The Estate Planning Process: It's A Two Way Street

When retaining an attorney to assist with their estate planning or elder law matters, people often expect that the attorney, who has the “expertise” in the subject matter at hand – and is the person being paid for the work – is solely responsibility for a successful outcome. Without meaningful and active client participation in the process, however, an estate plan that “works” is unlikely. We have a saying in our office: your estate planning won’t work if we care more about it than you do!

So, how can you best work with an estate planning attorney to achieve the desired results? Here are a few recommendations:

• Be prepared to fully disclose to your attorney all of your assets and liabilities, and who holds title to the assets (e.g., whether they’re individually owed, jointly owned, held in a business entity, an “in trust for” account, etc.). When planning for the protection and distribution of your financial assets, it is critical that the attorney have a clear picture of what the client’s financial picture looks like. Many attorneys will provide an intake form for the client to list of this information. You do neither yourself nor your attorney any favors by coming to an initial meeting and saying, “I didn’t have time to complete the form.” You would be better off rescheduling the meeting until after you have completed the paperwork.

• Expect to have an open and honest conversation with the attorney regarding the family dynamic. Keep in mind that while the attorney has the legal expertise, the client is the “expert” about family matters. Remember that the conversations with your attorney are confidential; while no one likes to discuss potentially embarrassing information about themselves or their children, it is critical that the attorney knows about all the “skeletons in the closet.” Many parents, for example, are reluctant to inform the attorney that a child has a drug or alcohol problem, that a child has financial problems, or that a child’s marriage is shaky. But it is critical that the attorney be made aware of this information so that he or she can work with the client to design an estate plan that provides the appropriate planning to protect that child’s inheritance.

• In advance of the initial attorney meeting, give careful thought about what you are hoping to accomplish. Is estate tax planning a major concern? How concerned are you about protecting assets if you someday require assistance with long-term care? Do you want to provide different amounts to different children, or even disinherit a child completely? Are you interested in making charitable gifts as part of your estate plan? Do you have pets that you want to be assured will be taken care of? Your attorney should thoroughly discuss your planning objectives, and the different ways to achieve those goals. When we schedule an initial meeting with our clients, we provide them with a “Goals” form” that serves as a starting point for that important conversation.

• Think carefully about who would be the appropriate “helpers” in the event of your disability or death. These would include executors under your will, trustees for any trusts, guardians for minor children, agents under your power of attorney, and health care agents for your health care proxy. If no suitable family members exist, you are often better off choosing a professional fiduciary, such as a bank trust department, rather than a child or other family member who is ill-suited to the task.

“Successful” estate planning depends upon complete trust and interaction between the client and the attorney – it really is a “two way street.” Unless the client is fully engaged in, and committed to, the process, the client’s planning will likely fail to meet the client’s needs, regardless how knowledgeable or skilled is the attorney

The Supreme Court Nomination Charade

Here is the best analysis I've yet seen regarding the joke that has become the Supreme Court nominating process. While I believe Elena Kagan has the background that should make her a fine Justice, nothing we've seen in these hearings would lead you to that conclusion. It's really just the typical posturing by the usual Senatorial buffoons for consumption by their constituents at home.

Many Cancer Patients Receive Aggressive Treatments in Final Days

Studies confirm that many Americans receive aggressive but ultimately futile treatments in the final days of their lives. While this may be partly because of ineffective end-of-life counseling, it appears just as often that the patients are unwilling to give up that last glimmer of hope.

There are no simple solutions to these cases, which will vary based on the patient's age, type of treatments and their own personal belief system.

Billionaire Estate Tax Surtax Proposed

Three Democratic Senators, led by Bernie Sanders of Vermont, are sponsoring legislation to include a 65% "billionaire surtax" for estates in excess of $500 million. The trio makes the argument that in an era of increasing federal debt, the largest estates should pay their "fair share."

Although it is unclear in this article, it appears that the intent of this proposal would be to add this surtax on top of whatever estate tax is ultimately enacted by Congress.

The proposal would also make the estate tax retroactive to January 1, 2010; such a result would almost certainly lead to constitutional challenges from estates that, at present, would have no federal estate tax obligation in 2010.

Big Change Under NY Law: Lawyer May be Sued By Estate for Malpractice in Drafting Will

On June 17, 2010, the New York State Court of Appeals issued a ruling that permitted an Executor of an estate to bring a legal malpractice action against an attorney who allegedly committed malpractice in drafting the decedent's will. According to the executor, the attorney's malpractice caused the estate to owe estate taxes that could have been avoided with proper drafting. The ruling in the case of Estate of Schneider v. Finmann, et.al.,, overturned New York's longstanding rule that required an allegedly injured party to have "privity" -- essentially, a contractual or other relationship with attorney -- in order to have standing to bring a claim of legal malpractice.

In estate cases, the problem for parties claiming to be aggrieved by an attorneys' alleged malpractice in drafting a will or a trust is that the only party that would typically have privity with the attorney is the decedent who engaged the attorney to draft the estate plan. Since the attorney's "error" is typically not made apparent after the decedent's death, the parties that suffer the real injury -- the estate and its beneficiaries -- would lack privity with the attorney and thus have no recourse.

Over the years a majority of states have modified or eliminated the strict privity rule for estate planning matters. With this decision, the Court of Appeals is recognizing that privity in this context is out-of-step with a more modern approach in determining liability for professional negligence.

One important qualifier in this case is that only the Executor or other fiduciary may bring a claim on behalf of the estate; individual beneficiaries still would need privity to maintain a claim against the attorney. The Court reasoned that the Executor "stands in the shoes" as Personal Representative of the decedent, who in fact had privity with the attorney. Permitting individual beneficiaries who do not have privity to bring claims, the Court concluded, "would produce undesirable results -- uncertainty and limitless liability."

I hope that one consequence of this decision is that it will convince many attorneys who only "dabble" in the field to realize that it's not worth the risk to continue doing estate planning without a thorough knowledge of the field.

Not All Gifts Will Disqualify You From Medicaid Eligibility

It is commonly believed that if a senior makes gifts to family members and subsequently needs long-term care services within five years after making the gifts (the five-year window being commonly referred to as the “look-back” period), such gifts will automatically cause a period of Medicaid ineligibility. While the statutory presumption is that all gifts during the look back period will affect the donor’s subsequently Medicaid eligibility, there are a number of exceptions to the general rule.

One important exception to the transfer penalty rules is set forth in Section 366.5(d) of the New York Social Services Law. Under that provision, gifts made during the look back period will not create a period of Medicaid ineligibility for the donor if a “satisfactory showing is made that … the asset was transferred exclusively for a purpose other than to qualify for Medicaid.”

A 2009 case out of Suffolk County shows the importance of this rule. In that case, an 83 year-old widow (“Mrs. X”) suffered a fall in late 2008 and needed nursing home care. Prior to the fall the woman had been in good health and lived comfortably in her own home.

Beginning in March 2006 and continuing through July 2007, Mrs. X made gifts to various children and grandchildren totaling $71,000. Critically, the testimony showed that Mrs. X’s children were going through various financial hardships – one son was in and out of the hospital and had significant medical bills; another son had lost a job and was teetering on the edge of bankruptcy. Other children and grandchildren needed help to keep up with their own living expenses. The Hearing Examiner noted that even after the gifts, Mrs. X remained financially solvent and was able to comfortably meet her living expenses.

Shortly after Mrs. X entered the nursing home in December 2008, she applied for Medicaid coverage to cover her nursing home expenses. The Suffolk County Department of Social Services (“DSS”) approved her eligibility, but under the transfer penalty rules imposed a six month “penalty period” on account of the $71,000 gifts made by Mrs. X to her family. After DSS’s determination, Mrs. X’s daughter was able to recover from some of the children only $28,000, leaving Mrs. X without the means to cover the nursing home costs during the bulk of the penalty period.

Mrs. X challenged DSS’s imposition of the penalty period, claiming that her gifts were made for a purpose other than to qualify for Medicaid and fell under the exception to the transfer penalty rules found in Social Services Law Section 366.5(d). In her decision, the Hearing Examiner agreed with Mrs. X’s claim that, despite her relatively advanced age, “the gifts were made at a time when there was absolutely no indication that [Mrs. X] would need nursing home level of care,” and that “the record failed to establish that [Mrs. X] made any of the gifts in order to qualify for Medical Assistance.” Accordingly the Hearing Examiner reversed DSS’s imposition of a six month penalty period, rendering Mrs. X immediately eligible for nursing home Medicaid.

Implicit in this decision is the importance of having the right facts. If Mrs. X had evidence of chronic health conditions (e.g., early dementia, arthritis, etc.) at the time the gifts were made, it is almost certain that DSS imposition of a penalty period would have been upheld. But in a circumstance such as Mrs. X’s case where a senior in seemingly good health has made gifts to family members but then suffers a sudden decline in health, a strong argument can be made that the statutory exemption under Social Services Law Section 366.5(d) should apply, precluding DSS from imposing a Medicaid penalty period.

Fun and Games with Gary Coleman's Estate

It is reported that the late actor Gary Coleman executed a 2005 will that would supersede the 1999 will that has already been submitted for probate in a Utah court. Neither Coleman's parents nor his ex-wife (who claims she and Coleman were still married under common law marriage at the time of his death) are named as beneficiaries or executors under the will.

I have no idea what type of estate Coleman might have had at his death, but it seems a lot of people are awfully interested in the proceedings.

Stay tuned for updates.

Is Long-Term Care Insurance Too Expensive? Not Necessarily

A new survey shows that more than a third of recent purchasers of long-term care insurance are paying less than $1,500 per year for their policies. All things being equal, long-term care insurance is the best tool for protecting against the depletion of assets if you someday need long-term care.

The cost of a LTC policy will depend upon a myriad of factors, including your age, your health, the daily benefit you are seeking, and the term of years that you are hoping to ensure.

One caveat to the survey: since the cost of long-term care in New York is higher than the national average, the cost of an adequate long-term care insurance policy for a New York resident will typically be more costly as well.

LegalZoom Sued For Misleading Its Customers

I previously posted a critical review of three legal document creation websites, including most prominently LegalZoom.com. As noted here, a class action lawsuit has been filed in a California court against LegalZoom claiming that the website falsely tells customers that users get "customized" legal documents when in fact the only "customizations" involve the entry of the customers' names and other identifying information.

The lawsuit also claims that the website's promise of "unlimited customer support" does not include access to a lawyer.

Estate Planning For A Vacation Home

With summer’s arrival, many families are planning gatherings at the family vacation home, whether it’s on a lake, in the mountains, at the shore, or at points in between.

While mom and dad are around, they will be the final arbiters regarding use of the vacation home by the children and other family members. Essentially, the parents serve as the “glue” that keeps the peace among potentially fractious children (not to mention their spouses).

But what happens after the parents are gone? If the parents hope that the vacation home will remain “in the family” for future generations, then the typical “simple” will that leaves that property equally to the children after both parents’ deaths is likely not the answer. Many times the children will find themselves in different economic and geographic situations. Suppose one child lives 50 miles from the vacation home, while another child lives 500 miles away. It is likely that the more distantly located child will have less opportunity to use the vacation home. Perhaps that child says to his siblings, “well, I’m not using it anyway, and I can’t afford the property taxes -- let’s just sell the place.” If the other children want to keep the home, but the reluctant child doesn’t contribute for taxes or other expenses, friction between the siblings is almost a certainty.

The situation gets even murkier if the property passes to the succeeding generations. What if child #1 has three children and child #2 has only one child? As title to the property passes to the grandchildren, the three children of child #1 will divide their parent’s 50% share, while child #2’s daughter will inherit her parent’s entire 50% share. It is almost certain that disputes will arise over issues such as usage of the property, as well as the financial contributions expected from the various owners.

While such potential trouble spots abound, there are viable ways for the parents to plan to keep the vacation home in the family for generations to come. The parents should consider placing the vacation home into either a “vacation home trust” or a limited liability company (“LLC”). Both planning tools have similar features. After the parents’ deaths, title to the vacation home would not pass to the children; rather, the home would remain titled to the entity, with the trust agreement or LLC operating agreement setting forth the family members’ rights and responsibilities, through all the generations.

For example, if the parents have three children, the trust agreement might provide that each child – regardless of how many children any particular child may have -- would have a single vote on all major decisions affecting the vacation home. Each child’s single vote could be passed on to their respective children, so no child would be benefited, or disadvantaged, by having more or fewer children than their siblings. The agreement might also provide for a “draft” of preferred dates for uses of the home, with each child (or their offspring) getting first choice annually on a rotating basis. The agreement can also provide for consequences – including restrictions on use of the home -- if one of the family “branches” fails to pay for property taxes or other expenses.

The types of provisions that can be included in a vacation home trust or LLC agreement are limited only by the imagination of the parents and their estate planning advisor. But failing to address this critical planning issue is almost certain to lead to the end of the family retreat – and may even result in a permanent rupture of the children’s relationships.