Tag Archives: Elder Law Updates

POA Breach of Fiduciary Duty

A Power of Attorney Holder’s Breach of Fiduciary Duty

There is no question that a financial power of attorney holds what is called a “fiduciary duty” to act in the best interests of the grantor.   But what if that power of attorney holder breaches that duty and takes “mom’s” funds for herself?  What if her taking of mom’s funds caused mom to be disqualified from Medical Assistance (i.e. Medicaid)?  Can she be found liable?

An interested case in Indiana answered that quesion in the affirmative.

An Indiana appeals court rules that a woman breached her fiduciary duty to her mother when, among other things, she refused to cash out a life insurance policy in order to qualify her mother for Medicaid and later profited from the policy. Shaw v. Covenant Care Waldron Home (Ind. Ct. App., No. 73A04-1005-SC-317, March 2, 2011) (unpublished).

Joni Shaw admitted her mother to a nursing home. Ms. Shaw signed the admission agreement on behalf of her mother as her attorney-in-fact. Ms. Shaw applied for Medicaid on her mother’s behalf, but the application was denied due to a life insurance policy. Ms. Shaw refused to cash out the policy, and the Medicaid application was never approved. In addition, Ms. Shaw withdrew funds from her mother’s account and deposited them into her sole account. After her mother died, her brother, who was the beneficiary of the life insurance policy, gave her $8,000 from the proceeds of the policy.

The nursing home had an outstanding balance of $5,709.40, which Ms. Shaw refused to pay. The nursing home sued, alleging breach of contract and breach of fiduciary duty. It argued that an attorney-in-fact who breaches a duty to the principal is liable to third parties as though he or she were the principal. The small claims court found in favor of the nursing home, and Ms. Shaw appealed.

The Indiana Court of Appeals affirms, holding that Ms. Shaw breached her fiduciary duty to her mother. According to the court, because Ms. Shaw profited from refusing to cash in the life insurance policy and she transferred funds from her mother’s account to her own account, it was clear that Ms. Shaw was acting in her own self-interest to the detriment of her mother.

from www.elderlawanswers.com.

The interesting question from a Maryland point of view is what right does the nursing home have to sue the attorney-in-fact.  Can other interested family member’s sue on behalf of mom?  The answer to that question is “yes.”  However, court action will need to be started to give that family member standing to recover the stolen assets.

New Estate Tax and Gift Tax Rules

Congress passed and President Obama has signed into law the deal extending the Bush tax cuts that he struck with Congressional Republicans. The legislation restores the estate tax for two years at a 35 percent tax rate, with estates up to $5 million exempt from paying any tax ($10 million for couples). If Congress does not change the law in the interim, in 2013 the estate tax will revert to what it was scheduled to be in 2011 — a 55 percent rate and a $1 million exemption.

The new $5 million estate tax exemption and 35 percent rate are retroactive to January 1, 2010. The heirs of those dying in 2010 will have a choice between applying the new rules or electing to be covered under the rules that have applied in 2010 — no estate tax but only a limited step-up in the cost basis of inherited assets. This will benefit the heirs of tens of thousands who died in 2010 with relatively modest estates and who would have been subject to capital gains tax on inherited assets above a certain threshold.

The law makes the estate tax exemption “portable” between spouses. This means that if the first spouse to die does not use all of his or her $5 million exemption, the estate of the surviving spouse could use it.

The law unifies the estate, gift and generation-skipping transfer tax exemptions at $5 million. (For 2010 there is no generation-skipping tax, while the gift tax exemption has been $1 million for a number of years.) A 35 percent tax rate will apply to gifts or transfers over the $5 million threshold. (There is no change in the $13,000 annual exclusion amount for gifts.)

from www.elderlawanswers.com.

Asset Transfer Does Not Trigger Penalty

Normally, for every $6,800 transferred out of a Medical Assistant’s name or their spouse, it will result in a penalty of one month of ineligibility.  However, a frequent question is what happens if my parent transferred funds when they were healthy but during the five year look back period? 

 Maryland case law on this is silent.  However, a New Jersey case highlights, at least in New Jersey, how the court ruled in favor of the applicant with a $100,000 transfer.

“A New Jersey administrative law judge finds that a Medicaid applicant who was healthy at the time he transferred funds to his daughter transferred the funds for a reason other than to qualify for Medicaid. R.C. v. Division of Medical Assistance and Health Services and Hudson County Board of Social Services (N.J. Office of Administrative Law, Hudson County, OAL DKT. NO. HMA 08047-10, Oct. 22, 2010).

 While R.C. was healthy he transferred $100,000 to his daughter to help with her financial problems. A year later, R.C. suffered a stroke and his health began to deteriorate. He was eventually admitted to a nursing home.

 R.C. applied for Medicaid benefits. The state denied benefits, finding that R.C. had made an uncompensated transfer of assets to his daughter. R.C. requested a hearing.

The administrative law judge (ALJ) reverses, finding that the transfer was made exclusively for a purpose other than establishing Medicaid eligibility. The ALJ concludes that because R.C. was employed and in good health when the transfer occurred and the stroke was unexpected, R.C. provided convincing evidence that he did not transfer the money in order to qualify for Medicaid.” From Elderlawanswer.com.

Federal law and the Maryland Medical Assistance Manual allow this exception.  However, in practical terms, there is a huge gray area concerning which facts fit within this exception.  If this exception were to be utilized in a Maryland Medical Assistance application, expect the application to be denied and the issue to be decided on appeal.

New Average Nursing Home Costs Released

Metlife recently released their study confirming that nursing and assisted living rates increased nationwide between 2009 and 2010.   For Maryland, in the Baltimore region nursing home costs for semi-private rooms ranged from $6,200/month to $8,742/month.   Nursing home costs for private rooms ranged from $6,510/month to $11,005/month.   Statewide, assisted living costs in 2010 ranged from $2,800/month to $$8,250/month with the average assisted living cost at $4,122/month.

Nursing Home Expenses

Use of Medicaid Recipient’s  Income to Pay Existing Nursing Home Expenses

The Department of Health and Mental Hygiene released a critical Medical Assistance eligibility update (MR 154).   The changes in this update are profound.  It now allows a nursing home Medical Assistance recipient to use her income to pay for nursing home related expenses (up to 3 months retroactive) to the extent Medical Assistance does not cover said expenses (i.e. she has resources in excess of $2,500).  This is a profound change by the Department and took many years of litigation by another respected elder law attorney to finally achieve this result.  Bottom line, however, is that this can be a benefit for many families that are faced with outstanding nursing home expenses with no normal Medical Assistance coverage for said expenses.

The issue is this, your mother has outstanding nursing home bills and when the application was made for Medical Assistance, she did not have enough assets to pay these invoices.  Given the size of nursing home costs, the outstanding expenses could well be thousands, even tens of thousands of dollars.  The nursing home is going to look for payment of these invoices and may well start the involuntary discharge process unless they are paid.  This new Medical Assistance provision allows for mom’s income to be used to offset these expenses for the three months prior to eligibility.  Since this is a brand new provision, it is unclear at present at how efficiently such a request will be implemented by the Department of Social Services.  If you find yourself in this position, it is best to contact an elder law attorney to guide you through this process.

Update:  The Department of Health and Mental Hygiene will likley apply the allowance for three months prior to the application date which will overlap the current retroactive Medical Assistance eligibility period.   However, there will be some instances where retroactive Medical Assistance eligilbity may not be available and where this new provision may be of profound help to many individuals.

Pooled Trusts

Transferred to Pooled Trust Can Be Used to Save Assets

For the past number of years there have been questions as to whether Medicaid transfer-of-assets penalties would apply to transfers to pooled trusts by individuals age 65 and older. A Centers for Medicare and Medicaid Services (CMS) memo dated April 14, 2008, from Gale Arden (Baltimore) to Jay Gavens (Atlanta Region IV) stated that “only trusts established for a disabled individual age 64 or younger are exempt from application of the transfer of assets penalty provisions ( see section 1917(c)(2)(B)(iv) of the Act.)” This was followed in May 2008 by a Boston Regional Office bulletin stating that transfers to pooled trusts are subject to transfer penalties.

Not all states are imposing a penalty; some allow transfers to pooled trusts by people of all ages. The latest such state is Maryland.  CMS stated that after researching this “complicated and nuanced” area of law, it had concluded that “[a]s a matter of policy, there is no age limitation imposed by existing federal or state law on who may transfer assets into a sub-account of a pooled trust. Accordingly, a disabled beneficiary 65 years of age and older may transfer assets into an approved pooled trust sub-account without penalty”.

According to a recent discussion on the National Academy of Elder Law Attorneys’ listserv initiated by a Georgia ElderLawAnswers member, Maryland joins at least 10 other states that permit transfers by those over 65 to a pooled trust. These states are, in addition to Maryland: Alabama, California, Colorado, Florida, Iowa, Massachusetts, Michigan, Ohio, Utah and Wisconsin. (from www.elderlawanswers.com)

However, the use of pooled trusts is not a panacea for asset protection from nursing home costs.  There are restrictions on fund usage, maintenance expenses, and other profound issues.  However, for some people, this may be an attractive way to set aside funds to pay for items Medical Assistance will not cover.  This policy clarification by CMS is an important, and positive, development for Maryland seniors.