Do I Need a Will, Or if I Have One, Do I Need to Have It Probated?

Yesterday an elder asked me the question, “Do I really need a Will?” The answer may seem obvious, since every authoritative source (if you google that question, you will see what I mean) responds in the affirmative. However, I have had elder clients who after careful consideration (and despite my warnings) have chosen either not to create a Will, or in a couple of cases where one already exists, not to submit it to probate.

A lawyer has several good reasons for recommending that all of his clients (not just the wealthy ones) execute a Will and after death submit it for probate. A Will allows the client to choose exactly how his/her property should be divided, who should be in charge of the estate, who should be the guardian of minor or disabled children, how their remains should be handled, etc.

For this discussion, however, we will assume that the client no longer has young children or disabled family members to care for, and has already placed all of his or her property in a form that makes a Will unnecessary. This can be done by using beneficiary deeds for real property, revocable living trusts, pay-on-death bank accounts and joint ownership.

The client who called yesterday, can’t think of a single reason why they should pay even a small amount of money to create a Will, that will need to then go through Arizona’s simplified probate process, which entails publication fees, fees for Death Certificates, probate filing fees, notary fees and some amount of paper work by the person designated as personal representative or executor (PR). Why should this lady bother with all the fees and effort to create a Will and then subject her son to more fees and paper work, when he will get all of his mother’s property automatically the moment she dies? This is indeed a worthwhile question.

If all property passed automatically at death what value is probate?

One answer is finality. By going through the probate process (which usually starts with the presentation of a Will to the probate court and the designation of a PR), the claims of creditors are fully extinguished. In Arizona the cut-off date for creditor claims is 120 days after the first date of publication of a formal death notice. Once the 120 day period expires the estate can shortly thereafter be “closed” by the court (upon application by the PR) and at this point the opportunity for any challenge, such as from unhappy family members, also ends (re-opening an estate is possible, but only in limited circumstances usually involving fraud or mistake by the PR).

I am currently acting as estate counsel for a modest sized estate (having less than one million dollars of net worth) which is going through Arizona’s simplified probate system, and was initiated in the summer of 2013 by the publication of a death notice. Last week I received a phone call from a very polite gentleman, who I believe was telling me the truth, saying that he had a check signed by “Miss M” (for whom I had drafted a Will just weeks before her death a year ago) for four hundred dollars, which was three years old!

This gentleman wanted to submit the stale check as a bill to the estate and he had gotten my name from the probate court. He explained that he had misplaced the check (for almost 3 years) and thus failed to have it deposited in a timely way. For the sake of argument I will assume that the signature on the check was that of Miss M.

I informed him that the time period for filing claims against the estate expired 120 days after the first day of publication of the death notice, thus he was already several months too late to make a claim. I further explained that even a personal plea to the PR will do no good, since the law requires the PR to reject any bills submitted after the 120 day cut-off (because the remainder of the estate belongs to the various beneficiaries at that point) and the PR can actually be sued personally by other beneficiaries of the estate for paying tardy claims. Miss M’s estate benefited from the probate system by having claims such as this one barred forever. Had the bill been for a larger amount, and had there been no probate filing, the claimant could very well have taken the matter to court and won a judgment against the estate.

Choosing Not to File for Probate

Another recent client chose not to file for probate. This lady’s domestic partner had just passed away after ensuring that my client had title to all of his assets. He left a Will, which set forth that my client would inherit everything, but my client now wanted to know whether she would get into trouble if she simply paid the final bills (except for one which she had grounds to dispute) and not put the estate through probate.

In Arizona, a person having custody of a Will is liable to any person damaged by his or her failure to deliver the Will for probate. However, where the custodian of the Will is the sole beneficiary thereof, there is no duty on the custodian’s part, even if they are designated as PR, to submit the Will to probate. Thus the short answer to her question was, “you are under no legal obligation to go through probate… but are you sure you want the risk?”

The risk for her is that the obligation to the creditor who was not paid, could linger for years. As the beneficiary of her partner’s estate (which scarcely had enough funds to pay the remaining bills) she could potentially be sued years later (although this is unlikely because of the small size of the estate). The benefit for her, she believes, is that by failing to open probate and publish a death notice, the creditor may not learn about his death and thus may never pursue its claim against the estate.

Against my conservative advice I understand that she decided to refrain from probate. Although the final result will not be known for at least 6 years (the statute of limitations for contract claims), she may be successful in saving herself at least $500-$1,000 in legal fees and expenses as well as the amount of the bill which is no doubt still outstanding against her deceased partner.

The probate system does the family a favor by closing the estate and cutting off claims. Lawyers are sometimes in the uncomfortable position of having to recommend their clients pay fees to make this happen, even though the family sometimes feels that the expense is unwarranted, and viewed in hindsight the family may sometimes be proven correct.

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Arizona Tries to Bully Family with Cerebral Palsy Member to Cut Costs

This anecdote comes from a local Arizona Dept. of Developmental Disabilities (DDD) case worker’s decision to refuse to continue attendant care benefits to a wheelchair bound person suffering from Cerebral Palsy (CP). I learned about it from an advocate for the family involved.

Everyone is already aware that funding for the disabled in Arizona has been slashed as a result of the economic downturn (and the utter failure of state government to put aside funds during Arizona’s real-estate bubble heyday for the inevitable downturn—every penny from property taxes was spent before it was even collected, thanks Janet Napolitano!). Across the board reductions in certain programs and the complete elimination of others explain how some of the cuts were achieved, but here is an example of the dirty underbelly of the state system which very much resembles what I reported on a few months ago from an Ohio case.

A few months ago a DDD case worker was doing the annual review of her CP client, and without warning suddenly announced that she was cutting 100% of the family’s Medicaid funding for “attendant care”. This person requires assistance with virtually all of her life skills, including bathing, dressing, brushing hair and teeth, etc. Attendant care is the funding which enables a family to obtain assistance for such care. This person had been receiving approximately 180 hours a month in attendant care ever since she began receiving Medicaid. No explanation was given to the family, which then sought the assistance of an attorney.

The attorney pursued the matter through the 2 levels of administrative appeal (inside DDD’s own organization), where appeals are routinely turned down. This forced the attorney to file suit in Superior Court for denial of the person’s rights guaranteed under federal and state law. DDD filed an Answer denying that the family’s rights had been violated and the case was scheduled for trial. What happened next puts Arizona right next to Ohio on the Wall of Shame.

The attorney for the state rushed over to the family’s attorney with a settlement agreement in his hand moments before the trial was to begin. As in the Ohio case (see my Nov 28, 2012 post), the key issue for the state of Arizona, whose bluff had been called by a family willing to bear the costs and mental anguish of the litigation process, was to prevent the case from being publicized. The family got all of their attendant care benefits restored retroactively, but were barred from speaking about the matter forever. Obviously the state is afraid that if it becomes known that they are using intimidation and the internal appeals process (where the family always loses) to deny legal rights to persons with disabilities they will face a deluge of litigation which they can not win.

Families receiving government benefits for a disabled family member need to be aware of these unscrupulous tactics.

Elder Defense Against Identity Theft

Elders are particularly prone to identity theft for a number of reasons. They are often not savvy about the risks involved, particularly when they involve online commerce. Elders are often overly trusting of telephone solicitors who use pretexts to obtain confidential personal information, and they often don’t check their bank and credit card statements for unauthorized transactions. As a result they or their families often discover months or years later that their assets have been subject to theft by criminals who were able to open bank or credit accounts in their names.

Many elders mistakenly believe that they are protected against identity theft because they never conduct on-line transactions, and use cash or checks in lieu of credit cards (both of these are still sensible measures for many elders). However, once a criminal obtains a name, address, phone number, date of birth and social security number they have everything needed to open a new financial account in the elder’s name, from which they can siphon off the elder’s savings, even though the elder has never authorized any credit accounts. Also, consider that the necessary personal information for identity theft is already in the possession of one of the most frequent types of criminal—other family members (it’s sad to say).

Elders find themselves solicited by large companies offering identity theft “protection” and insurance. The devil is in the details of these services, but suffice it to say that they are expensive and not water tight. An elder on a budget will often find that this kind of protection is simply not affordable. What’s more, the most effective part of these services is exactly what I am advocating elders do for themselves, for free (depending on their age—see below).

The reason that this protection is not widely known is a measure of its effectiveness: no one makes any money off of it! The answer: simply disable yourself from opening any new financial accounts!

Let me explain: when someone attempts to open a bank, investment or credit account, the first thing that happens is the institution collects personal information required for a credit check. They submit your personal information to the Big 3 credit bureaus (Experian, Transunion and Equifax, and to be completely safe you might also add the smaller bureau Innovis) which produce a comprehensive credit history and give each individual a credit score. When you fill in the account opening form you are giving the institution the authority to conduct this background check. It happens without your knowledge and you don’t receive any notice from the credit bureau that they have provided someone with a report (unless you have a credit monitoring account, for which you also are charged a monthly fee).

My adults in the US spend their adult lives opening and closing credit accounts. I will spare everyone my rant about how disregard for the consequences of indebtedness has caused this country a colossal nightmare, but in the case of elders it is something which they should wean themselves from permanently. All any elder needs is (at most) a single bank account, an investment account(s) (for their retirement savings and investments), and a single credit card (if that). Once these are in place it is doubtful that you will ever need another such account.

The trick to stopping most garden variety identity theft is “how do I prevent someone who has obtained my personal information from opening an account and using it to steal my money”.

Placing a Credit Freeze (sometimes called a “security freeze”)

The solution is simple: for a one-time fee of $5 in Arizona (free for adults over 62, or persons who are already the victim of identity theft), you can block a credit bureau from releasing your credit information to any one, and thus prevent a new account from being opened in your name. The thief with your personal information will discover that the bank where he is trying to open an account will refuse to cooperate because of this “credit freeze”.   

Most credit bureaus allow you to place the credit freeze on-line by visiting their website, but the procedure can also be done by calling them and obtaining the application materials through the mail. You do have to provide your personal information at the time of placing the freeze, but as long as you are providing it to one of the 4 credit bureaus listed below this is a low risk disclosure (they already have this information in their files).

What happens after you establish a credit freeze if you need a new account or additional credit from an existing bank account?

When I learned about this procedure about 6 years ago I immediately put credit freezes in place. Since then I have on one occasion needed to release the credit freeze (temporarily) to permit me to refinance the mortgage on my house. This proved to be extremely simple and for the same $5 fee I was able to have the freeze lifted for one month so that my mortgage lender could obtain a new report. At the end of the month I checked the credit bureaus and confirmed that the freeze was once again in place.

How do I put a “credit freeze” on my accounts?

  1. For Equifax call them at: 1-888-202-4025 or visit their website at https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp
  2. For Transunion call them at: 1-888-567-8688           or visit their website at http://www.transunion.com/personal-credit/identity-theft-and-fraud/fraud-alert-vs-credit-freeze.page
  3. For Experian call them at: 1-888-397-3742 or visit their website at https://www.experian.com/freeze/center.html
  4. For Innovis call them at: 1-800-540-2505 or visit their website at https://www.innovis.com/InnovisWeb/pers_placeSecurityFreeze.html

 

For more information about Credit Freezes see the Wikipedia article (http://en.wikipedia.org/wiki/Credit_freeze). This article correctly states: “Credit freezes are frequently viewed as the most effective way to prevent financial identity theft.”

Medicaid Eligibility Determinations: are “Wall Street Ethics” Ubiquitous?

Introduction: as someone who worked in law and compliance for Wall Street banks, I know a good deal about “Wall Street ethics” (or lack thereof) and I will assume that the reader has a good sense of this oxymoron. When I left the world of finance to open a solo law practice I expected somewhat higher standards in other sectors of the economy.

A recent discussion of ethical standards of government attorneys on the National Academy of Elder Law Attorneys (NAELA) website started with the following tale from a member attorney in a mid-western state (paraphrasing):

“My client was denied Medicaid benefits. He appealed, and was again twice denied at the two levels of administrative appeal. I took an appeal from the Medicaid determination to the local state court and filed a brief. I was soon contacted by the state attorney general’s office which recognized the validity of my arguments and offered a settlement. This gentlemen did not want to see the case litigated to a decision in my favor because of the fear of setting a precedent which others would learn about and follow.

The settlement was simple, my client would be accepted into Medicaid and would receive all of the benefits which he had been wrongly denied by the state agency (sounds very good), but, my client and I would be required to keep the settlement confidential.”

What is most troublesome about this story is the author’s comment that his client’s circumstances are commonplace, and the state Medicaid agency’s policy to deny benefits in similar cases is routinely made.

    Thus many deserving Medicaid applicants are being denied benefits unfairly, and the state attorney general’s office sanctions this abuse.

The author goes on to say that he was so troubled by the ethical dilemma of agreeing to keep the settlement confidential that he contacted the head of the bar association’s legal ethics division, the Inspector General’s office and the Ethics Commission. All of these legal ethics watchdogs were unable to see an ethical problem.

The author did not reveal the circumstances which led to his client’s unfair denial of benefits, and I can’t blame him as his primary duty is to his client, and by agreeing to the confidentiality obligation he is obtaining for his client exactly what his client sought.

A telling, if cynical, response from a senior NAELA member was, “What’s the problem? Your client got what he wanted and you got paid. You have no obligation to some vague concept of the common good.”

As for the ethics of the attorneys representing the government, the same cynic wrote: “Government lawyers have no higher calling than private practice lawyers…”

I’m afraid I have to agree with the cynic.

Hidden Medicaid Trap in Elder Nuptials

An unpleasant fact of life in the U.S. is the way that government regulations can leap out of the bushes to bite you when you least expect it. One prime example is in the case of a marriage between elders.

Henry was 75, healthy and retired, he had saved $600k which he held in a revocable living trust for his children and grandchildren. The love of his life, his wife Betsy, had passed away and when he met Lydia he never imagined that romance might bloom again. But it did, and Henry and Lydia, who had no assets of her own, were married shortly thereafter.

What Henry hadn’t counted on was the effect of Medicaid rules on his trust funds when Lydia became ill and was diagnosed with Alzheimer’s disease. When Henry contacted the state Medicaid agency to begin the application process for Lydia he discovered that as a Community Spouse he was expected to “spend down” his trust to about $113k, decimating the inheritance he and his first wife had built up for so many years for their children, before Lydia would become eligible for government benefits.

When Henry contacted an attorney he had difficulty believing that there was no way out of the dilemma. He could spend his money on home improvements, a new car, travel or anything else, but what he wanted was to live simply and save his money for his children. In desperation he asked the attorney if there wasn’t any possible solution, and he learned the brutal truth: in order to protect his financial legacy he needed to divorce Lydia!

Divorce solves Henry’s problem in that his assets would no longer be considered “available” resources to Lydia, who having no resources of her own, automatically qualifies for Medicaid. Henry still loves Lydia and there is nothing to prevent Henry from retaining his spiritual bond with her, and purchasing goods and services for Lydia which go beyond what Medicaid provides, as a way to improve the quality of her life while she is in the nursing home.

The emotional pain of being forced to choose between divorce and impoverishment is a cruel plight which takes the joy out of life for many elders. Single elders involved in a committed relationship and considering marriage need to carefully weigh the financial impact which long term care might have on their respective finances.

For many the solution is a domestic partnership, often celebrated in a church ceremony, with an agreement, formal or otherwise, about sharing expenses, but without registering a marriage. Since Arizona, like most states, no longer recognizes the common law marriage, this arrangement will not be treated by Medicaid as a marriage and will not cause the community “spouse” to have to spend down his/her assets.

Medicaid Alchemy: Base “Resources” Transmuted into Precious “Income”

Citation: Lopes v. Dept. of Social Services (2nd Cir., No. 10-3741-cv, Oct. 2, 2012)

Background: in the jargon of Medicaid, the term “community spouse” describes the healthy spouse of a Medicaid applicant (aka the “nursing home spouse”). The resources of both spouses are considered available to the nursing home spouse and must be disclosed on the Medicaid application. The Medicaid applicant is permitted to keep a maximum of $2,000 in “non-exempt” assets, while the community spouse can keep as much as $113,000.

If this sounds harsh then you get the picture. Medicaid regulations are designed to force the couple to spend down their assets to a very low level in order for the nursing home spouse to qualify for government assistance. A short list of assets is “exempt” from this rule (the family home up to a value of $500,000, one family car, home furnishings, personal belongings, a burial plot and a few other items).

New Development: Last month there was a rare bit of good news for elder couples who are facing the need to apply for Medicaid. The second circuit court of appeals has just ruled that the community spouse may convert “resources” into “income” through the purchase of a qualifying annuity. The devil is in the details (the annuity must be “non-assignable”, and the government must be named as the beneficiary of any funds left over after the death of the annuitant among other requirements) but this device is an important tool which can prevent the community spouse from being truly impoverished.

By using her own resources ($166,000 in cash—the amount by which her resources exceeded the Medicaid allowance for the community spouse), Mrs. Lopes purchased a single premium annuity which promised to pay her a stream of monthly income ($2,340) for a period of six years (which was determined to be “actuarially sound”, or a complete pay back within the purchaser’s life expectancy). The state was named as beneficiary and will receive any remaining funds should Mrs. Lopes pass away during the 6 year annuity period.  

Mrs. Lopes chose an annuity contract which contains an “Assignment Limitation Rider” (which provided that the annuity was non- transferable), which the court found determinative of the question of whether the annuity payments were resource or income. Since Mrs. Lopes did not have the legal right to sell her annuity, the court found that the payment stream was “income” (which is not deemed to be available to the nursing home spouse), and thus after the purchase of this annuity, the couples’ combined resources did not exceed the Medicaid limit.

Mrs. Lopes filed her husband’s Medicaid application 13 days after purchasing the annuity and the court ruled that it was irrelevant that the annuity was purchased for the purpose of qualifying for Medicaid. The Connecticut Department of Social Services’ policy manual treated annuities, even those which are non-assignable, as resources, and Mrs. Lopes’ suit challenged the legality of this provision on the basis that it was impermissibly more restrictive than the existing SSI regulations passed by Congress, and the Court agreed with Mrs. Lopes.

Many couples have in the past felt forced to make unnecessary home repairs, take expensive vacations that they hadn’t planned for, bought new cars they didn’t need and made other wasteful expenditures of their precious life savings in order to comply with the perceived need to “spend down” so that the nursing home spouse would be eligible for Medicaid. With this new ruling the courts have clearly come down on the side of the community spouse, recognizing a dual purpose of Medicaid legislation:

“…to provide health care for the indigent and protect community spouses from impoverishment while preventing financially secure couples from obtaining Medicaid assistance.”

Hello world!

Welcome to my new blog site dealing with issues of concern to families with elder and disabled members, and Elder Law attorneys. The rules and regulations which affect elders can have a dramatic, and sometimes tragic, impact on an individual’s quality of life, particularly when planning is put off until it is too late. Our society today, due to imprudent policy decisions made by our leaders (often with our tacit blessing) over many years, is now cutting back the various social safety nets (Medicare, Medicaid, Social Security, etc.). With a little planning it is still possible for a family to provide for their elders and at the same time preserve some family assets for later generations. This blog will endeavor to highlight in layman’s terms some of the problems and some of the solutions to navigating the shoals of these complicated and confusing laws and regulations.