Brokerage found not liable to non-customer in joint account dispute

The owner of a financial account may choose from a variety of designations and forms of ownership for the account. It may be solely-owned; it may be jointly owned with right of survivorship but no independent access during lifetime; it may be “either-or,” it may be “pay on death to …,” it may be “in trust for …” Each of these carries very different legal ramifications during the lifetime of the account holder and after his/her death.  If a solely-held account is changed by the account holder to be jointly held with someone else, to what extent can the disgruntled heir of the estate seek compensation from the corporate financial entity which holds the account and processed that paperwork? The  NJ Appellate Division decision in Wolens v. Morgan Stanley Smith Barney  sheds some light on this subject.

The Court explained, “As a general proposition, the case law in our state has not recognized that a financial institution owes a legal duty to injured third parties who are not their customers unless a statute, regulation or other codified provision imposed such a duty, or where a contractual or “special relationship” has been established between the non-customer third party and the financial institution.”

What happened in this case? The Plaintiff’s mother had owned investment account(s) in her name alone at Morgan Stanley Smith Barney (MSSB). The accounts made up most of her estate.  At some point, she presented MSSB with a written request to change the account’s title so it was jointly held with one of her three daughters. She passed away four months later. Another of her daughters learned about this after her mother died, when it was disclosed that this “non-probate asset” would not be passing through the probate estate and would not be shared with the people inheriting under the mother’s Last Will and Testament.

The dissatisfied daughter sued MSSB for honoring her mother’s request. The Court dismissed the action, finding that MSSB did not owe any legal duty to the plaintiff to protect her potential interest, because the plaintiff was not a customer of MSSB and MSSB had not established any contractual or special relationship. The Court emphasized that even if there had been wrongdoing on the part of the daughter whose name was added to the account, that would merely provide a possible cause of action against her in connection with the estate, and it would not establish a basis for liability on the part of MSSB, who had no relationship with potential heirs of their customer’s estate.

The Estate planning process involves looking carefully at all of your assets and how they are structured, to be sure that the Plan you think you have is the Plan you actually have.

Call us for advice on estate planning and elder care planning ……….

732-382-6070

 

 

Section 121 exclusion of capital gains available if nursing home resident resided in home 1 of last 5 years

Sale or transfer of a primary residence is often a major consideration in elder care planning. Property may be transferred from an infirm spouse to the “healthy spouse.” Property may be sold because the homeowner has to move into a nursing home or other care facility. Property may be transferred to the “caregiver child” in connection with a Medicaid application. A residence may be transferred “to the kids” to preserve its value for their benefit. When a sale or transfer takes place, there may be substantial capital gains incurred due to the large increase in value that has occurred during the decades that the elder resided in the property since time of purchase. This is where Section 121 of the Internal Revenue Code comes in. Let’s examine a few of the provisions.

Section 121 provides an exclusion from income tax of up to $250,000 of capital gains ($500,000 for a married couple) once every two years upon sale of the primary residence. The basic requirement is that the seller has resided in the property for 2 of the 5 years prior to sale. This would mean at least 2 years from the date the seller acquired title.

What about sales by widow/widowers? Under Section 121(b)(4), if the widow/er sells the residence within 2 years of the death, and all the other basic criteria are met, they can exclude up to $500,000 of gain.

What if the seller didn’t reside in the house the entire time? The time in which the person resided elsewhere before moving out for good is referred to as “nonqualified use,” and Section 121(b)(5)(C) specifies that there will be a proportional reduction in the exclusion based on the ratio of nonqualified use since 2009 to the whole period. There are a few exceptions.

What if the couple is married filing jointly, but only one spouse meets all of the requirements? Under Section 121 (d), They can claim the full $500,000 exclusion.

What if the seller has to move into a nursing home before the sale, or has resided in and out of health care facilities during the 5 years before the sale? Section 121(d)(7) has special provisions about that. If the individual “becomes physically or mentally incapable of self-care” and resided in the home for periods of time that, in aggregate, equal at least 1 year out of the past 5, “then the taxpayer shall be treated as using such property as the taxpayer’s principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer’s condition.”

What if the parent transfers the property to a child who does not live there? The Section 121 capital gains exclusion will not be available to a family member who has received the property but then does not use it as his/her primary residence. When the property is later sold, there will be probably be capital gains to contend with, because the adjusted cost basis in the hands of the parent is “carried over” to the child who received the property.

Call us about asset protection planning and elder care ……… 732-382-6070

Elder penalized for wages paid to family caregiver, due to insufficient evidence

When a person applies for Medicaid to pay for home care or nursing home care, a penalty will be imposed if assets were given away during the preceding five year “look-back” period. There are numerous regulations in federal and state law  concerning “uncompensated transfers,” which are gifts.  A “gift” is distinguished by law from a “payment for goods and services at fair market value.” In general, any transfer of money from a Medicaid applicant to their family members during the look-back period will be suspected to be a gift unless there is credible proof that it was payment for something. For example, the child may be employed by the parent, or the child may have sold something to the parent. The applicant must show that the payment was not a gift.

In situations where the elder is paying their family member on an ongoing basis to provide home care services, the proofs become very important, so as to prove that this is wages and not a “gift.”  Greater scrutiny is given to those situations than to the situation where a non-family member is the paid Aide. Extensive evidence is needed to satisfy the agency that the work was actually done, that there was specified terms of employment, and that the wage was consistent with prevailing wages (i.e. not a wage of $70 an hour for work which is normally paid for at $15 an hour). A written contract isn’t explicitly required, but a recent case strongly suggests that it is needed.

Suppose, though, that the child is being paid now for caregiving services that were allegedly provided in the past? A payment made after the fact to a family member for alleged caregiving services is presumed to be a gift, if services were performed for free before the payment was made and there was no pre-existing written contract spelling it all out.  For such situations, the burden of proof is on the applicant to produce “credible documentary evidence preexisting the delivery of the care or services indicating the type and terms of compensation,” as well as proof that the wage was at “prevailing rates for similar care or services in the community.”  N.J.A.C. 10:71-4.10(b)6.ii.

The recent decision in E.B. vs. DMAHS  illustrates the common problem all too well. The decision is not approved for publication, which means it is non-precedential and is limited to its facts and the parties in the case.

E.B. moved into her daughter’s home, and the daughter began providing some  caregiving services when she was not at her job. After two years,  the daughter quit her job and became the full-time aide. The absence of income began to create a hardship for her. She was the Agent under Power of Attorney for her mother. She did some research about prevailing wage for this kind of work, and then using her mother’s funds,  she began to pay herself $10 per hour for 40 hours a week of home care companionship services plus $25 per week for the two-and-a-half hours she claimed she spent each week to shop for petitioner’s food, medication, and toiletries, “for a total of  $425 per week from April 2011 to May 2013, when petitioner entered the nursing home. J.W. did not keep a ledger of the services she provided and the days and hours she performed them. J.W. claimed that, when lucid, her mother understood and agreed to J.W. paying herself from petitioner’s funds to compensate J.W. for her services.”

When E.B.  applied for Medicaid to pay for her care, she was penalized for the $69,211.90 she had paid her daughter. (note that this amount divided by $425 is just over 36 months, so part of the payment must have reflected post-facto payment for work previously done). After a hearing with testimony and other evidence at the Office of Administrative Law, the penalty was upheld by the Division (DMAHS), and this appeal followed. The Appellate Court upheld the penalty.

The Administrative Law Judge found that (1) there was insufficient proof of the actual tasks performed, (2) there was insufficient proof that  rate selected was prevailing wage, and (3) there was no pre-existing written contract. The Judge held it against her that she began receiving wages when it was “foreseeable that [petitioner’s] advanced age and deteriorating condition would require intensive care and the possibility of entering a nursing care facility.”  This is a completely irrelevant consideration, as a person receiving care in the home would otherwise have to BE in the nursing home!!  The Director of Medicaid affirmed those conclusions.

The primary problem for E.B. was that the Medicaid Agency was not satisfied with the proofs provided.  The Appellate Court emphasized that there was no written agreement specifying terms of employment, and there were no records showing exactly what work was done, when and how. However, the Court was harsh, criticizing the daughter for choosing to be the caregiver rather than hiring somebody outside the family. I find this criticism deeply disturbing and unfair. National and state policy encourages people to take care of their family members, and in fact, the Medicaid home care program is only part time because it is presumed that there is someone available to fill in the gaps. Further, the Court did not distinguish between the payments for ongoing work and the payment for work previously done.  The Court found that “Petitioner did not rebut this presumption. She did not provide the requisite “convincing evidence” the asset was transferred exclusively for some purpose other than to establish eligibility. First, J.W. did not show why she could not have paid a competent professional ten dollars per hour to take care of her mother, which would have freed her up to return to work. As a former claims adjuster, presumably J.W. was capable of earning more than ten dollars per hour and, thus, would have been in a better position to address her budget needs. Further, while a third party may not have been a relative, that does not mean a competent professional caretaker could not have been located to meet petitioner’s needs.amount of proof that this was payment of wages for work that was actually done.”

The lesson here is that it is still perfectly legal for children to be employed by their parents to provide senior care in the home. However, the demands of the Medicaid program for elaborate proofs to disprove the notion that a payment was a gift require the applicant to prepare a strong paper trail coupled with  enough corroborating formal evidence to satisfy a state auditor. Informal verbal arrangements will not be sufficient. Assembling proof beyond a reasonable doubt is the safest approach to take.

Call for advice about home care plans, employment contracts, Medicaid applications and appeals …. 732-382-6070

Don’t be the Executor if you can’t do the Job

When you create an estate plan, you are selecting people whom you trust to perform various jobs for you and your beneficiaries. You may be selecting an agent to act as your Power of Attorney. You may select a medical decision-maker in case you become mentally incapacitated. You may have a Trust and select the Trustee who will manage the money for the beneficiaries. And you may be selecting an Executor who will handle your estate after you pass away

People often feel that being named as Executor is a big honor. Disputes have erupted within families when one child rather than another was named as Executor. Sometimes the person who was named as Executor wants the power and control that come along with the title of Executor, but ignores the responsibilities that come with it. Other times, the Executor has financial troubles of their own, starts “borrowing” funds from the estate, and just lets the estate lie around for years without paying the bills, paying the inheritance taxes or selling the property.

The Executor is a fiduciary — entrusted by law to handle “other people’s money” — and has duties to the funeral home, the tax authorities, the estate’s creditors, and ultimately, to the beneficiaries. Although an Executor is not obligated to reveal every step and every action to the beneficiaries, at some point, the beneficiaries will want to see an accounting so that they know that the amount of their distribution is correct. Reconstructing an accounting after several haphazard years of erratic management of estate assets can be a nightmare that leads to lawsuits brought by beneficiaries.

Managing an estate can be very time consuming. Dealing with third parties to obtain date-of-death values and payoff amounts for debts, tracking down missing assets, and selling real estate can turn into big chores. But the Executor has those duties and obligations.

Ideally, every Will has a list of successors written into it in case the Executor refuses to accept the appointment or decides to resign. But turning over an estate to a successor can create problems of its own, and a process must be initiated through the Surrogate or Court to be discharged as Executor.. Better to think carefully before stepping up to the plate and taking on the responsibility in the first place if you have any doubt of your ability to complete the task.

Call us for advice and assistance with estate administration, and ask about the fiduciary services we provide .. 732-382-6070

 

Will Medicare ever pay for nursing home care?

Consumers of health care in old age likely consider nursing home care to be part of the continuum of health care that a patient may require. Yet health insurance plans do not pay for nursing home care because it isn’t defined as “treatment.”  Instead, it is classified as long-term care rather than “health care,” because the care is maintaining the individual and not really treating-to-improve a chronic or permanent health condition.

The 2017 Long-Term Care trends poll of the Associated Press-NORC Center for Public Affairs Research Survey revealed that more than half of those polled believe that Medicare and health insurance companies should cover some or all of these costs and that the federal government should be doing more to provide financial support to those who are providing the care in the home setting. This was the survey’s finding among those who identified as Republican as well as those who identified as Democrat.

A bill to start addressing an aspect of this issue was introduced in Congress by Sen. Orrin G. Hatch, R-UT, and is S-870.— “Creating High-Quality Results and Outcomes Necessary to Improve Chronic (CHRONIC) Care Act of 2017.” So far, the bill has been approved/passed by the full Senate. The Act  is designed to give some Medicare providers additional flexibility in the way they care for people with chronic conditions. This could be a first step toward including chronic, non-improving conditions in the category of “health conditions” for which Medicare dollars could be applied.  Co-sponsors include Ron Wyden (D-OR), Johnny Isakson (R-GA) and John Warner (D-VA). Read the legislation.

If this issue is of interest to you, contact your Representatives.

For advice and representation on nursing home care planning and challenges, contact us at …… 732-382-6070