Monday, October 17, 2011

Since We're Going to Spend Money on Health Care, Spend it Wisely!

As noted in my last post, the CLASS Act -- a provision of the Obama health care law that included modest long-term care benefits (not exceeding $75 per day) for those willing to pay the premiums -- has been scrapped as financially unsustainable.  The fact that has gone largely unspoken, however, is that their is money available to cover a substantial portion of long-term care expenses.  As former New York Times reporter Jane Gross points out recently in this excellent column, it's not that we lack the funds to cover a substantial portion of long-term care costs; rather, Medicare spends too much on the wrong type of care. 

As but one example supporting her argument, Gross points out that Medicare will cover the costs for a hip replacement for a frail senior citizen who will likely require long-term care with our without the procedure.  If the senior ends up in a long-term care facility, however, Medicare will at most cover a portion of the cost for 100 days' of rehabilitation.  Once Medicare stops paying the tab, if the senior is already of limited means -- or becomes impoverished as a result of an asset spend down -- then taxpayers, through the Medicaid program, will be on the hook for the senior's long-term care costs for the rest of her life. 

Why, you may ask, does it matter whether Medicare or Medicaid covers the cost of care -- both of federal programs, right?  As Gross points out, however, Medicare is supported by payroll taxes and thus at least has a significant element of being a self-funded program.  Medicaid, in contrast, is essentially a pure "welfare" program that is completely taxpayer supported.

The solution, Gross argues, is to have a serious national conversation about the reallocation of our precious health care dollars away from pointless and wasteful procedures (hip replacements for Alzheimer's patients) and towards the costs of custodial long-term care that is increasingly bankrupting our seniors.  Of course such a conversation will inevitably lead to the "R" word -- that is a discussion of the rationing of health care services.  I am continually amazed that conservatives who  complain about runaway government spending will decry rationing of health care -- even raising the phony spectre of "death panels" -- and seem unwilling to have a serious conversation about the irrational nature of spending on health care in this country.

Long-Term Care Program Scrapped by Obama Administration

The Community Living Assistance Services and Supports Act (commonly referred to as the "CLASS" Act) was one of the many controversial components of the 2009 federal health care legislation.  As implemented, the CLASS Act would have allowed any American who paid premiums into a long-term care fund for five years to be then eligible for long-term care benefits of between $50 and $75 per day for various long-term care services, including home care.

Even at those modest numbers -- full-time home care runs about $250 per day in the Hudson Valley, while most local nursing homes average about $350 per day on a private pay basis -- the CLASS Act was deemed financial unsustainable by the Department of Health and Human Services.  The concern was that people most likely to require the services would pay the premiums, while healthier people would opt-out, thereby putting too big a strain on the system.  Apparently concerned that our nation could ill-afford another expensive federal government program, President Obama's administration has decided to halt implementation of the CLASS Act.

To learn more, check out this article at Elder Law Answers.

Thursday, October 6, 2011

New Decanting Statute Facilitates Transferring Assets Out of a "Bad" Trust

In 1992, New York became the first state to enact a statute that expressly permitted a trustee to move assets from one trust to another trust.  These trust to trust transfers – known as “decanting” – provides flexibility that is often desired to address changing circumstances and in correcting errors that might otherwise defeat the trustmaker’s intent.

Since 1992, however, many states have enacted decanting statutes that provide trustees with far greater flexibility than has been possible under New York’s decanting statute.  In response to criticism from trustees and attorneys that New York’s law was too restrictive, New York recently amended the state’s decanting statute to provide a much-needed expansion of a trustee’s decanting authority.

The statute, which was signed into law by Governor Cuomo on August 17, 2011, applies to all existing trusts as well as trusts created after enactment of the legislation. The law includes the following significant changes from the prior decanting statute:

  • Previously, a trustee could move assets to a new trust only if the original trust document provided the trustee with the “absolute discretion” to invade trust principal. Under the amended law, however, a trustee may transfer principal to a new trust so long as the principal invasion powers in the new trust are at least equivalent to the invasion powers in the original trust.  For example, many trusts permit principal invasions for the beneficiaries’ “health, education, maintenance and support” (commonly referred to as the “HEMS” standards).  Under the prior “absolute discretion” standard, a trustee had no authority to transfer assets from a trust utilizing the HEMS standards to another trust, even if the new trust provided for HEMS distributions.  Under the revised law, a trustee may transfer the trust principal from one HEMS trust to another trust also following a HEMS standard.   
  • If in fact the existing trust provides the trustee with “absolute discretion” to make distributions to one or more trust beneficiaries to the exclusion of other trust beneficiaries, then the trustee may transfer the principal from the original trust to a new trust that may include any one or more of the beneficiaries of the original trust; the new trust need not include all the beneficiaries from the original trust.  If, however, the trustee in the original trust does not have unlimited discretion as to distributions of trust principal, then the beneficiaries of the new trust must be the same as the beneficiaries of the original trust.
  • Trust assets may be decanted to a new trust that has a longer term than that of the original trust, which provides expanded opportunities for multi-generational estate planning.
  • The new trust can be established by the trustmaker of the original trust or by the trustee of the original trust.
  • For a “living trust,” there is no longer a requirement to file the decanting document with the Surrogate’s Court, unless proceedings involving the original trust have previously been commenced with the Court.
While the new decanting rules may prove useful in an array of situations, here are two common scenarios where the new decanting rules might be especially helpful: first, with existing “Medicaid” trusts that may not conform to new regulations implemented in New York in September 2011; and second, with old irrevocable life insurance trusts that no longer meet the family’s planning objectives. If you have created an irrevocable trust that you believe no longer fulfills your intent, or if you are a beneficiary of such a trust, you may want to consult with an estate planning attorney to determine whether the new decanting rules might prove useful in your situation.