Posts Tagged ‘caretakers’

Exploitation of Vulnerable Senior Leads to Disinheritance

JANUARY 27, 2014 VOLUME 21 NUMBER 4

Arizona has a relatively strong statute dealing with exploitation of vulnerable adults. An exploiter can be charged criminally, and might receive a longer sentence or larger fine because of the victim’s vulnerability. But the strongest part of the Arizona law is probably the provision that lets the victim — or the victim’s heirs — pursue a civil judgment against the exploiter.

That was what Hazel Kaplan (not her real name) did. Her uncle Paul was a widower, living alone in Lake Havasu City, Arizona. Paul’s estate plan included a trust naming Hazel as successor trustee, and leaving his estate to her and two other nieces. Hazel regularly visited with uncle Paul, and helped him to pay his bills. When Paul’s wife had died, it was Hazel who had been there to help make funeral arrangements and help Paul with the transition.

Then, in 2001, Karen moved in as a caretaker. Paul, an immigrant, had located her through the immigrant community in the eastern U.S., and she moved to Arizona to live with him, oversee his medications, drive him to appointments, feed and bathe him — even monitor his care, change his catheter and clean up after he suffered a heart attack in 2006. Karen was his only caretaker (other than one nurse who visited after his heart attack) from her arrival in 2001 until Paul’s death in 2008.

Paul’s accountant prepared four amendments to Paul’s trust between 2006 and 2008. Over the course of those amendments, Hazel’s share of the estate and her appointment as successor trustee were both removed — caretaker Karen and her son were named as trustees and Karen as the beneficiary of Paul’s entire estate.

Three months before his death, Paul visited his bank in the company of Karen and her son. He withdrew $200,000 and opened two accounts with the proceeds. One account was in Karen’s name with her son as co-owner; the other account named Paul himself and Karen’s son as co-owners. Two months later Karen closed out the account her name was on, and used the proceeds to buy a house in Delaware, where she had lived before moving in with Paul. The house had been a bank foreclosure, and Karen’s daughter was the real estate agent in the transaction. She did not put Paul’s name — or his trust’s — on the title. She sold the property immediately after Paul’s death for a significant gain, and kept the proceeds.

After Paul’s death, niece Hazel started a probate proceeding and a lawsuit against Karen and her son. She alleged that both had violated Arizona’s vulnerable adult statute, and asked for the return of everything either of them had received from Paul or his estate.

After a two-day trial, the probate judge ruled that Karen and her son had, indeed, exploited a vulnerable adult. He ruled that the trust amendments were invalid, and that Karen and her son forfeited any right to inherit any portion of Paul’s estate or trust as a result of their exploitation.

The Arizona Court of Appeals considered the evidence and arguments, and upheld the probate judge’s ruling. One key question: was Paul a vulnerable adult?

Several witnesses (including the accountant who prepared trust changes, the bankers who handled the transfer of money from Paul’s name to his exploiters’ names, and Karen and her son) all testified that he was mentally alert. His doctor testified that he was very passive and suggestible, and niece Hazel testified that Paul was very susceptible to others — particularly to women. The appellate court noted that the probate judge had been in a better position to judge the believability of each witness, but noted that the accountant and the bankers had a vested interest in testifying that Paul had been able to give them direction. Besides, said the appellate judges, mental impairment is not required for an adult to be “vulnerable” under Arizona law — physical disabilities and resultant reliance on caretakers can make the patient vulnerable to manipulation.

The result? Paul was a vulnerable adult, Karen and her son owed him a duty not to take advantage of him, and their acts exploited him — especially when they were involved in getting $200,000 transferred to them before Paul’s death. Oh, and Karen was ordered to pay Hazel’s legal fees for the appeal, too. Kousoulas v. Marinis, January 7, 2014.

Does Hazel’s lawsuit stand for the proposition that any caretaker who receives the estate of the person they cared for is necessarily an exploiter? No, but the relationship inherent in a caretaker/patient relationship is certainly subject to exploitation, and gifts to caretakers will always be suspect. The evidence that Karen kept Hazel from visiting her uncle, and that she and her son were involved in changing his estate plan (though they did not go into the room with the accountant when Paul signed trust changes) both weighed heavily against them.

If Paul had hired an attorney to handle his estate planning, rather than entrusting it to his accountant, would things have been different? Possibly — an attorney would likely have been more attuned to the importance of separating out the possibility of exploitation and (if it was clear that Paul genuinely wanted to leave his estate to his caretaker) documenting the evidence of Paul’s wishes. But the probate judge noted, and experienced lawyers usually realize, that it is difficult to assure that a client’s choices are not being changed by suggestions from caretakers — especially full-time, live-in caretakers, who have such a strong opportunity to develop a relationship based on dependency. That is, in fact, why there can be a presumption of undue influence when a change is made in favor of someone who has a fiduciary relationship with a vulnerable adult.

Helping Care for Your Relative Provides Income Tax Benefits

APRIL 9, 2012 VOLUME 19 NUMBER 14
Federal and Arizona state income tax returns are due next week. It’s a good time to review tax deductions for one of the common situations we deal with: in-home (or, for that matter, institutional) caregiving for an infirm family member.

We wrote about an individual case involving long-term care deductions last fall. In that case no returns had been filed, so the taxpayer was playing catch-up — but the U.S. Tax Court agreed that she could deduct the expenses of in-home caregivers. The Court articulated a three-item test to determine whether the taxpayer was a “chronically ill” individual; once she had met any one test, the taxpayer could deduct her medical expenses, including the caregivers.

But what if the caretaking expenses had been paid by someone other than the taxpayer herself? If, for example, she had lived with her adult daughter and the daughter had paid for caretakers to come to the home?

In such a case the daughter should be able to deduct the expenses of care — provided that the patient is a “dependent.” That requires the taxpayer using the deduction to have provided more than half of the patient’s support, and is only available if the patient is a relative OR lived with the taxpayer.

The details about deducting medical expenses for a relative or someone who lives with you are spelled out in IRS Publication 502. Don’t fret about the official-sounding title — it’s actually straightforward and understandable. It also explains exactly what the IRS is looking for when you deduct your own OR a dependent’s medical expenses, and what documentation you will need to provide (or maintain in case you are challenged).

Of course the medical deductions only affect your federal income tax to the extent that they total more than 7.5% of your Adjusted Gross Income (AGI). For many people that limitation is hard to meet. Anyone paying for in-home caregivers, though, is likely to have gotten near to or exceeded the 7.5% threshold.

What about listing a relative (other than your minor children) as a dependent on your own tax returns? Is it possible that the daughter in our earlier scenario might be able to list her mother as a depedent if the mother lives in her home? For that matter, can she list her mother as a dependent if she lives in a nursing home or assisted living facility, but the daughter pays the bill?

The short answer in both cases is “yes.” A parent can be a dependent. That can mean, as described above, that their medical expenses may be listed as deductions on your return — but it also leads to a more direct benefit. If you can list your parent (or another relative) as a dependent, you can get an additional exemption — which reduces your taxable income even before looking for eligible deductions like medical expenses.

Can your parent be your dependent? Yes, but the requirements can be a little complicated. First, they must EITHER be a “qualifying relative” (pretty much any kind of relative you can name, including stepchildren and foster children) OR live with you. In addition, they may not have more than $3,700 (in 2011) of their own income. You must also provide at least half of their support. There are limited exceptions to some of those rules, but that’s the basic test for determining whether you can claim a parent or another person as a dependent. NOTE: these rules are not the same as the ones determining whether you can claim your minor children as dependents — THOSE rules can be much more detailed and complicated.

How can you figure out if you meet all the tests (and their exceptions)? You may not be surprised to learn that the IRS has a Publication to explain that. It is IRS Publication 501, and (just like the earlier Publication we mentioned) it is actually helpful and understandable information.

Can you get a direct credit for the caretaking services you provided for your mother yourself last year? Generally, no — and if you think about it that shouldn’t be too surprising. If you could deduct the value of those services, you would need to claim a similar amount as “income.” But that doesn’t mean that there is no tax benefit to having provided those services. First, they will help you establish that you have provided more than half the support necessary for your parent or family member. Second, you might be eligible to deduct expenses (but not the value of your caregiving) for a dependent. Look at IRS Form 2441 for Child and Dependent Care Expenses; the separate instructions for Form 2441 are (wait for it) straightforward and understandable.

Summing up: taking care of a relative (or someone who lives with you, even if they are not a relative) may be personally and emotionally rewarding. It will not usually be profitable. At least, though, there are some slight tax benefits for those who undertake what is usually a labor of love. Make sure you claim deductions and exemptions you are entitled to by virtue of your caregiving services.

In-Home Caretaker Wages Deductible Based on Doctor’s Letter

SEPTEMBER 5, 2011 VOLUME 18 NUMBER 31
Queens (New York) resident Lillian Baral was in her early 90s. She lived at home, but she required full-time assistance with her care. In 2007 she paid two caretakers a total of $49,580 for live-in care (one lived with her for five weeks while the primary caretaker took a vacation). Were the payments deductible on her income tax return?

The short answer, according to the U.S. Tax Court: yes. Not surprisingly, the more complete answer is complicated and depends on the specific facts of Ms. Baral’s case.

Ms. Baral had been diagnosed as suffering from dementia as early as 2004, three years before her long-term care costs became a tax issue. In December, 2006, her physician wrote an evaluation of her then-current mental status. He found her to be confused, unable to communicate clearly and at risk of falling in her home. Because of her memory deficits she would require assistance with the activities of daily living, he wrote. She needed full-time assistance and supervision for medical and safety reasons if she was going to stay at home.

Ms. Baral’s financial affairs were being handled by her brother David, relying on a power of attorney she had signed some time before. He paid all her bills, handled her checking and other accounts, and hired the nursing service to care for her in her home. By the end of 2006, in an effort to save money, he had discharged the nursing service and hired one of their caretakers directly to live with his sister and oversee her care.

Mr. Baral did not, however, remember to file his sister’s income tax returns for 2007. The Internal Revenue Service noticed, and near the end of 2009 they filed a “substitute for return” based on records available to the IRS. The form indicated that her income for 2007 had been $94,229; after including a personal exemption and a standard deduction, the IRS calculated that Ms. Baral owed $17,681 plus interest and penalties.

By the time the IRS sent out its notice, Ms. Baral had died. Her brother had been appointed as personal representative of her estate; he argued that (a) she had not been required to file a tax return at all, and (b) she was entitled to a medical expense deduction for the long-term care costs she had incurred. The IRS disagreed on both scores.

The dispute ultimately found its way to the United States Tax Court, which hears claims and defenses regarding income tax returns (along with other tax-related proceedings). The Tax Court ruled that the key legal question was whether Ms. Baral was a “chronically ill individual.” If she was, then her caretakers’ salaries would be “qualified long-term care services” and therefore deductible. The court noted that there are three ways to identify a “chronically ill individual”:

  1. Was Ms. Baral unable to perform at least two of the six “activities of daily living”? The six ADLs are: eating, toileting, transferring, bathing, dressing, and continence. Although her physician had said that she required assistance with her ADLs, he had not identified which ones — and therefore the court could not determine whether she was deficient as to only one, or as to two or more. She did not meet this standard.
  2. Did Ms. Baral have a level of disability “similar to” the ADL standard? Again, the court found that the physician’s evaluation was not clear.
  3. Did Ms. Baral require substantial supervision to protect her from threats to her health and safety because of “severe cognitive impairment”? Applying this test to Ms. Baral’s condition and circumstances was a little easier for the court. Because her physician had described her as demented, and at risk for falls or failure to take prescribed medication, Ms. Baral met this test.

Fortunately for Ms. Baral’s tax situation, only one of the three standards had to be met. Because of the evaluation by her primary care physician in 2006, the cost of her live-in caretakers would be a legitimate deduction on her income taxes — or at least it would be deductible to the extent that it exceeded 7% of her adjusted gross income.

Ms. Baral’s brother had also argued that he should be able to deduct the $760 paid in 2007 to her physicians (the Tax Court agreed) and the $5,566 she paid to caretakers for reimbursement of expenses they incurred on her behalf. The Tax Court denied the deduction for reimbursement, since there was no evidence that the payments were for medical items. If Mr. Baral had been able to show that they were, for example, co-payments on prescription medications, or over-the-counter medications at the direction of her physician, or medical supplies, they would have also been deductible. Estate of Baral v. Commissioner, July 5, 2011.

What does Ms. Baral’s case tell us about tax issues surrounding home care? Several things:

  • Keep good receipts. To the extent possible, segregate clearly deductible expenses from questionable or non-deductible expenses, and make sure the purchases are identifiable.
  • Get a good doctor’s letter. Ask the attending physician for a letter that specifically addresses ADLs, the need for caretakers to protect the patient’s safety AND a general description of limitations on the patient’s abilities.
  • If you are in charge of the patient’s finances, file their income tax returns. Someone with $95,000 of income — even if much of it is Social Security and pension income — is almost certainly going to need to file a return. Mr. Baral would have had a much easier time if he had filed the return claiming the deductions, rather than having to argue about the IRS’s “substitute for return” after the fact. Note that the IRS action was delayed, too — it can be that much harder to prove the taxpayer’s condition two (or three, or four) years after the fact, and it is not uncommon to be addressing these issues after the taxpayer’s death.

Improving Communication Between You and Your Doctor

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.

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