Sui Generis--a New York law blog

Medicaid 101: Transfer Doesn't Count Until You Make It

Grandma owned savings bonds, and named Mom or one of the kids as the joint owner.  In 2001, Grandma handed the bonds over to Mom for safekeeping.  However, the bonds weren't cashed in until 2005.  In addition, when the bonds were cashed in, the proceeds were deposited in a joint bank account in the names of Mom and Grandma.

When Grandma applied for Medicaid later in 2005, the gift of the bonds didn't "count" until they were actually liquidated (i.e., 2005, well within the look-back period), any money in the joint bank account was considered to belong to Grandma, and the Department of Health denied Grandma's application.

The motto of both Medicaid planning and estate tax planning should really be "you can't have it all."  You can't have control of the money (i.e., have it be in your name) and also have the benefit of having given it away (i.e., have it not be in your name).  Read further at Matter of Padulo v. Reed.

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

Online Will Websites, Part II

Thanks to all for some great comments.  Over the weekend, I saw a commercial on TV for a legal document drafting website and software, that was endorsed by a well-known attorney, but one who is not licensed in New York (according to the attorney directory at nycourts.gov). 

How does this affect the online will debate - i.e., a prominent attorney advertising an online product, where there is no attorney-client relationship created?  Is this going to lead customers to believe they are purchasing legal counsel?

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

The Curious Phenomenon of the e-Will

 

A new client was recently referred to me by a colleague. The client had gone online and prepared her own Will, and my colleague was concerned that it might not be valid. I reviewed the client’s draft Will, and although it was awkwardly written and contained provisions that probably did not need to be included, it was, on its face, a valid New York Will.

I contacted the client to let her know that her online Will was fine, but that I would prefer to prepare a new one using my own format. (Due to various circumstances, there would have been no cost to the client). The client declined. She wanted to use the Will that she had created online, and wanted to come in to my office merely to have my paralegal and me serve as witnesses.

My husband (also an attorney who does a great deal of estate planning) and I visited with a close family friend earlier in the year. The friend was a successful, middle-aged woman who had recently come out of early retirement. She took obvious pleasure in telling us, repeatedly, that she had prepared her Will on the Internet and had thereby “escaped” the use of an attorney.

I just upgraded my personal financial software to a 2008 version. In addition to the updated bookkeeping software, I now have the company’s Will-drafting software installed on my computer. From a few minutes’ investigation, it looks like a Will created using the software would be adequate for some, but not all, of my clients.

These incidents bother me and I wonder if other attorneys have noticed a similar trend. I am sure that in many cases, a generic online document will serve a client well, and for fees that are much lower than the ones charged by attorneys.

I am more concerned about the few cases where an online document provider may completely miss the mark on a client’s estate plan. Revocable Living Trusts that are created but never funded come to mind immediately.

One website has a disclaimer stating that a client needs a lawyer if he or she will leave an estate worth more than $2 million, because then federal estate tax might be due. But in New York, the estate tax exemption is only $1 million – a $2 million estate might owe $100,000 to the State!

In addition, I frequently prepare additional documents as part of a client’s estate plan: Health Care Proxies, Living Wills, Powers of Attorney, Standby Guardian and Successor Custodian designations, and Health Care Proxies for the client’s minor children. What if the software does not prompt the client to create these documents?

 

Now many of these pitfalls could occur where a “real live” attorney prepared the client’s estate plan as well. However, when an individual attorney is involved, the client has recourse to the Attorney Grievance Committee, among other remedies. What is the client’s recourse if the “e-attorney” is wrong? Does this constitute the unlicensed practice of law? And what should the bar’s response be? Should I witness the first client’s online Will or persuade her to use one that I have drafted? I would appreciate comments from practitioners in all fields. 

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

A new client was recently referred to me by a colleague. The client had gone online and prepared her own Will, and my colleague was concerned that it might not be valid. I reviewed the client’s draft Will, and although it was awkwardly written and contained provisions that probably did not need to be included, it was, on its face, a valid New York Will.

Is New York Taxing Out the Elderly?

  My evidence for this is completely anecdotal, but it seems like more and more of my clients these days are considering moving out of state for estate tax reasons. 

     New York has an unlimited marital deduction for estate taxes, which means that assets passing from one spouse to the other upon the first death are tax-free.  However, when the second spouse dies, there is a $1 million exemption, and anything over $1 million is taxed at approximately a 10-17% rate. 

     It's understandable for a lot of our snowbird clients, that when the first spouse dies, the survivor moves to Florida permanently.  There is currently no estate tax in Florida, but that does not seem to be the motivating factor.

     However, I have a current client considering a move to Texas, and one considering a move to New Hampshire, and one of the big factors in each decision has been the New York estate tax.  The clients and their children have told me it "shouldn't be" their motivation, but admit that it is. 

     As a practitioner, I prepare estate tax returns, and as a New York resident, I take advantage of many state programs that they fund, and so I can't honestly advocate in favor of abolishing them.  However, it concerns me that my clients are choosing where they will spend the rest of their lives based on provisions of tax law. 

     I invite comments from other estate attorneys:  are you seeing the same thing among your clients?  Is Upstate New York losing its elderly, as well as its twentysomethings?  Or am I making a mountain out of a molehill here? 

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

$12 Million Inheritance Not Enough For These Heirs

We've all heard of the "Prudent Investor" rule for Trustees and Executors of estates.  But just how "prudent" does a Trustee have to be?  Does a Trustee have a duty to do some possibly risky planning to avoid estate taxes on the death of the income beneficiary of a trust?  Or is that something the Trustee should avoid?  And whose opinion matters more, the lifetime beneficiary (in many cases, the surviving spouse) or the remainder beneficiaries (the kids)? 

An interesting article in Trusts & Estates Magazine reviews a Minnesota case where the kids sued the corporate Trustee because it did not pursue an aggressive estate tax planning strategy with regard to Mom's Trust assets.  The kids disputed the requirement that they pay nearly half of their $25 million inheritance to Uncle Sam.  (Spoiler alert:  the kids lost.)

The court found that the corporate Trustee had no duty to invest the Trust assets in tax-avoiding vehicles.  Of particular importance to the court was that during Mom's lifetime, she made it clear that she was concerned with maximizing her own income stream and didn't care much whether taxes would be due upon her death. 

What may concern Trustees and other fiduciaries when reading this article is that the court took 177 pages of opinion to reach this conclusion.  The authors of the article, Samantha E. Weissbluth and Erika Alley, both of Foley & Lardner, end by urging Trustees to document all estate planning and tax planning meetings with clients, in order to forestall additional litigation.

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

Test Tube Babies Can Be Trust Fund Babies, Too

     Technology has drastically changed the ways in which children can be conceived, and children can now be conceived in a laboratory long after one or both parents have died.  Trusts and Estates law, however, has been slow to catch up, and has not always followed the scientific trend.  The New York State Estates, Powers, and Trusts Law (EPTL) will only recognize a child born after its parent's death if the child was conceived during the parent's lifetime (i.e., father dies while mother is pregnant) (EPTL Secs. 4-1.1(c), 5-3.2).  In fact, by a 2006 amendment, the EPTL specifically excludes children who are conceived after the parent's decease, unless there is some written evidence that the deceased intended for the after-born children to come into being (EPTL Sec. 5-3.2).  However, the statute specifically applies to "children," not to any other category of descendant.

     In Matter of Martin B., 2007 NY Slip Op. 27306, 841 N.Y.S.2d 207 (Surr. Ct. N.Y.Co., July 30, 2007), Martin set up trusts in the 1960s that were designed to "sprinkle" money to his"issue" and "descendants" after his wife's decease.  During Martin's lifetime, his son, James, was diagnosed with Hodgkin's Lymphoma, and died.  Before James died, he had some of his semen cryopreserved, with the instructions that it be used by his wife according to her discretion.  Martin died shortly after James.

     Several years later, James's widow, Nancy, was artificially inseminated with the semen on two different occasions, and gave birth to two sons.  The question before the Court in this case was whether Martin's trusts could in the future "sprinkle" money to the two post-conceived grandsons, after the decease of Martin's widow.

        The Court reviews the laws of several jurisdictions, including the District of Columbia and New York, which allow "posthumous" children to share in such a future estate, but do not specifically address the issue of post-conception.  The Court then looks to the Uniform Probate Act (UPA), and the statutes of Louisiana, California, and California, which require specific steps be taken, generally in writing, to ensure that the post-conceived child will inherit.  In addition, the Court points out that Massachusetts, New Jersey, and Arizona have concluded that post-conceived children are entitled to Social Security benefits.

     The Surrogate concludes that the EPTL does not exclude Martin's post-conceived grandchildren, and public policy does not prevent them from inheriting.  Therefore, the two children of Nancy and deceased James are "issue" and "descendants" of their grandfather for purposes of the trusts.

     The Surrogate ends by sending copies of her decision to the Chairs of the State Senate and Assembly Judiciary Committees, with a call for legislation one way or another.

     Interesting celebrity footnote:  the guardian ad litem for the grandchildren is listed as "Mario Cuomo, Esq."

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

Does Mom Have the Capacity to Sign That Document?

With so many of our older clients suffering from the dementia and the early stages of Alzheimer’s, as well as younger clients who may have developmental difficulties, estate practitioners are sometimes at a loss to determine whether a client has the capacity to execute the documents we have drafted. We recently received additional guidance from the Appellate Division, Fourth Department.

 

During a guardianship proceeding that was later dismissed, a daughter sought to prove that her mother lacked capacity to execute a Power of Attorney and a Health Care Proxy, appointing a grandson and another daughter, respectively, as agents. The Supreme Court of Oswego County (Judge John J. Elliott) found that the mother had capacity to execute the documents, and dismissed the guardianship petition. The Appellate Division later affirmed (In the Matter of the Application for the Appointment of a Guardian of the Person and/or Property of Mildred M.J., an Alleged Incapacitated Person, Slip Opinion CA 07-00533, 4th Dept. Sept. 28, 2007).

 

The allegation was that the mother was suffering from dementia, and was therefore not able to understand the documents she was signing, or the consequences of signing them. There was testimony at the hearing that the mother did indeed suffer from “moderate” dementia. However, the Appellate Division stated that “there is no presumption that a person suffering from dementia is wholly incompetent.”

The court required other evidence to show that the mother lacked capacity at the exact time she signed the documents. Instead, the other children presented the testimony of a doctor and a nurse practitioner, who stated that the mother “would have been able to understand questions such as whom she would like to make her health care decisions if she were unable to do so and whether she would like her grandson to handle her financial affairs.” The drafting attorneys also testified in support of the mother’s capacity (every estate attorney’s least favorite activity).

Only that most basic understanding is required in order to have capacity to sign estate planning documents.

We often advise our clients to create Health Care Proxies and Powers of Attorney in order to avoid the nightmare of a contested guardianship proceeding. It is unfortunate that it had the opposite result in this case.

-Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law.

Be Nice to Your Teenage Daughter, Just in Case

Trusts and Estates law is often seen as a dry subject, even among attorneys.  I find it fascinating, however.  The stories and psychologies of the clients and litigants are at the center of every case, and some of the most contentious lawsuits are brought (or not) because of family dynamics.  Estate of Burton Wallens (___ N.Y.3d ___, Oct. 18, 2007) is a great example of this, and is one of those stories that makes me think Surrogate's Court should be able to order family counseling.       

Maggie's parents were divorced in 1995 when Maggie was 13, and Maggie went to live with Mom.  The divorce decree required Dad to pay for Maggie's expensive private high school.       

In 1997, Grandpa died and left $200,000 to Maggie in Trust, to be used for her "support, education, maintenance and general welfare."  Grandpa had named Dad the Trustee.  As Trustee, Dad used Trust money to pay for Maggie's "education" - the tuition at her expensive private high school.       

Maggie went to live with Dad in 2000, and the Court relieved Dad of his obligation to pay child support.  When Maggie went to college, Surrogate's Court approved the use of Grandpa's Trust money to pay for her college tuition.     

In 2003, when Maggie turned 21, she asked Dad for a formal accounting of her Trust funds.  Maggie refused to approve the use of her Trust money to pay for her high school tuition, claiming Dad was already required to pay that expense out of his personal funds.  The case has been in litigation ever since, and has now reached the Court of Appeals.       

Initially, Surrogate's Court agreed with Maggie and ordered Dad to repay the high school tuition money to the Trust, saying that Dad's independent obligation to pay for Maggie's education trumped the language of the Trust.  When Dad appealed, the Appellate Division reversed, saying the Trust had been set up to pay for Maggie's education, which was exactly what it had done.  Maggie then appealed the decision of the Appellate Division, and the Court of Appeals again reversed.       

The expenditure of Trust money on Maggie's high school tuition was explicitly authorized by the Trust language.  "But", says the Court of Appeals, "even when the trust instrument vests the trustee with broad discretion to make decisions regarding the distribution of trust funds, a trustee is still required to act reasonably and in good faith in attempting to carry out the terms of the trust."    In other words, just because Dad could use Trust money to pay Maggie's educational expenses, it didn't mean he should have.          

The Court of Appeals goes on to say that Dad should have obtained Surrogate's Court approval of this expenditure, just like he did for the college expenses, and remands the case to Surrogate's Court to decide whether Dad acted in good faith.       

This case reminds practitioners to be thorough in extracting pertinent information from their clients before giving advice about Trust distributions. It also shows that the parent-child relationship that is strained during a divorce can come back to bite you.

--Authored by Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law. 

Trusts & Estates Horror Story

I'd like to introduce you to Elizabeth Randisi, a Rochester, New York attorney associated with the law firm WeinsteinMurphy.  Her practice focuses on Trusts and Estates and elder law. 

Elizabeth will be a frequent guest blogger on Sui Generis and, not surprisingly, will be posting about trusts and estates, and Medicaid and elder law issues. 

Her first post follows:

Here is the outline of a current case that all you practitioners can use as a horror story to scare your clients into completing their estate plan (or your colleagues; we all know how few attorneys actually have a current estate or business succession plan in place).

We represented a husband and wife, who had a living trust.  Both spouses died in the past year, and the successor trustee was their only son.  Because they had a trust, the administration of their estates went smoothly, and the son transferred all the assets to himself pursuant to the trust.   

All that remained was for us to file trust income tax returns when the son suddenly died.  The next named trustee was a niece of the grantors, so the trust administration could still be completed without much trouble.

However, not only did the son not have his own trust, he didn’t even have a will.  Despite numerous entreaties from our firm, the son had never completed any sort of estate plan.  He just didn’t want to think about planning for his own death.   

Now we had an intestate probate estate containing all of the assets of the parents that, through the planning we had done, had just bypassed probate entirely.  Worse, we didn’t know who would, or even could be appointed to administer the son’s estate.  He was an only child. 

The father was an only child.  And the mother had some distant siblings, only one of whom was living, and some nieces and nephews.    The niece who had been named as successor trustee of the parents’ trust agreed to handle the son’s estate and petitioned to be appointed administrator.  She was the daughter of the mother’s surviving sister, and therefore, not a distributee who was eligible to be appointed pursuant to the statute (S.C.P.A. §1001(1)).  However, if her mother and surviving cousins (only about half of whom had been located) consented to her appointment, the surrogate’s court could grant her petition (S.C.P.A. §1001(6)).  And then her mother died…

Stay tuned to find out if we locate the missing cousins, whether we have to hold money in trust for them, and whether we need to probate the aunt’s will so that the niece can make distributions from the estate to herself.