Posts Tagged ‘Tennessee’

When You Might Want to Open an ABLE Act Account

SEPTEMBER 13, 2016 VOLUME 23 NUMBER 34
Now that ABLE Act programs have been set up in several states, you might wonder if it’s time for you to set up an account for yourself or a family member with a disability. How can you figure out whether ABLE is right for you? We’ll try to help.

The Achieving a Better Life Experience Act (ABLE Act) was passed in 2014. It permitted people with disabilities to have a separate account, usable for disability-related expenses, that would not be counted as an available resource for Supplemental Security Income (SSI) or Medicaid eligibility purposes. States were encouraged to set up ABLE Act programs, and people with disabilities were permitted to open an account with any state — provided that the state permitted non-residents to participate.

So far, four states have opened their ABLE Act programs. One of those (Florida) permits only Florida residents to participate. The other three (in Ohio, Tennessee and Nebraska) are open to anyone who qualifies.

ABLE limitations

There are a number of concerns about ABLE Act accounts. First, no more than $14,000 per year can be put into an account. Second, any funds left in the account at the death of the participant — regardless of where the money originally came from — will be paid to the participant’s state’s Medicaid program. Those two limitations make ABLE Act accounts unattractive for most family members who might otherwise think of giving or leaving substantial assets to a loved one who happens to have a disability.

There is a lot of misunderstanding about one other item: are ABLE Act accounts like investment accounts, or more like checking accounts? In some cases they might look like one or the other, but thinking of ABLE Act accounts as terrific investment opportunities for people with disabilities is, well, just misguided. Earnings will be limited, expenses are likely to be somewhat higher than similar accounts for other purposes (like education accounts, on which the ABLE Act accounts were modeled), and any account that does grow to more than $100,000 will cause suspension of SSI benefits anyway. We believe that, in most cases, ABLE Act accounts will most resemble checking or savings accounts.

ABLE uses

That doesn’t mean that the ABLE Act won’t provide terrific opportunities, however. There are a number of situations in which we imagine the ABLE Act will be a great boon for beneficiaries. A sampling of the most likely beneficial circumstances for ABLE Act accounts:

  1. The capable beneficiary. Are you the person with a disability? If you could handle a savings account yourself, but have been unable to put anything away because of the $2,000 asset limit for SSI, then the ABLE Act was written for you. You can now save any money you don’t need from your SSI each month, and park it in an ABLE Act account. You can save for vehicle repairs (or a new vehicle), for tuition, or even for the property taxes on your home. There are more uses you can consider, and you probably see the possibilities.
  2. The housing shortfall. Do you (or a family member) get assistance with your housing expenses? And when you do, does that reduce your SSI benefit? If so, you might explore the ABLE Act account as a way to pass the housing assistance through a sieve that makes it perfectly permissible — and removes any reduction in your SSI payments. Your bottom line might be to increase your SSI benefit to the highest possible amount, while still getting assistance from family members with living expenses.
  3. The small inheritance, or personal injury settlement. If you have less than $14,000 coming to you from an unrestricted inheritance, or settlement of a personal injury lawsuit, you probably already know that it could interrupt your eligibility for SSI (and, perhaps, for AHCCCS, Arizona’s Medicaid program). ABLE makes it possible to take the proceeds — so long as they are less than $14,000 net — and have no negative effect on your benefits. Even slightly larger amounts can be handled this way, depending on timing, other expenses and the particulars of each situation. But one obvious way to increase the number somewhat: in addition to the $14,000 put into an ABLE Act account in any given year, an SSI recipient is permitted to have up to $2,000 in a regular bank account — provided that it’s the only account. So a person who has no assets at all can settle a $16,000 lawsuit without having any effect on SSI.
  4. The Special Needs Trust beneficiary. This one may not always be available (trust language can differ), but it might be a great option: the trustee of a special needs trust, who has been unable to give any money directly to the beneficiary, may now be able to put money into an ABLE Act account. That could give the beneficiary control over the funds, and the ability to pay at least some bills directly. The ABLE Act could give new flexibility to trustees of special needs trusts.

We’re confident that there are other ideas out there, and we even have a few ourselves. Another time perhaps we’ll try to compare the available ABLE Act accounts.

In the meantime, we have one other suggestion: if you have created a special needs trust for your child (or other person) with a disability, you might want to consider modifying it to explicitly permit the trustee to put money into an ABLE Act account. We’re happy — eager, in fact — to talk with our clients about this idea.

Can You Disinherit Your Spouse? It Depends

NOVEMBER 4, 2013 VOLUME 20 NUMBER 42

Most of us are fascinated by the lives and deaths of famous people. Their legal and financial affairs tend to be complicated, and they are sometimes messy. They may also provide some constructive information, useful to illustrate broader points applicable to many of us. One such illustration: the death and estate of the late, great country singer/songwriter James Travis Reeves — better known as Jim Reeves to his legions of fans.

The recently-decided Tennessee case isn’t actually about Jim Reeves’ estate at all. The singer died in a tragic airplane crash in 1964, leaving behind his wife Mary and a considerable collection of then-unreleased records. In the years since his death a number of “new” releases have helped maintain his legacy. In fact, two of his most famous recordings (Don Gibson’s “I Can’t Stop Loving You” and Cindy Walker’s “Distant Drums”) were released in the two years after his death.

In 1969 Reeves’ widow Mary remarried — to a former Baptist minister named Terry Davis. Mary Reeves Davis lived thirty more years, and during that time she helped maintain the public’s interest in the velvet voice of “Gentleman Jim” Reeves. In fact, in the last few years of her life the annual income from Jim Reeves’ songs and legacy was estimated at several hundreds of thousands of dollars.

When Mary Reeves Davis died in 1999, her will left $100,000 to her husband Terry Davis, and the bulk of the rest of her estate to a niece and nephew of Jim Reeves. That sets up the legal question involved, indirectly, in Jim Reeves’ “estate.” Since all of his assets, and his rights and recordings, had passed to his widow, it was his legacy that was subjected to her new husband’s challenge.

Here’s the legal question involved: can you disinherit your spouse, or significantly reduce their share of your estate? Assume (you will have to assume, because the information is not public enough for us to figure it out) that Mary Reeves Davis’ estate was substantial, and that the future rights to her late husband’s recordings will continue to produce income for decades. Could Mary Reeves Davis leave her husband of thirty years $100,000 and discharge any legal obligation she had to him?

The answer, as you might suspect, will vary significantly from state to state. In some states (not including Arizona, incidentally) a surviving spouse has the right to a minimum inheritance — if the deceased spouse’s will does not leave a sufficient amount, the surviving spouse may “elect against the will.” That means that they are entitled to a minimum share of the estate, with that minimum varying from state to state.

That’s the law in Tennessee, where Mary Reeves Davis lived and died. So did Terry Davis have the right to elect against her will, and receive a share of her estate exceeding the $100,000 bequest?

If you were reading this complicated story carefully, you will note that Mary Reeves Davis died in 1999 (on Veteran’s Day, in fact — almost exactly fourteen years ago). How could the legal question in her probate estate just be getting resolved?

Trial of the probate dispute actually was concluded two years ago, though that doesn’t help explain the long delay. Over the twelve years of litigation Terry Davis retained and discharged six sets of attorneys, with the final firing taking place just days before the long-delayed trial had been set to begin. The judge in the case allowed Mr. Davis to fire his lawyers, but refused to continue the trial any longer for him to secure new counsel. He represented himself in the 2012 trial. After losing in the probate court, he filed an appeal with the Tennessee Court of Appeals; that court’s ruling was finalized last week.

So what was the final issue, and what can we learn from it? It turns out (as it so often does) that the primary legal question was very narrow: could Terry Davis elect against his wife’s will when he had already accepted the $100,000 she bequeathed to him? The answer: no. Under Tennessee law, at least, in order to elect against the will, the surviving spouse must refuse any specific bequest in order to elect the statutory minimum to which he or she would be entitled. Oh, and Terry Davis had no legal right to be represented by a lawyer at the trial, so the judge’s refusal to grant him a continuance as his last law firm withdrew was not a legal error. Estate of Davis, October 28, 2013.

What does a Tennessee case, applying Tennessee’s very-different law, tell us about Arizona court proceedings, estate planning, or inheritance issues? Although Arizona law is very different (there is no “right of election” against a will in Arizona), there are still some valid points to take away, and the Jim Reeves music in the background of this case helps make those points more memorable.

Yes, you can disinherit a spouse. Under Arizona law, regardless of what the will says there is a minimum amount to which the spouse is entitled, however. That amount, though it varies slightly depending on other circumstances, is usually $37,000 (a figure, by the way, that has been unchanged for decades). Even that magnanimity is limited, however. If the spouse receives any other property — by operation of joint tenancy titling, or by a trust, or by beneficiary designations — that can reduce the amount to which the spouse is entitled.

Tennessee law is more protective of spouses, though it turned out that Mary Reeves Davis’ surviving husband did not get more of her probate estate than her will provided. There was testimony, however (and the probate court found), that Terry Davis had transferred more than $250,000 from Mary Reeves Davis’ accounts just before her death. That did not help his claim of entitlement to maintenance from her estate under Tennessee law. But the bottom line is clear: if you want to disinherit your spouse, you will have an easier time doing so under Arizona law.

Why is that so? Are Arizona legislators anti-family? Hardly. Arizona, as you may recall, is a “community property” state. That means that there is an assumption that half of the assets owned by a couple already belong to the surviving spouse, and so the minimum protection provided by probate laws makes more sense. It doesn’t, however, help figure out how to deal with the division when the deceased spouse had substantial separate property (like an inheritance, or separate property brought into Arizona and maintained as separate property) and the surviving spouse has few resources. That complicated problem is material for another day — and an Arizona case as illustration.

Pre-Death Transfers By Two Seniors Invalidated As Frauds

NOVEMBER 24, 1997 VOLUME 5, NUMBER 21

Two recent cases, from the courts of Wisconsin and Tennessee, set aside transfers of property made by seniors prior to their deaths. While the circumstances are different, the two cases illustrate some of the typical motivations for gifts to children, as well as the possible effects of such transfers.

The “Vest Pocket” Deed

When Acie Lee Maness married Jewell Maness in 1975, he already had three grown sons and a 330-acre farm in Henderson County, Tennessee. He and Jewell both worked (he for the City of Lexington, she for two private employers). While her income paid for food, utilities and household bills his income was mostly used to pay expenses on the farm.

Mr. Maness ran a small herd of cattle at the farm, and allowed his sons to keep a few head of their own on the property. At different times, Mr. Maness even gave each of his sons an eight-acre parcel on the edge of the farm. It was clear, however, that Mr. Maness operated the farm, with only occasional help from his sons. Until 1992, the farm income (and Mr. Maness’ wages) went to pay off a mortgage on the farm as well.

Shortly after Mr. Maness’ death in 1993, one of his sons informed Mrs. Maness that he had transferred the farm to them nearly ten years earlier. When she investigated, she discovered that Mr. Maness had signed a deed to the property, conveying it to his three sons, and had given the deed to his son Willie. He had instructed Willie and his wife not to tell anyone about the deed, and to hold it in their safe deposit box (such unrecorded deeds held until the death of the original owner are sometimes called “vest pocket” deeds). They had removed it and recorded it three days after Mr. Maness’ death, and the title now appeared to be in the sons’ names.

Mrs. Maness sued to set aside the transaction, alleging that it was fraudulent because it had the effect of depriving her of her statutory right to inherit a portion of her husband’s property. In Tennessee, as in most states, a surviving spouse is entitled to at least a share of the deceased spouse’s estate, and Mrs. Maness argued that the transaction deprived her of that right.

Noting the secrecy with which the deed was cloaked, the Tennessee Court of Appeals agreed with Mrs. Maness. The court also noted that even by a conservative estimate the farm constituted nearly two-thirds of the value of Mr. Maness’ estate, and Mr. Maness’ behavior in hiding the transaction from his wife indicated that he had intended to defraud her of her inheritance rights. Maness v. Estate of Maness, Tenn. Court of Appeals, November 12, 1997.

The Medicaid Transfer

Meanwhile, in Wisconsin, Janet D. Johnson lived with her daughter Jean during what turned out to be Mrs. Johnson’s last illness. Mrs. Johnson had a will which directed that all her assets be divided equally among her four children. Shortly before her death, however, Mrs. Johnson transferred all her investment accounts into Jean’s name.

At about the same time, Mrs. Johnson made an application for Medicaid benefits from the State of Wisconsin. In that application, she falsely alleged that she had no remaining assets, and that she had made no gifts during the previous 36 months. Apparently, the principal purpose of the transfer had been to attempt to make Mrs. Johnson eligible for Medicaid assistance with the cost of her care.

Mrs. Johnson died shortly thereafter, and her other children sought to have the property returned to her estate. The Wisconsin Court of Appeals ruled that Jean held the assets in a “constructive trust” for the benefit of the estate (and, ultimately, the four children). In effect, the transfer was set aside.Estate of Johnson, Wisc. Court of Appeals, September 2, 1997.

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