Contesting Guardianship or Challenging Guardians Is Problematic

Nina A. Kohn, Associate Dean for Research,  David M. Levy,  Professor of Law at the Syracuse University College of Law, and Catheryn Koss, Founder and former Executive Director of the Senior Law Resource Center, have written an excellent and revealing article describing the challenges for seniors and the disabled in obtaining counsel in modern guardianship cases. The article, "LAWYERS FOR LEGAL GHOSTS: THE LEGALITY AND ETHICS OF REPRESENTING PERSONS SUBJECT TO GUARDIANSHIP, is published in the Washington Law Review.

The article begins by describing the landmark guardianship battle fought in 2012 by Jenny Hatch, a 28-year-old woman with Down syndrome. Ms. Hatch was placed in a group home by her parents, who were appointed as her guardians. Ms Hatch grew despondent about the restrictive placement, the loss of her independent lifestyle, and that she was no longer permitted to work at a local thrift store. She retained an attorney to challenge both the existence of the guardianship and the appointment of her parents as guardians.

She prevailed. In a landmark decision, a Virginia court removed her parents as guardians, appointed Ms. Hatch's close friends in their place, and held that the guardianship itself would terminate after a year. A year later, she was legally reincarnated, restored from being a ward of the state to full legal personhood. The Hatch case was reported on this blog.

The authors next describe why the Hatch case was so extraordinary:

Jenny’s story captured national attention in large part because it is so unusual. Few persons subject to guardianship are able to change the terms and conditions of their guardianships, let alone regain legal capacity after a court has determined that they lack capacity to make decisions for themselves. Jenny [Ms. Hatch] was able to do both.  

A key factor in this success was that Jenny had access to legal representation. Unfortunately, many people in Jenny’s position do not. A major factor contributing to this lack of access is that attorneys are unsure whether they may legally and ethically represent a person subject guardianship.  Attorney reluctance to undertake such representation is understandable.  [emphasis added]. A person subject to guardianship has, by definition, been judicially determined to lack legal capacity and his or her decisions have been delegated to a third party... Through this process, the person has not only been declared by a court to be incapable of directing his or her own affairs but has typically been stripped of the capacity to enter into a legally binding contract. Both may appear to be insurmountable barriers [to effective legal representation]. Attorneys generally can only represent clients who have the capacity to enter into a contract to hire the attorney and the capacity to direct the attorney during the course of the representation. Moreover, in some jurisdictions, probate courts have taken the position that they can prevent a lawyer from representing a person subject to guardianship who wishes to challenge the guardianship.

The authors agree that, especially under these circumstances, guardianship can be a devastating result with significant consequence.  The abstract to the article explains:

Stripped of legal personhood, the individual becomes a ward of the state and his or her decisions are delegated to a guardian. If the guardian abuses that power or the guardianship has been wrongly imposed — as research suggests is not infrequently the case [emphasis added] — the person subject to guardianship may rightly wish to mount a legal challenge. However, effectively doing so requires the assistance of an attorney, and persons subject to guardianship typically have not only been declared by a court to be incapable of directing their own affairs but have been stripped of the capacity to contract. As a result, those who wish to challenge the terms and conditions of their guardianship, or even merely to exercise unrelated retained rights, can be stymied because attorneys are unwilling to accept representation for fear that it is unlawful or unethical.

The aging of the population means the number of persons potentially subject to guardianship is likely increasing. Although precise figures are unknown, estimates suggest that about 1.5 million adults are subject to guardianships in the United States. Many of these are older persons who suffer from Alzheimer’s disease or other forms of dementia. The number of persons subject to guardianship may grow as the number of persons with such conditions increases.  The number of older individuals over age sixty-five in the United States diagnosed with Alzheimer’s disease is projected to reach more than seven million by the year 2025, a forty percent increase over 2014 figures.

"Perhaps more importantly, there is a growing recognition that many guardianships have been wrongly imposed or are overbroad."  This recognition, encouraged in part by the United Nation’s adoption of the Convention on the Rights of Persons with Disabilities (CRPD), has, according to the authors, led to increased interest from the disability rights community in restoring the rights of persons subject to guardianship by challenging judicial determinations of incapacity.

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 

Considerations in Crafting Health Care Proxies or Durable Powers of Attorney for Health Care

The most important document in your estate plan is the document appointing a health care proxy.  In Ohio and in Missouri this document is called a Durable Powers of Attorney for Health Care.  A health care proxy is a legal document that appoints another person to make health care decisions for you if and when you are unable. This person is usually called a proxy, agent, or attorney-in-fact.

The reason your health care proxy is the most important document in your estate plan, is that it protects you during your life at a time when you are most vulnerable- when you are ill, incapacitated, and/ or incompetent.  It helps to ensure that timely health care decisions can be made in emergent situations, and  it also helps to ensure that you always receive the health care you prefer. In health care decision-making, timeliness, quality, and preferences, are all important objectives best attained by a proper health care proxy.

Typically, you do not have to be terminally ill for a health care proxy to go into effect.  Nonetheless, a health care proxy can, if you so choose, enforce your end-of-life decisions.  Your living will, or advanced declarations, make your wishes known to your health care professionals.  In the event that they decline or refuse to act on your behalf, your health care proxy can protect your decisions.

If you do not appoint a health care proxy and cannot make health care decisions, state law determines who can make decisions on your behalf. Most states have laws that let close family members and others (surrogates) act on your behalf if you haven’t appointed a health care agent, but you may not want these people to make decisions for you.  Moreover, there may be delay resulting from identifying and verifying the relationship of these surrogates.  Finally, there may be limitations on what decisions these surrogates can make on your behalf.  

When choosing a health care agent, it’s important to appoint someone:

• Who you trust;
• Who you are confident will implement your decisions rather than substituting their decisions for your own;
• Who knows you, and therefore well understands your medical preferences;
• Who will be assertive in making decisions;
• Who will honor your wishes;
• Who will be able to resist pressure from family, friends, and/or health care professionals and institutions to ignore or alter your decisions;
• Who will be capable of communicating effectively with health care professionals;
• Who can be reached in the event of an emergency.

Because you should always appoint multiple successive agents, it is not necessary that the person you choose be the person that lives nearer your hospital, but you might resist appointing a person in active military service who is often unavailable for long periods of time.  Additionally, because familiarity with the health care system and medical terminology and procedures might make for more efficient communication and decision-making, you might consider more favorably those with medical background or experience.

Regardless, once you have appointed an agent, you must follow through with the appointment by communicating your choices with your agent.  At a minimum, that should mean providing the agent a copy of your health care proxy, and living will.  You should inform them of the identity of your primary care physician. In addition, you should discuss with your health care agent:

• Personal attitudes towards health, illness, dying, and death;
• Religious beliefs;
• Feelings about doctors and other caregivers;
• Feelings about institutional care and alternatives to institutional care;  
• Feelings about palliative care versus life-sustaining treatments like technologically supplied food and and hydration;
• Treatment preference if you are permanently unconscious or unconscious for a long time and not expected to recover.

You might consider a system like LegalVault® to effectively communicate, store, and make available your health care decisions and information to your agents and health care professionals.

A health care proxy generally only confers upon your agent the authority to make medical decisions for you. Decisions about things such as health insurance may be considered a financial, and not a medical decision,  depending on state law. It’s generally best to consult with a lawyer to appoint a general power of attorney for financial and non-medical decisions.

You do not need an attorney to write a health care proxy. You can use a standardized form and tailor it to your needs, but you may want to consult legal counsel to ensure that it meets all of your state’s legal requirements. Many attorneys, like myself, will either provide a statutory form, or will prepare a health care proxy at no or minimal expense.  

New York Spousal Refusal to Contribute to Care Creates Implied Contract to Repay Benefits

In what appears to be a first of it's kind decision, a New York trial court has entered a judgment against a woman who refused to contribute to her spouse’s nursing home expenses, finding that because she had adequate resources to do so, an implied contract was created between her and the state entitling the state to repayment of Medicaid benefits it paid on the spouse’s behalf. Banks v. Gonzalez (N.Y. Sup. Ct., Pt. 5, No. 452318/15, Aug. 8, 2016).  The decision is being reported by ElerderLawAnswers.com.

According to the site, Evelyn Gonzalez’ spouse was admitted to a nursing home and received $28,235.56 in Medicaid benefits from the Department of Social Services of the City of New York.  At the time of her spouse's Medicaid application, Ms. Gonzalez’ assets exceeded the state's Community Spouse's Resource Allowance (CSRA).  However, she signed a "Spousal Refusal" declaration refusing to make her income or resources available to pay for her spouse’s care.  

Spousal Refusal is an aggressive strategy where the community spouse seeks to keep all of his or her assets by simply refusing to support the institutionalized spouse, and is generally not used except in where the states have adopted the federal law in this area, or where a federal court has upheld this right.  Under the law, if a spouse refuses to contribute his or her income or resources toward the cost of care of a Medicaid applicant, the Medicaid agency is required to determine the eligibility of the nursing home spouse based solely on the Medicaid applicant's income and resources, as if the community spouse did not exist.  In 2005, a federal appeals court upheld the right of the wife of a Connecticut nursing home resident to refuse to support her husband. The husband was able to qualify for Medicaid coverage, and assets that he had transferred to his wife were not counted in determining his eligibility.   Morenz v. Wilson-Coker (2nd Cir., No. 04-4107-CV, July 14, 2005).

After a letter to Ms. Gonzalez demanding repayment of the cost of Medicaid benefits paid on behalf of her spouse went unanswered, the Department of Social Services of the City of New York filed suit.  s. Gonzalez did not respond to the summons and complaint, nor to the agency’s motion for default judgment.

The Supreme Court of New York, New York County, granted the motion and entered a default judgment against Ms. Gonzalez for the cost of benefits provided to her spouse.  The court noted that in cases such as this where Ms. Gonzalez has the income and resources but refuses to contribute to her spouse’s care, state law creates an implied contract between her and the state allowing recovery of the cost of the benefits provided during the preceding 10 years.

SNF Fails to Report Resident's Death Because of "Bad Press."

A Massachusetts nursing home chose not to report the death of a resident because of “bad press” garnered by its parent company, according to an article published in McKnight's.

The death occurred at Braemoor Health Center in Brockton, MA, in April, according to the investigation report obtained by the Boston Globe. A resident had a heart attack and staff did not have proper training for resuscitation, the report found.

The facility did not report the death to the state because the resident “had no family,” nursing staff allegedly told state investigators. The administrator said they also chose not to report the incident due to “bad press” surrounding the home's parent company, Synergy Health Centers.

Synergy, which operates 11 nursing homes in Massachusetts, was fined $100,000 in March following a resident's death at another facility.   The 70-page report also delves into another Braemoor resident's death in March of this year, along with issues with staff training, defective medical equipment, missing elopement alarms, caring for residents with substance abuse problems and handling of thefts and sexual assault incidents.

The facility was fined $200,000 and was banned from accepting new admissions in July due to the violations cited in the report. State investigators based the report on surprise inspections carried out in late July.

In a statement released to the Globe, Synergy said it has created plans to correct the issues detailed in the report, including an overhaul of staff training procedures:

“We submitted an extensive plan of correction... which addresses all of the issues raised in their report. We have already begun to implement a number of the actions outlined in the report and the entire team is focused on assuring that our residents receive high-quality, compassionate care."

Ageism, Prevalent and On the Rise, Impacts Estate Planning

When counseling clients regarding estate planning designed to protect assets and decision-making, among the most insidious risks are those arising from discrimination. Many clients are unaccustomed to considering ageism, and many are unaccustomed to considering themselves vulnerable to discrimination.  Educating clients regarding how ageism impacts them, for example, in legal determinations of incapacity and incompetence, is imperative to effective comprehensive planning.  

Unfortunately, the challenge of ageism is  not getting easier. In fact, at least according to an article in the Washington Post, the fight against ageism is a losing battle: 

"At a time when conditions have vastly improved for women, gay people, disabled people and minorities in the workplace, prejudice against older workers remains among the most acceptable and pervasive “isms.” And it’s not clear that the next generations — ascendant Gen Xers and millennials — will be treated any better."

Ageism, which is not a new phenomenon, is explored from several perspectives in the Washington Post article.  The bias is so common we frequently don’t recognize it. Todd Nelson, a psychology professor at California State University at Stanislaus, singled out birthday cards as one bellwether of the pervasiveness of prejudice for portraying advancing age as something to be ashamed of, with a tone that would never be used with race or religion.  

Internet memes like the “Scumbag Baby Boomer” and “Old Economy Steve,” which lambast boomers for transgressions from failing to adopt technology to causing the wars and recessions that millennials have weathered, channel resentment against an entire category of people in ways that might not be tolerated if they were members of another protected class.

But the article warns that "[t]his cultural backdrop has horrifyingly real consequences for many on the wrong side of 40. Formal age discrimination cases...spiked during the most recent recession and haven’t fully subsided. Long-term unemployment, defined as being jobless for 27 weeks or longer , is markedly worse for workers over age 55 than for the general population.  In contrast to the respect often accorded to the generation that fought World War II, their progeny are facing relative hostility in their senescence."

The article describes recent evidence:

"In a 2015 survey by the Harris Poll, for example, 65 percent of boomers rated themselves as being the “best problem-solvers/troubleshooters,” and only 5 percent of millennials agreed. Fifty-four percent of millennials thought boomers were the “biggest roadblocks.” Sometimes these perceptions come straight from the top: Facebook founder Mark Zuckerberg once said “young people are just smarter.”

Those attitudes apply not just to perceptions of “old” people, but also to expectations: A 2013 experiment found that young people looked more favorably upon older adults who “act their age” by listening to Frank Sinatra over the Black Eyed Peas, or by being more generous with their money. One of the researchers, Michael North, an assistant professor at New York University’s Stern School of Business, says younger people tend to resent it when older workers don’t “get out of the way” and retire.

The article describes that the bias is so pervasive that, unlike with those facing similar forms of discrimination, it is the affected population that is often expected to resolve or mitigate the the effects of discrimination, by, for example, modifying their behavior, wardrobe, or methods or means  of communication.  The article surveys the laws that protect seniors, and those that protect against age discrimination, but concludes that these have been ineffective, in part because markets and institutions depend upon, and perpetuate bias, and in part because the bias is so pervasive that identifying and eradicating it in specific situations is almost impossible.  

CMS Releases Ratings for Hospitals

The Centers for Medicare and Medicaid Services (CMS) recently published the much-anticipated Overall Hospital Quality Star Ratings, which will help consumers make decisions regarding competing health care institutions.  

The ratings, explained here, are a composite metric of one to five stars, with five being the best. They intend to convey the overall quality of nearly 4,000 hospitals in the U.S. In grading hospitals on their overall quality, the CMS used 64 measures, such hospital-acquired infection rates or emergency room wait times, that had already been posted to the Hospital Compare site. It grouped those measures into broader categories, then weighted them. Hospitals had to meet minimum reporting requirements in order to be eligible to receive a star rating.

"These easy-to-understand star ratings are available online and empower people to compare and choose across various types of facilities from nursing homes to home health agencies," Dr. Kate Goodrich, director of the Center for Clinical Standards and Quality at CMS, wrote in a blog post announcing the star ratings' release.

Hospitals and other industry groups have criticized the rating system as oversimplifying a complex matter—the quality of a multi-faceted institution—and the underlying methodology as flawed. They warned it would provide inaccurate information to consumers and damage hospitals' reputations.  As a result, CMS delayed for a time release of the rating system. 

The American Hospital Association said in a press release that it was "disappointed" the CMS decided to release the ratings. "As written, they fall short of meeting principles that the AHA has embraced for quality report cards and rating systems," its president, Richard Pollack, said in a statement Wednesday. "We are especially troubled that the current ratings scheme unfairly penalizes teaching hospitals and those serving higher numbers of the poor."

On average, safety net hospitals hospitals earned slightly lower ratings, with a mean of 2.88 stars, than did non-safety net hospitals, which garnered an average rating of 3.09 stars, according to distribution data released Thursday by CMS.

Just 102 institutions out of 4,599 hospitals, or 2.2%, earned five stars. Of the rest of the hospitals, 20.3% garnered four stars, 38.5% received three, 15.7% earned two stars and 2.9% received a single star. A significant proportion—20.4% of hospitals—were deemed ineligible for ratings, because they lacked data to report measure results.

"This does not necessarily mean that a hospital did not report any data, or that a hospital provides poor quality care," Aaron Albright, CMS's director of media relations, said in an email. "The facility could be new or small, or have an insufficient number of cases reported."

CMS currently uses star rating systems as quality indicators for nursing homes, Medicare plans and dialysis facilities. Some of those, too, were not without controversy. When CMS published the metric for nursing homes in 2009, industry groups pushed back. Later, an investigation of the system by the New York Times found that many of the metrics that went into nursing home ratings were incomplete and sometimes misleading.

Resident's Death Caused By Nursing Home Failing to Follow Advanced Directives Requesting CPR

According to McKnight's, an Illinois nursing home has been cited and fined $25,000 after nursing staff failed to follow an advance directive regarding cardiopulmonary resuscitation, resulting in the death of a resident.

The incident occurred in March when an unnamed female resident at Belleville, IL-based Willowcreek Rehab & Nursing was found unresponsive. The facility's staff attempted to revive her, until they were stopped by another staff member who said the resident's medical records included a “do not resuscitate” order. Efforts to save the patient were ceased, and she died.

After an investigation by the Illinois Department of Public Health, officials reported the staffer had misread the resident's chart. With “full code” listed under the woman's DNR preferences, she should have been resuscitated.

In addition to medical charts, the 122-bed skilled care facility posts different colored dots outside the door of each room in the facility to inform staff members of each resident's resuscitation wishes. Green dots are hung to indicate CPR can be used, while red dots signify a DNR order. The staffer, who has since been fired from the facility, told the IDPH she was unaware the system was in place.

Interviews with additional members of the staff revealed that several others had not been given any formal training on the facility's dot system. Since the incident, all current staff members have received training regarding code status policy and advance directives, according to the IDPH.

National Guardian Life First Insurer to Enter U.S. Market In a Decade

The National Guardian Life Insurance Co. is starting to market EssentialLTC, a new stand-alone long-term care insurance policy.

The Madison, Wisconsin-based life insurer is the first insurer to enter the U.S. market for stand-alone long-term care insurance products in more than 10 years. The policy will pay for facility-based long-term care services, such as nursing home care, and comprehensive home and community-based long-term care services.

National Guardian Life, a policyholder-owned mutual insurer, is best known as a seller of insurance policies that help the purchasers cover funeral costs and related costs.

The LifeCare Assurance Co. of Woodland Hills, California, is acting as the administrator for the program.

Long-term care insurance issuers have been struggling with more than decade of low interest earnings on invested assets, poor underwriting results and, in some cases, applications for premium increases of 50 percent or more.

Jim Glickman, an actuary who serves as president of LifeCare, has been active in making the case that the problems with old blocks of long-term care insurance policies are mainly because of the original issuers' lack of understanding of how insureds would behave, and lack of understanding of how long interest rates could stay at very low levels. He has argued that new issuers that enter the market with access to solid long-term care insurance experience data should get much better results.

National Guardian Life says it will use a full medical underwriting process. The process will include a medical exam for applicants ages 66 and older and for some younger applicants.

The company will start by offering a policy with a two-year or three-year benefits period base. Purchasers of the three-year policy can pay to extend the benefit period. A lifetime benefits option is available.

Other options include 3 percent and 5 percent compound inflation protection.

Buyers can make all premium payments for lifetime coverage at once, through a single-pay option; make premium payments for the full period that the coverage is in effect; or pay for lifetime coverage by making annual payments for 10 consecutive years, through a 10-pay payment option.

National Guardian Life is starting by getting the product licensed in the states that participate in the Interstate Compact, a state regulatory group that simplifies the product filing process. The product is now available in Alaska, Alabama, Arkansas, Colorado, Iowa, Idaho, Illinois, Kansas, Louisiana, Maryland, Michigan, Minnesota, Missouri, Mississippi, North Carolina, Nebraska, New Mexico, Nevada, Oklahoma, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Washington state, West Virginia and Wyoming.

Source: LifeHealthPRO, "Long-term care insurance market gets first new issuer in 10 years"

Trust Naming Medicaid Applicant as Co-Trustee Is Available Asset

If planning for long-term care involves Medicaid eligibility planning, the applicant must turn over ownership and control of assets.  Otherwise, the assets will be countable, and the applicant will be ineligible for Medicaid. A most recent example comes from the State of Washington.  A  Washington appeals court recently ruled that a testamentary trust that named a Medicaid applicant as the beneficiary is an available asset because the applicant retained some control over the trust and because the funds in the trust came from either herself or her husband. Matter of Estate of Berto v. State (Wa. Ct. App., Div. 3, No. 33591-7-111, July 19, 2016).

Margaret Berto's husband died, leaving a testamentary trust that named her as co-trustee and the only beneficiary. The trust permitted distributions only at the discretion of the trustees, but provided that Ms. Berto could not be the sole trustee and could not solely determine distributions. Ms. Berto sold her home and deposited some of the proceeds in the trust.

Ms. Berto thereafter applied for Medicaid, and the state counted the trust as an available asset and denied Ms. Berto benefits. Ms. Berto appealed, arguing that the trust was not an available asset because she had limited control over the trust and there were restrictions on distributions.

The Washington Court of Appeals affirmed the state's decision, holding that the trust is an available asset. The court ruled that the trust does not fall under any of the exemptions for trusts in the state Medicaid regulations because "Ms. Berto had some control over the trust and all of the funds came from either her husband or herself."

There is a Shortage of Health Care Professionals Capable of Serving the Elderly Population

There is a troubling shortage of health care professionals specializing in treating and caring for the elderly, according to an article published in Kaiser Health News. This shortage includes geriatricians, physicians who specialize in the treatment of adults age 65 and older, as well as nurses, physical therapists and psychologists who know how to care for this population.

The American Geriatrics Society estimates that the nation will need approximately 30,000 geriatricians by 2030 to serve the 30 percent of older Americans with the most complicated medical problems, according to an article in Health News from NPR. There are, however, only about 7,000 geriatricians currently practicing. To meet the projected need, the society estimates medical schools would have to train at least 1,500 geriatricians annually between now and 2030, or five times as many as last year.

Dr. Todd Goldberg, a geriatrician, recently told Kara Lofton, of West Virginia Public Broadcasting:

“With the growing elderly population across America and West Virginia, obviously we need healthcare providers...The current workforce is inadequately trained and inadequately prepared to deal with what’s been called the silver tsunami — a tidal wave of elderly people — increasing in the population in West Virginia, across America and across the world really.” 

The deficit of properly trained physicians is only expected to get worse. By 2030, one in five Americans will be eligible for Medicare, the government health insurance for those 65 and older.

Dr. Goldberg teaches at the Charleston division of West Virginia University and runs one of the state’s four geriatric fellowship programs for medical residents. Geriatric fellowships are required for any physician wanting to enter the field.

For the past three years, no physicians have entered the fellowship program at WVU-Charleston. In fact, no students have enrolled in any of the four geriatric fellowship programs in West Virginia in the past three years.

“This is not just our local program, or in West Virginia,” said Goldberg. “This is a national problem.”

The United States has 130 geriatric fellowship programs, with 383 positions. In 2016, only 192 of them were filled. 

Fraudulent Transfer Claim Against Nursing Home Resident's Sons Survives

Nursing homes and state departments of Medicaid will become more proficient in developing and implementing techniques to pursue assets in resource recovery over time.  Accordingly, planning techniques must be more, not less, sophisticated.  An excellent exampleof just how devastating simple, self-help, plans lacking in sophistication can be, is the planning of the Nyce brothers.  A U.S. district court recently ruled that a nursing home can assert its case for fraudulent transfer against the brothers, who transferred their mother's funds to themselves, because the claim survived the resident's death. Kindred Nursing Centers East, LLC v. Estate of Barbara Nyce (U.S. Dist. Ct., D. Vt., No. 5:16-cv-73, June 21, 2016).

Roger and Kinsley Nyce were agents under their mother's power of attorney. Their mother, Barbara Nyce, entered a nursing home and signed an admission agreement in which she agreed to pay the nursing home or apply for Medicaid. Ms. Nyce filed for Medicaid, but the application was denied because the Nyce brothers withdrew money from Ms. Nyce's bank accounts to pay themselves. Ms. Nyce also transferred her real estate to her sons. Ms. Nyce died owing the nursing home $137,586.92.

After Ms. Nyce died, the nursing home sued her estate as well as the Nyce brothers individually for fraudulent transfer. The estate cross-claimed against the Nyces, alleging breach of fiduciary duty and conversion. The case was removed to federal court, and the Nyces moved to dismiss the claims. The Nyces argued that the estate couldn't sue for fraudulent transfer after Ms. Nyce died and that the estate's cross claim fits into the probate exception to federal jurisdiction.

The United States District Court, District of Vermont, denied the motion to dismiss. The court held that the fraudulent transfer claim survived Ms. Nyce's death because state law does not require that there be a pending claim in order for an action to survive. The court further holds that the probate exception cannot be used to dismiss widely recognized torts, such as breach of fiduciary duty.

The brothers plan for protecting their mom's assets didn't turn out to be so Nyce. 

Americans Plan Poorly- 72% Do Not Have An Updated Last Will and Testament

A Google Consumer survey by USLegalWills.com suggests that previous surveys may have under-reported the number of Americans without a Will, by not including those who have a Will that is out-of-date. The survey reported that 63% of Americans do not have a Will, showing no real change from 2014. A statistic that was not published before now reveals that am additional 9% of Americans have a Will that is out-of-date. This means that 72% of Americans do not have an up-to-date Last Will and Testament.  The survey revealed that many people have Wills crafted before they were married or had children, meaning, essentially, they have worthless Wills.  

The survey showed a positive relationship between age and the probability of having a Will:

• 18-24: 85% do not have a Will, 10% have an out-of-date Will, and 5% have an up-to-date Will;
• 23-35: 80% do not have a Will, 6% have an out-of-date Will, and 14% have an up-to-date Will;
• 35-44: 67% do not have a Will, 8% have an out-of-date Will, and 25% have an up-to-date Will;
• 45-54: 53% do not have a Will, 11% have an out-of-date Will, and 36% have an up-to-date Will;
• 55-64: 52% do not have a Will, 8% have an out-of-date Will, and 40% have an up-to-date Will;
• 65+: 35% do not have a Will, 15% have an out-of-date Will, and 50% have an up-to-date Will.

When discounting younger adults, only 37% have a Will that reflects their current financial and personal situation.

Shockingly, there is an inverse relationship between income and a person's likelihood to have an updated Will.  Persons with larger incomes are more likely to have a Will that is no longer useful.  The income group least likely to have up-to-date Wills was in the $100,000+ annual income range.  The income group most likely to have up-to-date Wills was in the annual income range of $25,000-$99,999.

There were no significant differences when comparing across gender, region, or urban density.

Graphs of the survey data can be found here.

Source: ABCNewswire, "US SURVEY REVEALS THAT 72% OF AMERICANS DO NOT HAVE AN UP-TO-DATE WILL," last retrieved July 17, 2016.

"Comfort Clauses" Hobble an Irrevocable Trust for Medicaid Planning

When I counsel clients regarding irrevocable trusts, clients often discuss the possibility of provisions giving them more control over the trust. Many have attended seminars where they are told that a "safety valve" can permit the irrevocable trust to be no more cumbersome or limiting than a revocable trust. There is no "safety" valve. These provisions are usually for the purpose of comforting the owner that they are not really turning ownership and control of assets over to another. These "comfort clauses" can make the owner more comfortable, but they can also threaten the integrity of the plan.

There is little question that provisions permitting trust protectors, and changes to the trust resulting from changing circumstances should be considered, but an irrevocable trust should be somewhat uncomfortable.   An irrevocable trust can protect assets only if there is a marked change in the owner's relationship with the assets; the owner must no longer have ownership or control of the assets, or the trust will not work for its intended purpose.  If a client is not, at least initially, uncomfortable with an irrevocable trust used for asset protection, the client probably does not understand the trust.

A recent New Hampshire case demonstrates the risk of diluting an irrevocable trust with "comfort clauses." New Hampshire's highest court recently ruled that a Medicaid applicant's irrevocable trust is an available asset even though the applicant was not a beneficiary of the trust because the applicant retained a degree of discretionary authority over the trust assets. Petition of Estate of Thea Braiterman (N.H., No. 2015-0395, July 12, 2016).

Thea Braiterman created an irrevocable trust in 1994, naming herself and her son as trustees and her children as beneficiaries. In 2008, Ms. Braiterman resigned as trustee, but the trust authorized her to appoint additional and successor trustees, including the power to appoint herself. The trust also gave Ms. Braiterman the ability to appoint any part of the income of the trust to any of the trust beneficiaries. The trust also did not limit her ability to impose conditions on the appointment of principal to the beneficiaries.

Ms. Braiterman entered a nursing home and applied for Medicaid. The state determined that the trust, which was valued at $156,000, was an available asset and denied her benefits. After a hearing, Ms. Braiterman appealed the state's decision to court.

The New Hampshire Supreme Court affirms the denial of benefits, holding that the trust is an available asset due to the degree of her discretionary authority over the trust. According to the court, an irrevocable trust is a countable asset even when the applicant is not a beneficiary if there are any circumstances in which payment can be made to the applicant. The court rules that there was nothing in the trust "to preclude [Ms. Braiterman] from requiring her children, as a condition of their receipt of the Trust principal, to use those funds for her benefit."

The question is whether comfort clauses are worth the cost and expense of the trust failing to accomplish its intended purpose. 

The Ohio Family Trust Company Act Offers an Important Wealth Planning Tool

On June 14, 2016 Governor Kasich signed House Bill 229, which allows an Ohio family to establish its own trust company to serve as trustee for its family trusts.  The Act gives wealthy and ultra-wealthy families another way to preserve and grow their fortune for many generations.

Ohio now joins more than 15 states authorizing family trust companies (FTCs), which have become increasingly popular wealth planning tools. Before passage of the Act, an Ohio family selecting a trustee had to use either a commercial trustee, or one or more individuals.  This meant that an Ohio family that wanted to use an FTC was required to form and operate the FTC in another state.

The goal of most, if not all, families that have acquired substantial wealth is to preserve and grow their assets and transfer them to succeeding generations in a deliberate way that will avoid the proverb, “shirtsleeves to shirtsleeves in three generations.” [Note: This proverb is surprisingly common.  The Scottish version is "The father buys, the son builds, the grandchild sells, and his son begs."  The Japanese is, Rice paddies to rice paddies in three generations."  The Chinese state it plainly as, "Wealth never survives three generations."] Success is only possible if a family cultivates, across generations, positive and productive attitudes about money, responsibility, investing, planning, and risk and develops a resulting understanding of both the benefits and burdens of wealth. These values, skills, attitudes and insights sets families successful in managing wealth over generations apart from those that watch wealth dissipate over the generations.  

An FTC provides as framework for developing these values and educating generations of family members.  Of course, the wealthy and ultra-wealthy use trusts to hold their assets, to accomplish estate and tax law planning and to ultimately distribute those assets to family members and charity.  But trusts present challenges to the very wealthy.  Assets owned by a trust are often  illiquid (such as private  equity- interests in privately-owned businesses, or they are difficult to value (such as certain real estate, mineral, oil, and gas interests, life insurance, farms and ranches, loans and notes, collectibles, and intellectual property).  These assets comprise a substantial portion of the wealth of wealthy and ultra-wealthy families.  According to analysis of estate tax returns, real estate and other “unique assets” constitute roughly half of the affluent’s investment portfolios.

These assets are typically owned by the trustee of the trust, whether it is an individual trustee or a bank or trust company. These types of assets are appropriate, albeit aggressive, investments for the family. If a bank or trust company serves as trustee, the family is often in the position of having to justify keeping these investments because of their speculative nature. If an individual or series of individuals serve as trustee, they may have difficulty administering a trust involving a business or other hard-to-value assets. You can choose anFTC as trustee instead of an individual, bank or trust company.  

 An FTC allows families to establish long-term multi-generational trustee arrangements without using a bank, investment or trust company. This means greater privacy and control for the family. Often, families want to use individual trustees instead of a bank or trust company, but because of internal family dynamics and conflict, they are hesitant to name relatives. Appointing relatives, friends or business associates necessarily means divulging private information about your finances and family to others which can be uncomfortable for both you and your friends. An FTC can help alleviate the feeling that “there is no one to turn to” when selecting trustees of your various trusts.  

Typically FTC's are governed by a board of directors. One of the primary board functions is to create a discretionary distribution committee to make all distribution decisions from all trusts. Another important board function is to name an investment committee to make all investment decisions. Both the board and the committees can be populated with a combination of individual family members and independent individuals familiar with your family such as investment advisors, attorneys or  accountants.

Because the FTC is governed by a board, it brings formality and discipline to the family governance process. The Board can manage various trusts, oversee privately-held businesses, and insure and manage collectibles, mineral interests, and intellectual property rights and interests.  Formality means that meetings must be held and minutes taken.  Board members must be accountable and act in accordance with the family values, and decisions must be made regarding investments of assets in each trust and distributions of assets from those trusts. One board makes these decisions instead of a varied group of individual trustees of your family’s separate trusts.

An FTC is defined  as a corporation or limited liability company that (1) is organized in Ohio to serve only family clients, (2) is wholly owned by family clients and is exclusively controlled by one or more family members or family entities, (3) acts as a fiduciary, and (4) does not transact business with, propose to act as fiduciary for, or solicit trust business from, a person that is not a family client.  Ohio’s legislation allows for unlicensed and licensed FTCs.  

An unlicensed FTC  may provide services only to “family members,” and since the FTC will not be audited by the Department of Financial Institutions, it must abide by certain restrictive SEC rules in order to provide investment advice without registering with the SEC as a registered investment advisor. While an unlicensed FTC is not subject to banking regulations, it is required to submit an annual affidavit to the Department of Financial Institutions confirming its compliance with the statutory limitations.

One of the limiting features of an Ohio FTC is the definition of “family member.” This definition ensures that an FTC is not serving the general public (and, in fact, solicitation of trust business is explicitly prohibited by the bill). Family members are defined as a class, all of whom have a common ancestor who is not more than 10 generations removed. This so-called designated relative must be identified at the inception of the FTC and cannot be changed. Family members also include spouses, spousal equivalents, adopted children, stepchildren and foster children. The definition also includes the following related persons/entities: family charities, family estates, irrevocable trusts with family beneficiaries, key employees, trusts formed by key employees, and business entities wholly owned and operated by family members. These rules are intended to track the SEC’s definition of a “family office.”

A licensed FTC is subject to the following requirements: (1) it must have a minimum capital balance of at least $200,000, and up to $500,000, at the discretion of Ohio’s superintendent of financial institutions; (2) it may provide services to “family members,” certain non-family members and certain affiliated entities; (3) it must maintain office space and at least one part-time employee in Ohio; (4) it must hold at least two governing board meetings per year in Ohio; (5) it must perform certain administrative activities in Ohio; and (6) it must maintain a fidelity bond and directors/officers insurance, each in the amount of $1 million. A licensed FTC is also subject to supervision by Ohio’s Department of Financial Institutions and will be audited every 18 months.

For more about the Act, go here. 

Ohio Attorney General Issues Warning About Grandparent Scam

Ohio Attorney General Mike DeWine recently issued a press release warning of phone scams targeting Ohio grandparents following an increase in complaints:

"In the past month, 11 Ohioans have reported losing an average of $3,800 to the “grandparent scam.” Most said they paid over the phone using iTunes gift cards after receiving a call saying their grandchild was in trouble.

One man received a call from someone who claimed to be his granddaughter. The granddaughter supposedly was in jail and needed $2,000 in iTunes cards to be released. After the man paid, he realized it was a scam.

“Many grandparents will drop everything to help their grandchildren,” Attorney General DeWine said. “That’s why this scam works. It’s terrible not only because of the money loss but because of the fear it instills in people. Our goal is to protect Ohio’s families and help them recognize the warning signs of a scam before it's too late.”

Since the start of 2016, the Ohio Attorney General's Consumer Protection Section has received about two dozen consumer complaints involving grandparent scams.  The scam often begins with a phone call telling grandparents that one of their grandchildren has been in a car accident, caught with drugs, or put in jail.

The caller pretends to be the grandchild, an attorney, or a law enforcement officer and tells the grandparent to send money to have the charges dismissed, to cover court costs, or to allow the grandchild to return home.

The grandparent is told to go to the store right away, to buy several gift cards, and to read the card numbers over the phone. Using this information, the scammer drains the cards’ funds almost instantly.

As part of the scheme, grandparents often are instructed not to talk to other people (such as the grandchild’s parents) about the problem. Callers may even threaten to shoot or harm the grandchild if the grandparent refuses to pay. 

If grandparents pay once, they likely will receive additional calls seeking more money, supposedly for attorney’s fees or other unexpected costs. Eventually, grandparents discover that their grandchild was not truly in trouble. 

Attorney General DeWine encouraged consumers to take the following steps to protect against grandparent scams: 

• Communicate with your family members. Talk to your family about scams and discuss how you would communicate during a true emergency. If you receive a call from a grandchild or another family member who claims to be in trouble, contact someone else (such as the grandchild’s parents) to determine if the person truly needs your help, even if you’ve been instructed not to contact anyone else. When in doubt, ask questions only your real family members would know how to answer, such as the last time you saw each other.
• Limit the amount of information you share online. Don’t post upcoming travel plans or detailed personal information online, and encourage your family members to take similar precautions. Check your account privacy settings and limit who can view your information. Be aware that scammers may use information posted on social media or publicly available online to learn more about their targets and to make their ploys seem believable.
• Be wary of unusual payment requests. If a caller demands that you pay over the phone using a gift card or a prepaid reloadable card, it’s likely a scam. Also be wary of requests for payment via wire transfer. These are preferred payment methods for scammers because it is difficult to trace or recover the payment once it is provided.

The Ohio Attorney General’s Office warns consumers about scams and offers a variety of educational materials, including a phone scams checklist."

The scam first appeared in 2008, prompting warnings from the Better Business Bureau (BBB).  The the scams quickly grew in sophistication and number, prompting the FBI to issue a warning about the scams. The AARP warned consumers about the "Grandparent Scam" in 2012.  In at least one tragic case, the scam turned deadly resulting in the loss of a life. 

To learn more or to report scams to the Ohio Attorney General’s Office, visit www.OhioProtects.org or call 800-282-0515.

If you are a member of a group or organization and want a simple flyer warning of and describing the scam, while providing useful tips regarding protective measures, go here.

Additional Resources:

If you have received a phone call from someone claiming to be your grandchild, or you have fallen victim to this scam you may wish to contact your local law enforcement agency or the following agencies:

Federal Trade Commission

Consumer Response Center

600 Pennsylvania Avenue NW

Washington, D.C. 20580 

(877) 382-4357

www.consumer.ftc.gov

Federal Bureau of Investigation

www.fbi.gov