WHAT YOU DON T KNOW CAN HURT YOU

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1 WHAT YOU DON T KNOW CAN HURT YOU Recent Developments in Estate, Long-Term Care & Special Needs Planning Presented by Elizabeth Q. Boehmcke, Esq. boehmcke@hooklawcenter.com

2 Long-Term Care As of July 1, 2015 Hospitals required to notify patients if they are placed under observation or have other outpatient status within 24 hours IF patient receives on site services from the hospital and such services include a hospital bed and meals provided in an area of the hospital OTHER THAN the Emergency Room. This is VERY IMPORTANT information because status affects Medicare and other insurance coverage for skilled nursing care after discharge. Medicare will only cover skilled nursing care after an in-patient admittance to the hospital for 3 days and days in the hospital under observation DO NOT COUNT toward the 3 days. Notice must include information about whom to contact to resolve problems.

3 Long-Term Care As of July 1, 2015 Hospitals required to provide opportunity for patient to designate individual who will assist with care at home after discharge and to whom hospital will provide information about treatment plan and follow-up care, including an opportunity for demonstration of specific follow-up care tasks that the designated individual will provide. Provides caretakers with right to leave hospital with clearer understanding of the care plan and the specific tasks that will be necessary for them to perform in order to care for patient at home.

4 Advanced Medical Directives As of July 1, 2015 New law allows women to modify or supplement their advanced medical directives regarding life-prolonging procedures that will apply if the woman is pregnant when her physician determines that she is in a terminal condition and not able to make her own decisions.

5 Asset Protection Tenancy by the entirety is a way for a married couple to hold property that protects the property from the creditors of only one spouse. Both personal and real property can be held as Tenancy by Entirety. As of July 1, 2015 New law clarifies that property held as tenancy by the entirety and then transferred to joint or separate revocable or irrevocable trusts, the property remains immune from separate creditors so long as the parties remain husband and wife, the property (or the proceeds of the sale of such property) is held in the trust and both spouses are current beneficiaries of one trust that holds the entire property or each spouse is a current beneficiary of two trusts that together hold the entire property. Others may be current or future beneficiaries.

6 Estate Administration As of July 1, 2015 Virginia will no longer allow felons convicted of fraud or misrepresentation, robbery, extortion, burglary, larceny, embezzlement, fraudulent conversion, perjury, bribery, treason or racketeering to qualify as the intestate administrator of an estate unless the felon is the sole distributee and the court finds him/her otherwise suitable and competent to perform his/her duties. Can still be appointed as an executor of a Will

7 Estate Administration As of July 1, 2015 Small Asset Estate Administration (also applies to guardians of minors and conservators) New provision for Small Asset Estate Administration. When an estate is less than $25,000, the court may allow a fiduciary to qualify without surety. The clerk will issue a special certificate specifying that the maximum amount the fiduciary can collect is $25,000.

8 Estate Administration (continued) Assets in a safe deposit box do not count towards the $25,000. Different from Small Estate Administration where small estates (less than $50,000) are administered informally, but no one qualifies as personal representative.

9 Estate Tax As of July 1, 2015 Current estate and gift tax exemption amount is $5,430,000. Under certain circumstances, your surviving spouse is entitled to utilize your unused exemption amount in addition to his/her own exemption amount. This is informally referred to as Portability. Portability must be elected on a timely filed estate tax return or it is waived.

10 Estate Tax (continued) - IRS has held in various private letter rulings that an estate may be granted an extension of time to file the portability election in the event that no estate tax return was otherwise required to be filed because the decedent s gross estate was under the exemption amount and no lifetime taxable gifts had been made. May save some elections but not likely if wait until after death of surviving spouse.

11 Digital Assets As of July 1, Virginia has now provided rules by which a personal representative can seek access to a decedent s digital accounts or to records of the decedent s use of the accounts. - Applies to all forms of digital accounts, including blogs, , social networking and more. - Act only applies to the executor, administrator or curator no comparable rights in a trustee, guardian, or agent under power of attorney.

12 Digital Assets (continued) - To access records of decedent s use of a digital account for the 18 months prior to date of death, personal representative must make a motion to the court for the records, including an affidavit attesting that the user is deceased, was a subscriber or customer of the provider, that the account is reasonably identified, all other authorized users have consented to the disclosure, the request is tailored to effectuate the purpose of estate administration AND the request does not conflict with the user s Will. - To access the content of the digital account, the personal representative must have a court order requiring the disclosure which must be supported by the same affidavit as above PLUS the user must have consented to the disclosure in his Will or affirmative consent in an account setting with the provider.

13 Digital Assets (continued) - If you have or use digital accounts, check to see if you can consent to disclosure after your death and do so. Facebook has added this to its settings. - Your Will should allow your executor to access your digital accounts. Conversely, if you want them kept totally private, Will should expressly deny consent to contents. - Someone else should be an authorized user of your accounts so they can access them on your death. - If you own digital ASSETS with actual value (not just sentimental), these should be specifically addressed in your Will. - Backup your digital accounts to tangible media CD-ROMs, flash drives, etc.

14 Special Needs What is an ABLE account? Allows savings accounts to be established for disabled individuals. Limited to one per person. Section 103 of the ABLE Act states that an ABLE account is disregarded in determining a beneficiary s eligibility for meanstested Federal programs; however, for SSI purposes, balances in excess of $100,000 are not disregarded nor are distributions for housing. However, even if the balance is in excess of $100,000 eligibility for Medicaid continues. Therefore, allows disabled individual to have resources in excess of $2,000 and still be eligible for SSI/SSDI and Medicaid. ABLE accounts authorized in Virginia through Virginia College Savings Plan; however, Virginia 529 states on its website that early 2016 is its target open date.

15 Special Needs New guidance from IRS issued in June 2015 in regards to ABLE accounts: Contributions limited to annual gift tax exclusion amount (currently $14,000). Maximum account balance in Virginia is $350,000. Income on investments in ABLE account is federal and state income tax-free.

16 Special Needs Investment directions can be changed no more than twice per year. Full amount of ABLE account includible in beneficiary s gross estate for estate tax purposes; States may file a claim on the account for repayment of Medicaid expenses paid after establishment of ABLE account. Distributions for qualified disability expenses are not included in the beneficiary s gross income.

17 Special Needs o Qualified disability expenses are to be broadly interpreted to include basic living expenses and should not be limited to expenses for which there is a medical necessity. They are to be related to the beneficiary s disability and are for the benefit of the beneficiary in maintaining or improving his health, independence, or quality of life. Include but not limited to education, housing, transportation, employment training and support, assistive technology, health, financial management, legal fees, funeral and burial expenses, etc.

18 Special Needs o If distributions are in excess of qualified disability expenses, a portion of the earnings on the ABLE account are includible in the gross income of the beneficiary PLUS an additional tax equal to 10% of the amount includible in gross income is imposed.

19 Special Needs Who is eligible to be beneficiary of an ABLE account? Blind or disabled individual entitled to benefits under Social Security Act, provided that blindness or disability occurred before individual s 26 th birthday. OR Individual who is the subject of a disability certification filed with the ABLE program for the state Has a medically determinable physical or mental impairment which results in marked or severe functional limitations and which can be expected to result in death or has or can be expected to last for a continuous period of not less than 12 months or is blind and that such condition occurred before 26 th birthday.

20 Special Needs Who can create an ABLE account? An eligible individual or his/her agent under a power of attorney or, if none, his/her parent or legal guardian. Who can contribute to ABLE account? Anyone BUT total of all contributions in any year is limited to the annual gift tax exclusion amount (currently $14,000).

21 Special Needs Can change designated beneficiary of ABLE account to another eligible individual who is a sibling of the original beneficiary so long as change is made before the death of the original beneficiary. Original beneficiary subject to gift tax on the transfer.

22 Special Needs Individual who moves out of state where ABLE account is established can continue account where located or can rollover to ABLE plan in new state. If individual ceases to be an eligible individual, no further contributions can be made to the ABLE account. Once eligibility resumes, contributions can once again be made.

23 Special Needs ABLE accounts are perfect for unexpected, small inheritances or modest gifts that might otherwise jeopardize means-tested benefits. ABLE accounts can be a way for disabled individuals to earn small amounts of money and not jeopardize benefits. ABLE accounts allow for source of payment for disability-related needs that are not otherwise covered by Medicaid.

24 Special Needs Trusts Usually an exempt resource for public benefits purposes, but must be carefully created and funded. Draper v. Colvin, a case from the Eighth Circuit Court of Appeals makes it clear how important good advice is. To create a valid S.N.T. under 42 U.S.C. 1396p(d)(4)(A), the trust must be: for the sole benefit of the disabled beneficiary; be funded with the beneficiary s assets before age 62; be irrevocable; have a Medicaid payback provision; and be established by a parent, grandparent, guardian or court.

25 Special Needs Trusts In Draper, the father of a young woman injured in an automobile accident was also her agent under a power of attorney. As her agent, he settled her personal injury suit. Later that day, he and his wife executed an S.N.T. for their daughter s benefit that was intended to comply with 42 USC 1396p(d)(4)(A). That same day, the trust was funded with the proceeds of the settlement. Social Security Administration successfully argued before the court that the S.N.T. was NOT an exempt resource on the theory that the father acted as the beneficiary s agent under her power of attorney in creating and funding the trust.

26 Special Needs Trusts The Court of Appeals held that the policy created by the SSA requiring parents to have initially created a dry or seed trust with nominal assets of their own before the assets of the beneficiary are transferred to the trust was valid. The Court further held that later attempts to have the court modify the trust to indicate that the court established the trust did not change the outcome because the state court order did not require the establishment of the trust. Therefore, special care must be taken in establishing a SNT by persons also acting as agents under a power of attorney.

27 Estate Planning Planning for assets subject to a shareholders agreement (e.g., LLC interests). The Virginia Supreme Court recently considered an appeal concerning the disposition of closely-held stock that was meant to pour over from the decedent s Will to her revocable trust. The stock was subject to a shareholders agreement that required the decedent to either sell the shares to the company or to the remaining shareholders. There was an exception for transfers at death or during lifetime to her immediate family, defined as her spouse, children, parents and siblings.

28 Estate Planning The trust purported to give the decedent s son an option to purchase the shares from the trust. When he tried to exercise the option, his sister objected. The Court held that the restrictions on transfer in the shareholders agreement to immediate family were enforceable. However, the Court was inclined to look through the trust to determine whether the trust could comply with the agreement and determined that all the trustees and trust beneficiaries must qualify as immediate family. In this case, the trust did not so qualify because one of the trustees was a son-in-law of the decedent. May allow more flexibility in planning for LLCs subject to transfer restrictions without need to revise LLC agreement.

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