Law News and Tips
Fred L. Vilbig ©2017
I try not to repeat topics in this column, but it’s been a while since I wrote about the complications from addiction, and the problem keeps raising its head. I keep seeing articles and hearing stories about the opioid crisis, and I encounter it time and again when meeting with clients. My mom was in her 70s which she told me that she still wanted a cigarette after dinner, and I had no recollection of her ever smoking. Nicotine is terribly addictive, but I understand that narcotics are even worse.
From what I hear, people can get hooked on narcotics by using prescription painkillers while following doctors’ orders. And then there are some doctors who allegedly sell prescription painkillers to make some extra money. The US attorney general is looking into that now.
But those “safe” drugs can be expensive. Heroin on the street is apparently pretty cheap, although you may not be comfortable with the level of quality. That is evidently not that important when someone needs a fix.A funeral director recently commented that people would be surprised to know how many deaths now are drug related.There are so many drug related deaths the County has had to rent temporary morgues to hold the bodies. Addiction is a horrible thing.
What you don’t want is for an addict to receive a lot of money outright, but even basic trust planning may not be enough. We recently settled a dispute between a trustee and beneficiary. I had written the trust when the client’s son was still a toddler, and now her son was approaching 22. She had died in a car wreck, and the son was the beneficiary of the trust.It was what is called a discretionary trust (the beneficiary did not have an absolute right to the trust funds), and the trustee refused to give the beneficiary any money outright. We tried to set up a plan where the trustee would directly pay the beneficiary’s landlord, health insurance provider, utilities, tuition and books, and the rehab clinic. She was willing to pay the beneficiary an allowance for food, but that was pretty small, only enough to buy basic food.
That wasn’t enough for the beneficiary. He hired a newly minted attorney and proceeded to make the trustee’s life pretty miserable. She finally just resigned. The funny thing is that knowing what happened to her, none of the successor trustees wanted to serve. The trust is stuck in limbo until they petition the court to appoint a successor trustee. The trust has been paying a lot of legal fees, and it looks like it’s going to continue.
When parents have children or family members with substance abuse problems, planning is critical. You don’t want to give money to the beneficiary outright. That could be like a death sentence. Instead you can provide that the trustee will only distribute trust income and principal to the beneficiary on a discretionary basis for their health, education, welfare, and support. That can put a trustee in a difficult position, so it’s probably best not to have a sibling as the trustee who will be making those decisions. I always try to keep families together, and that almost certainly will create a lot of tension in that relationship. Sometimes I’ve required beneficiaries to submit to drug testing before any distributions are made to them. Trustees can also require receipts for how previously distributed money was spent. This requires a lot of work, but it is a pretty serious situation.
It’s sad that so many people need to deal with these issues, but it is a reality. Ignoring the problem can be deadly. Plan accordingly.
If you would like to confidentially discuss these issues further, please feel free to contact me.
In the mid-1800s America faced a flood of somewhat unwanted immigrants, similar to today. They were Catholics fleeing crushing poverty and looking for opportunities. They not only brought their religion with them, but they also brought their tradition of education.
Ulysses S Grant was the President during some of this time period, and he was greatly concerned. He did not want public money going to sectarian schools. This was evidently a hot issue in the day. In a speech in 1875, he proposed a Constitutional amendment to prohibit the use of public funds for religious schools or for any church groups.
Republican Congressman James Blaine proposed such a federal amendment. Although the proposal overwhelmingly passed in the House, the Senate vote failed by four votes. The amendment then faded away never to be heard of again in the halls of Congress.
But the idea of the amendment lived on. In 38 states, some form of what has been referred to as the “Blaine Amendment” was passed. In Missouri, Blaine language appears in two separate sections of the Missouri Constitution.
Trinity Lutheran is a small Lutheran congregation in Boone County. It seems to serve a poor, rural population. They operate a childcare center that has a playground. The playground surface was covered with pea gravel. Falling on pea gravel is better than falling on concrete, but there are better, safer playground surfaces.
The State of Missouri created a grant program to encourage nonprofits to install playground surfaces made from recycled tires. The purpose was both to promote child safety and also minimize waste from used tires. Trinity Lutheran applied for the grant. Although Trinity Lutheran scored in the top five of the grant applicants, the Missouri Department of Natural Resources (which administered the program) denied the application solely because Trinity Lutheran was a church, citing the Blaine Amendments.
The church sued. It lost in both the District Court level and at the Eighth Circuit Court of Appeals. However, the US Supreme Court agreed to hear the case. Recently in a very narrowly drafted opinion, the Court found in favor of Trinity Lutheran in a 7-2 decision, declaring certain aspects of the Blaine Amendments unconstitutional. The court specifically refused to address certain issues which means more litigation will certainly follow. But at a minimum, the court held that a state can’t exclude a church from a government program solely because it is a church.
In an interesting side note, on the same day the Court issued the Trinity Lutheran case, it remanded to the lower courts two school choice cases for consideration in light of its Trinity Lutheran ruling.
There are many who are big advocates of the “separation of church and state” theory. They did not welcome this decision. However, it should be noted that the separation theory itself is not constitutional. It was first raised by Thomas Jefferson in an 1802 letter to a Baptist Association. He was assuring the Baptists that they had nothing to fear from government interference in the expression of their religious beliefs. The idea did not arise to a legal principle until a line of Supreme Court cases in the second half of the 20th century beginning with the Everson case in 1947.
Where this reasoning goes from here is uncertain. There are both strong advocates and opponents of school choice, and as we have recently seen, money is tight in Missouri. Even though gambling was supposed to fund education (it ended up being a mere shell game), schools in Missouri are badly under-funded, and some schools are badly underperforming.
The future will be interesting.
TRUSTEES AND CATS
Fred L. Vilbig © 2017
I got a call from someone at my church a few months ago. They had received a report about a parishioner. Allegedly a financial adviser was taking advantage of an elderly woman. They asked me to check into it. I did some investigating and found out that contrary to what I heard, the financial adviser was providing excellent service and was even providing a lot of personal help as well.
However, in the course of my investigations, I got the impression that the woman needed more help than she was getting. She was living alone, with no surviving close family, and her health was failing. Someone needed to help her, but as I said, she did not have any close family or any friends to help out.
People sometimes have a funny reaction when I mention corporate trustees. They seem to get a picture of a person who sits in their office making financial decisions all the time. Yes, they do that, but they do so much more than that if necessary.
In that particular situation, I called Constance Moore at Commerce Trust Company. Connie is a kind of a geriatric adviser. In addition to being a trust officer, she is an Advanced Professional Certified Care Manager, trained to help clients navigate the maze of elder care. Like many trust officers, she investigates retirement facilities, nursing homes, home health services, and the like to insure quality. She is constantly checking and rechecking facilities, particularly when there is a change in ownership or management. She knows where to get the best value for their customers’ money and has a goal of helping to improve their quality of life. In this particular situation, she was able to find a great facility that worked wonderfully for my client.
Corporate trustees provide all kinds of non-financial services. Kathleen Selinger at Central Trust told me about one of their customers who lives alone in a big house. She has family, but they are all busy with their own lives. I am seeing that more and more with families. If there are children, they may live in a different state or they may just be too busy with their own lives. I am also seeing a lot of people who don’t have any kids to step in when necessary. In these cases, the person is often alone. Anyway, Kathleen told me that with one of their larger clients, she often goes by and sorts her mail with her. The client’s eyesight is failing a little, but she also just likes the company.
I heard one of the most heartwarming stories from Rich Arnold with The Private Bank. One of their clients had a vacation home in Florida. One time when she was down there, she suffered a stroke and was admitted to the hospital. When she was well enough, they brought her back to St. Louis.
The problem was that when the client went to Florida, she took her beloved cat with her. When she came back to St. Louis, they couldn’t just leave the cat there for a neighbor to look after her.Someone had to go get the cat. So one of the trust officers flew to Florida, rented a car, picked up the cat, and drove back to St. Louis for a joyful reunion. Trust officers get all of the glory jobs, don’t they?
As I mentioned, there are a lot of older people who for one reason or another don’t have family to look after them and help. As baby boomers age, we’re probably going to see that more often. Although corporate trustees are not the solution to every problem, under the right circumstances, they can be a real life saver. Yes, they provide great financial services, but they also provide much more than that. They can provide cat retrieval services too, and who wouldn’t want that?
Fred L. Vilbig © 2017
Sometimes my clients just get too emotional! What do I mean? Read on.
In my last column, I wrote about some of the general issues involved in selling your business as a part of your retirement plan: who are your buyers; how do you value your business; and how is the sale financed? These are all kind of objective questions that can be very deliberately considered. But many times, they’re not.
Where I run into problems with clients is when they are overly anxious or excited. They let their emotions get the better of them.For instance, when buying a business, you need to be careful to make sure that you are actually buying what you think you are buying, nothing more and nothing less.This is called “due diligence.”
A good example of this would be real estate. Property titles are transferred though deeds that need to be recorded to be effective.You and I think about land in terms of property addresses.However, real estate is conveyed using legal descriptions.The legal descriptions can be lots in subdivisions or what are called “metes and bounds” descriptions – that’s the kind of thing that says “143.3 feet SSW from the old iron rod in the middle of Min Street.”Out in the country, you might have a legal description that reads like “the NW ¼ of the SW ½ of Section 1, Township 35, Range 13.”If you can tell me where that property is, you are much better at real estate than I am.
Real estate also brings with it other questions. How do you know what the environmental status of the property is? Do you really know that the seller owns the property? Are there any mortgages or liens on the property? Are the buildings in good condition or are the problems just patched up? And if there are buildings, do you know if they are built to code?
With regard to vehicles and equipment, you have similar questions. How do you know the condition or whether there are liens against them? You need to ask for maintenance records, and if there aren’t any, you need a thorough inspection.
The business may have a lot of “good will.” This basically means it is not asset heavy but still has a good cash flow. A law practice or an accounting firm is a good example of this. In that case, you have to rely on financial statements. Do you know if they are compiled, reviewed, or audited, and do you know the difference?And even if the financials are reliable, can you understand them?People go to college to learn how to read them.
On the Seller’s side, there is a different set of concerns. Sellers basically want to get their money and get out of town (sometimes literally). But buyers want all kinds of proof regarding the assets they are buying.The seller will probably have to dig into his or her records to prove all kinds of things.The problem with this is that you will be disclosing all of the warts of your business (and all businesses have warts). You need to make sure that the buyer has to keep that private and that they can’t use that information against you if the deal falls through.You need to get a non-disclosure agreement (commonly referred to as an “NDA”) from the potential buyer even before you start sharing information.
As I mentioned in the last column, one of the biggest problems a seller may have to face is where the buyer can’t come up with financing. If a bank is unwilling to make a loan for the entire amount or the buyer can’t get a loan at all, the seller may have to finance some or all of the purchase price. The first question is whether the buyer is credit-worthy. IF you trust the buyer, how do you make sure you will continue to deal with him or her? Is the obligation assignable? You could end up having to rely on someone you don’t even know. Even if the contract is not assignable, what happens if the current buyer sells his or her business, so again you are stuck with someone you don’t even know.
Then there’s the question of how to secure the loan.This is like the mortgage on your home. No bank is going to lend you money without having something backing up your promise to repay. You shouldn’t either.
But like I said, clients can be the worst. They get blinded by the opportunity – whether it’s the business itself or the prospect of getting bought out – and they throw caution to the wind. As I’ve mentioned before, a client’s business is often his or her retirement fund. Clients need to be very careful to protect themselves. If something seems too good to be true, it probably is. It is hard to keep emotions in check, but an emotional sale is a bad sale.
Caveat emptor! But also, Caveat venditor!
SELLING THE BUSINESS
Fred L. Vilbig © 2017
I grew up in Dallas, Texas, where my grandfather owned a construction company. It was 100 years old. He had inherited it from his father, who had inherited it from his father. A family business surviving through three generations is not unheard of, it is extremely rare. Then along came my grandmother.
When my grandfather died in 1976, his business was worth the current equivalent of almost $5 million. My grandmother could have sold the business to the highest bidder, either in a stock sale or an asset sale. However, for all of her wonderful qualities, she was not a businesswoman. She simply liquidated the assets. She sold the bulldozers, the scrapers, the maintainers, and all of the other hard assets, basically taking pennies on the dollar. She let the name and all of that built up goodwill just evaporate. I don’t know exactly what was lost, but I would estimate that it could have been as much as 75% of the value of the business.
For many business owners, this would be an unimaginable tragedy. Since owners typically pump every available resource into their businesses, they do not have a substantial 401(k) or SEP or any other kind of retirement savings. Their business is their retirement. However, that may be a problem.
Over the next 10 to 15 years, it is estimated that over 12 million privately owned businesses will change hands because they are owned by baby boomers. Some analysts are concerned that so many businesses for sale at one time may flood the market and depress values – good for buyers, but bad for sellers. Careful business planning is critical, but so many times, business owners are too busy to plan. That is a mistake.
In planning to sell a business, there are a number of factors that need to be considered. First and foremost, who are your potential buyers? Sometimes inside sales can net more because the buyers are familiar with the business. Is there a family member in the business? If not, is there one or several key employees who might be interested in buying the business?
If there is a possible inside buyer, how will they pay for it? Do they have cash? Typically, they do not. Can they get a loan? Does SBA financing work for them? Is the owner willing to take back some or all of the purchase price?
If the inside sale doesn’t work, how do you find good third-party buyers? There may be competitors lurking around waiting to snatch up your business in order to gain a larger market share. Or, there may be individuals who are just interested in owning their own business. Trying to identify them can be a challenge. Sometimes it is best to talk to business brokers, but how do you select the best broker for your type of business?
And then there is the question of valuation. Businesses can be valued on hard assets and/or cash flows. Some businesses can have what is called a “strategic value” to a particular buyer (for instance, a competitor who is trying to gain market share) which may be more than the strict appraised value. In any event, business owners need to be realistic in setting a price for their businesses. Many times owners overvalue their businesses. If the owner is working with a broker, the broker can help to set the value. If it is an inside sale to a family member or to one or more key employees, then the company accountant may be able to help establish a value.
In any event, the sale of the business will have a huge impact on the business owner and his or her family. As I said, careful consideration needs to be given to all these factors. Otherwise, you could end up with a liquidation and the loss of years of hard work, like my family, and that is not a good thing.
Thinking of selling your business? Want to plan for your future?
Contact Fred now about your situation.
The first consultation is free. Or call him now at (314) 241-3963
Check out Fred's other BLOG post on business planning. His articles: Business Planning I and Business Planning II are worth a few minutes to read. You may know many of the key points in these
articles it's worth reviewing them, especially if you're planning to buy or sell a business or separate from your business partner.
SUCCESSOR TRUSTEE BOOT CAMP
Fred L. Vilbig © 2017
Maybe it’s a sign that my clients are “maturing.” I’m getting more calls now from their children. Mom and dad or both are acting a little strange; their bills are not getting paid; they have to go into the hospital or nursing home and decisions need to be made; or they have both died. Typically these calls come from the child who has been put in charge of things. Mom and dad may have written a will and/or a trust, and that child has been named as the person in charge (the “fiduciary”). And they don’t know what to do.
The duties of a fiduciary vary widely depending upon the situation. Mom and dad may just be losing mental capacity. We can all be forgetful, but sometimes people get dangerously forgetful. Bills can become seriously delinquent. They may get lost when out driving or walking around. They may not know how to dress for the weather. Prescribed medicines may become too complicated to administer. Although everyone wants to maintain their own independence, there comes a time when that isn’t reasonable. So what do you do?
And when mom and dad get to the end of their lives, someone may need to make difficult medical decisions. People cavalierly say, “just go on and pull the plug,” but actually doing it is another matter entirely. And then there is the funeral to handle.
After mom and dad have died, there is an asset cleanup to do. What do you do about jointly held assets? What about insurance policies, brokerage accounts, or bank accounts with beneficiary designations? What about the IRA? What about jointly held real estate? We’ve had clients ignore these things for years, and fixing them later can be a lot of work.
If a person only has a will and dies owning property in his or her name alone, then probate is necessary. Even when mom and dad have created a trust, assets sometimes get overlooked. Probate can be a scary idea for people, but sometimes it’s a necessary evil. One of the things that the fiduciary needs to do after mom and dad have died is to determine whether all of the assets were properly put into a trust if there was one. If any assets were held in a decedent’s name alone, then those assets are going to have to be probated. That can be overwhelming for some people.
If mom and dad did create a trust, there are a lot of questions that come up regarding trust administration. Under the law, a trustee has to provide beneficiaries with an accounting. The trustee needs to start with a beginning balance which requires an inventory. Most people don’t have an accounting background, so this can be quite a challenge. Just preparing the inventory can be overwhelming.
There is a lot involved when a son or daughter is named as the trustee, personal representative, or attorney-in-fact, under mom or dad’s estate planning documents. As I often tell clients, these are not normal things to deal with, although in our practice they tend to happen on an almost daily basis.
For that reason, I am putting together a seminar to discuss what’s involved in being a fiduciary. We are calling it the “SUCCESSOR TRUSTEE BOOT CAMP” (although we’ll cover other fiduciary roles as well). The seminar will be held on JUNE 15 at 7 PM at the SCHNUCKS MARKET on Kehrs Mill at Clarkson in Ballwin. Click here to register for the free Successor Trustee Boot Camp.
This seminar should be of interest to anyone who is named in estate planning documents as a personal representative or a successor trustee. We look forward to seeing you there.
WHEN MOM DIES … (Part 2)
More Things to Be Done
In another paper, I talk about some of the things that people need to take care of when a family member or close friend dies.That paper dealt with things such as notifying government agencies and financial institutions in order to avoid identity theft or fraud. Now I want to turn to some of the administrative things you may need to do.
First I should talk about the funeral. Although I have had some people say that planning a person’s funeral can be rewarding since everyone reminisces about the decedent, it can also be stressful. If you are lucky, the decedent had pre-arranged their funeral which takes a lot of the burden off of loved ones.However, there are still a few administrative things that need to be taken care of.
If the decedent did not have a pre-arranged funeral, then you will need to choose a funeral home. Once you’re selected the funeral home, you need to (1) arrange for the body to be transported there; (2) pick out a casket (which is not fun); (3) discuss all of the arrangements with the funeral director (and it seems like there are millions of them); and (4) then figure out how to pay for all of this. This process can be a lot of work under very stressful conditions.
I have found that it isn’t until after the funeral that you really have time to grieve. It’s not until all the activity is over and everyone has left that you realize what has happened.It is important to take time to get through that period, but don’t drown in it.
When you’re ready, you need to start the work. You need to search all of the decedent’s records to see what assets they owned and to find any important papers.If you find an original will, you are required to file it with the probate court where the person died.If you only find a copy, you are not required to file the copy. The will might be in a safe or safe-deposit box, but you need to try to locate it.If a will isn’t filed within a year of a decedent’s death, then it is invalid, and any probate required would be what is called intestate.
In your search, you may come across one or more life insurance policies.Sometimes our clients find very old, rather small policies.In fact, some of those particular insurance companies may no longer be around.However, paid-up outstanding insurance policies don’t just disappear.Some insurance company would have taken them over, and they will be required to pay the benefit.You just need to talk to the state Department of Insurance to track them down.Then you need to figure out who the beneficiaries are, and they need to file a claim.
You may also come across retirement accounts such as IRAs or 401(k)s (403(b)s for employees of nonprofit corporations).You need to determine who the beneficiaries are and notify them so they can file a claim.If you don’t know who they are, you should contact the plan administrator.In any event, the beneficiaries may want to ask you questions about these accounts, but be very careful.Inherited IRAs can be kind of tricky with some tax land mines hidden below the surface.It is best to direct them to their financial planner or tax professional.Better safe than sorry.
Then there is the question of joint property. If property – whether it be bank accounts, real estate, brokerage accounts, individual stocks, or any other property – is owned jointly, then ownership transfers to the surviving joint owner(s).In the case of financial assets, either you or the joint owner(s) need to notify the financial institution.If the asset is real estate, then you need to file an affidavit as to death with the appropriate deed recorder’s office.
If it turns out that some or all of these assets were owned solely in the decedent’s name, and if the total value of the assets is less than $40,000, then you can administer those assets in a small estate. However, if the value of the assets is over $40,000, then you need to open a full estate.Either way, those assets are frozen until you get some sort of a court order.
Taking care of things after a person’s death is not necessarily an easy thing to do. Still, it is important for the survivors that things get done properly.Care and attention to detail is invaluable.Otherwise, problems may pop up in future years.And fixing things 10 or even 20 years from now is harder than just fixing them now.
WHEN MOM DIES …
When mom dies – or for that matter, whenever any close family member or friend dies and you are responsible for taking care of things – you can be overwhelmed. First, you have to deal with the loss. Even when they have been sick for some time, and you knew it was coming, it’s still hard.People are immeasurably valuable, and the death of anyone is a great loss.
But after dealing with the personal and the emotional loss, unfortunately, there’s business to be done. We live in a world full of opportunists. With all of our connectivity, people on the other side of the world may try to steal a decedent’s identity for financial gain. Local people may have other purposes.In order to avoid a lot of problems when someone dies, you need to do certain things.
If the decedent was receiving some kind of government benefits, the proper government agency needs to be notified.With older people, that is typically Social Security.If the decedent was receiving some kind of military benefit, then the appropriate defense agency needs to be contacted.If they were a former civil servant, then the Office of Personnel Management needs to be contacted.Also, don’t forget to notify the Department of Revenue and cancel their driver’s license.
On the financial side of things, you need to search and find all of the decedent’s records regarding credit cards, bank accounts, mortgages, investment or brokerage accounts, and pension benefits.You need to let all of the appropriate people know that the decedent has died.You need to cancel the decedent’s credit cards.If the financial accounts were owned solely by the decedent, then once you tell the financial institution of the decedent’s death, then the accounts are going to be frozen until they receive a copy of a court order appointing a personal representative.
Several miscellaneous things need to be tended to as well.Although it can be problematic, you really should notify the insurance company insuring the decedent’s home.The problem with this is that most insurance companies don’t like to insure vacant property.They are usually willing to insure the property for a reasonable time for administration, but that is a limited time.They will want you to sell it or lease it as soon as possible, and if neither of those happen, then they may cancel the insurance.
You should also notify the credit reporting agencies so they can close those accounts.You should put the decedent’s name on the “Deceased Do Not Call List.”You should also notify social media companies such as Facebook, Twitter, LinkedIn, Instagram, and whatever else the decedent might have been on.
As annoying as all of this might be, tending to all of these details can save a lot of future headaches, time, and even financial loss. There are some bad people prowling around out there, and we all need to protect ourselves and our loved ones.
Fred L. Vilbig © 2017
When I first started practicing law in the early 80’s, it was relatively easy to use trusts to get people to qualify for Medicaid.Congress caught on, though. They played around with the rules so that it usually looked as if short of giving all of your money away 5 years before you might go into a nursing home, you wouldn’t qualify for Medicaid. That meant that you would have to be destitute for 5 years even though you may not end up needing to go into a nursing home.
We have been working on a case in the St. Louis County Probate Court where to settle the case, we have to set aside some money for the benefit of the claimant. Since the claim is being disputed, we don’t want to just give the other guy the money, and we certainly don’t want a nursing home to get it. So that started me thinking.
I had heard about irrevocable, income-only Medicaid trusts, but no one had really been able to explain the law behind them to my satisfaction. As a part of this case, I had reason to research the issues on my own. And I found out that, in fact, they do work.
When qualifying for Medicaid, you’re not supposed to have income in excess of a certain amount. It varies from state to state, but in Missouri right now, it’s $834 per month for an individual and $1,129 for a couple. If you have less income than that, you are treated as “categorically needy.” These are the people you would ordinarily consider as needy.
But there’s another category of Medicaid beneficiaries. These are people who receive more than the threshold amount, but not enough to pay the Medicaid rate for nursing care. Their income falls a little short. These are the “medically needy.” They have to “spend down” their own income, and Medicaid makes up the balance.
On the asset side, a Medicaid applicant can have no more than a certain amount of “non-exempt” “available resources” before being disqualified.Certain assets are excluded from this calculation such as the applicant’s residence (but there will be a lien put against it for any Medicaid benefits received), one automobile, household goods, and some other miscellaneous items. Currently in Missouri, that maximum amount of available resources is $1,000 for an individual and $2,000 for a couple. People will give away assets to get down to that level, but then you have to live in poverty for 5 years, and like I said above, you might not even need nursing care.I’m not sure that risk is worth taking.
The dilemma is how do you make your “available resources” unavailable without reducing yourself to poverty. The answer is that you put all or some portion of your assets into an income-only trust and irrevocably give the principal to your children on your death. You get to keep the income off of the assets, but you give up any rights to the principal. So long as you don’t file a Medicaid application within 5 years of when you fund the trust, the trust principal is no longer an available resource.
If you consider doing this, it is important to note that this restriction is very strict. Under the law, if there is any way for an applicant to get at the principal at any time, that trust principal will be treated as an available resource.
The reason this works is because there is a single provision in the Medicaid law that allows you to exclude from “available resources” any assets that are not available to the applicant under any circumstances. Some applicants with trusts tried to retain the right to get distributions under very limited circumstances, but the courts have ruled that the underlying trust assets would then be treated as “available resources.”
As you can imagine, Medicaid has fought these. They have litigated these extensively on the East Coast, but unless they were set up wrong, the government has lost all of these cases.
It should be noted, though, that to my knowledge, no Missouri courts have yet ruled on this issue. In our case, we are trying to force Missouri HealthNet (the Missouri Medicaid agency) into the case to force the issue. However, in other cases like ours, they have avoided getting entangled in the lawsuits on procedural grounds. We’ll still try.
So although no assurances can be given, it looks as if a client can set up an irrevocable trust, retain the right to income only, give the principal away (but only on death), and be able to limit his or her exposure to nursing home costs. In analyzing whether to use this strategy, clients need to carefully look at their available resources to see if they can live only on the income the trust will generate. In addition, long-term care insurance should still be considered in deciding how to plan for this eventuality, but the irrevocable, income-only Medicaid trust might fit into a client’s plan.
One of my partners recently came into my office with a story. He has a client who has lost her mental capacity. She signed a durable power of attorney (a “POA”) several years ago naming her daughter as her attorney-in-fact (her “agent”) to take care of things when she was no longer able to do so. The daughter had taken the POA to her mother’s bank to do some banking for her mother. The bank refused to honor it. They said they had a policy that they would not accept POAs over 2 years old. Absurd!
One of my clients recently had a run-in with an insurance company over a POA. The POA said that the named agent could do anything they needed to do with annuity contracts, “including but not limited to” several listed options. The client needed to change the beneficiaries on the contract in order to avoid probate. The insurance company refused. They said that since changing the annuity beneficiaries was not one of the specifically listed activities, it was not permitted. Again, absurd!
Until fairly recently, POAs were not very helpful. They were only valid as long as the person giving the power (the “principal”) was competent. They were primarily used in business transactions when travel and communication was difficult. However, there was always a lot of uncertainty about whether the principal was still competent when the agent was acting under the POA.
Beginning in about the 1980s, states started adopting what are called “durable” power-of-attorney statutes. What these statutes did was they made POAs valid even after the principal lost his or her mental capacity. What this means is that an agent can continue handling the principal's business even after the principal becomes incompetent.
This is a huge advantage for estate planning. If no one can handle your business affairs for you when you are incompetent, then your family will need to petition the court to have a guardian and conservator appointed to handle those necessary things. Even if you have a trust, there are assets that are not transferred into a trust that need attention. And the law gives the agents the power to do those things. That's why the bank and the insurance company were in the wrong.