Medicare officials have proposed changes in hospital admission rules in an effort to reduce  the rising number of beneficiaries who are placed in "observation care" but not admitted to the hospital.  When a patient is placed in observation care, but not formally admitted to the hospital, the patient is often rendered ineligible for nursing home coverage. Patients must spend three consecutive inpatient days in the hospital before Medicare will cover nursing home care ordered by a doctor.  

Observation patients don't qualify, even if they have been in the hospital for three days because they are outpatients and have not been admitted.  If the patient was in the hospital for three days, but under observation as an out-patient, and then is referred to a nursing home, the patient is solely responsible for the cost of care in the nursing home. 

Adding insult to injury, these patients also often realize higher out-of-pocket costs than admitted patients while in the hospital, including higher copayments and charges for non-covered medications. Observation is generally cheaper than inpatient care for insurers and hospitals, but the opposite can hold true formany  patients. Many patients have supplemental coverage that picks up the portion of her hospital bill Medicare does not pay, but observation patients without other coverage typically pay 20 percent of hospital outpatient services, which isn't required for inpatient care. 

One might think that patients would object to the practice, but sadly, patients are usually wholly unaware that they are being treated as out-patients, since they are, after all, in a hospital.  This lack of notice and knowledge renders the patient impotent to protect his or her own interests, and to control his or her costs. Hospitals are simply not required to tell patients they are under observation care.  Most do not.  

The Ohio Legacy Trust: A New Asset Protection Trust

Ohio has joined the growing list of states, which have enacted domestic asset protection trust legislation. The "Ohio Legacy Trust Act" (the “Act”), takes effect on March 27, 2013, and permits, for the first time, statutory protection for the creation of self-settled spendthrift trusts called “legacy trusts”. One of the purported reasons for the Act is to enhance the attractiveness of Ohio as a jurisdiction in which to remain after retirement, rather than encouraging residents to move to other states that better protect assets. There are eleven states that now have domestic asset protection trust statutes, i.e., Alaska, Delaware, South Dakota, Nevada, Missouri, Tennessee, Wyoming, Oklahoma, Rhode Island, Utah and New Hampshire, and other states, such as Florida, have greater homestead protection than the State of Ohio.

The case for the necessity of an asset protection trust in Ohio was capably made by The Estate Planning, Trust and Probate Law Section of the Ohio Bar Association:

We live in a litigious society and adequate insurance may not be reasonably obtained at an affordable price to protect an insured from most claims. Some claims will exceed the available limits, in other cases coverage may be denied or the insurance company might fail. 

As an example: an executive was working from his home one weekend and had a business delivery at his house. The UPS delivery person slipped on his son’s skateboard and broke his back. The company insurance did not cover the accident, because it occurred off business premises. Both the homeowner’s insurance and the executive’s umbrella insurance policy declined coverage because it was a business delivery. Instead, the executive was personally liable for the entire judgment amount. 

Under the Act, creditors are generally prohibited from bringing any action: (1) against any person who makes or receives a qualified disposition of trust assets from a legacy trust; (2) against any property held in a legacy trust, or; (3)  against any trustee of a legacy trust. “Qualified disposition” means a disposition by or from a transferor to any trustee of a trust that is, was, or becomes a legacy trust.