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Rebutting Presumption of Undue Influence

It’s over – at least for now.  The Mortimore case.

This is a case I have spoken and written about quite a bit for the past year.

Common facts: Older gentleman.  His wife of many years dies.  New woman becomes involved. Alienates family.  He dies.  She produces a will (surprise) leaving everything to her.

At the trial level, which I did not handle, a will contest takes place.  Trial court rules in favor of the woman (and against the kids).  Trial court says: I don’t know what to make of this, two very different stories. I am upholding the will.

I am retained to handle the appeal.  We raise the issue that the trial court failed to consider the presumption of undue influence that arises when a person (1) has a fiduciary/confidential relationship with the decedent, (2) the opportunity to influence the decedent, and (3) benefits from the document thereby created.

The Court of Appeals not only agrees, but reverses the decision of the trial court and throws out the will.  They say: had the trial court considered the presumption, they would have found the presumption applied, AND that the Appellee failed to rebut the presumption.  Nice Result!!

But, not the go down easy, woman hires counsel to request the Michigan Supreme Court review the Court of Appeals decision.  They agree the presumption applies, but they argue that the Court of Appeals failed to apply the proper standard for rebutting the presumption.

The Michigan Supreme Court accepts the case, briefs are filed, and oral arguments are held.  At the Supreme Court hearing, I am grilled by the Chief Justice who is clearly convinced that the Court of Appeals erred – specifically, that the standard that the Court of Appeals used to rebut the presumption (preponderance of evidence) is too high.  The thinking is that if the standard to rebut the presumption is a preponderance, the result, in effect, is that by establishing the presumption the burden of the entire cases is shifted to the party defending the document.

The truth is that Michigan Court of Appeals cases are all over the board on this.  The last pronouncement by the Michigan Supreme Court on this point was more than 30 years ago in Kar v Hogan, 399 Mich 529, 542; 251 NW2d 77 (1976).

The options are anywhere from a scintilla of evidence to a preponderance, with most cases coming down somewhere in between.

In light of my treatment at oral arguments, I was not hopeful about my prospects.  So, wasn’t I surprised when we received an order from the Michigan Supreme Court vacating the original order accepting the case.  In other words, they changed their minds and decided (after hearing oral arguments) that they never should have taken the case in the first place. That means they left the Court of Appeals decision in place.  Whew….

The Chief Justice wrote on lengthy dissent which offers one perspective on this issue.

The truth is that this is an important issue, and we don’t have clear law.  The problem is that if, as argued by the Chief Justice, the presumption of undue influence is given as much respect as are presumptions in other areas of the law (which is very little respect), the role of the presumption in protecting vulnerable adults will be diminished, and depending on the new standard adopted, perhaps dramatically so.
Request for reconsideration to the Michigan Supreme Court was denied, so, for now, the case is back in the trial court with the will thrown out.  There are other interesting issues in this case, which could lead us back into the appellate courts again, but the Supreme Court walked away from this opportunity to address is important and complicated issue.

Proposed Medicaid Policy Change Released

The State has issued proposed policy changes to the Medicaid program, which, if adopted, would be effective October 1, 2102.  To review the proposed policy click here:  Proposed Medicaid Policy.

In terms of advising elderly clients seeking long term care Medicaid benefits, the interesting provisions of this proposed policy are:

1)      Married couples are allowed one year to transfer assets from the nursing home resident (Medicaid applicant) spouse to the community spouse (the so-called “presumed asset eligible period”).  If the new policy is adopted, BEM 402, page 4, will provide that at the end of that year, the Medicaid caseworker is to review each asset that was owned by the couple on the “snapshot date” date and determine if any divestment has occurred during this first year.  Planners need to advise their clients to be mindful of this review, and for the community spouse not to make gifts during that first year.  I believe the reference to the snapshot date (the “IAA”) is in error, because the snapshot date could be many years before the application date.  I suspect they meant (and will likely apply) the application date.  If this new policy is adopted, it will be interesting to see how the policy is applied when, during that first year, the community spouse dies and leaves his/her assets to children or other beneficiaries through testamentary instruments.

2)      A proposed change to BEM 546, page 3, clarifies that a married person on the MIChoice Waiver program can divert income to support the community spouse without divestment concerns.

3)      A proposed change to BEM 401, page 8, further clarifies that transfers to a pooled accounts trust (Exception B Trust) by a person over the age of 65, is divestment.

Also released were some immediately effective policy changes, which include a reference to Medicare Set Aside Agreements, and specifically that they are neither assets nor income for Medicaid eligibility purposes.  It is interesting that the policy specifically references only the use of MSAs in worker’s compensation settlements.

Ladybird Deeds: Readers Digest Version for Upcoming Program

 

I am presenting on ladybird deeds at the upcoming State Bar Solo and Small Firm Institute, September 19-21.  Still time to sign up.  Following is an abbreviated version of what I will be covering.

Intro

A ladybird deed is an odd duck that serves as a valuable estate planning tool in limited situations, but which plays a much more important role in Medicaid post-eligibility planning.

Basically, a ladybird deed allows the owner(s) of real estate to designate a beneficiary on the property, with all the same characteristics as a beneficiary designation on a life insurance policy or bank account; including the power to encumber or sell the property without the consent or participation of the named beneficiary(ies).

A ladybird deed is sometimes referred to as an “enhanced life estate” deed.  Other states use ladybird deeds or some statutory variance of it sometimes called a “transfer on death” deed or affidavit.

I don’t know where the name came from.  The name is curious, to be sure.  Is it named after Ladybird Johnson or something else?

Source of Law

We recognize ladybird deeds in Michigan primarily because Michigan Land Title Standard 9.3 says this arrangement is valid under Michigan law.

The Land Title Standard is thin on detail, and there some important questions about these deeds remain unclear.  Most notably, the question of grantee vesting is not addressed by the land title standard.

A recent unpublished Michigan Court of Appeals case addressed the best way to subsequently convey land subject to a prior ladybird deed.

In Estate Planning

Ladybird deeds can serve as simple tools in simple estates with simple schemes to provide clients with a clean result.

In Medicaid Planning

Although ladybird deeds have been used by some planners for decades, the explosion of their use is clearly a function of the role they play in post-eligibility Medicaid planning.

After a client (or the spouse of a client) becomes eligible for Medicaid, where there is an exempt homestead, a ladybird deed can be used to avoid probate and therefore the specter of estate recovery (Because estate recovery currently only reaches probate assets).

Further, and of equal importance, because the ladybird deed does not convey anything of value (it is merely a beneficiary designation) the execution of a ladybird deed is not divestment.  Accordingly, the ladybird deed can be created before or after the Medicaid application is filed, and it does not matter that it is done during the look-back period.

Clearly the ability of people to avoid estate recovery simply by executing ladybird deeds is a thorn in the side of those who expect the estate recovery program to generate revenues.  Accordingly, planners must be realistic about the future of this planning tool, and need to advise their clients about the prospects that the law may change in the future.

Legislation currently pending would eliminate the probate only aspect of Michigan’s estate recovery program, and therefore eliminate the benefit of ladybird deeds in Medicaid planning.  But even if this law is not passed, it would not be surprising for the Department of Human Services to implement policy that seeks to reach property passed by ladybird deed.

Creditor Rights

A Michigan probate court opinion out of Wayne County, written by a highly respected Probate Judge, the Hon. Milton Mack, and which is published in the Quinnipiac Probate Journal holds that an unsecured creditor of the state cannot reach the value of property that passed by operation of a ladybird deed, and further, that the execution of a ladybird deed is not subject to the Fraudulent Conveyance Act.  This author knows of know contrary authority.

SNT’s, ObamaCare and More

A recent unpublished COA opinion raises some interesting issues regarding the probate court’s role in creating special needs trusts, as well as some food for thought on how the Affordable Care Act (aka, Obamacare) may impact decisions in these cases in the future.

In In Re Hope Special Needs Trust a 75 year-old man with mental illness petitioned the probate court for authority to create and fund a self-settled Special Needs Trust (SNT) with about $300,000 which he inherited.  At the time he petitioned, the man was receiving several government benefits, including two means-tested benefits: Supplemental Security Income and Medicaid.  In addition, because of his eligibility for these benefits, the cost to him of staying in the group home in which he resided was for reduced.

The Court found that the man was in fact a protected person, but denied the request to create and fund the SNT and instead ordered the funds be placed in a conservatorship for his benefit.

The COA upheld the trial Court’s decision.

In reaching this result, the trial Court found that the resources the man had were sufficient to privately pay for his care needs, including any increase in rent at the group home, and that the petitioner did not fully appreciate that trade-off that he was making, which was that he was giving up the ability to leave any unused portion of his estate to his heirs in return for continuing to receive modest government assistance through these means-tested programs.  Interestingly, the Court stated that this man did not understand what his attorney had him sign, a seeming slam on the attorney (no doubt, one of our several fine Yooper elder law attorneys, as this case came out of Chippewa County.)

So the conclusion of this trial Court was that the best interests of the protected person were not being served by the relief requested. This case should remind those of us who do this work that once the authority of the probate court is invoked, the court has the ability to independently analyze the situation and make its own determination about what is in the best interest of the protected person.

[An interesting side issue in this case is that the petition requested the funds be put in a pooled accounts (d4C) trust.  This is interesting because it is divestment to fund a pooled accounts trust after age 65 for Medicaid purposes. BEM 401, page 7.  It appears this individual was not in a Medicaid program where divestment is an issue, and the facts suggest that he was not likely to pursue these divestment programs (the long term care programs) anytime soon, if ever.  It is also interesting because, were this a first-party (d4A) trust, and were this individual under the age of 65, the issue of cutting out the heirs would have been mitigated since a first-party trust could have left the remaining resources, after reimbursement to the state for medical expenses paid by Medicaid (which in this case it appears would have been minimal) to the heirs or beneficiaries, seemingly removing the Court’s primary objection to the plan.]

Now the Obamacare issue.

Assuming Obamacare stands, in the future, purchasing health insurance for people who have preexisting conditions will not be an issue.  That means there will be fewer situations where SNTs are needed where the purpose is primarily to realize government health care benefits.  That doesn’t mean the other benefits of SNTs are lost or that some government benefits, like services through Community Mental Health which may not be obtainable without Medicaid eligibility, won’t still exist.  It does mean however, that the analysis will be different, and that in more situations the attorney will likely arrive at the same conclusion that this Court did, that the protected person can afford to pay for their care needs without establishing an SNT.

“Elder Abuse” Bills Passed and Pending

Over the last few years Michigan lawmakers have cooperated with some aging advocacy groups to develop a package of laws intended to deter abuse of older adults.

In June, Governor Snyder signed ten of those bills into law.  Eight bills in this package remain pending.

Most of the bills that have been signed into law deal with criminal charges for financial abuse and reporting requirements for physical abuse and neglect.  As such, they have little relevance to most probate attorneys.

An exception among the bills that are now law is Senate Bill 461 (Public Act 173 of 2012).  To read the new law click here:

http://www.legislature.mi.gov/documents/2011-2012/publicact/pdf/2012-PA-0173.pdf

First, SB 461 modifies the so-called “slayer statute” (MCL 700.2802 – 700.2804).  The slayer statute has long held that a person convicted of murdering someone cannot inherit from the person they murdered.  That statute is now extended to preclude a person convicted of a felony financial exploitation crime from inheriting from the person they exploited; unless, after the conviction, the victim of exploitation creates new estate planning documents (or modifies existing ones) to expressly include the perpetrator of the crime.

SB 461 also expands the role of a guardian ad litem in an adult guardianship matter to require them to provide additional information to the ward and the court.  A new form outlining the rights of a guardianized adult is to be created which the GAL will be required to serve on the ward as part of his/her duties.  These changes will appear in MCL 700.5306.

Finally, SB 461 requires probate courts handling guardianship matters to inquire as to the possible need for a conservator in each case, and for the guardian ad litem and guardian to report the resources of the ward to the court so that it can make this determination.  These provisions now appear in MCL 700.5319.  Where a conservator is appointed, and where the amount of assets “readily convertible into cash” exceeds the amount for a small estate pursuant to MCL 700.3982, the court is required to set bond or explain why it has not done so.  These changes appear in MCL 700.5410

As indicated above, there are more “elder abuse” bills pending.  The most troublesome of those deals with the disclosures required by banks to parties seeking to create joint accounts.  Having litigated the joint account/convenience account issues before, I have concerns about these proposed laws.  Such notice laws, while intended to alert to elders to the risks of establishing joint accounts, will likely only make it harder to set aside the unintended survivorship rights resulting form the creation of these accounts if these bills become law.  These proposed changes are currently found in Senate Bills 456,460, 604 and 605.

Three other pending bills, Senate Bills 467, 706 and 777, would make it harder for annuity salespersons to sell inappropriate annuities to senior citizens.  A good thing.

Trending Up: Medicare Set Aside Agreement

This is an important probate issue, although admittedly one that many probate lawyers may never come in contact with.  The topic is Medicare Set Aside Agreements (MSAs).  This topic is significant to those probate attorneys who work with plaintiff’s attorneys to assist in settlements of personal injury actions and workers compensation claims.

Background

MSAs are used to hold a portion of the funds received from settlements to pay for health care expenses that Medicare would otherwise pay for.  The idea is that when someone is injured and receives a settlement, the settlement funds represent a variety of damages, including future medical expenses.  If the injured person is, or is expected to become, covered by Medicare, an MSA holds a portion of those funds to pay for medical expenses incurred in the future so that Medicare is not charged for medical expenses that have already been paid for by a third party (the defendant).

MSA have traditionally been used exclusively in the worker’s compensation context.  The federal entity that runs Medicare (CMS) has long established rules and procedures for settling workers compensation claims: when MSAs are required and how to have the MSA, and the amount of the settlement placed in the MSA, approved.

What’s New

Over the last few years there has been a push to require MSAs be used in liability actions (traditional personal injury cases).  The push has come largely from annuity companies and other interests that operate in the workers compensation world.  They see liability claims as a new and large market for their products and services.

Although the federal law on this point has always cryptically required parties to liability settlements and judgments to “consider Medicare’s interest” in settlement proceeds, CMS has never required liability actions to use MSAs and they have no procedure for having MSAs approved in that context.  However, more recently it appears that those pushing for the expansion of MSAs into the liability arena are gaining traction. It appears we may have, or may soon have, a requirement that MSAs be used in larger liability cases where the plaintiff is, or is expected to become, a Medicare beneficiary.  Defense counsel are already demanding this issue be addressed in larger cases.

The application of MSAs to liability matters would be more complex than in workers compensation, for among other reasons, the allocation of fault among multiple defendants as well as the allocation of damages between future medical costs and the many other possible forms of damages suffered and recoverable in these cases as opposed to workers compensation matters.

It is also important to recognize that a full fledged adoption of MSAs into the liability world is a very bad thing for plaintiffs.  In a worst case scenario, such a requirement could dramatically reduce the benefit realized by the plaintiff in these matters, for the reason that in many cases a substantial portion of the settlement could become unavailable to them, set aside to replace care costs that would otherwise be paid by Medicare.

Of course Special Needs Trusts (SNTs) have long been part of the probate work that arises in the context of assisting personal injury lawyers with settlements.  This will not change.  What may change is the need to also develop and fund MSAs (or SNTs that can also operate as MSAs).

More Thoughts On Our New Durable Power of Attorney Law

In an earlier post I reported on changes to MCL 700.5501 brought about by Public Act 141 of 2012.  In this post I would like to point out some other intriguing aspects of this law.  A link to the law may be found at in that earlier post of June 12, 2012.

Planners need to be mindful of how these new developments impact planning options by a principal who later becomes incompetent, and the extent to which the documents created may limit the planning tools available to the agent, and the exposure of the agent to liability.

First, and most importantly, section 3(d) provides:

“The attorney-in-fact shall not make a gift of all or any part of the principal’s assets, unless provided for in the durable power of attorney or by judicial order.”

This section addresses one of most difficult issues of FPOA drafting, whether, and to what extent, to authorize an agent to make gifts.  Heretofore the law on this issue was vague. MCL 700.2114 can be extrapolated to mean that an agent may not gift to themselves without express authority, but this new law goes much further, and becomes much more of an obstacle to things like Medicaid planning by an agent.

Commonly, form FPOAs used by too many practitioners will include no expression on gifting, or will include a provision that limits gifting the federal annual exclusion amount.  These documents are likely generated without much discussion or consideration of the important role gifting plays in estate planning, VA benefits planning and Medicaid eligibility planning.  For planners interested in an FPOA that authorizes broad gifting powers, a form of such a document I use is available on the ICLE website forms bank, and as an exhibit in my ICLE book on Medicaid Planning

Where gifting is allowed, it is often best to limit that authority to gifts made in a manner consistent with the principal’s existing estate plan.

That’s not to say that gifting is always a good thing.  For many people, and for many reasons, gifting is not appropriate, and such documents should either remain silent on the issue or expressly preclude gifting by an agent.

Notably, the new law does not address the second leg of this issue, whether an agent can modify a revocable trust created by an incompetent settlor.  One would presume however, that Michigan law would not sanction such actions unless expressly authorized by the document.  Again, see my ICLE form for suggested language.

Another important issue not addressed expressly in the new law is the question: Are transfers from accounts jointly owned between the principal and agent, gifts by the agent?  Presumably if the joint ownership is created by a competent principal, the agent/co-owner’s removal of funds from such an account would not be a violation of the statute because it would not be an act of the agent in their fiduciary capacity.  That is not to say that such action, if taken, and where the agent did not contribute to the account, and/or where the joint ownership was established for convenience purposes, would not be actionable.

Section 2(e of the new law does say however that:

“Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact.”

Also important is section 2(g) of the new law, it provides:

“In the durable power of attorney, the principal may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty except for actions committed by the attorney-in-fact in bad faith or with reckless indifference.”

This section authorizes exculpation of the agent, but with a “bad faith” floor.  The Medicaid planning power of attorney included in my ICLE materials referenced above, provides such exculpation provisions, which planners may want to consider.

General Perry’s Terror Clause

I just filed a brief in an appeal that may be of interest to some of you.

The case involves the estate of Brigadier General Miller Perry, who died leaving a restated trust.

The restatement of the trust altered the beneficial shares.  One of the beneficiaries whose share of estate was reduced by the restatement filed a “Petition to Determine Probable Cause,” alleging that the restatement was the product of undue influence and requesting that the court determine that this beneficiary had probable cause to institute a trust contest.

I represented the Trustee.  In our response I asked the trial court to determine that there was no probable cause to contest the trust, and also that the filing of this Petition to Determine Probable Cause was a “contest” sufficient to trigger the forfeiture of interest provided in the “no contest” clause in General Perry’s Trust.

This issue arises because of the changes brought about by MCL 700.7113 of the Michigan Trust Code.  As you may recall, this section of the Trust Code says that a no contest clause will not be enforced by a trial court if the contestant had probable cause to initiate the action.  This statute changed Michigan law when it was adopted in 2010.  Before the adoption of the Trust Code, Michigan law strictly enforced no contest clauses.  Nacovsky v. Hall (In re Griffin), 483 Mich 1031, 766 NW2d 613 (2009). [I am proud to note that the Griffin case was successfully litigated by John Bos of our office.]

The issue before the Court of Appeals is whether the law allows a litigant a “free bite” at the apple.  That is, whether, by calling a pleading a Petition to Determine Probable Cause, the litigant/beneficiary is able to engage in discovery and have a hearing without being subject to the forfeiture of interest provisions of the no contest clause.  I argue that this is not the law, and should not be the law.

In my brief, among other things, I cite California’s experience.  California allowed parties in trust contests to seek declaratory judgment on this point by statute, but later determined that this process only promoted litigation, and repealed that law.

Stay tuned.

Revised MCL 700.5501 Mandates Acceptance and Other Formalities

The passage of Public Act 141 of 2012 is significant to estate planners in that it requires that an agent appointed under a standard power of attorney for finances (FPOA) to sign an acceptance before acting, and for such documents to be witnessed by two people and notarized.

For planners who have not historically included an acceptance with their financial power of attorneys, they need to start.  For those who have, they need to alter their acceptances to conform to the statutorily required form.  An example of this form can be found at:

http://www.mielderlaw.com/professional-resources

Michigan law has long required acceptances for medical power of attorneys/patient advocate designations and this law does not change that.

The law should not impact the validity of existing FPOA’s that have nonconforming acceptances or no acceptances.  Specifically, MCL 700.5501(7) provides that the new requirements are not applicable to documents created before October 1, 2012. Of course, problems may arise in the future with institutions that refuse to accept documents without acceptances.  Accordingly, best practice may be to provide clients using existing FPOA’s with new acceptances, or otherwise make these acceptances available.

There are exceptions for power of attorneys used in business dealings and other unique situations, also described in MCL 700.5501(7).

The new law will be found in EPIC at 700.5501.  It is immediately effective.

To review the legislation, go to: http://www.legislature.mi.gov/documents/2011-2012/publicact/pdf/2012-PA-0141.pdf