Court Upholds Conviction of Agent under Power of Attorney for Gifting Funds to Himself to Qualify Principal for Medicaid

A Texas appeals court upholds the conviction of an agent under a power of attorney who transferred funds to himself, supposedly to qualify his former grandmother-in-law for Medicaid. In an earlier proceeding, a jury sentenced the agent to 25 years in prison. Natho v. State (Tex. Ct. App., 3rd Dist., No. 03-11-00498-CR, Feb. 6, 2014).

Rosie Shelton signed a power of attorney, appointing her former grandson-in-law, Ronnie Natho, as her agent. The power of attorney gave Mr. Natho the power to act on her behalf, including with regard to Medicaid issues, but it did not give him the authority to make gifts on her behalf. Mr. Natho was also the sole beneficiary under Ms. Shelton’s will. After Ms. Shelton entered a nursing home, Mr. Natho gifted himself her car and then consulted with an attorney who helps clients qualify for Medicaid. The attorney informed Mr. Natho that he could spend down Ms. Shelton's money and it was acceptable for him to make gifts to himself as long as Ms. Shelton's needs were met. Mr. Natho then transferred Ms. Shelton's life insurance policy to himself and gave himself other gifts as well.

When Ms. Shelton discovered the transfers, she revoked Mr. Natho's power of attorney, and criminal charges were filed against Mr. Natho. A jury convicted Mr. Natho of misapplication of an elderly person's fiduciary property, and sentenced him to 25 years in prison. Mr. Natho appealed, arguing he was acting in Ms. Shelton's best interest to qualify her for Medicaid.

The Texas Court of Appeal affirms the conviction, holding the evidence was sufficient to find Mr. Natho misapplied Ms. Shelton's assets. The court rules that the fact that the power of attorney did not give Mr. Natho the power to make gifts, that he gifted himself the car before he consulted with the attorney, and that the car and insurance policy would have been excluded from a Medicaid eligibility determination, show that Mr. Natho wasn't acting to benefit Ms. Shelton.

For the full text of this decision, click here.

Number of Estate Tax Returns Has Plummeted Since 2003

The IRS has just released an analysis of estate tax returns filed by wealthy decedents in recent years.  The analysis spans the years 2003 to 2012, during which time the estate tax filing threshold gradually rose from $1 million to $5.12 million.

Not surprisingly, the number of estate tax returns declined 87 percent, from about 73,100 in 2003 to about 9,400 in 2012, primarily due to the incremental increase in the filing threshold.  The total net estate tax receipts fell from $20.8 billion in 2003 to $8.5 billion in 2012.  The total for 2011 was only $3 billion; the estates of those dying in 2010 had a choice of paying the estate tax or accepting a limited step-up in the cost basis of inherited assets.

Looking at the number of estate tax returns filed as a percentage of the adult population (ages 18 and over), the top five states were the District of Columbia, Connecticut, Florida, California, and New York.

Stock and real estate made up about half of all estate tax decedents’ asset holdings in 2012.

Estate tax decedents with total assets of $20 million or more held a greater share of their portfolio in stocks (about 40 percent) and lesser shares in real estate and retirement assets than decedents in other total asset categories.

For an IRS brief on its findings, click here.

For detailed statistics on estate tax filings from 1995 to 2012, click here.

Staying Eligible for Medicaid after the Death of a Spouse

When one member of a couple moves to a nursing home, it is not uncommon for families to expect that spouse will be the first to die, and then plan accordingly.  Such short-sighted planning fails to consider what happens if a Medicaid recipient's spouse dies first.  If planning steps aren't taken, the death of a spouse can affect the nursing home resident's assets and eligibility for Medicaid.

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in assets (the amount may be somewhat higher in some states). The Medicaid applicant's spouse (called the "community spouse") can keep more assets. In general, the community spouse may keep one-half of the couple's total "countable" assets up to a maximum of $115,920, depending on the state (in 2013). Often when one spouse seeks to qualify for Medicaid, he or she transfers assets to the community spouse.

The death of a Medicaid recipient's spouse can affect the amount of assets the Medicaid recipient has, and therefore his or her Medicaid eligibility. For example, suppose a community spouse dies, and her will leaves her estate to her husband, who is in a nursing home and receiving Medicaid. The additional assets will make the husband ineligible for Medicaid. Even if the community spouse's will did not leave anything to her husband, most states allow a spouse to claim a share of the estate. Medicaid can assess a penalty even if the husband does not claim his share.

The couple's house can also present a planning challenge. Most spouses own property jointly. If the community spouse passes, the Medicaid recipient will own the house. Depending on the state, the nursing home resident may have to prove either an intention to return home or a likelihood of returning home in order for the house not to count as an asset. If the resident sells the house, the proceeds from the sale will make the resident ineligible for Medicaid.

To prevent a community spouse's death from affecting the institutionalized spouse’s Medicaid eligibility, it is important that the community spouse update his or her estate plan. There are steps the community spouse can take to protect the spouse in the nursing home, including setting up a trust for the management of assets. To find out the plan that would work best for you, contact your attorney. 

For more about Medicaid’s rules, click here.  For more about Medicaid planning, click here.

Retain an Attorney or Accountant to Seek and Obtain a Taxpayer Identification Number for a Trust

Seemingly simple decisions can cause unexpected difficulty administering an estate. Among these is the decision whether to utilize an attorney or accountant to  file for and obtain a taxpayer identification number (TIN) for a trust.  

Most revocable trusts change their tax and legal status upon the death of the last surviving grantor. Sometimes called a settlor, the grantor is the person that generally creates and contributes property to a trust that benefits the grantor during his or her life.  During the life of the grantor, particularly if the trust is revocable, the trust is considered a “grantor” trust under the Internal Revenue Code.  The significance of being classified as a grantor trust is that the trust does not have a separate tax existence; the grantor is not required to obtain a separate Taxpayer or Employer Identification Number (TIN or EIN), and the trust is not required to file a separate tax return.  The grantor affixes his or her social security number to assets requiring a TIN for the trust, and files only a personal income tax return.

Upon the death of the grantor, however, the IRS requires that the trust, which is now irrevocable, utilize a different TIN.  Simply, a trust cannot use the social security of a dead person.  If the trust has taxable income, the trust may also be required file a separate income tax return.  Thus, a successor trustee will typically file for and obtain a new TIN for the trust shortly after the death of the grantor. This application process is relatively simple, and common for attorneys and accountants familiar with trusts, the grantor trust rules in the Internal Revenue Code, and the distinctions between the the original revocable trust and the resulting irrevocable trust.  

Because the proper name and characterization of the trust on titles and accounts is important, attorneys will usually prepare for the successor trustee a Certificate or Memorandum of Trust, which permits financial institutions to properly title assets, and follow the instructions of the successor trustee.  These documents often identify the correct TIN. Filing for and obtaining the TIN, and preparing the Certificate or Memorandum of Trust is usually completed the same day, or within a few days of completion of the necessary forms, for a nominal fee: easy breezy nice and easy.

Increasingly, however, successor trustees are either filing for the TIN themselves, or relying upon professionals with neither accounting nor legal expertise to request and obtain the TIN.  The results can range from frustrating to devastating to the estate plan.

Consider the following examples of mistakes attorneys increasingly observe:

• The successor trustee goes to the bank in order to access the bank account.  The helpful teller advises the trustee of the need to obtain the TIN, and “assists” the successor trustee in applying online for the TIN.  The account is closed, and a new account is opened with the new TIN, and the trustee is given a piece of paper showing the TIN, and sent on his or her way.  The successor trustee goes to the next bank, broker, or financial advisor holding or managing trust accounts.  Confident that everything will go smoothly, the trustee presents the death certificate and the TIN to the institution with a polite request to liquidate the account.  The institution refuses, advising that they do not have everything needed.   The institution is unclear what the title of the trust is or should be, and what authority the successor trustee has regarding the account.  After several attempts the successor trustee is forced to contract an attorney to prepare documents that could have been prepared initially, which would have prevented the delay and frustration.

• The attorney in the foregoing example reviews the paperwork provided by the teller and realizes that the application is completed incorrectly, and that as a result the IRS will likely request the filing of Form 1041 trust income tax returns from the date of the creation of the trust through the present tax year.  In a “pay me now or pay me later,” series of alternatives, the attorney offers to correct the improperly completed application.

• The attorney in the foregoing example reviews the paperwork, but cannot determine whether the application for the TIN was properly prepared.  The teller prepared the application online, but did not print out a hard copy of the application. Concerned that improper preparation of the application will result in expense or loss to the trust, for which the trustee or heirs may seek to hold the attorney responsible, the attorney either (1) refuses to utilize the TIN and recommends abandonment of the TIN, charging the client for preparation of a new application, and paperwork abandoning the prior TIN, or (2) the attorney requires the trustee to sign an acknowledgment that use of the TIN may cause loss or expense, which releases and indemnifies  the attorney from loss resulting from continued use of of the TIN.

• The teller in the previous example identifies the grantor of the trust, now deceased, as the responsible party, since the grantor created the trust.  IRS correspondence is directed to the deceased grantor at the grantor’s last residence.  Because the property is promptly sold, the successor trustee is not advised that a Form 1041 income tax return must be filed. When the successor trustee learns that a return should have been filed, the trustee is forced to pay the tax liability, and resulting penalty and interest, from his personal assets since the trust assets were distributed. 

• An agent assisting a successor trustee in filling out a beneficiary claim form, assists the trustee in obtaining online a TIN, and opening a a money market account to hold the funds.  The successor trustee is the only beneficiary of the trust, and the recipient of various means-tested government benefits.  Although the trust was drafted to protect the assets for the benefit of the beneficiary, under state law, the protection is only effective if the beneficiary is not also the trustee.  Absent the important legal advice and direction to resign as trustee prior to filing the claim form he negotiates the account.  The trustee later learns that the claim of funds constituted income in the month that the claim was paid, thereby disqualifying the beneficiary from a host of government benefits, including free health care.  

• A successor trustee completes the application to obtain a TIN for the trust online, and proceeds to administer the trust estate.  The IRS sends letters demanding Form 1041 income tax returns for fourteen tax years.  The letters, unfortunately, are sent to the deceased grantor’s home, pursuant to the application, which home was promptly sold by the successor trustee.  The successor trustee is later contacted by a revenue agent.  With the assets of the trust long distributed, the trustee pays from her own funds an attorney and accountant to resolve the matter. 

• A family friend helps the successor trustee obtain a TIN, but writes down the TIN incorrectly.  Neither the friend nor the trustee realize the error.  The IRS contacts the taxpayer when a return is filed using the incorrect TIN.  An accountant is retained to investigate and resolve the problem.

Each of the foregoing represent actual cases. The application for a TIN may seem simple, but the terms used in the application, and the precise information requested can be confusing.  The fact that the application can be  prepared online may cause some to believe that the application is either very easy to complete, or that proper completion is unimportant.  Neither assumption is correct. 

Well-meaning professionals, such as tellers, bankers, insurance agents, brokers, and financial planners, and helpful friends may assume that they are are in safe waters completing the form for a customer or friend.  IRS rules require that third parties that complete the application identify themselves, and abide by record-keeping requirements, which rules the well-intentioned often fail to observe.  Failure to observe these rules may make impossible immediate solutions to online technical glitches or typograghical errors, thereby delaying adminstration of the estate.  Perhaps the ultimate tragic irony to the immediacy offered by the online application process is that failure to follow the third party disclosure, record preparation and record keeping rules may mean that a good TIN takes longer to obtain online than if it had been applied for by traditional mail.

Professionals should also be aware that there may be liability for applications prepared improperly, and that the professional insurance may or may not cover any loss.  Non-lawyers and non-accountants are properly cautioned that the completion of the forms, and the accompanying advice, may constitute the unauthorized practice of law, or exceed the scope of the professional's licensing.

Simply, retain an attorney or accountant to seek and obtain the TIN.

Study Concludes that Advanced Directives are Associated with Peaceful Death

                                The 7th Annual NHDD is April 16th, 2014

Dying nursing home residents who have dementia display significantly less fear and anxiety if they have a written advance directive in place, according to recently published research findings.

Investigators analyzed responses from 69 Belgian nursing homes, focusing on the roughly 200 residents who had dementia at their time of death. The researchers found that those residents who had completed a written advance directive were three times more likely to have experienced less fear and anxiety in their last days, the researchers determined. They reached this conclusion based on input from residents' family members, which used the Comfort Assessment in Dying with Dementia scale.

Having a do-not-resuscitate order, in particular, related to a calmer process of dying, the researchers found. The existence of written orders from a doctor or other health care professional, did not have any association with this aspect of the dying process. Neither did verbal communication between nurses and the patient and/or relatives.  In other words, a patient's written instructions are associated with a more peaceful passing but verbal instructions from patient are not, and written or verbal instructions from health care workers are not.  The study found "no association between the quality of dying as judged by the relative and verbal communication such as the resident expressing their wishes to the nurse or the nurse speaking with the resident concerning medical treatments at the end of life or the desired direction of care."

The study concludes:

For nursing home residents with dementia there is a strong association between having a written advance directive and quality of dying. Where wishes are written, relatives report lower levels of emotional distress at the end of life. These results underpin the importance of advance care planning for people with dementia and beginning this process as early as possible.

The study was not designed to determine why advance directives had a positive emotional effect for the dying residents, but the researchers offered some possible explanations. One is that relatives, assured that their loved one was receiving preferred types of care, projected a greater sense of calmness onto the resident. Another is that completing an advance directive triggers a psychological process that helps the resident die in peace.

Given that only 17.5% of the residents in this study had a written advanced directive, the authors of the study concluded that their findings suggest that advanced directives should be more common and that the process of advance care planning should begin “as early as possible” for people with dementia.

National Health Care Decisions Day is April 16th.

Source: Tim Mullaney, "Chances of peaceful death are three times higher for dementia residents with an advance directive, study finds," McNight's Long Term Care News.