Trust Beneficiary Who Asked to Reform Trust Provision Violated No-Contest Clause

In a fascinating case, both legally and factually, the Wyoming Supreme Court ruled that a trust beneficiary did not state a claim for legal malpractice against the attorney who drafted the trust and acted as trustee, and that the beneficiary violated the trust’s no-contest clause by asking the court to remove a requirement regarding a successor corporate trustee. Gowdy v. Cook (Wyo., No. S-19-0005, Jan. 8, 2020).

The plaintiff in Gowdy, Marian Jackson, hired an attorney, Dennis Cook, to draft a revocable trust for her. The trust named Gerald Gowdy as the primary beneficiary after she died and included a no-contest clause and provision that a corporate successor trustee have assets or insurance coverage of at least $100 million. Mr. Cook also drafted estate planning documents for Mr. Gowdy. After Ms. Jackson died, Dennis Cook became trustee and his brother, attorney Craig Cook, became trust protector. Mr. Gowdy complained that the trust was being mismanaged and that the Cooks had a conflict of interest regarding their management of the trust and representation of him.

Mr. Gowdy sued the Cooks for legal malpractice, arguing among other things, that Dennis violated professional rules of conduct by representing both him and Ms. Jackson. Mr. Gowdy asked the court to remove Dennis as trustee and require the Cooks to prepare an accounting. Mr. Gowdy also asked that the court reform the trust to remove the requirement in the trust that a corporate trustee have assets or insurance coverage of at least $100 million. 

The Cooks (the attorneys) filed a motion for summary judgment, which the trial court granted, ruling that Mr. Gowdy forfeited his right as a trust beneficiary under the no-contest clause! Mr. Gowdy appealed, arguing that the no-contest clause should only be applied to challenges "to distributions" under the trust.

The lower court ruled that Mr. Gowdy did not show evidence that he was damaged by the attorneys’ actions, so he did not prove legal malpractice. The court also held that Mr. Gowdy violated the no-contest clause. The court ruled that the no-contest clause is not limited to contests involving changes to the trust’s distribution scheme because, according to the plain language of the clause, it “applies to any court proceeding seeking to void, nullify, or set aside the trust or any of its provisions.”

The full case is worth a read, even for laypersons.  You can read the full decision here. 

Secure Act- As the Dust Settles

The SECURE Act was passed in late December, so the first few weeks of the year brought significant discussion about what it means, what it accomplishes, and how it effects estate and financial plans.  Fleming and Curti, PLC, in Tuscon, Arizona assembled the "most interesting articles, blog posts, and musings" regarding the Secure Act.  Among them was, of course, Attorney Robert B. Fleming's highlights,  but noted that many others were "giving similar overviews."  

Here are just a few:

• National Law Review;
• K&L Gates, global law firm;
• Kiplinger;
• Kitces’s blog, "(with a nifty summary chart)," and;
• Investment News magazine..

Natalie Choate, the universally recognized guru of estate planning and retirement plans provides a "deep dive" in the form of a 35-page analysis.

Fleming and Curti noted: 

"[a]s the days passed, more reading ensued. Nuances of the Act, some good and some not so good, were dissected and discussed. Because this is still new, expect this to continue in the months (and probably years) ahead." 

Among the interesting reads on specific Act-related topics:

• How law affects special needs trusts, including fixing the “kiddie tax” treatment for minor beneficiaries.
• One possibly unintended consequence: the Act limits the amount of Qualified Charitable Distributions (“QCDs”) the holder of a traditional IRA can make.
• Tucson attorney Brent Nelson explained that, if you really dissect the options, naming a trust as an IRA beneficiary became even more complicated.

In addition, to deal with the much-discussed loss of the “stretch” for inherited IRAs, different strategies are emerging:

• Consider the likely tax situation of the potential beneficiaries and adjust designated beneficiaries accordingly.
• If you have charitable intent, consider a charitable remainder trust.
• Think about converting to a Roth: Is it right for you?; how a conversion works with an IRA trust; and some traps to avoid.

Of course, there is a lot more out there. If you are interested in ongoing analysis, there’s The Slott Report, with almost daily posts on IRA news. Don’t believe everything you read, though. Especially right after a new law arrives, be mindful that 1) it takes a while for the dust to settle, 2) regulations, certain to come along, should clarify some things, and 3) every person’s situation is different. Plan to talk with your financial advisor and estate planning attorney.

This blog will post a separate article in a few days outlining how our office is revising trusts, and IRA beneficiary strategies as a result of the Secure Act.  The most obvious impact, of course, is the loss of the "stretch" IRA for the generation of an IRA owner's grandchildren.  IRA trusts still have utility, but the financial benefits are obviously less compelling.   There is not, however, an utter loss of the tax deferral for children or spouses, however, despite misinformation to the contrary.  The ten-year pay-out rule is not always the result, for good or ill.  Stay tuned!     

New Tool Predicts Life Expectancy of Dementia Patients

According to McKnight's Long-term Care News, nursing homes may soon have access to a newly developed tool that can accurately predict the life expectancy of dementia patients. 

Care providers are well aware of the importance of discussing the future with patients and their families and considering the needs and wishes of patients toward the end of life. Clinical guidelines also recommend incorporating information on patients’ life expectancy into clinical decisions.  Clinicians, however, encounter several barriers in this process. One of the barriers for the incorporation of patient’s life expectancy in clinical decisions is the uncertainty in predicting the actual survival probabilities. Another barrier is the difficulty of discussing prognosis with the patient. 

Researchers believe the tool could help patients and care providers better communicate about the disease and risk of death, and develop future care plans as it progresses. Timely communication about patients’ survival prognosis may enhance advance care planning and shared decision-making in dementia. 

Nearly 48% of residents in nursing homes have a diagnosis Alzheimer’s disease or other dementias, according to data from the Centers for Disease Control and Prevention.  “In those cases, a tool like this can be an incentive to start such a conversation, which should be held before there are too many cognitive obstacles. This conversation could be about where someone would prefer to live, at home or in other accommodation, or anything else that needs planning,” said Sara Garcia-Ptacek, a researcher at the Karolinska Institutet in Sweden. 

The tool uses four characteristics to predict life expectancy: sex, age, cognitive ability and comorbidity factors. Investigators tested the tool using data from more than 50,000 patients who were diagnosed with dementia between 2007 and 2015. 

Researchers found that that the tool was able to predict three-year survival following a dementia diagnoses with “good accuracy.” It also found that patients who were older, male and had lower cognitive function at diagnoses were more likely to die during that time frame.

According to the study, the observed average survival time was just more than 5 years, with 81 years being the average age for diagnosis of dementia. In comparison, the average 80-year-old person in Sweden has a life expectancy of 9 years. This average is based on the general Swedish population, which includes a significant proportion of persons with dementia, so it should be noted that average survival for persons who do not develop dementia would be expected to be even longer. The author's noted that their results are "very similar to previously reported numbers from a UK population study and fit with our current knowledge of the detrimental effect of dementia on life expectancy." 

The full citation for the original research reports is, "Survival time tool to guide care planning in people with dementia," Miriam L. Haaksma, Maria Eriksdotter, Debora Rizzuto, Jeannie-Marie S. Leoutsakos, Marcel G.M. Olde Rikkert, René J.F. Melis, Sara Garcia-Ptacek, Neurology (Dec. 2019,10.1212/WNL.0000000000008745;DOI: 10.1212/WNL.0000000000008745). 

Court holds Two Year Caretaker Exemption Unavailable for Transfer of Home Absent Medical Specific Evidence

A New Jersey appeals court has held that the caregiver exemption does not apply to a Medicaid applicant who could not document that her condition required her daughter to care for her for a full two years before she entered a nursing home. R.K. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., App. Div., No. A-2881-17T1, Dec. 5, 2019).

R.K. transferred her home to her daughter in 2011. Her daughter cared for her in her home until April 2015, when she entered a nursing home and applied for Medicaid. The state imposed a penalty period due to the transfer of the house.

R.K. appealed, arguing that because her daughter had cared for her for two years before she entered the nursing home, the caregiver exemption should apply to the transfer of the house. The caregiver exemption is one of a number of exemptions that protect transfers of assets from impairing Medicaid eligibility. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

• Your spouse (but this may not help an applicant become eligible since the same limit on both spouse's assets will apply);
• A trust for the sole benefit of your child who is blind or permanently disabled;
• Into trust for the sole benefit of anyone under age 65 and permanently disabled.  

In addition, an applicant may transfer their home to the following individuals (as well as to those listed above):

• A child who is under age 21;
• A child who is blind or disabled (the house does not have to be in a trust);
• A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home;
• A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

At the hearing, the administrative law judge (ALJ) determined that the caregiver exemption should apply, relying on records that R.K. received hospice care beginning in November 2013. The state rejected the ALJ’s determination because R.K. provided no medical records of her condition from March 2013 to November 2013. R.K. appealed.

The New Jersey Superior Court, Appellate Division, affirmed the penalty period. According to the court, because “there were no medical records demonstrating that R.K. required a special level of care from March 2013 up to November 2013,” R.K. did not demonstrate that her daughter “provided a level of care that allowed R.K. to reside at home rather than an institution or facility” for a full two years.

Obviously, live-in caregivers should obtain and secure medical evidence of impairment.  If you find yourself in this situation, contact our office.  We will provide you a form, suitable for Departments Medicaid to evidence that the provided care allowed the senior/applicant to avoid a nursing home stay..  

Administration's Public Charge Rule for Immigrants Headed to the Supreme Court

The Trump administration filed an emergency appeal January 12, 2020, that asks the Supreme Court for permission to implement rules that would make it easier for the government to deny immigrants residency or admission to the U.S. because they use public-assistance programs or might use them in the future.

The administration last August adopted the rules, which would expand the pool of people considered likely to become a “public charge” under U.S. immigration law. The designation prevents an immigrant from obtaining a green card and is used to determine which noncitizens can be removed or prevented from entering the U.S.  Roughly 544,000 people apply for green cards annually. According to the government, 382,000 are in categories that would make them subject to the new review. 

Under the new rules using benefits like Medicaid, housing assistance or food stamps could render an individual inadmissible. Immigrants applying for permanent residency must already show they will not be public charges, or burdens to the country.  The new policy  expands, however, what factors would be considered to make that determination, and if it is decided that immigrants could potentially become public charges in the future, that legal residency could be denied. Receipt of one or more of those designated public benefits for an aggregate 12 months within any three-year period by any noncitizen will be considered a negative factor in determining whether or not they become a public charge.  The rule contains a list of other positive and negative factors, like age, which will be evaluated together to make a public charge inadmissibility determination.

The Administration emphasized that the determination is a “totality of circumstances test,” meaning that receiving one benefit will not be disqualifying for green card or visa applications. According to most experts, immigrants make up a small portion of those getting public benefits, since many are ineligible to get them because of their immigration status.  The rule appeared in part a response to some state governors announcing or signalling that states might expand benefits, including to senior immigrants. 

A New York federal appeals court blocked the rule after leading industry advocates warned immigrant seniors would be hurt and their use of long-term care services impaired. The U.S. Court of Appeals for the Second Circuit handed down the ruling, denying the Trump Administration’s request to lift a temporary national injunction on the “Public Charge” rule, the Associated Press reported. A New York district court issued the injunction in October. 

The New York injunction was one of several that were issued around the time the rule had been scheduled to go into effect in October. But a regional injunction issued in California and another national injunction issued in Washington have already been lifted by other federal appeals courts. That left New York’s as the only nationwide bar to the Trump administration putting the new rule into practice. An injunction in Illinois also is in effect, but applies only to that state.

The three-judge panel of the 2nd Circuit heard arguments over the motion to lift the injunction.  Judges questioned the government’s attorney on the timing — why the injunction needed to be lifted "at this point" when the lawsuit itself would be heard by a judge in coming months.  

Leading Age was among the providers that submitted comments in opposition of the rule after it was first published in August. The National Council of Aging President and CEO James Firman also denounced the rule, which was set to go into effect in October.

“Immigrant seniors who have played by the rules will have to make an impossible choice between going hungry and avoiding needed long-term care support or losing their immigration status,” he said. “This regulation will create a personal and moral hazard for older adults who are looking to age with their families around them.”

More than a dozen states, along with the District of Columbia, challenged the federal government’s rule claiming it targeted poor, legal immigrants trying to become permanent citizens.