SEPTEMBER 6, 2010 VOLUME 17 NUMBER 28
The question addressed in a ruling last month by the Arizona Court of Appeals seems provocative. In a lawsuit based on the Arizona law prohibiting abuse, neglect or exploitation of vulnerable adults, does the very life of the abused senior have any intrinsic value? The Court’s answer: perhaps, but the lawsuit can not recover damages for the loss of that life.
Mary Winn died about a month after being admitted to Plaza Healthcare, a Scottsdale, Arizona, nursing home, in 1999. Four years later her husband George Winn filed a lawsuit against Plaza, alleging that it had violated Mrs. Winn’s rights under Arizona’s Adult Protective Services Act. Under the APSA, a vulnerable adult who has been abused, neglected or exploited may recover damages suffered as a result of that abuse, neglect or exploitation. Mr. Winn argued (on behalf of his wife’s estate) that he should be able to recover on behalf of his late wife, and that she would have been entitled to actual damages for the loss of her life, as well as punitive damages.
Not so, argued the nursing home. Mrs. Winn obviously could never have collected damages for her own death, and her estate’s recovery was limited to what she could have recovered. In fact, the estate’s possible recovery was less than her damages, since any claim for pain and suffering she experienced at the end of her life ended with her death. With no actual damages to recover, her estate could not seek punitive damages.
Mrs. Winn’s estate argued that her life had some “intrinsic” value, and that it should be recoverable. The estate conceded that she was elderly and ill when she arrived at Plaza Healthcare, and that she could not be expected to earn a salary given her age and condition. But, insisted the estate’s lawyers, a human life has some inherent value.
The trial court agreed with the nursing home, and limited the estate’s proof to just actual damages. After an informal arbitration proceeding (the estate conceded that the remaining damages were less than $50,000, and therefore subject to mandatory arbitration rules) a judgment against was entered in favor of Plaza Healthcare.
The Arizona Court of Appeals reviewed the trial court’s ruling and agreed. There is no cause of action under the vulnerable adults statute, ruled the appellate judges, for the “intrinsic or inherent value” of a deceased claimant’s life. Mrs. Winn’s estate — and her husband — recovers nothing from Plaza Healthcare. Estate of Winn v. Plaza Healthcare, Inc., August 10, 2010.
To be fair, the appellate court did not rule that there is no value to the life of an elderly, disabled and vulnerable senior. All the ruling says is that there is no right to recover under the Arizona Adult Protective Services Act for the loss of life itself.
Does that mean that Mr. Winn had no claim for his wife’s alleged mistreatment? Not necessarily — he might have been able to file his lawsuit on his own behalf if he had acted more quickly. By the time he filed it had been more than four years since his wife’s death — too late for any wrongful death action but not too late for a viable lawsuit under the Adult Protective Services Act, which had a much longer statute of limitations.
There is another interesting footnote to the Winn case. Last month’s decision from the Court of Appeals is not the first time Mrs. Winn and her estate have been before Arizona appellate judges. In fact, her case had been appealed twice before — once in 2006/2007, and again a year later. The first trip through the appellate system involved the trial judge’s dismissal — ultimately reversed by the Arizona Supreme Court — on the basis that a probate proceeding filed more than two years after the decedent’s death did not permit filing of a lawsuit in the estate’s name. A year later the Court of Appeals dismissed an attempted appeal from the trial judge’s initial refusal to allow any recovery for the inherent value of Mrs. Winn’s life. That appeal had to wait for final resolution of the entire lawsuit, which was accomplished before the current (and probably final) appeal.
AUGUST 23, 2010 VOLUME 17 NUMBER 27
It really is unfortunate that we didn’t see this problem coming. Those of us who pioneered special needs trust planning back in the 1980s should have realized that we were setting up everyone (including ourselves) for confusion. We should have just given the two main kinds of special needs trusts different names. But we didn’t, and now we have to keep explaining.
There are two different kinds of special needs trusts, and the treatment and effect of any given trust will be very different depending on which kind of trust is involved in each case. Even that statement is misleading: there are actually about six or seven (depending on your definitions) kinds of special needs trusts — but they generally fall into one of two categories. Most (but not all) practitioners use the same language to describe the distinction: a given special needs trust is either a “self-settled” or a “third-party” trust.
Why is the distinction important? Because the rules surrounding the two kinds of trusts are very different. For example, a “self-settled” special needs trust:
Must include a provision repaying the state Medicaid agency for the cost of Title XIX (Medicaid) benefits received by the beneficiary upon the death of the beneficiary.
May have significant limitations on the kinds of payments the trustee can make; these limitations will vary significantly from state to state.
Will likely require some kind of annual accounting to the state Medicaid agency of trust expenditures.
May, if the rules are not followed precisely, result in the beneficiary being deemed to have access to trust assets and/or income, and thereby cost the beneficiary his or her Supplemental Security Income and Medicaid eligibility.
Will be taxed as if its contents still belonged to the beneficiary — in other words, as what the tax law calls a “grantor” trust.
By contrast, a “third-party” special needs trust usually:
May pay for food and shelter for the beneficiary — though such expenditures may result in a reduction in the beneficiary’s Supplemental Security Income payments for one or more months.
Can be distributed to other family members, or even charities, upon the death of the primary beneficiary.
May be terminated if the beneficiary improves and no longer requires Supplemental Security Income payments or Medicaid eligibility — with the remaining balance being distributed to the beneficiary.
Will not have to account (or at least not have to account so closely) to the state Medicaid agency in order to keep the beneficiary eligible.
Will be taxed on its own, and at a higher rate than a self-settled trust — though sometimes it will be taxed to the original grantor, and sometimes it will be entitled to slightly favorable treatment as a “Qualified Disability” trust (what is sometimes called a QDisT).
So what is the difference? It is actually easy to distinguish the two kinds of trusts, though even the names can make it seem more complicated. A self-settled trust is established with money or property that once belonged to the beneficiary. That might include a personal injury settlement, an inheritance, or just accumulated wealth. If the beneficiary had the legal right to the unrestrained use of the money — directly or though a conservator (or guardian of the estate) — then the trust is probably a self-settled trust.
It may be clearer to describe a third-party trust. If the money belonged to someone else, and that person established the trust for the benefit of the person with a disability, then the trust will be a third-party trust. Of course, it also has to qualify as a special needs trust; not all third-party trusts include language that is sufficient to gain such treatment (and there is a little variation by state in this regard, too).
So an inheritance might be a third-party special needs trust — if the person leaving the inheritance set it up in an appropriate manner. If not, and the inheritance was left outright to the beneficiary, then the trust set up by a court, conservator (or guardian of the estate) or family member will probably be a self-settled trust.
That leads to an important point: if the trust is established by a court, by a conservator or guardian, or even by the defendant in a personal injury action, it is still a self-settled trust for Social Security and Medicaid purposes. Each of those entities is acting on behalf of the beneficiary, and so their actions are interpreted as if the beneficiary himself (or herself) established the trust.
Since the rules governing these two kinds of trusts are so different, why didn’t we just use different names for them to start with? Good question. Some did: in some states and laws offices, self-settled special needs trusts are called “supplemental benefits” trusts. Unfortunately, the idea didn’t catch on, and sometimes the same term is used to describe third-party trusts instead. Oops.
We collectively apologize for the confusion. In the meantime, note that the literature about special needs trusts sometimes assumes that you know which kind is being described and discussed, and sometimes even mixes up the two types without clearly distinguishing. Pay close attention to anything you read about special needs trusts to make sure you’re getting the right information.
Want to know more? You might want to sign up for our upcoming “Special Needs Trust School” program. We are offering our next session (to live attendees only) on September 15, 2010. You can call Yvette at our offices (520-622-0400) to reserve a seat.
AUGUST 16, 2010 VOLUME 17 NUMBER 26
Let’s say you have created a revocable living trust, and you have named yourself as trustee. You also name your two children as successor trustees, to act together upon your death or incapacity. Two years later you become incapacitated; because of a dispute between your two children about who should handle assets outside the trust, the probate court names a local bank as your conservator. Now who handles your trust — the bank, or your children?
Before we answer that question, let us complicate it. You are also the beneficiary of a trust set up by your late husband — and you are trustee of that trust, as well. About half of the assets the two of you owned are included in each of the two trusts. Your husband’s trust names you as trustee (now that he is deceased) and names the two children as successor trustees if anything should happen to you. Does your conservator have any authority over that trust?
Those were precisely the questions faced by a probate judge in South Dakota when Evelyn Didier became incapacitated. The bank appointed as her conservator asked the court to clarify that it had control over both trusts as well as Ms. Didier’s non-trust assets. The judge agreed, and Ms. Didier’s daughter Barbara Didier-Stager appealed.
Court appointment of a conservator does not amount to appointment of a successor trustee, argued Ms. Didier’s daughter. In fact, appointment of a conservator proves the incapacity that triggers a change in trustees — resulting in the son and daughter taking over as successor trustee of their mother’s trust. As to their father’s trust, the successor trustee provisions are triggered by the conservatorship in the same way — though our simplified version of the facts described above fails to clarify that the successor trustees of that trust were actually Ms. Didier-Stager and another local bank — different from the bank acting as Ms. Didier’s conservator.
South Dakota, like Arizona, has adopted the Uniform Probate Code — though South Dakota’s version has been updated more recently and is more current. The Code includes provisions about guardianship and conservatorship (though now those sections have been set aside as a separate uniform law, the Uniform Guardianship and Protective Proceedings Act). Those uniform laws permit the judge in a conservatorship proceeding to enter orders related to the protected person’s estate plan.
So, reasoned the South Dakota court, the probate court could permit Ms. Didier’s conservator to do anything that Ms. Didier herself could have done before becoming incapacitated. Her own trust was revocable and amendable — if she had wanted to do so, she could have changed the successor trustee at any time. She could have named the bank that was ultimately appointed as her conservator. Consequently, the court could allow her conservator to assume the powers of successor trustee over that trust.
The late Mr. Didiers trust was a different matter, however. Ms. Didier herself did not have the power to change the trustee, and so her conservator could not exercise that power on her behalf. That trust would have to be dealt with separately, and the Supreme Court ordered the case remanded to the probate judge to determine what to do about Mr. Didier’s trust. Conservatorship of Didier, June 30, 2010.
Does this mean that Mr. Didier’s successor trustees automatically take over, instead of Mrs. Didier’s conservator? Probably not. Other provisions of the Probate Code give the probate judge authority over trust administration, and if it appears that there is some reason not to allow the named successors to become trustee there will presumably be an order to that effect. But it does change the discussion from a choice between blindly following the document or giving Mrs. Didier’s conservator power to do anything she could do. Instead, the probate court will have to determine which approach is most consistent with the trust, with proper administration, and with the best interests of the trust’s beneficiaries.
The Uniform law actually goes quite a bit further today than the 1974 version originally adopted in Arizona (though Arizona has updated portions of the law several times). Reviewing the statute in the context of the Didier case highlights some of the changes. Among the powers given to conservators by the “new” Code (as adopted in South Dakota, for instance) is the power to “make, amend, or revoke the protected person’s will.” (See Section 411(a)(7) of the Uniform Guardianship and Protective Proceedings Act.) Court approval is required, but the very notion of a conservator changing the protected person’s estate plan might strike some as dangerous.
AUGUST 9, 2010 VOLUME 17 NUMBER 25
Want to read about the debate over estate tax reform/repeal/reinstatement? There is plenty of literature. You can easily learn about the history of the estate tax (going back to 1797 in the United States, or to the 7th century BCE elsewhere).
How about real-life stories? You already knew that George Steinbrenner saved his family $600 million by managing to die during 2010 (although it turns out that the actual savings is much murkier and, probably, not near that number). But you probably have not heard of Iowan Eugene Sukup, who at 81 is contemplating what will happen to his considerable estate — and the family business — when he dies.
Maybe you make your decisions on the basis of the positions of famous people. How about what Bill Gates, Sr. (not the software innovator, but his father, who has spoken and written extensively on this subject) says about the estate tax? How about Alan Greenspan, former Federal Reserve chairman? Turns out it’s easier to find wealthy people speaking out in favor of the estate tax (albeit a “reasonable” estate tax) than against the tax altogether, but perhaps that is just because it is such a surprise, at least at first blush.
You know what is missing from most of the debate — and reporting — on the estate tax? Real numbers. Except for that last reference (the Washington Post’s “PostPartisan” blog), there is almost no mention in any of the articles collected here about how many people actually pay — or would pay — an estate tax on death. Are you curious? You may be surprised by the answer.
The best reference we could find is a December 18, 2009, report from the Congressional Budget Office. The non-partisan CBO manages, in a dense but readable 12-page report, to explain the interrelationship of the estate tax with gift taxation and the generation-skipping tax, provide a history of the revenue generated through the estate tax (shown as a percentage of all federal receipts), and describe the effect of all of the major proposals being considered by Congress.
It turns out that in 2004, when the estate tax applied only to estates worth more than $1.5 million, there were 19,294 estate tax returns on which the decedent’s estate owed any money to the federal government. That amounts to .82% of all deaths in 2004. Compare that to 1.14% of deaths in 2003 and 1.17% in 2002; in both of those years the estate tax applied to estates worth more than $1 million. Those details, incidentally, come from the Internal Revenue Service’s Spring, 2009 Statistics of Income Bulletin (if you try to locate the figures yourself, you’ll want to scroll down to page 222 of that lengthy report). The IRS has updated the figures for 2005 and 2006 and, not surprisingly, the percentage of taxable estates has dropped further. In 2005 (with a taxable level of $1.5 million, the same as in 2004), the percentage of taxable estates was .95. In 2006, when the taxable estate level went to $2 million, the number of estates reaching that level dropped to .63%. That was the smallest percentage since at least 1934, when the current tax code was first adopted.
So what does this all mean? Basically, with an estate tax level at about $1 – 1.5 million, right around 1% of decedents will pay any tax at all. At the $2 million level, that percentage drops to about 2/3 of 1%. If Congress proves to be paralyzed, by partisanship or otherwise, and the estate tax drops back to the $1 million level in 2011, then about 1% of decedents’ estates will, presumably, have to pay estate taxes.
That is not the end of the story, of course. It is not, for instance, the same thing as saying that 1% of people are worth a million dollars, or slightly more. Why are they not the same thing? For a variety of reasons, including:
Decedents are, of course, older than the general population. It is likely that the decedents in a given year are somewhat wealthier than the population as a whole, but the statistics we have described here do not show that or even hint at how much difference we should expect. One thing the statistics DO take into account: the IRS removed deaths of children from the figures, so the percentage of ALL deaths paying estate taxes would be slightly smaller.
Decedents with estates of just over the taxable limit have a variety of estate planning options to avoid any estate taxes. Married couples can plan to preserve the exemption for each spouse, those with slightly larger estates can use lifetime gifting, and devices like family limited partnerships and limited liability companies can reduce the value of the estate for tax purposes. Money left to charities or surviving spouses escapes taxation altogether. It is likely that a significant percentage of decedents transferred an amount of property to heirs that would have been taxable but for such techniques.
Even if 99% of decedents avoid estate taxes completely, that does not mean that the estate tax system had no effect on any of them. Presumably another small but significant percentage (perhaps 1-5%) expended at least some funds on the estate planning necessary to avoid estate taxation. We know of no study indicating how many have done so, or at what cost.
Inflation (if there is any) and wealth concentration trends will have continued since the 2002/2003 figures were calculated. In those years the percentage of decedents’ estates paying any estate tax were 1.17 and 1.14, respectively; of course, with the significant reductions in net worth for many Americans since those years the figures might actually drop for 2011. Over time, however, the percentage should be expected to grow. As it did, for instance, between 1987 and 1999, when the estate tax level remained constant at $600,000. During those twelve years, the percentage of estates subject to any tax increased from .88% (in 1987) to 2.3% (in 1999).
Of course, the estate tax level increased to $3.5 million in 2009 (before being eliminated entirely in 2010). The result of that near-doubling of the taxable level in one year has not yet been calculated and published. It will be interesting to see.
One final thought about the statistics developed by the IRS and the CBO: in 2004, with a taxable level higher than ever before and with the smallest percentage of decedent’s estates paying any tax whatsoever in the history of the modern estate tax, the IRS brought in a total of $22.2 billion. That was the fourth-highest haul in the history of the tax, and was about $4.5 higher than the two previous years, with taxable levels at $1 million (rather than the $1.5 million of 2004).
AUGUST 2, 2010 VOLUME 17 NUMBER 24
Your doctor is busy. She is seeing dozens of patients every day, and their insurance plans force her to get those patients taken care of and out the door quickly. By default, she may limit her contact to the minimum necessary to diagnose and treat.
But you want more. You want to know what is really going on. You want to know how you can help, and whether you should be adjusting your diet or your habits. You want to understand the interrelationship of different medications, and the side effects of each. You want to hear about alternative treatments, what the doctor is looking for, what you can expect.
How are you going to get that information from your smart, helpful, friendly but very busy doctor? By talking with her, of course.
Easier said than done. In a perfect world you would have all the tools you need — well, actually, in a perfect world you wouldn’t need a doctor at all, but we’re some distance from either level of perfection. But maybe a new publication from the National Institute on Aging can help.
“Talking With Your Doctor: A Guide for Older People” is a practical pamphlet designed to give you some tips about how to communicate with your physician (or, for that matter, your physician’s assistant, nurse practitioner or other health professional). It comes complete with some worksheets and checklists to help you organize yourself for your initial or periodic doctor’s visit. Do you have your advance directives with you? Have you listed all the medications AND over-the-counter AND herbal remedies and supplements you take? Do you have your insurance card, the names and phone numbers of specialists or other doctors you see, your eyeglasses and hearing aids with you?
Some practical tips from the NIA publication:
“Consider bringing a family member or friend.” It might be easier to remember the important items on your list if you have organizational and moral support. A savvy assistant can help you remember what the doctor tells you, too.
Start by locating a doctor you can talk to. If you are uncomfortable about getting information from your current doctor, or unable to get her to understand how important it is to you to have a discussion rather than a lecture, consider changing doctors. Interview a prospective new doctor’s staff on the telephone — after all, they are the ones you will deal with most. Check your prospective doctor’s credentials and special training. Schedule a first meeting (you may have to pay for it if your insurance doesn’t cover it) and pay attention to how well the doctor works with you and how comfortable you feel about the exchange of information.
Share information about your habits, as well as your medical care and conditions. In order to understand what is going on with you, your doctor must know whether you smoke or drink, whether you engage in risky behaviors, how much you sleep each night, whether you have an active sex life. Be candid and forthcoming with your doctor; she will be better able to advise you if she knows what you are doing.
Perhaps you are helping care for (or are concerned about) an elderly family member or friend, or one with a disability. The NIA booklet can serve as a guide for you, as well. You can use the checklists and worksheets to collect and organize information, and to help you keep track of questions you need to address. The tips for communication with your doctor will work every bit as well when the patient is someone you are caring for, or care about.
You can order printed copies of “Talking With Your Doctor” for free. You can also download it online and print out only those portions you need — like the worksheets, for instance. It could help you get a better handle on your medical treatment, or the treatment of someone you care for or about.
JULY 26, 2010 VOLUME 17, NUMBER 23
Imagine a couple, each married for the second time. Perhaps each has children from a first marriage. Perhaps the couple has been married for years — even decades. They think of all the children as “their” children, even though they fully understand that the other spouse’s children are stepchildren.
One of the spouses — let us say the husband — dies. He leaves his interest in the family home, together with all the couple’s accumulated wealth, to his widow; his will specifies that on the second death all of the children share the estate equally. His children remain in contact with their stepmother for the next decade, though that contact lessens over time. When she dies, what happens to the home, the bank accounts and the remaining wealth?
This scenario plays out again and again. Most often, the deceased husband’s will is irrelevant. If the property all passed to the wife without restrictions, she is free to change her will, to transfer the property into trust, to spend it or even to give it away. But that is not always the case.
Ralph and Elaine Lawson married in 1971. They owned 12 acres of Iowa land as “joint tenants with right of survivorship.” They had three children between them: Ralph’s son and daughter Roger and Le Ann, and Elaine’s son Lonnie. Just to complicate things further, Ralph later adopted Lonnie.
In 1987 Ralph and Elaine signed identical wills. Each left everything to the other. On the second death, the wills provided that fifty percent of the combined estate would go to Lonnie, twenty percent each to Roger and Le Ann, and ten percent to the couple’s church. The wills contained an unusual provision: each included language that indicated the couple had agreed “that neither will change our will” without the other’s consent.
Ralph died first. The property passed to Elaine automatically because of the joint tenancy title, so Ralph’s will was not filed with the Iowa probate courts.
A few years later Elaine changed her estate plan. First she transferred the acreage to her son Lonnie, reserving a life estate for herself. Then she signed a new will, leaving the same proportions of her estate to Lonnie (50%), Roger (20%) and Le Ann (20%), but changing the church which would receive the remaining 10%. Shortly after that, Elaine died.
Roger and Le Ann sued to enforce the terms of their father’s and stepmother’s original wills. They alleged that the wills amounted to a contract, that Elaine’s transfer of the property to Lonnie violated that contract, and that the court should impose a trust upon the property to secure its return to the original beneficiaries. The trial judge reviewed the two wills and agreed with Roger and Le Ann.
The Iowa Court of Appeals upheld that ruling, ordering the imposition of a trust on the 12 acres. The language of Ralph’s and Elaine’s wills made it clear, according to the appellate judges, that their intent was to prevent the survivor from changing the estate plan by a new will or by transferring property during lifetime.
Lonnie argued, unsuccessfully, that the reciprocal wills should not prevent transfers of the acreage because it did not come into Elaine’s estate by virtue of Ralph’s will. The court dismissed that objection, noting that the language of the wills was broad enough to encompass any estate planning technique, whether it might be a will, a gift, or a living trust. The appellate judges also rejected Lonnie’s argument that his parents’ wills should not have been admitted to the court proceeding; the wills were not being admitted to probate, said the judges, but were being admitted to prove a contract. Consequently, the standards and requirements for admission were those governing contract documents rather than wills. Cunningham v. Lawson, July 14, 2010.
Would Arizona courts reach the same result? It is not completely clear, since the law of reciprocal wills (sometimes called mutual or contractual wills) is not well developed. What is clear in Arizona law is that reciprocal wills can be enforceable; what is less clear is whether they might prevent lifetime transfers of property by the surviving spouse.
One reason that the law is less than clear is that truly reciprocal wills are uncommon. Arizona’s probate code makes clear that the mere fact that wills are identical does not mean they embody a contract not to change the terms; in order to make the agreement binding it must be expressly stated in the wills or in a contractual document. Because that is uncommon, there is little law interpreting such terms.
What is more clear is that the question we hear so often is usually easy to answer. “Does my stepmother [or stepfather] have the right to leave the house she inherited from my dad [or mom] to her kids from her prior marriage?” Absent a clear contract not to change the will, or a trust provision prohibiting the transfer, the answer is likely to be: “I’m sorry, but yes.”
JULY 12, 2010 VOLUME 17, NUMBER 22
Among the less-controversial steps taken by the Arizona Legislature in 2010 was the adoption of the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act, which is usually referred to by its unpronounceable acronym UAGPPJA. The new law, which becomes effective on July 29, should make it easier for families to handle interstate guardianship and conservatorship issues. At the same time it should make it harder for warring families to move an ailing or demented family member across state lines for personal advantage.
Problems with interstate application of guardianship and conservatorship laws have been all too common. Imagine a typical scenario: father and stepmother, married for 25 years, live in Pennsylvania. Three children from father’s first marriage live in Florida, Arizona and Illinois. After stepmother checks father into a Pennsylvania adult care home, the children meet in Pennsylvania and decide they are better equipped to make decisions about their father’s care. Without telling their stepmother of their intentions they check father out of his adult care home, put him on an airplane, fly to Tucson and check him in to a nursing home here. Then they file a guardianship and conservatorship action in Arizona, giving notice to his wife in Pennsylvania.
Under existing law such a proceeding would be permissible, and could result in the Arizona courts making decisions about not only the Pennsylvania man’s living arrangements and medical care, but also over his (and his wife’s) Pennsylvania property. The cost and trouble of traveling to Arizona, hiring a local attorney and objecting to the Arizona court proceedings might well deter his wife from protecting herself or asserting her views on the proper care for her husband.
After the UAGPPJA goes into effect, however, such interstate moves to secure legal advantage should become ineffective. The Arizona courts will be instructed to defer to the courts of the home state of any proposed ward.
There are other frequent — and much more benign — interstate problems in guardianship and conservatorship proceedings that are addressed by the UAGPPJA, too. One arises when the subject of an Arizona guardianship legitimately moves out of state. Imagine, for example, that a working couple have become guardian for their 22-year-old son who is developmentally disabled. Now they want to move to another state, and they will take their son with them. Will their Arizona guardianship be valid in the new state? Will they have to initiate an entirely new proceeding in the new state? If they do not, will they have to report to the Arizona courts for the rest of their son’s life — even though Arizona no longer has any direct involvement in his life?
If the new state has also adopted the UAGPPJA (and so far 19 other states and the District of Columbia have) the process of transferring a guardianship or conservatorship is vastly simplified. A filing needs to be made with the Arizona court, then with the courts of the new state. Once both courts have agreed that the guardianship can be transferred, the Arizona proceeding is terminated and the new state takes over. The process is much simpler than a second proceeding in the new state, and it ensures approval from the Arizona courts before any action is taken. The same process can work in reverse for people moving into Arizona.
One other interstate problem arises when, for example, an Arizona conservatorship involves property in another state. Under the existing patchwork of laws, each state is different — and many of them require an entirely new conservatorship (a “protective proceeding” in the language of the interstate jurisdiction law) with court-appointed attorneys, bond premiums and separate accountings filed in the state with the property. The new law makes the process much simpler: once the Arizona conservator has filed appropriate documents with the courts of the other state, he or she can proceed as if appointed in that state. No separate court proceedings required, no additional legal fees incurred, and no potential conflicts between two courts overseeing the same conservatorship.
JUNE 28, 2010 VOLUME 17, NUMBER 21 Mesa, Arizona, lawyer Donald C. Galbasini first began representing members of the Tremble family in 1998. That was when he filed a notice that he would be the attorney for Vernice Tremble, who was serving as conservator for Edward Tremble, Jr., her grandson.
Nine years later Vernice Tremble was removed by the probate judge as conservator — and also as trustee of a special needs trust that had been set up for Edward Tremble. A professional trustee was appointed to take over management of the special needs trust. A year and a half after that, Edward Tremble died and another family member was appointed to finalize the trust administration and distribution. Mr. Galbasini filed a notice that he would be representing the new trustee in connection with wrapping up the trust.
A month after stepping in as the new trustee’s lawyer, Mr. Galbasini filed a request for approval of a $46,736.65 fee — for his representation dating back to 1998. The state Medicaid agency (which would receive most of the balance of Edward Tremble’s trust under the rules governing self-settled special needs trusts) objected, arguing that it was too late for Mr. Galbasini to be filing his bill for approval and payment.
The trustee who had been handling the trust in the interim joined in the state’s objection, adding other arguments. Because of Mr. Galbasini’s long involvement and representation of a conservator who had been removed, argued the trustee, it would be impossible at this late date to figure out whether his representation had benefited Edward Tremble or other family members. The trustee pointed out that Mr. Galbasini had billed at his regular attorney rate for ministerial actions like writing checks out of his client trust account. Furthermore, the trustee was concerned that none of Mr. Galbasini’s reported time was for contact with Vernice Tremble, his client — all of his contacts had been with Edward Tremble’s parents, Mr. Galbasini’s client’s son and daughter-in-law.
The probate judge agreed, and denied Mr. Galbasini’s fee request as untimely. The Arizona Court of Appeals, however, disagreed — it reversed the fee denial and sent the matter back to the trial judge for further hearings. The question wasn’t whether the fee request was late, ruled the appellate court — instead, the important question was whether the fees were reasonable and for the benefit of Edward Tremble’s trust and conservatorship estates.
The appellate court did not rule that Mr. Galbasini’s fees were reasonable, but only that he needed to be given a chance to explain and defend them. If the court finds that the fees were incurred during times when he did not actually represent the conservator or trustee, for instance, the Court of Appeals agreed that those fees should be denied. The mere lateness of the application, however, was not enough to justify a complete denial of Mr. Galbasini’s fees. Conservatorship of Tremble, June 10, 2010.
[This week's Elder Law Issues article, about a home repair / home loan scheme, was contributed by our friend and colleague Prof. Rebecca Morgan. Prof. Morgan holds the Boston Asset Management Chair in Elder Law (and is the Director of the Elder Law LL.M. program) at Stetson University College of Law. She often provides us with interesting and useful cases and developments, and we appreciate her contributions.]
Clarissa Wade, 89, in somewhat poor health, with bad credit and a limited income had a house that was in need of repairs. A marketing call answered by her daughter and caregiver Shirley resulted in a house call by “Big Mike” Phelps, who, after being shown around the house, quoted a price for the repairs.
Although Shirley told Big Mike that Clarissa didn’t have the money, Big Mike brought in a contract, loan application and credit application – which was in Clarissa’s prior married name, even though Clarissa hadn’t used that name for almost sixty years. Since the title to the home was still in Clarissa’s former name, it appeared that someone had run a title search on Clarissa’s home even before Big Mike made the house call.
As Shirley showed Big Mike out, he told her he would be in touch and that “he got elderly people loans.” Despite Big Mike’s assurance, Shirley remained skeptical that Clarissa’s loan application would be approved since, after all, her mother was 89, with poor credit and little income.
Despite Shirley’s misgivings, about five weeks later Big Mike called to tell Shirley the “good news” that the loan had been approved through Clarion Mortgage Capital, and two representatives from Clarion Mortgage would bring the loan papers to the home for Clarissa to sign. In fact, within ten minutes of Big Mike’s call a Clarion Mortgage loan officer made an appointment and the next day came to the house. Since Clarissa wasn’t feeling well, she asked to have her daughter sign the documents.
Shirley, concerned about a story she’d seen regarding Big Mike and unfinished projects, was assured that the builder wouldn’t get paid until the work was done. Three weeks later, the Clarion Mortgage loan officers returned with what evidently were final loan documents to sign, which Shirley did, even though her mother was present. Work started the next day, the loan closed two days later, and the builder was paid on the same day – interestingly, the payment was more than the original contract price. The job was not finished until late October and Shirley immediately observed problems with the work. In addition, the loan company failed to pay some of Clarissa’s creditors from the loan proceeds.
About six months later Shirley filed suit on her mom’s behalf, claiming fraudulent misrepresentation by Clarion Mortgage regarding the loan proceeds being released to the builder before the work was done. Almost four years after that, the case was tried before a jury and a judgment was returned for Clarissa in the amount of $8,600 on the fraudulent misrepresentation claim. Clarion Mortgage appealed, claiming that the plaintiff had not presented “any evidence” that the loan officers had made any representations to Clarissa or that Clarissa had any knowledge of the loan officers’ alleged representations made to Shirley.
After reviewing the record, the appellate court drew the conclusion that the jury was reasonable in deciding that Clarissa was there and heard the loan officers’ statements. One ironic side-issue: at the trial, Clarion Mortgage filed a motion to keep Clarissa out of the courtroom on the basis that her presence would unduly sway the jury and that the court had already determined she was incapable of taking care of her own interests in the case. On appeal Clarion Mortgage argued that because Clarissa didn’t testify at trial, her case should fail. After disposing of Clarion Mortgage’s other arguments the appellate court affirmed the judgment. Wade v. Clarion Mortgage Capital, Inc. (May 11, 2010)
[Our commentary: The actual legal holding in Clarissa Wade's case is not terribly expansive. The decision does, though, describe a practice that our clients, their family members and advocates should watch out for. The fact that so many seniors have home equity – even in these times of falling home values – opens the door for manipulative and greedy predators. In the right circumstances someone in Clarissa Wade's situation might have been helped by a reverse mortgage, a line of credit or a home mortgage that allowed her to pay off bills to reduce her monthly payments and/or fix her home so that she could continue to live there. There were a number of warning signs that suggested this transaction was not entirely on the level – like the fact that a stranger called her without any prior contact, that the entire transaction was so rushed, and that "Big Mike" or someone else had obviously looked up her home ownership even before calling her. Tragically, "Big Mike" and Clarion Mortgage were obviously willing to deal with her despite her failing health and condition, then tried to use those very limitations against her at the later trial.]
Suppose for a moment that you are trying to get your financial affairs in order. You have been married for many years, and your spouse is gradually losing the capacity to make financial or planning decisions. You are pretty sure you know what your spouse would want, but he (or she) is no longer able to articulate those wishes. Is there anything you can do?
That was the dilemma facing Ollie Phillips, an Indiana resident. His wife Donna no longer had capacity to sign estate planning documents — or to manage her own affairs if anything should happen to him. The couple had earlier signed durable powers of attorney naming one another as agents, and both had identical wills leaving everything to one another and, on the second death, to charity (Mr. and Mrs. Phillips had no children).
In early 2008, 18 months after Donna Phillips had been diagnosed as suffering from dementia, Ollie Phillips signed a new living trust and transferred all the couple’s assets into the trust’s name. The trust named Mr. Phillips as trustee and a friend, Elizabeth Shoemaker, as successor. It provided that all the couple’s money would be used for the benefit of Mr. and Mrs. Phillips until both had died and, after the surviving spouse’s death, everything would be transferred to Ms. Shoemaker. Mr. Phillips signed all of the documents using his wife’s power of attorney.
Did Ollie Phillips have the power to effectively change his wife’s estate plan using the power of attorney? The question would be moot if he had outlived his wife, but he did not — he died less than a year after setting up the trust.
Shortly after Mr. Phillips died, another friend was appointed as guardian of Mrs. Phillips’ person and estate. The new guardian moved to set aside the trust Mr. Phillips had created, but after two days of hearings the trial judge upheld the trust and ordered the guardianship estate to pay the trustee’s legal fees incurred in defending the trust itself.
The Indiana Court of Appeals agreed with the trial judge. Of particular interest to the appellate court was the evidence adduced at trial about Mrs. Phillips having told the lawyer who drafted the trust that Ms. Shoemaker was “like a daughter” to the couple. The judges also pointed out that Mrs. Phillips remained the sole beneficiary of the trust until her death, and that there was no evidence that the trust was being mismanaged in any way. Evidence that Mrs. Phillips had more recently said that she thought Ms. Shoemaker was “money hungry” was not sufficient to allow the guardian to revoke the trust. The appellate court also agreed that Ms. Shoemaker’s legal fees to defend the trust should be paid by Mrs. Phillips’ estate. Matter of Phillips, May 17, 2010.
Does the Phillips case stand for the proposition that an agent can change the principal’s estate plan using a power of attorney at any time? No, it certainly does not. But in a specific case, with some indication of the wishes of the now-incapacitated person, and with a broadly-drawn power of attorney, it might be possible to make at least some changes. Among the safeguards in this case: the fact that Mrs. Phillips, if she once again became able to make decisions, could change the trust, and the involvement of a lawyer who interviewed her and worked with her to try to figure out how much her capacity (and wishes) could be protected.
