This blog is written by Brian E. Barreira, an estate planning, probate and elder law attorney with offices at 18 Samoset Street, Plymouth, Massachusetts, and 175 Derby Street, Unit 18, Hingham, Massachusetts. Brian was named a Massachusetts Super Lawyer® in Boston Magazine in 2009, 2010 and 2011 and is listed in The Martindale-Hubbell Bar Register of Preeminent Lawyers in the fields of Elder Law and Trusts & Estates, Wills & Probate. Brian's biographical website can be found at www.elderlaw.info
Nothing on this blog should be considered to be legal advice or tax advice.
Should a MassHealth Applicant Accept Help from the Nursing Home’s Lawyer to Appeal a MassHealth Denial?
Many nursing homes offer help to families who need to apply for MassHealth to help pay for the elder’s nursing home bills. In simple financial situations, that help is beneficial to both the elder and the nursing home. In more complicated situations, however, it can often make more sense to handle the process without involvement by the nursing home, especially if the nursing home’s lawyer is involved.
A member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys recently reported via email on its listserv a cautionary tale about why a MassHealth applicant should not allow the nursing home’s lawyer to be directly involved in or take over the MassHealth application and appeal processes. In that case, an out-of-state law firm representing a Massachusetts nursing home is now suing an elderly nursing home resident and members of his family, and using information the law firm had gathered while supposedly helping the elder.
The elder had applied for MassHealth and was denied on the basis that $100,000 in caregiver contract payments were disqualifying transfers. The daughter (who is attorney-in-fact under the elder’s durable power of attorney) appealed and the hearing officer in February 2012 upheld the validity of the contract and approved the $60,000 of the payments that were rendered prior to the elder’s admission to the nursing home. The hearing officer decided that the remaining $40,000, which was paid after the nursing home stay had begun, was a disqualifying transfer, resulting in a MassHealth disqualification period of approximately 5 months.
The elder’s current lawyer reported: “Prior to the hearing date, the nursing home law firm had the elder assign his rights to the MassHealth benefits, to allow the firm access to his financial records and to cooperate with the law firm to secure MassHealth benefits. The law firm stated that, although they were not representing the elder, the firm would handle the administrative appeal on his behalf.”
The elder’s current lawyer also noted: “MassHealth’s lawyers refused to respond to the firm’s request for documents. MassHealth stated in its appeal memo that they felt the attorney was fishing for information that he could then use to sue the elder! The hearing officer refused to allow the attorney to participate in the fair hearing because the firm hadn’t filed the necessary paperwork.”
It seems to me that after the partial victory at the fair hearing, a competent elder law attorney representing the elder then would have explained to the family (1) that it would be a steep uphill battle to appeal a factual decision to Superior Court, (2) how a “cure” works in the MassHealth application process, (3) who would have potential personal liability for the elder’s unpaid nursing home bills, and (4) that a return of $40,000 to the elder within 60 days would have resolved the MassHealth problem. It does not appear that the law firm representing the nursing home did any of these things.
The elder’s current lawyer also reported: “Within 30 days of the decision, the nursing home lawyer filed a 30A appeal in Superior Court, purportedly acting on behalf of my client under the assignment of rights. They did not notify the client that they had done so. They also filed a hardship waiver appeal administratively on behalf of the nursing home. Again, the client was not informed. Then in March, with both cases pending, the nursing home law firm filed a lawsuit against the elder and his kids in Superior Court, alleging that the caregiver contract payment was a fraudulent transfer, a breach of the nursing home admission contract, and a breach of fiduciary duty. The suit neglected to mention the valid caregiver contract or the favorable appeal decision. The nursing home filed an emergency motion for an injunction requiring the kids to turn over the entire $100,000 they earned under the contract.”
Obviously, the family has had to hire a lawyer to defend against the nursing home lawyer’s questionable tactics. The “free” help offered by the nursing home on the fair hearing appeal process has now resulted in family members incurring the cost of a lawyer to defend themselves personally against the nursing home’s lawsuit.
The elder’s current lawyer concluded: “The law firm essentially tried to bully the client into paying them the entire $100,000, when they have no claim to the $60,000 that was a non-disqualifying transfer and a tenuous claim on the $40,000. … Bottom line, this is a case which highlights how clients need to be on their guard when the nursing home offers to assist them.”
When a surviving spouse is the beneficiary of the deceased spouse’s IRA, the surviving spouse has the option of stretching out distributions from the IRA over the surviving spouse’s life expectancy, as determined by Internal Revenue Service tables. When the surviving spouse is much younger than the deceased spouse, getting such a fresh start on required minimum distributions from the IRA can allow the IRA to compound free of income tax for a longer period of time. If there is no beneficiary on the IRA (perhaps due to an error by the deceased spouse, or sometimes due to lost paperwork by the IRA custodian), the ability of the surviving spouse to stretch the IRA, however, would appear to be lost.
If the surviving spouse is the sole beneficiary of the deceased spouse’s estate, however, the Internal Revenue Service may allow the surviving spouse to transfer the IRA into the surviving spouse’s IRA. In Private Letter Ruling 201211034, which cannot be used as a precedent in any other case but which shows the lenient attitude of the Internal Revenue Service towards helping the surviving spouse in that case, the Internal Revenue Service concluded that the surviving spouse could transfer the proceeds tax-free into the surviving spouse’s IRA in two different ways.
One way authorized in Private Letter Ruling 201211034 for the surviving spouse to receive the IRA and stretch it out was to engage in a trustee-to-trustee transfer from the deceased spouse’s IRA directly to the surviving spouse’s IRA. According to the Internal Revenue Service, such a rollover would be exempt from the withholding requirement in Internal Revenue Code Section 3405(c)(2). Because such a move would require direct participation by both of the IRA custodians, the surviving spouse and the Executor or Personal Representative of the deceased’s spouse’s estate could be forced to jump though hoops before obtaining approval of the process by the IRA custodians.
The other way authorized by the Internal Revenue Service in Private Letter Ruling 201211034 for the surviving spouse to receive the IRA and stretch it out was for the estate to claim the IRA proceeds, then, within 60 days, roll over those proceeds into the surviving spouse’s IRA. The IRS ruled that such a rollover would also be exempt from the withholding requirement in Internal Revenue Code Section 3405(c)(2). This two-step approach, from the decedent’s IRA to the decedent’s estate then to the surviving spouse’s IRA, may be the more practical way of handling the situation where an IRA has no beneficiary designation and the surviving spouse is the sole beneficiary of the deceased spouse’s estate.
Should You Place Restrictions on the Organ Donation Process (in Case Pain Can Still Be Felt)?
A Massachusetts resident can become an organ donor by simply signing a donor card or having a donor symbol affixed to the person’s driver’s license. Many citizens sign up to be an organ donor in this way without placing restrictions on the process of removing the organs (which is known as “harvesting”). More details about the organ donation process in Massachusetts can be found in Massachusetts General Laws, Chapter 113A, the Uniform Anatomical Gift Act, which was signed into law by Massachusetts Governor Deval Patrick on February 22, 2012.
Is it possible that, without anesthesia or other restrictions, you could feel pain during the harvesting process? A recent article in the Wall Street Journal, entitled What You Lose When You Sign That Organ Donor Card, raises this concern. Once you are considered to be brain dead, you no longer have any legal rights, and the medical doctrine of informed consent no longer applies. At that point, the Health Care Agent named in your Massachusetts Health Care Proxy would no longer have any say about the organ donation process.
What is troubling is that the organ harvesting process, where you would be known as a beating-heart cadaver, can sometimes result in an increase in the “deceased” person’s blood pressure, which could possibly mean that the organ donor feels pain during the process (although many doctors dismiss this possibility). Some doctors use a local anesthetic, which doesn’t affect the organs, but others do not use any anesthetic at all.
To allow more control over how the organ donor will be treated during the harvesting process, it may be better not to sign a donor card or have anything affixed to your driver’s license, but rather to give your Health Care Agent complete authority to make decisions regarding all organ donation issues. The Health Care Agent could then insist that the organ donations be conditioned on proof that pain cannot be felt or conditioned on local anesthetics being used during the organ harvesting process.
The author of a new book entitled The Undead: Organ Harvesting, the Ice-Water Test, Beating Heart Cadavers — How Medicine Is Blurring the Line Between Life and Death and an organ transplant surgeon were interviewed on March 19, 2012 on National Public Radio; a recording and transcript of the interviews can be found at http://www.npr.org/2012/03/19/148296627/blurring-the-line-between-life-and-death. Although the surgeon stated definitively that there is no pain when there is no upper-level brain function, the interviewer did not seem to delve very deeply into the issue, and unfortunately did not ask about why there have been reports of increases in blood pressure during the organ harvesting process.
Income Tax Planning for the Terminally Ill or Recently Deceased Person
Notes for lawyers from the Massachusetts Bar Association’s program that I chaired entitled “Estate, Tax and Health Care Planning for the Terminally Ill Client”
Some income tax planning for a person’s final income tax returns can be done not only immediately prior to the person’s death, but also after the person’s death. The following items should be considered.
(1) Pre-Death Capital Losses
The date of death of a client establishes a new basis in the client’s assets for capital gains tax purposes. Thus, pre-death sales of appreciated assets should be avoided if possible. On the other hand, capital losses are lost when someone dies (due to a step-down in basis), so a pre-death sale of such assets could end up being good income tax planning if the decedent’s final return would otherwise show significant taxable income. Whenever in doubt, capital losses should be recognized, as they will be lost upon death.
(2) Accrued Income on U.S. Savings Bonds
Accrued income on U.S. Savings Bonds, Series E, EE, H and HH can be included by the executor on the decedent’s final income tax returns. See Rev. Rul. 68-145, 1968-1 CB 203.
It may be beneficial for a surviving joint tenant on such bonds to execute a qualified disclaimer of the survivorship interest if the decedent would have been in a lower bracket. If a disclaimer may be advisable, it can be done within nine months of the decedent’s death, but note that the ability to do so could be tainted by any acceptance of its interest by the surviving joint tenant. A warning to surviving joint tenants not to take any action that would cause deemed acceptance of the interest is advisable in many circumstances.
(3) Medical Expenses Paid by Executor
Private payment of nursing home expenses in the client’s final year could result in a large itemized deduction that can offset a significant amount of income. Any medical expenses paid within one year of death by the executor can be elected either as estate tax deductions or as income tax deductions on the decedent’s final income tax returns.
(4) Qualified Plans and IRAs
Upon the death of an unmarried client who has attained the required beginning date and has opted to recalculate his/her life expectancy on IRAs or qualified plans, distribution must take place before the last day of the calendar year immediately after the year of the decedent’s death. It could be advisable to make a pre-death withdrawal from such IRAs and qualified plans in order to recognize the income on the client’s income tax returns, as well as to cause the resulting income taxes to be estate tax deductions. A conversion to a Roth IRA would have the same result, yet allow the beneficiary the option of future tax-free accumulations, and may well be advisable in such situations.
It may be advisable to include in clients’ durable powers of attorney the power to convert an IRA to a Roth IRA.
(5) Pre-1977 Spousal Joint Tenancies and Tenancies By the Entirety
The presumption that each spouse contributed 50% does not apply to joint tenancies and tenancies by the entirety created before 1977, under the holding of Gallenstein, 975 F.2d 286 (6th Cir. 1992) and its progeny. Thus, if the non-contributory spouse is terminally ill, a division of jointly-held assets into tenancy in common may be advisable to obtain a step-up in basis of 50% of the assets and for the proper funding of the estate plan.
(6) Using Discretionary Testamentary Trusts
Even if the couple has a significant amount of assets for federal tax planning purposes, for long-term care planning purposes it may be advisable to have the dying spouse execute a will containing a discretionary trust for the benefit of the surviving spouse. This technique has the benefit of shielding the assets from any possible nursing home costs of the survivor under the definition of trusts under federal law (42 U.S.C. Section 1396p(d)(2)(A)) and concomitant state regulations in Massachusetts and many other states.
It also appears that the loss in basis adjustment referenced in Internal Revenue Code Section 1014(e) would not apply if the trust were discretionary; thus, even assets transferred into the decedent’s name shortly before death would appear to attain a stepped-up basis. Under a specific prohibition in Section 1014(e), assets transferred to a person who dies within one year of receipt of the gift do not receive a step-up in basis only if there is a requirement that the assets be distributed to the prior owner; while there are no cases or regulations on point, the use of a discretionary trust appears to circumvent this prohibition.
(7) Granting General Power of Appointment to Dying Spouse
It has been suggested by at least one commentator that granting a general power of appointment to a spouse, even within one year of death, can result in a complete step-up in basis on the assets affected thereby. (See The Tax Basis Revocable Trust: New Concepts in Estate Planning, by Paul M. Fletcher, The Covercroft-Twigmore Group.) The method is to make the surviving spouse’s trust property subject to a limited, general power of appointment for debt payment during administration of the deceased spouse’s estate. Because of this general power of appointment, the surviving spouse’s appreciated trust property is included in the gross estate of the first spouse to die. While Internal Revenue Code Section 1014(e) disallows a step-up in basis on a gift made to the decedent within one year of death, the author suggests that the language of that provision does not apply to inclusion of someone else’s property in the decedent’s gross estate. To draw your own conclusion, see not only the Code section, but also PLR 9308002, where a step-up in basis was disallowed. For an article on the subject, see Melinda S. Merk, “Joint Revocable Trusts for Married Couples Domiciled in Common-Law Property States,” Real Property, Probate and Trust Journal, Vol. 22, No. 2, p. 345 (Summer 1997).
Supreme Judicial Court Rules That Trusts Were Ineligible for Homestead Protection Under Pre-March 25, 2011 Massachusetts Law
Before the new Massachusetts homestead law took effect on March 16, 2011, it was an unsettled question of law as to whether the Trustee or beneficiary of a trust was eligible to file a valid Declaration of Homestead. On February 6, 2012, the Supreme Judicial Court of Massachusetts decided in Boyle v. Weiss that the beneficiary of a trust could not file a valid Declaration of Homestead under pre-March 16, 2011 .
Note that the Court did not invalidate the preferred method under previous law, which was to file a Declaration of Homestead individually, then reserve the homestead rights when deeding the home to a trust.
Anybody who before March 16, 2011 attempted to file a Declaration of Homestead for a trust should consider filing a new one under the present law, but note that a beneficiary of a trust still cannot file a Declaration of Homestead under the new version of Massachusetts General Laws, Chapter 188. Instead, the Trustee must do so on behalf of the trust’s beneficiary and must identify the beneficiary in the legal instrument.
Often, medical bills arrive after a MassHealth application has been approved, and the MassHealth applicant is out of funds to pay these bills. At that point, MassHealth should be asked to allow payment out of the MassHealth recipient’s income. In 2011, MassHealth (the Massachusetts Medicaid program) was criticized by the federal Centers for Medicare and Medicaid Services for its failure to follow federal law, which allows previous medical bills to be paid out of a MassHealth recipient’s income. See the CMS letter to Massachusetts re pre-eligibility medical expenses.
What Can Happen If You Become Mentally Incapacitated in Massachusetts But Have Not Executed a Durable Power of Attorney?
A new case that I am handling highlights why I often say that a durable power of attorney can be the most important document in a person’s estate plan.
The current wife of a fairly young mentally disabled man (who I’ll refer to as Craig) recently came in to see me about his situation. Craig had suffered a traumatic brain injury a few years ago, and his mental condition had been in decline. Fortunately, he had signed a Massachusetts Health Care Proxy, so his wife was able to make appropriate health care decisions for him. The hospital was trying out various antipsychotic medications to attempt to stabilize him mentally, and his wife had the authority as his Health Care Agent to consent to the medication treatment plan. It was anticipated that Craig would not be able to return home, and that he would need to be placed in a nursing home once his mood swings had been stabilized.
To get Craig moved to an appropriate nursing home, his wife needs to prove to nursing homes that there is a payment source. This married couple, like most others, doesn’t have the funds to be able to afford nursing home bills out of their private funds, so they need to apply for MassHealth for him. Unfortunately, Craig has a bank account in his own name, and his wife has no access to those funds and cannot request the 5 years of bank statements that are required for the MassHealth application. If Craig had executed a durable power of attorney, his wife (or someone else who was appointed) would have been able to take these actions, but without it, she needed to petition the Probate Court to be appointed Conservator. Unfortunately, the basic conservatorship process can take 2-3 months, and there was an immediate need to handle Craig’s financial affairs, so we needed to add an expensive lawyer onto the process and have his wife appointed Temporary Conservator.
There is a complicated wrinkle in this case, as several years ago Craig’s mother set up a trust for him and his children from a prior marriage, and Craig is the trustee; at some point, his mother also added his name as a joint tenant on her CDs and bank accounts. All of what Craig’s mother had done affects his MassHealth application and the conservatorship . Once the judge learned about these complexities, a Guardian ad Litem was appointed for him to file a written report with recommendations with the Probate Court, and Craig also had a lawyer appointed to represent him.
Therefore, at some point in the near future there will likely be a meeting involving (1) me, representing the wife not individually but in her capacity as Temporary Conservator; (2) the lawyer appointed to represent her husband’s interests aggressively; (3) the lawyer who was appointed Guardian ad Litem, and (4) a lawyer representing the children from his previous marriage. Just imagine how expensive that meeting will be, and how expensive the overall conservatorship will eventually be if all of us don’t completely agree on a plan. Even if we all come to a quick agreement, the fact that there are four lawyers, along with the need to get Probate Court approval, still means that the process will cost thousands of dollars.
All of the conservatorship complexities of this case could have been avoided if Craig had executed a detailed durable power of attorney. (I don’t mean a generic form that can be found on the internet, but rather a durable power of attorney that deals with the document signer’s specific assets and issues.) This case is a great lesson on why a detailed durable power of attorney drafted by an experienced elder law attorney can often be the most important document in a person’s estate plan.
