JUNE 13, 2011 VOLUME 18 NUMBER 21
Richard J. Murphy was first admitted to practice law in 1964. He was a fixture in local political and legal circles in Osceola, Iowa, for nearly fifty years. He was the attorney for the City of Osceola, and he had been the County Attorney years earlier. His private practice, which he shared with his son, focused on real estate, probate and tax issues.
Helen Doss had been the County Auditor at the same time Mr. Murphy was County Attorney, and their friendship continued after they both left office. Ms. Doss, who had no children, came to rely on Mr. Murphy and his wife for assistance with errands and legal matters. Mr. Murphy prepared her will, which named his wife as executor. He helped her set up bank accounts, including one that named Mrs. Murphy as co-owner. He was named as one of the beneficiaries of her life insurance policy.
When Ms. Doss, at 92, experienced several falls in her home, Mr. Murphy filed a voluntary guardianship and conservatorship petition. Ms. Doss acknowledged that she needed help, and agreed that Mrs. Murphy should be appointed as her guardian and conservator.
For the next four years, Mr. Murphy and his wife took care of Ms. Doss and her finances. He arranged to cash in over $125,000 worth of Series E Bonds, and placed the proceeds in an account jointly held between Ms. Doss and Mrs. Murphy. He arranged the sale of her home and represented his wife at the closing; his son represented the buyers in the transaction. He prepared a new will, naming Mrs. Murphy as executor again.
During the conservatorship, Mr. Murphy prepared annual accountings for his wife to sign and file with the local court. He left off at least one account, one which he said he considered to be Ms. Doss’ own account and not part of the conservatorship. That account named Mrs. Murphy as co-owner, and Mrs. Murphy wrote various checks on it during the conservatorship years — including at least one, for $1,427.96 for a new vacuum cleaner for herself. Other checks on the undisclosed account were for $500 or $1,000 and payable to either Mrs. Murphy or to Mr. Murphy himself.
When Ms. Doss died in 2004, Mr. Murphy represented his wife in filing and administering the probate proceedings. Her will (which he had prepared) left the bulk of her estate to nephews and nieces. However, considering the joint accounts and life insurance proceeds, almost a third of Ms. Doss’ estate went to Mr. and Mrs. Murphy rather than the relatives.
One of the nephews complained, and after negotiations a portion of Ms. Doss’ estate was returned for distribution to family. But the matter did not end there. The Disciplinary Board of the Iowa Supreme Court, which regulates lawyers, got involved.
The Disciplinary Board conducted hearings and ultimately recommended a public reprimand for Mr. Murphy’s multiple violations of legal ethics rules. Mr. Murphy appealed, and the matter was considered again — this time by the Iowa Supreme Court.
In its ruling last month, the Court decided that public reprimand was not the right sanction. Instead, Mr. Murphy was suspended from the practice of law indefinitely, with no ability to reapply for admission for at least eighteen months.
After the fact, violations like Mr. Murphy’s always seem obvious. It is hard to imagine what he thought was defensible about filing a petition against his own client (even with her consent), and then representing the guardian and conservator. It seems even more obviously wrong when the guardian and conservator is his own wife. Add to that the transactions giving an increasing share of Ms. Doss’ estate to his wife, his failure to include all of Ms. Doss’ assets in the conservatorship accountings, and then the multiple representations in the sale of her home.
What was Mr. Murphy’s explanation for his actions? The Iowa Supreme Court characterizes his response as arguing that he was just following Ms. Doss’ instructions. She was strong-willed and had a generous nature, he argued. He denied that he had influenced her in any way in the exercise of her generosity. Supreme Court Attorney Disciplinary Board v. Murphy, May 27, 2011.
JANUARY 31, 2011 VOLUME 18 NUMBER 4
One question we are frequently asked: isn’t it a good idea to set aside money for a child or grandchild, and isn’t a UTMA (Uniform Transfers to Minors Act) account a simple way to do that? OK — that’s really two questions. Our answers: Yes, it is a good idea to set aside money. Yes, the UTMA account is a simple way to do it. Don’t set up a UTMA account, however, until you understand the consequences.
There are confusing issues about UTMA accounts. Sometimes the confusion is heightened by the fact that each of the 48 states which have adopted versions of the UTMA Act has changed it a little bit — so what is true in Arizona may not be true in another state (and vice versa). Rather than indulge in all that confusion, however, we are going to tell you in straightforward language what to watch for in Arizona. Be careful about applying these principles to other states’ UTMA acts.
They are inexpensive to set up and to administer. They do not require a lawyer, and avoid courts and formal accounting requirements altogether. All you have to do to create an Arizona UTMA account is to include the name of a custodian, the name of the beneficiary, and the letters UTMA in the title. This will work: “John Jones as custodian pursuant to the Arizona UTMA for the benefit of Marie Smith.”
A UTMA account can simplify the gifting of substantial amounts of money by multiple family members. Set up an account for your 2-year-old, and all four grandparents can put $13,000 each into the account each year (using 2011 numbers — the maximum non-taxable gift may go up next year or in future years).
They automatically end at 21, so the money will not be tied up indefinitely. One of the points of confusion: sometimes UTMA accounts end at 18 in other states, and in some circumstances in Arizona. But if you are putting your money into an account for a minor in Arizona, the end date is age 21.
They encourage regular savings by simplifying the process. Open an account with, say, $1,000, and put $50/month into the account. You won’t save a fortune in 15 years, but you will have $10,000 that you wouldn’t otherwise have saved without this discipline. Plus the earnings and growth on the investment, as a bonus.
If the minor receives public benefits like SSI or Medicaid, the money will usually not be treated as “available” (and therefore reduce or eliminate benefits) until age 21.
Of course it’s not all good news. Here are some problems or limitations:
The money in the UTMA account will need to be reported on the minor’s FAFSA (Free Application for Federal Student Aid) form when applying for student aid — and it will be treated as completely available to the student. In other words, the very existence of a UTMA account may prevent receipt of needs-based student aid.
The income in the UTMA will be taxed at the minor’s parents’ income tax rates. Unless, of course, there is so much money in the minor’s name that his or her rate is higher — then the UTMA account will be taxed at that higher rate.
The minor may have to file an income tax return if the UTMA money produces significant income. The UTMA account may be used to pay any income tax due, and the tax preparation costs, but it will require that a return be prepared.
At age 21 the (former) minor is entitled to receive all the money. Period. It doesn’t matter if he or she has become a drug addict, a spendthrift or a cult member.
If the (former) minor receives public benefits like SSI or Medicaid, at age 21 the UTMA account becomes an “available” resource and may compromise those benefits.
If the UTMA custodian is the parent of the minor (which is by far the most common arrangement), then there may be additional complications in how the money can be used and/or what tax effect the money might have. Since a parent has an obligation to support his or her minor children, the UTMA account generally can not be used by a parent/custodian in ways that reduce or satisfy that support obligation. If, on the other hand, the donor of the money acts as custodian, he or she may not have gotten the money out of his or her estate (which is usually one intention on the donor’s part).
Although UTMA accounts are usually seen as simple mechanisms avoiding lawyers and conflict, the custodian still has an obligation to give the minor (or his or her guardian) account information. Thinking of giving a divorced and non-custodial parent money for the benefit of his or her minor child? Know that you are inviting a dispute between the custodial parent and the UTMA custodian over how the money is invested and spent (or not spent).
What happens if the custodian dies or becomes incapacitated? There is no easy mechanism to select a successor custodian; it may require a court proceeding to name a successor. A fourteen-year-old minor may be able to select his or her own custodian, which could raise concerns for a thoughtful donor. (Note: Arizona law does allow the current custodian to name his or her own successor custodian, but few do. If you are planning on setting up a UTMA account, insist that the custodian select a successor.)
What happens if the beneficiary dies before reaching age 21? The money goes to his or her estate — which may require a probate proceeding (if the total is over $50,000 in Arizona) and usually means that the money will be split between the child’s parents. That may be fine, but it may not be what the donor intends or wants.
The effect of interstate proceedings is unclear. If you live in New Mexico and set up a UTMA account in an Arizona bank with an Arizona custodian for a minor who lives in Iowa, what happens when your custodian moves to Wisconsin? What courts might the custodian have to answer to, and whose law applies in the case of a disagreement? Fortunately, this problem seldom arises — there are few legal proceedings involving UTMA disputes. But they do happen, and increasingly so in an increasingly mobile society.
What are your alternatives to a UTMA account? Consider 529 plans for educational purposes, and separate trusts if the money is intended to be for more general use. For a child who earns income an IRA might even be an appropriate choice — if the child earns $3,000 in a given year, he or she can contribute up that amount to an IRA (and the source of the money does not have to be the earnings). Talk to your financial adviser and your lawyer about the cost of the various options, the problems they raise, and the best alternative in your circumstances.
JANUARY 3, 2011 VOLUME 18 NUMBER 1
Lawyers, of course, grapple with ethical issues constantly. Elder law attorneys see particular ethical issues recur frequently. Sometimes the lawyer’s eagerness to accomplish the client’s wishes can cloud the lawyer’s ethical judgment. Sometimes the lawyer’s fascination with what might be done can even gallop ahead of the client’s wishes.
None of that is terribly profound or original. Last month, however, we were reminded of how easy it is to get enamored of a particular legal stratagem even though it may not be appropriate in a given case. The notion surfaced in the form of a Minnesota disciplinary proceeding involving attorney Donald W. Fett.
Mr. Fett was consulted by a man (we’ll call him Richard here, just to give him a name) whose brother (let’s call him Martin) was failing. Martin had moved into a nursing home, where he was likely to spend the rest of his life. Martin was unmarried, had no children, and was worth a little more than $600,000.
Martin had already signed a power of attorney naming Richard as his agent. Minnesota law provides a simplified form for powers of attorney, and it has a space where the signer can indicate whether his agent will have the authority to make gifts, including to himself. Martin had checked the line to give Richard the power to make gifts of Martin’s property, but not to Richard himself.
Mr. Fett knew that Martin’s money would be used up in relatively short order if it had to be spent on his nursing home care. Richard had told him that Martin would not want that to happen if it could be avoided, and Mr. Fett could see a way to allow at least a portion of Martin’s money to be protected. In a letter to Richard, and in several follow-up communications, he outlined his plan.
Basically, Mr. Fett suggested that Richard could make a gift of nearly all of Martin’s money, leaving him less than $3,000 (the asset limit in Minnesota for Medicaid assistance with long-term care — note that the limit is even lower in most states). That would make Martin ineligible for Medicaid assistance, but only for a limited time. The money that Richard had given away could be given back over the next couple of years, and then the ineligibility period would expire and Richard could keep the remaining money aside until after Martin’s death. That way at least a portion of his assets could go to the people he had named in his will — including Richard, his other siblings, and some charities.
The fly in the ointment for Mr. Fett’s advice: Martin’s power of attorney had expressly prohibited gifts to Richard himself. In order for the plan to work, though, Richard would have to be confident that Martin’s money would be used to benefit Martin during the ineligibility period. It was a conundrum.
Mr. Fett’s proposed solution was to have Richard liquidate all of Martin’s investments, transfer them to a bank account in Richard’s and Martin’s names as joint owners, and then withdraw them from the bank into his own name. That way, he apparently reasoned, Richard wouldn’t be using the power of attorney in a way that was prohibited — he would instead be using general rules governing joint accounts.
Richard was apparently suspicious of Mr. Fett’s advice, and eventually he consulted another attorney. That resulted in a complaint to the Minnesota disciplinary commission, the Office of Lawyers Professional Responsibility. After hearings the Office recommended that Mr. Fett be publicly reprimanded and placed on probation for a year.
The Minnesota Supreme Court agreed, and upheld both the discipline and the sanction. The Court’s opinion takes a dim view of Mr. Fett’s argument that he was not really recommending a course of action in violation of the limitation in the power of attorney. The Court notes that even if Richard could have used the joint tenancy account to circumvent the limitations of his brother’s power of attorney, Mr. Fett’s correspondence with his client failed to explain the distinction in sufficient detail to allow Richard to make an informed decision about how to act.
The Court notes that Mr. Fett’s failure to give his client complete information could have subjected Richard to serious problems. He might be held liable to return all of Martin’s money, and perhaps even triple the amount transferred. He could even be criminally charged. Mr. Fett gave him none of that information. His failure to fully inform his client was also a failure to provide competent representation, and a violation of the ethics rules for lawyers.
Mr. Fett had been a lawyer for over thirty years, and had limited his practice to estate planning and elder law matters for about six years prior to his contact with Richard. Because of that experience in the practice, and particularly in elder law, the Court determined that the sanction could be higher than would otherwise be implemented. Mr. Fett also had a history of disciplinary actions, having appeared before the Office of Lawyers Professional Responsibility five times over two decades.
The Court also considered mitigating factors such as lack of harm to either Richard or Martin (Mr. Fett’s advice was not followed) and lack of improper motive or harmful intent on Mr. Fett’s behalf. Those were not sufficient to offset the recommendation for a public reprimand, however. In Re Petition for Disciplinary Action Against Fett, November 24, 2010.
Is there a larger message in Mr. Fett’s disciplinary proceeding? We think there is, and it is this: just because a legal strategy might work, it does not follow that it must be implemented, or even that it is a good strategy. Careful consideration of all the negatives is important, and complete information should be shared with the client.
Qualifying a family member for Medicaid assistance with the cost of nursing home care can be complicated. When Pat Monroe’s mother went into a nursing home in Arkansas, Ms. Monroe had a clever idea: she had her mother buy an interest in her own home. Unfortunately for her it didn’t work as she intended.
Ms. Monroe’s mother, Berniece Groce, had moved into the Clay Cliff nursing home in July. Ms. Monroe held a power of attorney for her mother, and she used it to pay the nursing home expenses for nearly a year.
Ten months later Ms. Monroe took an unusual step. She bought a home for her mother—or at least an interest in a home. Using the last of her mother’s savings she paid $43, 953.13 for a “life estate” in Ms. Monroe’s own home.
The holder of a life estate is entitled to the use of the property for the rest of their lives, but their interest expires automatically on death. It is not uncommon for a property owner to transfer title to children or others, retaining a life estate. By this means the owner can dispose of the “remainder” interest during life while protecting his or her own right to use the property for life. But what Ms. Groce did (through her daughter) was different. She did not retain an interest in property she already owned, but instead purchased the life interest in property she had never owned before.
Because a Medicaid recipient is entitled to retain his or her home, Ms. Monroe reasoned that her mother’s life estate in the residence would be protected. Ms. Groce would qualify for Medicaid, Ms. Monroe could continue to live in the home (with her mother’s permission, of course), and her mother’s interest in the home would automatically disappear at her death.
Unfortunately for Ms. Monroe, the state Medicaid agency saw things differently. In its view, the purchase of the life estate was nothing more than Ms. Groce giving away over $40,000. She did not really purchase anything of value, reasoned the Medicaid agency, and she never actually resided in the home.
After Medicaid eligibility was denied Ms. Monroe appealed on her mother’s behalf. The Arkansas Court of Appeals agreed with the Medicaid agency and the trial court, and denied Ms. Groce’s Medicaid eligibility until the expiration of the disqualification period imposed by the $43,953.13 gift. Groce v. Director, Arkansas Dept. of Human Services, June 11, 2003.
Arizona Medicaid regulations require that the Medicaid applicant either actually resides in the home or “has resided” there. The result would probably be the same in Arizona.
Last week Elder Law Issues described Florida resident Josephine Green’s efforts to qualify her sister Stella Thompson for Medicaid assistance with nursing home costs. Having Ms. Thompson buy an interest in Ms. Green’s condominium was not a successful strategy. Ms. Thompson, you might recall, had about $20,000 too much cash to qualify. What might she have done to accelerate her Medicaid eligibility?
Spend down. The easiest choice for Ms. Thompson and Ms. Green to select would have been to simply spend Ms. Thompson’s $20,000 and then apply for Medicaid. Of course she could have spent the money on the nursing care itself and been covered by Medicaid when her resources dropped to $2,000, but she could also have spent her money on other things.
In addition to nursing care Ms. Thompson might have spent her $20,000 on equipment (for example, a customized wheelchair or a special mattress if either would improve her quality of life). She could also have prepaid her burial and funeral expenses (though the precise method for doing this may be complicated and varies by state). She could have purchased furniture, a television set for her room, or other personal items.
Ms. Thompson could even have paid a law firm to advise her on Medicaid eligibility and make the application for her—saving her sister the trouble and expense of completing the application itself. The key point: “spend down” is not limited to nursing home expenses, but can include other items that benefit the patient.
Gifts. Ms. Thompson could simply have given most of her $20,000 to her sister or other relatives. If, for example, she had given away $15,000, she would have been ineligible for Medicaid assistance for only 3 months—and she would have had the remaining $5,000 (plus her Social Security income) to make the nursing home payments for those three months. By balancing her nursing home costs, her income and the Medicaid disqualification period, she could have calculated the amount to give.
Of course this assumes that Ms. Thompson was competent to make a gift to her sister—or to anyone else. If, like many nursing home residents, she was unable to make a decision to give away some or all of her assets, it might have been too late to adopt this strategy. The court opinion described in last week’s Elder Law Issues indicated that she had given her sister, Ms. Green, a power of attorney; a properly written power of attorney might permit the agent to make gifts on behalf of Ms. Thompson (though that authority would need to be specifically spelled out). Arizona has an additional requirement before Ms. Green could make gifts on Ms. Thompson’s behalf—the paragraph giving authority to make gifts would have to be separately initialed by Ms. Thompson and the witnesses to the signing of the power of attorney.
Personal services contract. Ms. Thompson could have signed an agreement with her sister or another family member for them to provide care and assistance for the rest of her life, and prepaid them for those services. While the precise terms of such an agreement would need to be spelled out, and the validity of the contract established to the satisfaction of the Medicaid agency, such a course would have permitted her to legitimately transfer money to her family in return for services.
Ms. Thompson and her sister had other options to consider—and in fact may have also implemented some of them at the same time. At Fleming & Curti, PLC, we counsel patients and family members facing similar problems in Arizona. Navigating the Medicaid eligibility process is often difficult and time consuming, and qualified, expert help can make the process more understandable and easier to cope with.
Medicaid, the federal-state program which pays for about half of all nursing home care in the United States, is governed by eligibility rules intended to discourage applicants from making gifts as a way of qualifying. For example, Medicaid penalizes most gifts for a period up to three years—though the actual penalty is usually shorter. Sometimes the penalty applies even when the applicant does not think she has given anything away.
Josephine Perna lived in a Pennsylvania nursing home when her husband Michael died in 1997. He had actually been living in New Jersey at the time of his death. New Jersey law permits a surviving spouse to claim a share of her deceased spouse’s estate even if his will leaves less (or nothing at all) to the surviving spouse—a process usually referred to as “electing against the will.” Mrs. Perna took no steps to make an election against her husband’s will.
Though Mrs. Perna had been receiving Medicaid assistance with her nursing home costs before her husband’s death, the Pennsylvania Medicaid agency determined that her failure to elect against her husband’s will amounted to a gift and terminated her benefits.
Mrs. Perna made two arguments on appeal. First, she pointed out that she would have had to make a claim against her husband’s estate in New Jersey, and that she lacked resources to travel to that state or to make her claim. Second, she argued that she and her husband had been living separate and apart from one another at the time of his death, and that she was not actually entitled to claim a portion of his estate under New Jersey law.
The Commonwealth Court of Pennsylvania, that state’s intermediate appellate court, disagreed. Whether it was difficult for Mrs. Perna to make her claim or not, ruled the court, she had a duty under Pennsylvania Medicaid law to seek her entitlement from her husband’s estate, and her failure to do so was really a gift.
On Mrs. Perna’s second point, the court opined that all the evidence indicated that Mr. and Mrs. Perna lived apart for medical reasons only, and were not truly separated. In fact, noted the court, Mrs. Perna was sending a portion of her income every month to support her husband, as she was permitted to do under Medicaid regulations; that fact supported the court’s finding that the couple was not truly separated. Perna v. Department of Public Welfare, August 22, 2002.
Arizona’s Medicaid program for long term care, the Arizona Long Term Care System (ALTCS), would probably have made the same determination if presented with Mrs. Perna’s circumstances. One big difference: the amount to which Mrs. Perna would have been entitled (and, therefore, the value of the “gift”) would probably have been much less in Arizona.
In addition to the danger inherent in powers of attorney (they can literally be licenses to steal) there can be another problem with the documents in practice. For at least some transactions (especially gifts) the use of a power of attorney is often viewed with suspicion, and even clear intentions can become murky.
Austin Stephens, a widower with two children, wanted to transfer his home into his daughter’s name. The evidence indicated that he understood what he was doing, that he wanted to make the gift and that he participated in the transfer. But after his death his son objected to the fact that the deed had actually been signed by Mr. Stephens’ daughter using a power of attorney, rather than by Mr. Stephens.
After Mr. Stephens’ wife died in 1988, his daughter Shirley Williams helped take care of him. His only other child, son Lawrence Stephens, moved out of town shortly after Mrs. Stephens’ death, and though he remained emotionally close to his father he was physically distant. After Lawrence Stephens moved out of town Austin Stephens signed a durable power of attorney, giving his daughter Shirley the power to handle his finances.
As Mr. Stephens’ glaucoma worsened his daughter began to take care of his affairs even more than before. Two years later, he decided he wanted to give the family home to her, and he instructed her to sign the deed for him—his advancing blindness made it too hard for him to do so himself.
After the deed was signed Mr. Stephens had several opportunities to confirm that it reflected his wish. He spoke with a neighbor and longtime friend, explaining that he had given the home to his daughter. He acknowledged the gift when someone from the County Recorder’s office called to ask if he really meant to make the transfer. Months later he visited his own brother and confirmed that he had taken the steps to “disinherit” his son.
Nonetheless, after Mr. Stephens’ death his son moved to bring the home back into his estate so that it would be divided between the two children. He argued that the fact that Shirley used her power of attorney to benefit herself was inherently suspect, and that she should be required to show that she actually had the power to make the transfer. The probate court refused to void the transfer, but the California Court of Appeals, though reluctantly, ordered the property returned.
The California Supreme Court has now ruled with Shirley in upholding Mr. Stephens’ transfer of the home. Although Shirley did not have the power to give herself the property using the power of attorney, ruled the state high court, Mr. Stephens’ repeated ratifications of her actions made the transfer valid. Estate of Stephens, July 25, 2002.
In Arizona the result likely would have been different. Arizona law is very clear about the use of powers of attorney to make a gift, and any such power must be clearly listed in the power of attorney itself. Furthermore, the power to make a gift (along with any other power that might be used to benefit someone other than the person signing the document) must be separately initialed by the person giving the power and witnesses. Unless Mr. Stephens’ power of attorney included those provisions, its use to make a gift of the home would probably have been invalid in Arizona.
Virginia Lee Bessett was fond of Edwin Huson. Ms. Bessett loaned Mr. Huson money several times over a two-year period. For each loan, Mr. Huson signed a promissory note that Ms. Bessett held as evidence of the loan.
Upon Ms. Bessett’s death, a sealed letter addressed to Mr. Huson was discovered in her safe. In part, the letter read: “Please mark all unpaid notes paid in full upon my death.” Ms. Bessett made clear in her letter that it was out of affection for Mr. Huson that she wished to forgive his debt to her. However, Ms. Bessett failed to date her letter, and although the envelope indicated that it was to be delivered to Mr. Huson upon her death, she did not deliver the letter to him or anyone else during her life.
The personal representative of Ms. Bessett’s estate sued to collect on the promissory notes in the Oregon courts. He agreed that he had owed the debt as described in the notes, but Mr. Huson claimed that Ms. Bessett cancelled the debt in the letter found after her death. The trial court agreed with Mr. Huson and found that he did not owe the estate any money because Ms. Bessett had cancelled the debts in her handwritten letter.
Ms. Bessett’s personal representative appealed to the Oregon Court of Appeals. The appellate court reversed the trial court’s holding and found that Ms. Bessett’s letter was insufficient to establish a gift to Mr. Huson.
The Oregon appellate court ruled that in order for any gift to be valid, the intent of the person making the gift must be clear, and the gift must be delivered to and accepted by the person for whom it is intended. The gift’s recipient must have a present interest in the gift even if the gift may not be complete until after the donor’s death. It reasoned that Mr. Huson had received no present interest in the gift since he had not received or accepted the gift during Ms. Bessett’s life. Since the letter was undated, it was impossible to determine whether she drafted the letter in contemplation of her death, or some years prior.
Because Ms. Bessett failed to deliver her gift to Mr. Huson during her lifetime, there is no way to tell that Ms. Bessett still intended the gift described in her letter at the time of her death. While gifts made in contemplation of death may be valid, Oregon law has long disfavored such gifts. Quoting the Oregon Supreme Court from an eighty-year-old case, the Court of Appeals noted that allowing a gift like the one involved in Ms. Bessett’s estate would be to approve transfer documents that are made “without the safeguards cast by the law around the execution of wills.” In other words, without witnesses or the formal requirements of a will it is simply too difficult to determine whether Ms. Bessett’s true intention was to make a gift to her friend, and any intended gift failed. Estate of Bessett, January 23, 2002.
Ms. Bessett could, of course, have made her wishes clear—and effective—by just signing a will. The attempt to avoid cost (or formalities) sometimes results in a failure to accomplish one’s legal goals.
Like many seniors, Robert Anderson signed a financial power of attorney, giving his daughter and son-in-law power to manage his financial affairs. He may have understood that the power of attorney would avoid the necessity of court proceedings to appoint a conservator if he became incapacitated. Having a power of attorney, as it turned out, was not an effective way to avoid court involvement.
At first Mr. Anderson appointed his son Sam as his agent. Mr. Anderson’s estate was large, and so for two years Sam used the power of attorney to make gifts of his father’s property to himself, his sister Barbara, and both his and his sister’s children.
When Sam died unexpectedly, Mr. Anderson signed a new power of attorney. This time he named his daughter Barbara Lasen and her husband Paul as agents. Barbara and Paul continued to make gifts from Mr. Anderson’s property for the next two years—but now Sam’s children were excluded. In addition Barbara and Paul used Mr. Anderson’s residence and vacation home without paying any rent. Nothing in Mr. Anderson’s power of attorney permitted gifts, but Barbara and Paul insisted that they had discussed the gifts with Mr. Anderson and he had agreed.
Sam’s two daughters finally decided that enough was enough, and they filed a conservatorship petition. They asked the court to appoint a local bank to act as Mr. Anderson’s conservator. Barbara and Paul objected, arguing that no conservator was necessary because Mr. Anderson had given them the power of attorney. They also argued that they had priority to act as conservator if the court decided appointment of a conservator was appropriate.
The trial judge decided that Barbara and Paul had overstepped their authority as agents, and appointed a local bank as conservator. Barbara and Paul appealed.
The Nebraska Supreme Court agreed with the lower court. Barbara and Paul did not have the authority to make gifts because there was no specific language in the power of attorney. Once they violated their duties as agents under the power of attorney it was entirely appropriate to appoint an independent conservator to consider what steps to take—including possible action against Barbara and Paul for return of the money they had wrongfully taken from Mr. Anderson. Besides, Barbara and Paul had already shown that they were not trustworthy protectors of Mr. Anderson’s assets. Conservatorship of Anderson, June 22, 2001.
The result would likely have been the same under Arizona law. As in Nebraska, an Arizona agent may not make gifts using a power of attorney unless the authority to do so is clearly spelled out in the document (and, in fact, separately initialed by the principal). Mr. Anderson would almost certainly have had a conservator appointed if he lived in Arizona.
The federal-state Medicaid program was designed to make sure poor Americans would receive necessary medical care. It now pays for about half of all nursing home costs. Tragically, the program is so complicated that it often requires expert legal assistance to ensure that benefits are received in accordance with the program’s own rules. A recent Iowa case demonstrates that it can be a mistake to rely on even Medicaid’s own staff members for interpretation of those rules.
William and Lydia Ahrendsen knew as early as 1991 that they might face nursing home placement, and they wanted to keep the family farm in the family. On advice of their attorney, they “sold” the property to their two children for two dollars; the farm was worth about $240,000 at the time. Because the “sale” was really a gift to the children, Medicaid rules made the Ahrendsen’s ineligible for Medicaid assistance for a period of months.
The period of ineligibility for such a gift is determined by dividing the value of the gift by an amount set by the state. That amount, in turn, is intended to approximate the actual monthly cost of nursing home care. In the Ahrendsen’s case, the period of ineligibility worked out to be 72 months (six years).
Both Mr. and Mrs. Ahrendsen went into the nursing home shortly after making the gift to their children. A year later, at the suggestion of the nursing home social worker, their son Glen applied for Medicaid assistance. Because the gift was just over a year old their application was denied; the Medicaid worker advised Glen Ahrendsen that they would not be eligible until August of 1997—nearly five years later.
The Medicaid worker, as it turned out, was simply wrong. Federal law provides that gifts older than three years (in most cases) are not counted in calculating Medicaid eligibility. Although there has been some dispute about what that means for people who make an early application like the Ahrendsens, Iowa’s Medicaid rules were clear: the Ahrendsens would have been eligible in February, 1994.
Glen Ahrendsen learned of the mistake in September, 1996. He immediately filed for Medicaid eligibility for his mother and father, even though his father had died two years earlier. He sought reimbursement for the nursing home payments which would have been covered during the prior two years if he had not received incorrect advice from the state’s Medicaid worker.
Federal Medicaid law limits retroactive coverage to the three months prior to filing of an application. The Iowa courts disallowed Glen Ahrendsen’s request for additional reimbursement, and the Iowa Supreme Court agreed. Because he relied on agency advice, the Ahrendsen family was simply out of luck. Ahrendsen v. Iowa Dep’t. of Human Services, July 6, 2000.
