Who has the Authority or Can he really do that?

May 24th, 2010

It is easy to forget or not realize some very important points about probate.  Probate is a process that only occurs in Court.

A Will is just a piece of paper until someone dies and a Probate Court decides that it is valid.   Once in probate only the personal representative of the Estate has the authority to make decisions about property in the estate.   Sometimes even the personal representative (also called executor or administrator sometimes) does not have the authority until the Judge says he does.

An estate is not in “probate” until an application is made to a Court with the proper authority and a person is appointed to manage the estate.     If you are named as Executor in a Will you have no authority to do anything until a Judge says you do. So to be safe, take the Will to an attorney and find out what needs to be done.

This means that  frequently no one should pay bills outside the probate process,   release control of assets to a creditor or third party or make other decisions about the estate until a competent attorney has been consulted and a probate estate opened.

To do any of the above actions outside probate could create financial liability to the creditors and/or beneficiaries of the estate by the person acting without authority.   If you are not the Executor or Administrator,  even if you are named as Executor in a Will but have not yet been to Court, do not take actions that cannot be changed later.

Only the person named by the Court to manage an estate has the authority to make decisions about an estate.  Often the Executor will only make those decisions after careful consultation with an attorney, discussion with the beneficiaries and sometimes not until the issue is presented to a Court.

If you are the named executor and the only beneficiary you can probably act without liability to anyone but a creditor, but acting without legal advice could cost you money you do not have to spend.

If you are appointed as the personal representative of an estate you have special duties that are called fiduciary duties to the heirs/beneficiaries of the estate.  You must be fair to all of the beneficiaries; you must be loyal to their interests–even possibly to the harm of your own interests; you must provide all necessary information to the beneficiaries so that they can make any necessary decisions about their interests; and you must be competent in managing the estate.   These fiduciary duties are often what makes being an executor so difficult  because your duty to one person may conflict with your duty to someone else.

Creditors also have rights regarding assets within an estate and the claims must be dealt with according to the Texas Probate Code.    It is not uncommon that a creditor will make a demand that it be paid when if payment is left to the probate process it will be denied payment because another party will have superior right to the proceeds or assets of the estate.

Do not assume that because someone is an heir or believed to be an heir or beneficiary that the person has the right to do things with assets of the estate outside the probate process.  Hopefully,  this provides more light than heat.  The blogs about creditors should be read with this one to have a better understanding of the pitfalls a personal representative faces.

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Dealing with Creditors

May 24th, 2010

It is not unusual that an estate that seems to have an overwhelming amount of debt turns out to have enough assets to pay the valid debts and distribute funds to the heirs or beneficiaries.

The process for dealing with a creditor varies based on the type of administration and the type of debt.  A Dependent Administration is an administration in which all actions by the administrator must be approved by the Court.

An independent administration means that the Judge has little or no control over the actions of the administrator except for admitting the estate to probate, qualifying the personal representative of the estate (usually a person named in a will– who is called an executor) and approving the Inventory, Appraisement and List of Claims.

Assuming the Administrator in a Dependent Estate gives proper notice to the creditor, the creditor only has four months to file its claim once it is given notice of the administration by certified mail.  Failure to file its claim with the Court Clerk within four months of notice by certified mail is also a bar to later assertion of the claim for payment.

In a Dependent Administration a creditor must file its claim with the Court Clerk and serve it on the attorney for the administrator.  The Administrator has 30 days to allow it or deny it.  If it is not allowed, it is automatically deemed denied.  At that point the creditor has 90 days to file suit in the probate court or the claim is barred for failure to prosecute the claim in a timely manner.

The claim must be verified (sworn) and based on personal knowledge with all credits, offsets, charges, payments set forth.    Failure by the creditor to provide adequate information to determine the validity of the debt is a good reason to deny the claim.  If the creditor does not have the required information it cannot prove its claim at trial.

One point that secured creditors frequently forget is that the creditor is forced to choose between asserting its claim to the secured asset on which its lien is based or the right to payment of the claim and waiver of the lien on the asset.

In other words,  do not let the debt collector take the car before the administration is opened.  If they take the car beforehand the creditor will come back for payment of the loss on the sale of the car.  If the creditor takes the car during probate that is all it gets, it loses its right to be paid on any loss on sale of the vehicle.

The process in an independent administration is not as formal.  The claim does not have to be presented through the Court Clerk.  There is disagreement as to whether the four month bar to the claim after notice applies.  This is definitely one area of the law where it pays to consult your attorney and to follow the attorney’s advice.

The amount and type of debt is an important factor in choosing which type of administration will be used.  I will write about how “exempt” assets are treated in probate in a later article.

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New Rules Protecting Federal Benefits

May 24th, 2010

A new regulation, published in the Federal Register on April 19, 2010, at 75 FR 20299 will stop banks and other creditors from seizing federal benefits deposited into a bank account. If the regulation goes into effect it will expand protected benefits to include not only social security and SSI but VA benefits, federal railroad retirement benefits, Civil Service Retirement benefits, and Federal Employees Retirement System benefits.

Banks will be required to review the deposits into an account to determine whether the deposits are of a protected class. This will prevent creditors from seizing balances in a bank account and creating bank charges for overdraft or bounced check charges. Frequently bank customers have not known they could require the release of the funds due to federal exemptions.

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How does Medicare work?

March 31st, 2010

The Medicare statute has four large sections: Parts A, B, C and D.

Part A is paid for by the Medicare tax you pay while working. It covers hospitalization.

Part B covers your doctor visits, home health care, physical and occupational therapy and various medical tests. You pay for it by the premium deducted from your social security check.

Parts A and B are considered “standard” Medicare. Part C is HMO or PPO medical insurance. The government pays subsidies to various private insurers who offer Medicare insurance that meets statutory criteria. The policies are called Medicare Advantage and some are specialty plans that have been more heavily subsidized than “standard” Medicare. These special policies are the policies whose subsidies are being cut back to the standard amount under the new Health Care law. For the most part it is these subsidies that the Republicans tried to protect and complained about when they argued that the “Obama” Health Care Bill made cuts to Medicare.

Part D is the prescription plan that began during President Bush’s presidency. Prescription coverage can be purchased through a Part D policy or a Part C Medicare Advantage plan.

Medicare coverage normally begins when you retire at age 62 or later and start taking Social Security benefits. The initial enrollment period for Part A begins in the third month before your 65th birthday. The enrollment period lasts for seven months. Your Part B coverage normally is started with your Part A coverage and social security.

During this initial enrollment period you may purchase a Medicare supplemental policy, sometimes called Medigap.

You cannot be denied coverage under a supplemental policy if you enroll during this initial period. You have a choice of coverage level or benefits that are standard in every policy by law. Historically the levels were A through J. The most comprehensive coverage paid all of your medical expenses not covered by Medicare.

Standard Medicare for most care pays 80% of the medical bill and the balance is paid by the beneficiary and/or the Medicare supplemental insurance carrier.

Failure to purchase the supplemental policy during your initial enrollment period creates a 1% penalty for every month you fail to enroll.

Enrollment opens again each year November 15 through December 31st. The same enrollment periods apply for Part D policies if not purchased during the initial application period.

Part B policies general enrollment period is January 1 through March 31 of each year with the coverage beginning July 1 of that year.

Failure to enroll for Part A during the initial enrollment period will require an application to enroll in Medicare.

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Obama Health Care Bill Are we Changing Medicare?

March 31st, 2010

The short answer is that the changes to Medicare are mostly fringe changes. Even so, since so many of us live on tight budgets the changes made may well be important to you. Mostly the changes should extend coverage and make health care more affordable, unless you have a high income.

Some things are too big or too new to get a handle on easily.   This statute is one of those things. There are lots of good news articles about the bill. The biggest expectation I have is that there are going to be lots of issues to work out. Anytime substantial change is made to the law, there will be parts of it that are contested in court until we learn how the law will actually apply.

Many parts of the statute are going to be filled in by regulations prepared by Federal agencies. It is going to take time for the administrative structure to be built so the the changes can be put into effect.

I expect that the statute will extend the time that Medicare is solvent.  Due to the many disagreements about the statute no one will know what will result until all the regulations are published and the court fights settled–and I suppose the political ones too. Your guess is just as good as mine when it comes to politics.

First, each Medicare insured who reaches the Part D coverage gap will receive $250.00 this year to apply to the costs of prescriptions.

Next year, 2011, the drug manufacturers must discount every prescription for a brand name drug by half that is filled while you are in the coverage gap. This coverage gap is commonly called the Donut Hole.

Beginning in 2013 there will be a subsidy on brand name drugs purchased in the coverage gap. The subsidy will be phased in over the period 2013 to 2020 so that by 2020 the subsidy will be 25% of the cost in addition to the manufacturer discount.

On the other hand the discount on generic prescriptions purchased while in the coverage gap of 75% will be phased in beginning next year.

Medicare will cover an annual wellness exam in full, no co-payment or deductible.

A new Medicare tax will be applied to persons with an income of more than $200,000.00, and married couples with incomes of more than $250,000.00.

The Part D premium will be tied to income. More beneficiaries of both Part B and Part D will be moved into higher income categories, and will thus have to pay higher premiums.

Medicare Advantage is a program Congress started to get the insurance companies to provide more services for people with chronic conditions or illnesses. It has been very popular. These policies received a large subsidy that was about $135.00 per month per beneficiary more than standard Medicare. Under the new statute that subsidy will be eliminated over a period of time. Enough for now I will blog soon on other changes to Medicaid, long term care and the health system in general.

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New Estimate of Healthcare Costs during Retirement

March 16th, 2010

The Center for Retirement Research at Boston College just issued a new study on the expected costs for health care by  a couple aged 65.   The expected present value of the lifetime health care costs excluding nursing home care is $197,000.00.     In 2007 married couples age 65 and up averaged annual expenses of $7,600.00 for Medicare premiums, co-pays and other out of pocket expenses.

Older couples over the age of 65 had a 5% risk that they would spend more than $311,000.00 for health care over their lifetime at present value.   Remember the present value is the value that is needed in hand today and invested to pay for a future expense.  The interest rate factor was not stated in the abstract.  “And when nursing home costs are included, the amount for a typical couple increases from $197,000 to $260,000, with a 5-percent risk of exceeding $570,000.”

The abstract did not discuss how families are expected to pay for medical services they cannot afford.  Few couples have enough savings to meet all of  the uninsured costs that they can expect to incur.    The unmet costs will be paid via Medicaid, state programs and local medical providers, assuming the patients actually receive care.   Typically services are provided in the event of a medical emergency, but not for chronic pain and illness such as arthritis,  osteoporosis, COPD and other illnesses.

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Do I qualify for Medicaid?

February 25th, 2010

There are many different services provided by the various states under the program called Medicaid. My comments are focused on Texas residents qualifying for long term care. Many people find themselves in a nursing home ( called a skilled nursing facility in Medicaid ) suddenly after a fall, a heart attack or other serious medical crisis.

Generally there are five requirements in order to qualify for Medicaid. First you must be a citizen of the United States.

Second, you must be a resident of the state in which you wish to apply.

Third, and maybe the most critical is you must be “medically needy”. There are several factors involved, but essentially to meet the medical necessity requirement you must have a disease or medical disorder that requires the attention of a Registered Nurse (RN) or Licensed Vocational Nurse (LVN) on a regular basis.

Your income may not exceed the “income cap” set by statute. Currently it is $2022.00 per month.     If a Qualifying Income Trust is used (often called a Miller Trust or a QIT) then a person with more than the income cap may qualify for Medicaid.  The income placed into the Trust  is deposited into a designated bank account and all of the income is paid to the nursing home (less the personal needs allowance).   There are other exceptions which are more than I can include here.

Finally, your “countable” resources may not exceed $2000.00. This one requirement is complicated enough for a book all of its own. I will write a brief article on this topic soon.

For Medicaid to begin coverage of a nursing home patient, he or she must have been in the facility for at least 30 days.

How Medicaid is applied varies from State to State. An Application is made by the patient, a facility or a family member by completing the required form and submitting it to the Texas Health & Human Services Commission.

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Points to ponder before signing a Will.

February 15th, 2010

Most people who say they want a new Will tell me they only want a “simple” will.  Few of us can lay claim to living a simple life.   As part of your “estate plan” I have the following questions for you to think about.     Be honest with yourself, your attorney and your family.   If the truth is unpleasant admit it so we can work to make the situation better.

Denial does no one any good.   You cannot fix a problem until you admit a problem exists.    There are solutions for almost every problem if we think about what needs to be done before it comes about.     This article is not meant to provide solutions so much as to help determine what issues should be dealt with.

1.   Do I have children from more than one relationship?

2.   Do my children enjoy being with one another and share willingly?

3.   Do I have any children with psychological, emotional or other behavior problems?

Telling your lawyer before the documents are prepared about possible disagreements among your children allows for planning to reduce disagreement and to appoint the persons who can best deal with any disagreements that might happen.     A Trust is often a good tool to reduce the ability of a “problem” child to cause problems, but it is not the only tool.   Healing emotional wounds now is far more effective and cheaper than letting the family go war in court after we die.   Dispute resolution can be built into our documents if small arguments are likely.

4.  Do I own land in more than one state?

5.   Do I have existing health problems or am I likely to develop health problems?

6.   Do I have adequate savings and/or insurance to pay for any possible health care that I may need after retirement?    (consider Medicare supplemental policies, long-term care insurance,  Medicare prescription policies,  life insurance to fund a trust for spouse or child with special needs,  annuities, etc.)

7.   Do I know how much health care is likely to cost in the future?

8.    Do I have a child or spouse who relies on governmental benefits such as Social Security  (SSI or SSDI),  Medicaid or Medicare for health care?

9.   How many people do I trust who would be willing to accept the responsibility of making health care decisions for me?   Have I actually spoken to these people to make sure they are willing to do so?

10.   How many people do I trust who would be willing to accept the responsibility of paying my bills for me and investing my money or assets?   Have I actually spoken to these people to make sure they are willing to do so?

11.    If  I no longer have family members who are able and willing to help me, do I know how to find trained and bonded professionals to help me with my health care and financial decisions.

12.    If I have a child with severe disabilities do I have an existing care plan  with enough detail and explanation that someone else can step in and take care of my child as I do now or better?    Am I  making adequate plans to fund a special needs trust or  to otherwise provide for more than governmental benefits will provide my child?

If you do not get your wishes down in writing now, how is your family going to know just what you want?   Frequently the planning needs of a family with modest means is greater than for a family with significant insurance or other assets.   There is far more to an estate plan than reducing taxes.   Most of us have far less than one million dollars and do not have the spare money to pay for any medical emergency that may arise.   We need “asset protection planning” more than the wealthy millionaire who can afford to spend money we do not even have.

A good elder law attorney can help guide you through the available solutions to each of the potential problems listed above.   A little planning can go a long way.

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Valuation Discount benefits may disappear

February 8th, 2010

Many sophisticated tax planners have helped wealthy clients avoid estate taxes by using something called “valuation discounts”.    An asset that cannot be sold is worth less than another asset that can easily be sold.   This is a common concept used in business to value various types of property.    This is especially true in the area of corporations, partnerships and other business entities.

A good estate planner could take a valuable and easily valued asset like land, stock in a corporation sold on a stock exchange or even cash and put it into a limited partnership that had no market on which the interest in the partnership could be easily valued or sold.   Further the person with the valuable property could receive a minority interest in the new partnership and the loss of control would create additional valuation discounts on the value of the partnership.  This is true even though the assets within the partnership remain easily valued and easily sold.

New tax regulations are being prepared that will create a category of “disregarded restrictions” for family owned entities.   This will result in the property being valued for tax purposes as if the container with the value discounts did not exist.   This is going to be a highly partisan and heavily lobbied issue.

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New Income Tax Problems & Probate

February 8th, 2010

We are finally in the tax year no one thought would really happen.   This year we have no “Death Tax”.

Rule 1:  If you are the Executor or Administrator for the Estate of someone who dies this year make sure you talk to an experienced CPA or other tax preparer.  This is going to be an issue missed by many probate attorneys who do not also work with estate planning or tax issues.

The issues for the beneficiaries on their tax returns are going to be complicated and have to do with something called “tax basis”.  The good news is that this year will be the only year probate administrators will need to deal with this issue.   The tax rules that existed in 2000 will lock back into place and we will again be able to use the step up in basis rules again.

Even better is that for those of us with a small estate  our executor can elect to create a “stepped up” basis  of up to $1,300,000.00 of $3000,000.00 if the property passes to a surviving spouse.

Until this year heirs and beneficiaries received a tax basis on inherited property based on the Fair Market Value at the date of death.   Frequently called “stepped-up” basis.  This is a fairly simple value to obtain and results in very little income tax due when the property is sold by the beneficiaries.   This is especially true if the property was sold soon after the death of their parent or spouse.

Now the  beneficiaries’ tax basis is  the tax basis of the person who died (Decedent).    Generally this will be the amount that the Decedent paid for the property plus certain other amounts spent on the property.

More likely than not, most of the Decedents did not keep the records required to establish the tax basis and the beneficiaries will have no idea of where to look for those records.   This could create large income tax bills for beneficiaries with an executor who did not hire a good tax preparer or persons with larger estates.     On the other hand in a large estate the amount saved on not paying the estate tax more than offsets the additional income tax on gains from the sale of what will probably be long-term capital assets that are taxed at much lower income tax rates.

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