Most Procrastinating on Planning; Those That Plan Don't Protect Their Plans

A BMO Wealth Management survey finds 52% of adults have no will, 40% of parents have not discussed estate intentions with children, and only 28% of adults know their parents' legacy wishes. 

For those who have an estate plan in place, the survey indicates that most are not making an effort to notify heirs regarding the location of important estate planning documents.  Only one in three respondents said that their heirs were aware of the locations of estate planning documents such as a will or powers of attorney.  For married adults who had a will and powers of attorney, 25% responded that only their spouse knew where the documents were located. 

BMO sponsored the survey of 1,008 Americans age 18 and older in December.  For a more complete discussion of the survey results, go here.

BMO found that most respondents planned to leave each of their heirs equal portions of their assets, and that spouses and children were most often indicated as heirs. Yet some planned to distribute their estate unequally (between 5 percent and 15 percent, depending on marital status) or not leave an inheritance at all (between 7 percent and 20 percent).  As a result of the survey, BMO warned that such plans could cause division within families if not properly communicated to heirs ahead of a client’s death. 

Only 28 percent of the respondents said that they had estate planning discussions with their parents. Perhaps as a result, 40 percent of those surveyed felt that the distribution of their parents’ estates was unfair.

Of course, these survey results only underscore the many studies confirming what we know: most people do not plan, and those who do plan make too little effort to protect their plans.   This blog contains numerous similar reports, including the recent  New York Times report illustrating the major problems with advance directives, including that the existence of these legal documents is often not known about by medical professionals or loved ones (and even if it is, the physical location of these might not be known). 

Our clients have a convenient system that protects their wishes by vaulting them, and making them available to medical professionals and family members when necessary. LegalVault® is a great tool which allows you to securely store your advance directives and estate planning documents. Here’s how it works:

• The client executes an up-to-date General Power of Attorney for Health Care, and Advanced Directive/Living Will;

• Each document is electronically scanned, and an electronic image of each document is made (which is far superior to a copy);
• Each  client is given a secured LegalVault® account;
• Our firm uploads the image of the  documents to the client's LegalVault® account;
• LegalVault® sends out an Emergency Access Wallet Card which contains instructions for healthcare providers on accessing healthcare-related documents online or via a 24/7 fax back service;
• Once an account has been created, the LegalVault® physician notification system sends a notice to the primary care provider informing him or her of this invaluable service and the storage of advance directives, ensuring that these important planning documents never fall to the back of a medical chart where they go unnoticed for weeks; 
• Clients control what information is available to health care providers, and can quickly update the account with up-to-date documents or information (such as medications or allergies) from their home computer or smart phone;
• With the client's permission, images of other estate planning documents (Wills, Trusts, Powers of Attorney, etc.) are uploaded to the client's LegalVault® account; 
• Clients can log in to their accounts to share other non-healthcare-related documents with our firm, or even upload copies of family keepsakes (photos, home videos, letters to children, family trees, intellectual property, copyrighted materials, publications, art) to ensure these are safely secured and passed down to younger generations;
• Clients can keep or maintain important legal and financial records such as insurance policies, annuities, savings bonds, stock certificates, leases, contracts, and other instruments, potentially lost, stolen, discarded, or destroyed by third parties at a time of death or disability;
• Clients can alert authorities of significant needs or concerns, such as "disabled child at home," "pets at home," or the like;
• A separate vault, inaccessible to our firm, accessible only to the client, and an executor, successor trustee, or personal representative, can store passwords to online accounts;
• Upon renewal of the LegalVault® account (every 3,5, or 7 years) updated documents are executed, ensuring that the documents are never out-of-date.

There is no limit to the storage space available for estate planning documents, pictures, letters, financial documents, and the like.  The cost of such a service is probably less than you might imagine. Contact us if you want to add this valuable service to your estate and/or financial plan. We include the service with many new estate plans at no additional charge for the first three years.

Aging in Place: CMS Reports Success in Reducing Medicare Cost for Long-term Care Residents by Reducing Hospitalizations

Infringing on the autonomy of Medicare patients to seek quality care is paying off in massive dollar savings for the federal government.   This blog previously reported on the controversial sign-off rule that prevents Medicare patients discharged from hospitals to nursing facilities from returning easily to the hospital for necessary care.  Before the rule, if you were discharged to a nursing home, but later felt that hospital care was necessary, you could simply ask to be transported back to the hospital.  Your wife, your health care proxy, or the nursing home could transport you back to the hospital.

After implementation of the rule, not even the nursing home, if it believes the hospital  is better able to care for you, can return you to the hospital, unless there is a life-threatening condition, or a doctor first examines you and "signs off" on the the transfer.   The nursing home industry objected to this hard-to-justify restriction on its authority and discretion. 

Since 1984, the federal policy of reducing the hospital stays of Medicare patients, which some have characterized as "quicker and sicker," has increasingly transitioned elderly health care from hospitals to highly regulated skilled nursing facilities in order to reduce the cost of Medicare.  There is increasing evidence that there are significant resulting adverse outcome outcomes.  Now, the federal government implies that these same facilities cannot be trusted to make decisions regarding choice of care. Physicians are relegated to gatekeepers for more expensive care, even where necessary. 
   

In the first assessment since the controversial rule was implemented, the Centers for Medicare & Medicaid Services (CMS) reported that the rate of potentially avoidable hospitalizations among dual-eligible long-term care residents fell by nearly a third in recent years.  In a data brief posted on the CMS blog, officials documented the “real progress” made in reducing cases of potentially preventable hospitalizations among long-term care residents over the last decade. Overall, the hospitalization rate for beneficiaries eligible for both Medicare and Medicaid — including those outside of long-term care facilities — fell 13% between 2010 and 2015.

In that same five-year timespan, the rates of hospitalizations among dual-eligible long-term care residents caused by potentially avoidable conditions, such as dehydration, urinary tract infections and skin ulcers, dropped 31%. That decrease was widespread, with improvement documented in all 50 states. In total, the decrease meant dually-eligible residents avoided 133,000 hospitalizations between 2010 and 2015.  The brief does not, however, report that the overall incidence of avoidable conditions decreased — only that hospitalizations for the conditions decreased.    In fact, the only reported reduction in incidence (i.e., improvement in actual health outcomes), appears to have come from the Agency for Healthcare Research and Quality (AHRQ) Safety Program for Long-Term Care, which "significantly reduced catheter-associated urinary tract infections in hundreds of participating long-term care facilities nationwide."  This 2001 project helped prevent a recognized cause of hospitalizations in residents of these facilities.  One can assume that the absence of reported reductions in other potentially avoidable conditions means that there was no significant reduction attained.

CMS is applauding its ability to reduce expensive hospitalizations, but is tacitly acknowledging that these weren't achieved by better quality care, but rather from impediments and disincentives to more expensive, higher quality care. There is nothing in the recent report that suggests overall  improvements in healthcare outcomes for the nation's elderly.     

Blog authors Niall Brennan, chief data officer for CMS, and Tim Engelhardt, director of CMS' Federal Coordinated Health Care Office, attributed the decrease to the “committed work by those who directly serve older adults and people with disabilities,” as well as programs such as the agency's “Initiative to Reduce Avoidable Hospitalizations among Nursing Facility Residents.” The post also highlighted CMS' Hospital Readmission Reduction Program, Accountable Care Organizations and bundled payments as drivers behind the hospitalization rate drop.

This article was inspired by an article in McKnights, the original of which can be found here.  

National Health Care Decisions Day: Conflicting State Laws Interfere with Patient's Health Care Choices

The results of a new study underscore the importance of advanced directives and health care proxies in routine estate and health care planning.  The researchers concluded that the ability of medical professionals to understand and honor patients' medical decisions is made more difficult by conflicting state laws, a problem anticipated to only grow along with the nation's booming senior population.

The study of medical decision-making rules,  is the first  of its kind.  Researchers with Beth Israel Deaconess Medical Center, the Mayo Clinic, and the University of Chicago reviewed laws from all 50 states regarding the medical choices of patients. Their findings, published Thursday in the New England Journal of Medicine, show a conflicting system of rules that is difficult to navigate.  The complexity and conflicts may impede professionals ihonoring patients' wishes.

Fewer than 30 percent of Americans have “advance directives” or legal documents outlining their treatment preferences that can also grant someone power to make medical decisions on their behalf. These documents are often necessary, and when available, used when a patient is unconscious, incapacitated or unable to speak for him/herself.  Such documents cam dictate how to treat – or not treat – anything from a minor illness to a life-threatening injury. On average, 40 percent of hospitalized adults cannot make their own medical decisions. In some intensive care units, that figure reaches 90 percent.

Erin Sullivan DeMartino, MD, a pulmonary and critical care medicine physician at Mayo Clinic in Minnesota who led the study as part of a fellowship with the University of Chicago’s MacLean Center for Clinical Medical Ethics, explained in a release accompanying the publication of the study:

“Decisions about withdrawing or withholding life-sustaining care are incredibly emotional and challenging.  But when there is ambiguity about who is responsible for decision-making, it adds much more stress to that moment.

*     *     * 

We have medical technology we didn’t have 50 years ago, so we have a whole group of people who – transiently or sometimes permanently – can’t communicate with us and can’t participate in their own life-and-death decisions."   

Thirty states require the “alternative decision makers” of patients to have an ability to make difficult medical decisions, such as withdrawing a feeding tube or other life-sustaining treatment. But there's no way to assess that ability, the review said. Thirty-five states employ a “surrogacy ladder,” which creates a hierarchy of people able to make medical decisions when patients don't have a power of attorney. But even those systems vary when it comes to the types of decisions surrogates can make.

"One important message from this study is that, in the absence of a clearly identified spokesperson, the decision-making process for incapacitated patients may vary widely depending on where they live,” said senior researcher Daniel B. Kramer, M.D., MPH, in a release on the study.

The study also found states varied in how they defined an appropriate decision maker. Some require surrogates to have an in-depth knowledge of a person's beliefs, while others only require the decision maker be an adult.  The biggest takeaway from the review, according to the research team, is that despite ongoing disputes in healthcare facilities about patients' decisions, no nationwide standard or guide exists for family members or providers.

It is unclear whether the variation in statutes impacts clinical care, according to the research team.  One thing is certain: disputes about medical treatment are happening on a regular basis inside hospitals and hospice programs, and there’s no national standard or benchmark to guide families or physicians.  The more an individual plans, and reduces their decisions to writing, the more likely the individual's decisions will be implemented. 

National Health Care Decisions Day is April 17, 2017.  Throughout the week, August 17-21, our office, and the offices of legal and health care professionals will assist you at no charge in putting in place Durable Powers of Attorney for Health Care and Living Wills (Advance Directives).  If you, a family member, or friend don't have, and need these, please call our office at 877-816-8670.   

Pocket Deeds Are Horrible Planning Instruments

I recently discussed with an estate planner the advisability of using a “pocket deed” to fund a revocable trust.  A pocket deed is a deed that is signed during a person’s life, but "pocketed," that is, not recorded, until after the person dies. Pocket deeds were traditionally used to transfer proper to heirs, but apparently in a more modern approach, it is now sometimes used to transfer property to a trust.  

This technique is usually intended to accomplish two goals:

1. Control – Unrecorded deeds allow the property owner to retain control of the property during his or her lifetime. Since the unrecorded deed is not a matter of public record, the owner remains the record owner of the property.  If the deed stays in the owner's possession )a bid assumption), the owner can destroy the deed if the owner changes his or her mind.
2. Probate – The recording of the deed after the owner's death is usually intended to avoid probate.  If it works (a big assumption), the transfer is treated as being effective when the deed was signed and the property won’t be included in the owner's probate estate.

The biggest objection I have to the modern approach is that it fails to appreciate the advantages of the trust.  In fact, advising a person not to record the deed  suggests that there is some disadvantage to transferring the property to the trust. If the trust is a revocable trust, and you are the trustee, you control the property before and after the transfer.  Since the purpose of the trust is to avoid probate, and transferring the property during your life accomplishes that, why not record the deed?

Pocket Deeds Frustrate Good Planning

Regardless, unrecorded pocket deeds are just a bad idea.  They are inconsistent with the fundamental bases of good planning, which assumes the worst, and on that basis implements a plan before the worst happens to derail the plan.  Worst cases include house fires, lost documents, improperly executed or authenticated documents, scrivener (drafting) errors, and the like. Implementing your plan today means that you will solve and resolve these problems.  Pocketing a deed for recording after your death means that these risks may frustrate your plan.  

Consider the following examples:

• A deed is prepared based upon the prior deed.  The County Engineer subsequently changes property description rules, and refuses to accept for recording property descriptions using historic references.  Years later the owner dies, leaving a signed deed that is not recordable given the subsequent changes.  The property must be probated. If the deed had been recorded when prepared, it would have been owned by the trust at the owner's death, and there would be no probate.  

• The result in the previous situation would be the same if there was an error in the title owner's name, or if the notary forgot to affix a seal, or the signature of the owner was defective, or the property description was defective.  If the deed is presented for recording and rejected by either the County Engineer or County Treasurer while the owner is alive, the owner simply corrects the deed and submits the corrected deed for recording.  If the deed is rejected after the owner has died, there is no one but the executor of the owner's estate that has authority to fix, correct, or amend the deed.  

• A deed is prepared and pocketed by placing the deed in a drawer.  After the owner's death, the family cannot find the deed, or inadvertently disposes of it when cleaning the drawer of other miscellaneous unnecessary paperwork.  Perhaps the person who finds the deed destroys it intentionally, in order to create mischief or opportunity (read on for an example how this might create opportunity).  A lost or destroyed pocket deed is unable to serve any purpose. The property must be probated. 

• A deed is prepared transferring several properties, each to a different child.  The deeds are placed in the family's home safe.  Several years later, one child finds the deeds while retrieving other paperwork from the safe.  He removes the deed transferring the property to himself and records it.  At a minimum the owner no longer controls the property.  More, the owner suffers the risk of loss realized by the child.  If the child declares bankruptcy, for example, the property may be lost to satisfy creditors.     

The foregoing examples simply describe how use of a pocket deed can result in the frustration of your estate plan.   But, that isn't the worst of the pocket deed story; pocket deeds can have significant adverse consequences.  The last example demonstrates how conveying property can create risks.  By the way, none of the examples are problems for an owner who simply conveys his or her real property to his or her trust.

Unrecorded Deeds Can Create a Cloud on Title

Under the laws of most jurisdictions, a deed is not effective until it has been properly signed and delivered.  The delivery requirement is important. Just signing the deed is not enough to complete the transfer.  Delivery of the property is presumed if the deed is publicly recorded.

In ordinary real estate transfers, the deed is delivered and recorded at the time of the conveyance.  But with pocket deeds, the deed is not recorded. There is no proof of delivery during the life of the owner.  This raises a number of questions.  Was the deed delivered to the transferee at all? Can delivery be proved? If delivery was not made, is the failure evidence that the owner changed his or her mind?  If the property is not delivered before the death of the owner, the transfer may be void or voidable.  If the transfer was a gift, meaning that no consideration changed hands, the transfer is not legally enforceable by the transferee.

Questions like these can create a cloud on title, meaning that title insurers will not write a policy on the property without some legal action to clear the title. The transferee would have every incentive to claim that the deed was delivered before the owner died, and the owner is not able to say otherwise. In these circumstances, title companies may be reluctant to simply accept the transferee’s word that the deed was properly delivered prior to the owner's death.  This is especially likely if the deed has remained in pocket (unrecorded) for years before the owner's death.

If the deed recording occurs shortly after execution of the deed, a title company will simply presume that there was valid delivery. But a conservative title company may require a declaratory action to quiet title before it will issue a policy on the property.  An action to quiet title will convert statements regarding delivery to legal testimony in a legal proceeding, after publication and notice to anyone who may claim otherwise. A title company can then be sure that there aren’t any competing claims to the property.

If a title company will not write a policy on the property without a declaratory action, the title to the property is unmarketable. The trustee or new owner will be unable to sell, mortgage, or otherwise deal with the property until the title issue is resolved.  The legal fees for bringing an action to quiet title are usually more expensive and time consuming than proper planning on the front end, and may result additionally in probate.

Unrecorded Deeds Can Give Creditors a Lien on the Property

An unrecorded deed does not put third party creditors on notice that the property has been transferred. This means that the transferor’s creditors (including creditors of his or her estate) may put a lien on the property. This leaves the transferee open to a claim by the transferor’s creditors. If that happens, the transferee would need a legal action to deal with the lien.

Unrecorded Deeds Can Create Tax Issues

Assuming that the owner does not have an estate that is taxable for Federal Estate Tax purposes (i.e., assuming the owner’s estate is worth less than $5.25 million under current law), it is usually better from a tax perspective for the owner to hold onto the property until death. This will give the new owner a full stepped-up basis in the real estate, effectively erasing any appreciation that accrued while the owner was alive. This can result in a significant income tax savings upon sale of the property. This tax planning opportunity is forfeited when a pocket deed is signed during the owner's lifetime.

Property gifted during the owner's life does not receive a step-up in basis.  The transferee would be forced to pay capital gains taxes on the sale of the property using the owner's original basis to determine the taxable gain.

In addition, the transferor is required to file a federal gift tax return (Form 709) for any transfer of property that exceeds the annual exclusion amount (currently $14,000). Since most real estate is worth more than $14,000, the transferor is usually required to file this return when the pocket deed is actually signed. The hassle and expense of filing the Form 709 can be avoided by holding the property until death.

The proponents of the modern version will correctly note that none of those opportunities apply when the property is transferred to a revocable trust.  But, the real nature of the transfer is nonetheless concealed until after the owner's death.  What if a taxing authority argued that the concealment suggested fraud (concealment is an indicia of fraud), and suggested the property was also actually conveyed to the heirs by an alternate pocket deed, which deed was destroyed upon the owner's death.  In this instance the parties conspire to structure a transaction so that it can be characterized in the most favorable way possible after the occurrence of one of several possible events.  In this way, the parties can "have their cake and eat it too."  This can result in the transfer being characterized so as to create a taxable event, and corresponding tax consequence, prior to death.  In other words, what would not have been taxable, can be made taxable by constructing the transaction is a suspicious way.

This danger is precisely why an Ohio senior should never prepare a pocket deed conveying the  home to a child.  The senior will likely claim a homestead exemption reducing the property taxes.  The homestead exemption is not available to the child, especially if the child is not living in the home.  When the the pocket deed is recorded after death, the child will be responsible for repaying the homestead exemption, since the senior was not entitle to the exemption after conveying the property to his or her child, together with interest and penalties for the unpaid taxes.      

Unrecorded Deeds May Invite Legal Challenge

Unrecorded deeds will not necessarily  avoid probate.  As explained above, anything that happens that prevents recording of the deed will necessitate probate of the property.  In addition, a pocket deed may create the opportunity for legal challenge or contest.

I once represented a child that was disinherited by his father's trust.  Of course, upon reviewing the trust, I advised my client that normally there would be little opportunity to contest the trust, and suggested he resign himself to the fact that the trust would be administered according to his father's wishes.  This was particularly unfortunate under the circumstances, because, although the son was once estranged from his father, the father and son had in the intervening years reconciled, and were for several year's before the death of the father on good terms.

Shortly after the father's death, a sibling shared the harrowing work the siblings were forced to perform in days before and after the father's death.  Apparently the deed was just one of many assets that were left out of the trust, until the father fell unexpectedly ill.  The new information breathed life into the son's claim under the trust.  Was it possible that the father has refused to fund the trust given reservations regarding the disinheritance?  If the trust was not an expression of the father's wishes through mistake or change in circumstances, the son would have a viable claim.  Although the matter could easily have been resolved in an expensive court action, it was resolved by settlement.  The settlement, regardless of the circumstances compromised the father's wishes; the son was neither disinherited nor treated the same as his siblings.  It is unlikely that is how the father intended his estate to be resolved.

A Last Will and Testament is more susceptible to challenge than is a trust.  If it is determined that the property is not owned by the trust, and the Will is successfully challenged, the distribution of the estate can be altered from what the owner intended.  If the probate estate is distributed intestate, i.e., without a Will, the estate is distributed according to the heirs at law.  Who the beneficiaries of the trust are is irrelevant to property being probated where there is no Will pouring the estate over into the trust.

In Ohio, perhaps the most famous case arising from a  contest to a deed recorded after death is the case Schueler v. Lynam, 80 Ohio App. 325, 75 N.E.2d 464 (App. 2 Dist. 1947). In that case, the court held that the pocket deed was null and void, in part because partys of the deed required completion after the death of the owner. 

But other states, too, have invalidated pocket deeds as perpetuating fraud. 

Unrecorded Deeds Surrender Intended Benefits of a Trust

Among the possible intended benefits of a trust are protection of the assets from court-appointed guardianship, protection from certain creditors after death, seamless management of the assets during periods of unavailability, incompetency, or incapacity.  These, and many other benefits of trust management are lost when assets are retained in the owner's individual name.  Quite simply, pocket deeds surrender any of the lifetime planning benefits of a trust.  Usually, this means that either the individual was not properly apprised of the benefits of trust planning, or if being directed by a professional representative (agent, financial planner, or attorney), the representative is unaware of the benefits, or is seeking to obtain some other objective.

Because pockets deeds don't always work, almost always take risks that could be avoided by simply implementing a plan, and have unintended consequences, like most attorneys, I do not recommend their use.  

Finally, if you  find an article written by an attorney concluding that pocket deeds are recommended and advisable, please send it to me.  If you are interested, there are many suggesting that pocket deeds should be avoided.  For example, go here, here, here, here, and/or here. 

  

Major Long Term Care Insurance Company Declared Insolvent

Clients have heard me say many times that the long term care insurance industry is the canary struggling in the mine pointing to greater complications with the current health care system's reliance upon skilled nursing facilities to reduce more expensive  hospitalizations. Long-term-care insurance is designed  to shield families from crushing nursing home costs. But, the industry has reeled in recent years as health care policy encourages more, not less, institutional care for the elderly. 

Among the reasons consumers reject these policies is that the already expensive premiums are likely to increase. The increases are necessary, according to the industry, because claims made on the policies are increasing at unpredictably high rates, threatening the solvency of the policies.   Because the health care system encourages more, not less, long-term institutional care, the policies become economically unsound for both the insurance company and consumers Last year, the entire LTCI industry sold only about 100,000 policies, a stunningly low number at a time when more than 8,000 Americans turn 65 each day.  In 2000, Americans purchased 750,000 policies.  

Unexpected evidence that the industry may be faring even worse than previously imagined comes with the announcement that Penn Treaty of Allentown, Pennsylvania was recently ordered to liquidate and wind down its affairs, orphaning tens of thousands of policyholders. Big insurance companies rarely fail in the United States due to incentives created by state regulations encouraging healthy insurance companies to purchase an ailing insurer after which the troubled business simply vanishes  into the rescuer’s business. Policyholders may not even know what happened, or care, as long as claims are paid.  It is troubling that either Penn Treaty was so economically unsound that no buyer was interested, or that the industry is suffering so much that no other company or group of companies could rescue Penn Treaty.

According to the New York Times,  Penn Treaty’s failure may be a signal of more trouble to come in the long-term-care sector: 

“Liquidation is rare, but it does happen in bunches sometimes,” said Robert Hunter, director of insurance for the Consumer Federation of America. The organization has been warning about problems with long-term-care insurance since the early 1990s. In essence, companies underestimated the true cost of coverage and are struggling now to make good on all their promises.  “There is definitely talk in the street that it’s still a high-risk situation for quite a few companies,” he said. “It’s not a healthy situation.”

Each state has a  guarantee fund to rescue policyholders when an insurance company failures. The funds pay people’s claims, up to a predetermined limit that varies by state. The limit is $300,000 in Ohio, Florida, and Pennsylvania.  A few states cap guarantee-fund relief at $100,000. Others, like California and Connecticut, guarantee $500,000 and more. New Jersey is said to have no limit at all, but some analysts question that promise, especially if another big long-term-care insurer fails.  You can check every state's fund limit here.    

Regardless, in most states the fund only pays a claim to the reserve limit.  Many long term insurance policies have potential claims values two or three times that value.  If a policyholder experiences a loss in excess of the $300,000 limit, the policyholder has no recourse for the remainder of the insurance benefit the policyholder purchased.