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“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