Jan 17, 2017

When the trustee and beneficiaries are siblings, everyone needs to know the ground rules to stay on good terms!

Consider this scenario: A parent passes away and one of the decedent's children, a beneficiary of the trust, takes over as trustee of the parent's trust. His siblings are also beneficiaries. Since no one in the family is familiar with the legal and financial technicalities of trust administration, this is uncharted territory for everyone. And buried in that new territory? Land mines that can imperil the bonds between siblings, even those who have gotten along well until now.

Beneficiaries may begin to wonder just what the trustee is doing, what to expect, and of course, when they'll see their money. And because the trustee is "just" a sister or brother, beneficiaries may be inclined to inquire excessively or make outsize demands. On the other side, the trustee/beneficiary may be caught up in the nuts and bolts of handling the trust, and consider his siblings' requests as intrusive or an insinuation that he is not trustworthy. Resentment can build on both sides. In the worst-case scenario, one or more beneficiaries may even end up suing the trustee and requesting his removal. Most families never recover from this kind of rift. I have seen it happen.

Fortunately, an incendiary situation like this can usually be avoided if all family members understand, in advance, the legal rights and obligations of beneficiaries and trustees. It can help a great deal when the trustee retains an attorney experienced with trust administration. But even if the trustee feels he can handle it all on his own, families that want to remain on good terms are well-advised to become familiar with the fundamental ground rules of trust administration.

So just what are the ground rules?    
  • First, the trustee is legally obligated to keep beneficiaries informed. Beyond being a legal requirement, timely and effective communication goes a long way to neutralizing doubts and misunderstandings. Good communication begins with the trustee alerting beneficiaries that trust administration has commenced. The trustee must also provide all beneficiaries with a copy of the trust and any amendments, as well as a complete list of trust assets. I strongly recommend that all beneficiaries carefully read each of these items. 
  • Beneficiaries are entitled to a full accounting of the trust's transactions on an annual basis, although a trustee may do so more often if he wishes. The annual accounting must show all trust transactions: expenses of the trust, and all income and growth of trust assets. A federal tax return is not a substitute for the annual accounting, as it does not provide all the information to which beneficiaries are entitled.  
  • The trustee must never co-mingle trust assets with his own assets. Even if a trustee has no intent to defraud, it gives the appearance of impropriety. A trustee can be no less vigilant about this just because the decedent was a parent and co-beneficiaries are siblings. Trust assets require their own checking accounts, brokerage accounts, even their own safety deposit boxes. Keep a clean paper trail. 
  • Beneficiaries should respect the fact that the trustee is legally bound to carry out the terms and provisions of the trust, which are the wishes of the deceased parent. The trustee cannot and should not make exceptions simply because his co-beneficiaries are siblings. If you are a beneficiary with financial problems asking your trustee sibling for a loan from trust funds, expect to be refused (unless the terms of the trust provide for it). Chances are you have put your trustee sibling in a very uncomfortable position, but in refusing, he's made the right decision. Don't resent a sibling trustee for honoring his legal obligations.
  • A trustee must not sell assets to the trust or buy assets from the trust. Conflicts of interest must be avoided. For example, we had a case recently where a beneficiary complained that her sister, the trustee of their late father's estate, had sold the father's car to her daughter for less than fair market value. (This conceivably could be done, but only if all the beneficiaries agreed to it, in advance.) 
  • A trustee must never "borrow" funds from the trust for his/her own use, even with the intention of paying it back. A trustee who is a beneficiary may not favor himself over the other beneficiaries.
  • Beneficiaries must realize that the trustee can, at his/her own discretion, use trust funds to hire professionals to help with administering the trust. Professionals may include bookkeepers, accountants, attorneys, etc. Depending on the provisions of the trust, the trustee himself may be entitled to reasonable compensation. Most family members serve gratis, but there can be exceptions.


The above are by no means all of a trustee's duties, just an overview of the most important ones related to trustee-beneficiary communications. Again, I urge all beneficiaries, not just the trustee, to read and understand the trust instrument. Knowing everyone's rights and obligations will help preserve family harmonyAlso, while trust administration does not require the services of an attorney as probate does, it is often prudent for the trustee to use the services of a trust administration lawyer. This lets the beneficiaries know that the trustee is getting solid legal advice, and diminishes the chances of a sibling  accusing the trustee of being unfair, arbitrary, etc.

Jan 16, 2017

Florida law allows pets to be beneficiaries of your estate plan

Headlines are made when wealthy people leave outsize fortunes to their pets. One notable example is Leona Helmsley, the hotel magnate who passed away in 2007. Cutting out her family, Helmsley left her entire $12 million fortune to her pet Maltese, Trouble. A judge subsequently scaled back the dog's inheritance to $2 million, but that's still an ample sum for a small dog to live on comfortably!

More recently, a Tennessee resident spread her wealth beyond her household pets. Glenda DeLawder, an avid animal lover, died in 2015 at age 72, leaving her $1.2 million estate to the county to help care for its dogs and cats.  So far, $540,000 has been given to the Carter County animal shelter to purchase a van to transport animals to veterinary care and adoption events, and to expand its cat living areas.

According to the Humane Society of the United States, over two million adoptable dogs and cats are euthanized every year: That is one every 13 seconds. A number of those animals are pets whose elderly owners have died or have become too ill to care for them.

If you have a precious pet, you doubtless want to make sure it is properly cared for if you become incapacitated or pass away.  Consider formalizing arrangements so that you know it will be cared for. Florida residents may establish a pet trust, which can be created while you are alive, or at your death via provisions in your will. Your trust will provide money for the care and maintenance of your pet, as well as name someone (as well as backups) to care for it. You can also name beneficiaries to receive any funds that are left in the trust when your pet passes on. 

Many of my clients derive great peace of mind from knowing that no matter what happens, their pet will be well cared for. And unlike Trouble the maltese, it probably won't take $2 million to keep your Fifi or Fido happy.

Jan 13, 2017

You are invited to attend one of our free January workshops

Please Join Us!
The Karp Law Firm's January 2017 Estate Planning Workshops 
 These informative presentations are free, no obligation and you do not need a reservation - just show up!
 
You'll hear about:

Why living trusts can still benefit middle class people who have no concern about estate taxes.
 

How trusts can be created or revised to protect your children’s inheritance from divorce and creditors.
 

Why you may need to revise your existing Living Trust in light of the new estate tax laws.
 

What you may own and still be eligible for Medicaid

The truth about look-back rules…why you may still be eligible for Medicaid even if you’ve transferred money in the last 5 years

How you may still be eligible for Medicaid for nursing home care even if you earn more than $2199 per month (the income cap in Florida)

How you may provide for your spouse before you spend it all on nursing home expenses

How assets may still be preserved if you are currently in a nursing home

How an irrevocable trust may preserve and protect assets

Why your nursing home insurance may be inadequate to meet your needs Veterans Benefits:

How veterans and their widows Veterans Benefits

How veterans and their widows may receive VA benefits to assist with home care, assisted living, or nursing home care expenses.


Workshops are conducted by 
Joseph S. Karp 
Genny Bernstein 
Florida Bar Certified Elder Law Attorneys

Dates and Times:
Wednesday, January 18, from 1:30 p.m. to 4 p.m.
Palm Beach Gardens Marriott 
4000 RCA Blvd. 
Palm Beach Gardens, FL
or
Thursday, January 19, from 1:30 p.m. to 4 p.m.
Courtyard by Marriott 
1601 N. Congress Ave. 
Boynton Beach, FL

Jan 6, 2017

Affordable Care Act Repeal May Impact Medicare Benefits

At the top of the GOP agenda is repealing the Affordable Care Act (ACA). We do not yet know what, if anything, would replace it. Several proposals have been put forward, the most detailed one from U.S. Rep. (and Trump's pick for HHS Secretary) Tom Price, the Empowering  Patients First Act, which would provide tax credits to be used to purchase health insurance on the private market. Many Americans are not aware that the Affordable Care Act, aka Obamacare, contains many provisions that are tied to the operation of the Medicare program. Depending on whether the entire law or only Medicare-related provisions are scrapped, repeal could have a significant impact on seniors' Medicare benefits. This is an enormously complex issue, one even the most astute analysts will disagree about. One thing is certain: whether you love or loathe the ACA, it is a contentious political football. 

This post provides you with a very brief outline of the changes in Medicare many experts expect to unfold if there is a total or partial repeal. The points below do not include any consideration of a plan to replace the ACA, since we do not yet know what such a plan would comprise. 

Program Solvency Could be Impacted 

According to the Center on Budget and Policy Priorities, the provisions of the ACA have strengthened and extended the solvency of the hospital portion of the Medicare program. The hospital fund is expected to remain solvent through 2028, 11 years more than was projected prior to the ACA. Read the report here. ACA supporters contend that repealing all of the legislation or the relevant Medicare portions could destabilize the program. 


Medicare A and B Costs Would Increase 

The Affordable Care Act decreased Medicare-related payments to health care providers, including hospitals, home health care providers, nursing homes and other providers. The Congressional Budget Office report estimates that repeal of the ACA would increase federal spending, leading to an increase in Part A deductibles and co-payments and Part B premiums and deductibles. Read the report here.



Medicare Advantage Plans Might be More Expensive - But Might Cover More 

According to a report from the Medicare Payment Advisory Commission Report, the ACA has reduced federal spending on Medicare Advantage Plans. Prior to passage, Washington was paying 14% more to Medicare Advantage Plans than to traditional Medicare for similar beneficiaries. In 2016, the differential was only 2%. Repealing those aspects of the ACA related to Medicare Advantage would likely result in higher Part B premiums for beneficiaries. However, the additional fees would have to be used by Advantage plans to provide additional benefits or to lower enrollment costs.


The Donut Hole Would Not Close 

The so-called donut hole is that period of time when a Medicare beneficiary is responsible for the cost of prescription drugs. The ACA contained provisions to gradually decrease the donut hole. In 2011 the costs were capped at 50%, and are expected to be zero by the year 2020.  The Commonwealth Fund estimates that since 2010, seniors have saved $11.5 billion in reduced prescription drug costs as a result of the closing of the donut hole. Read more at Medicare.gov.


Elimination of Free Preventive Services

The ACA mandates certain free preventive care services for Medicare beneficiaries, including screenings for diabetes, breast cancer, cardiovascular disease and colorectal cancer. According to the Kaiser Family Health Foundation, eliminating this provision would likely raise Part B premiums for beneficiaries.


Higher Income Beneficiaries Could Benefit

The ACA froze the income threshold for Part B premiums tied to income, beginning at $170,000 for a couple and $85,000 for an individual, through 2019. According to the Kaiser Family Health Foundation, repeal of the portion of the law would reduce Part B premiums for higher-income beneficiaries.

Dec 20, 2016

How NOT to sign a nursing home admissions agreement



A recent Florida Supreme Court ruling underscores the importance of having a valid power of attorney, as well as the importance of being careful when signing a nursing home agreement for a loved one.
Juan Mendez Sr. was admitted to Hampton Court Nursing Center in Miami in 2009. Since he lacked the capacity to sign the admissions agreement, his son, Juan Mendez Jr. signed the agreement. However, the son did not have a power of attorney authorizing him to act on his father’s behalf.

In 2011, the father developed an eye infection that ultimately required removal of the affected eye. In 2012, his son sued the nursing home for negligence. The nursing home sought to block the lawsuit and force the matter to arbitration, per the terms of the admissions contract which contained a pre-dispute arbitration clause.

The lower court sided with the nursing home. Ultimately the matter ultimately ended up in the Florida Supreme Court, which overturned the lower court's ruling. The Florida Supreme Court reasoned that the son did not have power of attorney for his father and lacked the authority to sign for him; therefore, the contract (and required arbitration) was not enforceable. You can read the court's opinion here.

While this particular case was resolved favorably for the family, it is not difficult to see how signing a loved one’s admission contract could instead have negative consequences for a family. Had Mendez’ father applied for Medicaid long-term care benefits and been denied, whether because of excess assets or income, or another reason, the nursing home could then hold the son directly responsible for nursing home costs. 

When it comes to nursing home admissions contracts, be careful about what you sign... and how. See the do's and don't here.

Dec 18, 2016

Bad Medicaid advice and a questionable guardian equal a double nightmare for Palm Beach County resident

I frequently remind blog readers of two important planning steps to take: First, get guidance from a Florida Bar Certified Elder Law Attorney when pursuing long-term care Medicaid benefits. Second, make plans to avoid court-ordered guardianship in the event of disability. Frances Berkowitz, now 86, did neither. Her story, reported in the Palm Beach Post on December 11, 2016, is a sad and complicated one with lessons for the rest of us.

In 2012, Berkowitz' late husband Jerry was in the final stage of his battle with cancer. In order to access Medicaid benefits and preserve some of the $1.2 million in assets the frugal couple had scrimped and saved over the years, they turned to Princella Lewis, a "life care consultant" they had been referred to by the nursing home Jerry resided in. Lewis charged them a $55,000 fee for the Medicaid application. In addition, she directed Frances to cash in the couple's bonds and certificates of deposit and to put them into accounts under the name of Lewis' firm, Prestigious Lifecare for Seniors. Lewis also had the couple name her as their agent under their durable powers of attorney, and as their health care decision maker.

The Berkowitzes became increasingly alarmed and ultimately sought legal help to recoup the money they'd given Lewis. They ended up recovering $835,000, with another $312,000 still to be paid to them. Sadly, Jerry died in 2013 and never saw the money. In court documents, he expressed a final wish: that Lewis be held accountable. "How could you rob two sick old people out of their life savings?" he asked.

After the initial $835,000 payout, Berkowitz reportedly said she no longer cared about the additional monies owed her and said she wanted to end her life. Concerned about her mental capacity, the lawyers who had helped her with the Lewis case, Webb Millsaps and Donna Solomon, petitioned the court to appoint a guardian for Berkowitz. In January 2015 a guardian was appointed: Elizabeth Savitt. And that is when Berkowitz became a victim yet again, claim Millsaps and Solomon.

The lawsuit they brought against Savitt requests that she be replaced as guardian, alleging that she has been responsible for "wasting, embezzlement and mismanagement" of Berkowitz' funds. The suit alleges that when Savitt took over as Berkowirtz' guardian, Berkowitz had $400,000, money Savitt has yet to account for. However, Savitt's attorneys claim Berkowitz had only $15,000. The lawsuit against Savitt also claims she settled for the balance of the money owed Berkowitz for mere pennies on the dollar. Reporters from the Palm Beach Post have noted that Savitt paid off a $308,000 foreclosure judgment on her home shortly after being appointed guardian. Nonetheless, Circuit Judge Howard Coates, who is handling the case, has as yet declined to relieve Savitt of her duties, stating that both sides' accusations are "conclusions based on smoke, but no fire based on fact."

The problems of elder abuse in the Florida guardianship system have come under intense scrutiny lately. Reforms have been introduced and more are likely on the way. And while there are far more responsible guardians than not, it is prudent to make plans so that you don't fall into the system should you become incapacitated. A smart plan should include at least a durable power of attorney, health care surrogate and possibly, designation of a pre-need guardian.

As to how to go about Medicaid planning: Relying as Berkowitz did on someone without the appropriate experience and knowledge can not only fail to secure benefits and waste your money; if transfers are improperly handled, you may even be vulnerable to charges of fraud. Always seek the guidance of a Florida Bar Certified Elder Law Attorney.

Dec 16, 2016

Beware deceptive reverse mortgage advertising

If you are over 62 and have equity in your home, a reverse mortgage can be a financial lifesaver. But if you misunderstand what you're getting into, it can sink your ship. According to a recently concluded Consumer Financial Protection Bureau study, deceptive and ambiguous advertising is one reason many consumers don't get the full picture.

The study found that American Advisors Group, Aegean Financial, and Reverse Mortgage Solutions used language that implies monthly payments are eliminated when you take out a reverse mortgage. That's false: you still must pay taxes and insurance, or lose your home.

The CFPB also claims that Aegean Financial falsely told potential customers that there are no costs when refinancing a reverse mortgage, and that Reverse Mortgage Solutions gave consumers the impression that heirs can inherit the home (that's possible only if heirs pay off the reverse mortgage or 95% of the home's assessed value). Reverse Mortgage Solutions' phone agents also reportedly pressured prospects, telling them they needed to act quickly or their file would be closed and their application denied.

American Advisors Group faces a fine of $400,000; Reverse Mortgage Solutions, $325,000; and Aegean Financial, $65,000.

I cannot stress enough the importance of understanding the financial realities behind the reverse mortgage so that you can make an informed decision. Please check out prior posts on this topic here  and here.

Dec 8, 2016

Medicare announces 2017 premiums, deductibles



The Centers for Medicare and Medicaid Services have announced new Medicare premiums and deductibles for 2017. 

Medicare Part B Premiums: 
Medicare Part B premiums will rise about 4% for the typical beneficiary next year, from $104.90 to about $109 per month. Some beneficiaries (about 30%) will see a 10% increase, from $121.80 to $134 per month.
For those with higher incomes (based upon the 2015 income tax return), there will be a steeper increase in the Medicare Part B Premium: 
  • Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $187.50 (was $170.50).

  • Individuals with annual incomes between $107,000 and $160,000 and married couples with annual incomes between $214,000 and $320,000 will pay a monthly premium of $267.90 (was $243.60).

  • Individuals with annual incomes between $160,000 and $214,000 and married couples with annual incomes between $320,000 and $428,000 will pay a monthly premium of $348.30 (was $316.70).

  • Individuals with annual incomes of $214,000 or more and married couples with annual incomes of $428,000 or more will pay a monthly premium of $428.60 (was $389.80).

  • If beneficiaries are married but file separate tax returns: Those with incomes between $85,000 and $129,000 will pay a monthly premium of $348.30 (was $316.70).  Those with incomes greater than $129,000 will pay a monthly premium of $428.60 (was $389.80).
Medicare Part B Deductible: $183 (was $166). 


Medicare Part A Deductible: $1,316 (was $1,288). 


Co-Payments for Hospital Stays: 
For days 61-90, $329 per day (was $322).
For days 91 and greater: $658 per day (was $644).


Co-Payment for Skilled Nursing Facility: 
Days 21 - 100:  $164.50 per day (was $161).

Nov 27, 2016

What can clients expect following the 2016 election?

The most contentious election in recent memory is over. Whatever your opinion of the results (and I'd venture to say you probably have a very strong opinion), my job is to analyze the impact of the election on the issues that concern my clients, and to recommend steps they may take.

Specific predictions are impossible, of course. However, we can make some educated guesses about what a Trump presidency would look like based on (1) what was said on the campaign trail; and (2) the GOP platform, since it now controls both houses of Congress. Here are some possible scenarios that could impact clients:


Changes to Florida Medicaid Benefits for Long-Term Care?

During the campaign, Trump did not mention the growing long-term care crisis that is bringing more and more middle class families to financial ruin. Clients who do not have long-term care insurance to cover nursing home expenses often turn to Florida Medicaid long-term care benefits, and, with our help, can preserve a significant portion of their assets without going broke. 

Currently, the Centers for Medicare and Medicaid Services set the basic ground rules for Medicaid, with the states having some leeway to fine-tune the rules. Republicans have long advocated replacing this system with "block grants," whereby each state would get a chunk of money, most likely a smaller chunk than they receive now. Each state would then have the freedom to formulate its own eligibility standards and other rules. If this occurs, the potential negative implications for clients could be profound. For example, as a cost-cutting measure, Florida or any state could extend the look-back period beyond the current five years, and/or well spouses of nursing home residents could lose their current financial protections.

Recommendation

If you believe you have inadequate protection from long-term care costs, take action without delay.
  • Look into long-term care insurance. Many types of policies are now available, other than traditional policies. Read my prior post on these new types of hybrid policies. Call our office and we can put you in touch with someone who can help you select a policy. 
  • In the alternative, start doing Medicaid planning, taking the steps necessary to protect your assets. Call my office for assistance.



Medicare to be Reconfigured?

Currently, 57 million seniors receive Medicare benefits. In the months leading up to the election, Trump said little about the program. However, his website now mentions "modernizing" Medicare, with the help of Congress. We do not know what "modernizing" means, but we do know that House Speaker Paul Ryan has long supported dismantling Medicare's current configuration and replacing it with a voucher system. Under that system, seniors would get a subsidy to be used to purchase private health insurance. The new system would apply only to future beneficiaries, not to those already receiving benefits. 

The GOP has also expressed a desire to increase the age of eligibility from 65, to 66 or 67. Rep. Tom Price (R-GA), House Budget Committee chair, recently told reporters that the GOP will likely begin pushing for major cuts to Medicare within the coming months. 

Some experts also expect dismantling of other programs benefiting seniors that were put in place by the Great Society program and by the New Deal. We'll have to wait and see.




Scrap the New Fiduciary Rule for Retirement Accounts?

As I reported in a prior post, beginning in April 2017 a new Department of Labor rule requires those providing financial advice on tax-advantaged retirement accounts such as IRA's and 401k's to adhere to a "fiduciary" standard. Under that standard, the advisor's recommendations must be based solely on the client's best interest. If a more expensive or riskier investment is suggested, the advisor must explain the reasons for the recommendation. This differs from the current rule, whereby an advisor is legally obligated only to steer clients into "suitable" investments - even when the suitable investment is more advantageous for the advisor than for the person being advised. It is precisely such conflicts of interest that the new rule was designed to eliminate. 

The new rule was applauded by consumer advocates, and generally opposed by the financial industry. Trump has made no specific mention of it, but CNBC in October 2016 reported that a key Trump advisor said that the President-elect will likely push for its repeal.

Recommendation:
  • If you are receiving advice on your retirement accounts from a broker-dealer, be sure to ask the rationale for any recommendations. Ask if there are other options available that may be better. Do not make hasty decisions.
  • Whether or not the fiduciary rule stands, note that a Registered Investment Advisor, unlike a broker-dealer, is legally obligated as a fiduciary and must act in accordance with your best interest. If you would like to consult with one of Karp Financial Services' Registered Investment Advisors, please call 561-626-1130. 



Estate Tax to be Eliminated?

The estate tax put $18 billion in federal coffers in 2015, but affected only about 5,000 estates, according to the Tax Policy Center. Beginning January 1, 2017, an individual may pass $5.49 million tax-free (up from $5.45 million in 2016); a married couple can double that amount. The excess is taxed at 40%. Obviously, only the very wealthiest Americans are impacted by the estate tax. Proponents of the estate tax point to its role in mitigating the accumulation of dynastic wealth. Critics view it as an inherently unfair form of double taxation. Trump falls into the latter group and has specifically called for its elimination.

He has also proposed eliminating the step-up in basis for inherited assets over $10M. If this comes to pass, assets over this amount will be subject to capital gains tax of 20%, based on what the decedent paid for the asset, not on the day-of-death value which is the current rule. It is unclear whether the tax would be levied when the asset is inherited, or only when it is sold. Paul Ryan, however, has said he is in favor of retaining the step-up.



Income Tax Brackets Changing?

Under the President-elect's income tax plan, the current seven income tax brackets would be reduced to three, as follows: 
  • For married couples filing jointly with taxable income of up to $75,000; and for single filers with taxable income up to $37,500: 12% marginal tax rate. 
  • For married couples filing jointly with taxable income from $75,000 to $225,000; and for single filers with taxable income from $37,500 to $112,50025% marginal tax rate. 
  • For married couples filing jointly with taxable income of $225,000 or greater; and for single filers with taxable income of $112,500 or above: 33% marginal tax rate.

Contrary to popular belief, not all middle class taxpayers are expected to benefit from Trump's proposed tax plan. The non-partisan Tax Policy Center estimates that nearly 8 million middle class families would pay higher taxes under his proposals, a view shared by the conservative Tax Foundation and American Enterprise Institute.

Additionally, it is unclear as to what tax deductions would be retained or scrapped. 

Recommendation:

At this juncture, there is little actionable information to go on. Stay alert to developments, so that you can take advantage of any possible tax benefits and avoid pitfalls. Consider using a financial advisor to help you stay current, and who can inform you of any benefits and complications of particular investments.  



We will keep our eye on all these issues and report any new developments to you. Keep up with the news by checking this blog, our website, and our Facebook page. You may also subscribe to our monthly e-newsletter here. 
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