Ronald Morton's Elder Law Blog

Happy "Estate Tax Free" New Year!!

At the stroke of midnight tonight, the estate tax will expire.  While the House of Representatives passed a stop-gap measure in early December extending the current 45% rate and $3.5 exemption to 2010, Senate Republicans and Democrats have been unable to agree on a temporary "fix" keeping the tax in place.   As a result, there will be no tax on estates of those dying during 2010.  Now, Congress can presumably act to reinstate the tax retroactively in 2010, but such action is certainly not guaranteed, and will undoubtedly result in litigation for families of those who die with taxable estates in the interim.  

Without an estate tax in 2010, a very wealthy families will have reason to celebrate, but taxpayers of more modest means will pay capital gains on inherited assets, because along with the elimination of the estate tax the unlimited step-up in basis was also eliminated for estates larger than $1.2 million.  This means that estate executors will face additional and confusing administrative burdens. A retroactive change in the law in 2010 will result in extensive litigation.

While on the surface, this would appear to be good news for wealthy families, the celebration will be short-lived even if congress does not act to restore the tax, because the estate tax will be restored in 2011 at a rate of 55 percent on estates of $1 million or more beginning January 1, 2011.  This means that tens of thousands of families will owe estate tax in 2011 and beyond, who would have owed no tax had they died in 2009 or 2010. 

The House passed a bill in early December permanently extending the 2009 estate tax rules, which will bring in an estimated $25 billion this year by imposing the 45 percent rate on estates over $3.5 million (or $7 million for a couple). The Senate's Democratic leadership wanted to pass a similar bill and put it on President Obama's desk before the estate tax expired at the end of the year, but they have been blocked by united Senate Republicans who prefer a lower tax rate of 35 percent and a higher exclusion amount of $5 million ($10 million for couples).

Sen. Baucus has pledged to try to restore the estate tax retroactively in 2010. This would undo the capital gains increase, but it could also create fertile ground for lawsuits by those whose family members die between January 1, 2010, and the date when any retroactive law is enacted.

Six Charged in Apparent Scheme to Defraud Seniors and Medicaid

Today's Clarion Ledger reports that 6 individuals have been charged with a scam to cheat nursing home residents out of more than $25,000.  Under the scheme, social workers at a nursing home allegedly told seniors whose accounts became too large to remain on Medicaid, to pay the excess money to them or others they directed.  The article does not say whether any services were allegedly provided in exchange for these payments.  The reason for the payments were apparently to reduce the residents' personal needs accounts below the $4,000 allowed by Medicaid.  Spending such funds is what is commonly referred to as "spend down" and there is nothing inherently improper or illegal about spending down one's assets.  In fact, the reason the senior is allowed to have the $4,000 is so it can be spent on their needs. However, what is alleged here is that these social workers supposedly told their senior residents under their care to give the money to them, or to others to whom they directed. 

This scheme, if true, is problematic on a number of levels.  First, the nursing home residents are clearly vulnerable, and especially vulnerable to the social worker staff at the facility, and are likely to simply do what is requested of them by these people in authority without question.  Second, it appears at least from the article, that the payment of funds was gratuitous, with no services provided in exchange for the funds.  Assuming that is correct, the transfers should result in the disqualification of these individuals for Medicaid benefits for some period of time. In other words, the seniors had a duty to report the transfers to Medicaid, and if they did not, then they are also guilty of Medicaid fraud. Third, the real victim here is not just the seniors, who could have presumably spent the money on something that would have benefited them in some way, like a new stereo, new TV, or new clothes, but also Medicaid.  If the funds are not properly spent down, then Medicaid is entitled to have the excess funds used to reduce its burden.

As mentioned earlier, there are certainly legal ways of engaging in a "spend down" plan, but what is alleged to have occurred in this article is clearly not one of them.  This case emphasizes that if families have any questions, a professional should be consulted before any funds are transferred.  The case further emphasizes the important role of family members keeping an eye on their senior loved ones to ensure they are not taken advantage of.  In fact, one has to wonder how this was done without the knowledge of family members, and whether any family members played any role in the scam.   

Cheating is Worse than Lying

A recent case before the Mississippi Court of Appeals illustrates the importance of planning for disability, and the importance of remaining loyal to a disabled spouse.  In the Conservatorship of Ellis, husband who was not institutionalized (also known as a Community spouse) was denied the right to be conservator over his institutionalized wife's affairs, despite the existence of a power of attorney appointing the husband as agent, and further despite the fact the his step-granddaughter was appointed by perjured testimony.   Ruby Chism Ellis and Bobbie Ellis had been married since July 2000.  In June 2006, Ruby entered a nursing home. In 2008, Ruby’s granddaughter filed a petition to be appointed as Ruby’s conservator. The granddaughter represented to the court that she served the petition on the husband, but this was apparently not true.  Based upon the perjured testimony, the court granted the granddaughter's request. 

Following her appointment granddaughter arrived at the home of the husband, Bobby, and ordered him to vacate the premises (the home was apparently owned solely by wife).  This was husband's first opportunity to learn of the conservatorship.  Husband had been carrying on an affair over the previous year and a half, even allowing his new girlfriend to live in his wife's house.  The granddaughter then moved money from Bobbie and Ruby's joint bank account to the conservatorship account, at which time Bobbie sought to have himself appointed conservator.  The husband argued that he was his wife's appointed agent under a power of attorney, and that he was the spouse and entitled to a preference. The court appointed a guardian ad litem reported that the husband had been involved in an adulterous affair, and the trial court declined to dissolve the conservatorship.  The court noted that Mississippi law does not give a spouse preference in a guardianship proceeding and that any procedural deficiency in the granddaughter's appointment was resolved by later pleadings and testimony.  The court went further to state that the presence of a power of attorney does not deprive a court of jurisdiction.  Despite the perjured testimony of the granddaughter, the court seemed more displeased with the husband's shifted loyalty to his paramour.

In re Conservatorship of Ellis. Complete Case Here

Fight over Former Presidential Press Secretary's Affairs Illustrates Need for Planning

A story in Sunday's Clarion Ledger shows just how important it can be to have your affairs in order to avoid family fights over your care and assets.  Mississippi native Larry Speaks, who served as Press Secretary for Ronald Reagan for 7 years, was diagnosed with Alzheimer's in 2008.  Speaks was taken by his children from his home in Virginia to Mississippi.  While here,, they obtained a conservatorship over his affairs, apparently without even providing notice to the wife.  Mississippi law only provides that one relative who is a resident of Mississippi be notified of a conservatorship, and since Speaks' wife resides in Maryland no notice was given to her.  The story also points out, however, that Speaks executed a power of attorney appointing his wife as his agent.  A well drafted power would also have nominated his wife to serve as his conservator.  Under Mississippi law, "The court shall make its appointment in accordance with the principal's most recent nomination in a durable power of attorney except for good cause or disqualification."  If so, we can only assume the judge found that the wife was disqualified due to neglect described in the article, or the judge was never shown the power, or perhaps the power simply was silent on the issue.  Now, the wife faces charges by her step-children that she has mismanaged her husband's money, and is limited to contact with her own husband by a visitation order.  This case is a sad example of of what can happen in the event of a loss of capacity.  Planning can be done to minimize the risk of much of the uncertainty created by court oversight over a ward's affairs through trusts and naming a preferred agent and incapacity trustee.  On the flip side, this case also illustrates how easy it is for families of this state of out-of-state parents to gain control over a parent's estate by simply bringing them to Mississippi.  They don't even have to tell the parent's spouse that they are doing it.