Elder Law: Health Care Directives and Medical Rights

Elder law generally refers to those legal issues that affect those who are sixty-five years or older. The older population in the United States has grown significantly in recent years, in part due to the aging baby-boomer generation. According to the Administration on Aging, in the year 2000, approximately 12.4 per cent of Americans were age sixty-five or older. The Center for Disease Control and Prevention expects those age sixty-five and older to make up close to 20 per cent of the US population by 2030. With this rise in the older population, the focus on legal issues affecting older people has increased.

One of the most important issues for older Americans is who will make decisions regarding their health care in case of incapacitation or incompetence and what those decisions will be. Many people utilize an advance medical directive, which is a document made at a time when a person is mentally sound and used to direct medical treatment in the future. Every state has enacted some type of legislation regarding advance medical directives, but those laws vary widely from state to state. It is important to consult a lawyer with expertise in this area when developing an advance medical directive.

Many people write a living will to provide for the possibility of incapacity. A living will is not actually a will, but a document that gives instruction as to how a final medical situation should be handled. For example, a living will can direct medical providers to not resuscitate if the heart stops or terminate life support systems in the event of a terminal illness or brain death. It can also direct providers to take all possible measures to sustain life. Living wills usually do not take effect until a person is diagnosed with a terminal condition and death is believed to be imminent, or when the patient suffers from a permanent vegetative state. One should be aware that living wills are not always honored for a number of reasons, including the medical facilities' concerns over liability and the failure to inform family or friends regarding the living will.

Another option for planning for final medical care involves placing the decision-making power in the hands of a trusted friend or family member. Through the use of a written document known as a durable power of attorney, a person can appoint a third party to make major health care decisions in case of mental incapacity. The document can detail the person's wishes regarding health care in certain situations. Of course, it is important to select someone who understands your wishes and knows what you would want them to do if the situation arises.

In cases where a person becomes physically or mentally unable to communicate his or her desires regarding health care decisions and does not have a durable power of attorney, a guardian may be appointed through an involuntary court hearing. The guardian may or may not be a friend or relative and may be granted very broad decision-making power. The process of appointing a guardian is often time-consuming and expensive. Also, it may be difficult to find someone who is willing to be appointed as guardian.

Older persons also must prepare themselves for the possibility they may be required to move to a nursing home. Nursing homes that receive Medicare or Medicaid funds are regulated by the Nursing Home Reform Act (NHRA). The NHRA sets forth the requirements nursing homes must meet to become licensed. The NHRA also outlines the rights of nursing home residents, which include privacy, confidentiality and freedom from abuse and restraints.

The Patient Self-Determination Act of 1991 requires all facilities that accept Medicare and Medicaid — such as hospitals, skilled nursing facilities, home health agencies, hospice programs and HMOs — to keep written policies and procedures guaranteeing that all adults receiving medical care will be given oral and written information concerning their options as to what type of care they receive. It is important to note that this legislation does not guarantee the patient a right to have their final wishes followed.

Various state laws also regulate nursing homes. State governments have programs in place that are responsible for reviewing the quality of care provided by nursing home facilities and have the power to investigate complaints or abuse. Many states have established hotlines so that anyone who witnesses or suspects elder abuse can make anonymous reports to state protection agencies.

Strauss & Associates, P.A. Newsletter

Moving Corporate Owned Life Insurance to Shareholders

I represent clients who have entered into a buy-sell agreement between them on the corporation. One of the shareholders is not insurable. There are, however, two key-man policies inside of the corporation. We have been pondering how to move these policies out of the corporation so that they can be used in the buy-sell agreement. Particularly, we did not want to trip over the transfer for value rules.

I was well aware that the transfer for value rules had an exception when the policy is transferred to the insured. Such a transfer, however, would be detrimental to the buy-sell goals, as each shareholder needs to own the policy that insures the other shareholder.

I learned today that the transfer for value rules also has an exception for transfers to a partner of the insured. Voila! My concerns are answered. The corporation can simply distribute out the policies to the shareholders, because they are also partners in a partnership.

Unfortunately, I think we will still be subject to the special 3 year rule for corporate owned life insurance where a shareholder owns 50%+ of the shares of the company. Must research...

Barack Obama Estate Tax Plan

President-elect Barack Obama includes estate tax reform in his middle class tax cut plan. His estate tax reform plan would (1) eliminate the scheduled repeal of the estate tax in 2010 (and the return of the pre-2001 rates and rules in 2011), (2) preserve the present rules for determining the basis of property received at a decedent's death, rejecting the application of carryover basis at death, (3) set the applicable exclusion amount at $3.5 million, indexed for inflation after 2011, (4) make the unused applicable exclusion amount of a deceased spouse available to the surviving spouse, and (5) set the top estate tax rate at 45%. (Howard Zaritsky's Estate Planning Update (WG&L))

Irrevocable Life Insurance Trusts

Few people realize that, even though they may have a modest estate, their families may owe hundreds of thousands of dollars in estate taxes because they own a life insurance policy with a substantial death benefit. This is so because life insurance proceeds, while not subject to federal income tax, are considered part of your taxable estate and are subject to federal estate tax, currently a 45% tax!

The solution to this problem is to create an irrevocable life insurance trust that will own the policy and receive the policy proceeds on your death. A properly drafted life insurance trust keeps the insurance proceeds from being taxed in your estate as well as in the estate of your surviving spouse. It can also protect the trust beneficiaries from their own “excesses”, against their creditors, and in the event of divorce. Moreover, the trust also provides reliable management for the trust assets.

How does the irrevocable life insurance trust work?

You create an irrevocable life insurance trust to be the owner and beneficiary of one or more life insurance policies on your life. You contribute cash to the trust to be used by the trustee to make premium payments on the life insurance policies. If the trust is properly drafted, the contributions you make to the trust for premium payments will qualify for the annual gift tax exclusion, so you will not have to pay gift tax on the contributions.

The life insurance trust typically provides that, during your lifetime, principal and income, in the trustee's discretion, may be paid or applied to or for the benefit of your spouse and/or descendants or other beneficiaries. This allows indirect access to the cash surrender value, if any, of the life insurance policies owned by the trust, and permits the trust to be terminated if desired despite its being irrevocable. On your death, the trust continues for the benefit of your spouse during his or her lifetime. Your spouse is given certain beneficial interests in the trust, such as eligibility to receive income and principal. On the death of your spouse, the trust assets are paid outright to, or held in further trust for the benefit of, your descendants.

Annual Exclusion from Gift Tax

The Annual Exclusion from gift tax allows gifts to as many recipients as you want without paying any gift tax, as long as no one recipient receives more than the limit. For the remainder of 2008, the annual exclusion is $12,000 per person. The limit is set to rise to $13,000 per person on January 1, 2009.

Repeal of North Carolina Gift Tax

Repeal of North Carolina Gift Tax
By: Patrick D. Newton
Effective January 1, 2009, North Carolina will no longer have a gift tax, and will leave the ranks of the few states to have such a tax. The North Carolina gift tax is a tax on gifts in excess of $12,000 per donee each year (the "Annual Exclusion"). If a Gift exceeds the Annual Exclusion, it triggers a requirement to file a gift tax return and potentially pay gift tax.

There is currently a limited exception to the payment of gift tax for gifts to parents and descendants. For gifts to these donees, the first $100,000 of taxable gifts is exempt from gift tax. The $100,000 exemption is a lifetime exemption per donor and once it is used up, all gifts in excess of $12,000[1] will generate gift tax. This can be contrasted to the federal gift tax where the lifetime exemption is $1 million, with no special requirement on the relationship between donor and donee.

The repeal of the North Carolina Gift Tax will allow taxpayers to make gifts up to their full $1 million lifetime federal exemption without incurring any gift tax and therefore enhances the value of a number of estate tax planning techniques.

One such technique is simply making gifts. Giving away an asset that is likely to grow in value is an excellent way to help control future estate taxes; any and all future growth of the asset will no longer be part of your potential taxable estate. Straight gifts of cash, however do not leverage your available gifting to maximize the transfer of wealth at your death.

Estate tax techniques are available to "leverage" your exemptions to move additional value to your children or others while minimizing the tax effect of doing so. Planning techniques that will be enhanced by the repeal of the North Carolina gift tax include the Qualified Personal Residence Trust (QPRT); the Grantor Retained Annuity Trust (GRAT); the installment note sale to an Intentionally Defective Irrevocable Trust (IDIT), the Charitable Remainder Trust (CRT, but only if the payment stream does not go to the Grantor), Spousal Lifetime Access Trusts (SLAT) and straight gifting. If you are interested in learning more about how these techniques can enhance your estate plan, please call me at 828-696-1811 to arrange an appointment.

[1] Annual exclusion is set to increase to $13,000 in 2009

Introduction

My name is Patrick D. Newton. I am an 8 year Estate Planning attorney currently practicing in Hendersonville, NC with the law firm of Strauss & Associates, P.A. I have started blogs in the past, and every time I have failed to maintain them. So I apologize on the front end if there is ever a gap in posting.

My practice mostly consists of helping wealthy ($10 Million +) families protect their assets through tax minimization planning and asset protection planning. Among other things, my clients utilize revocable trusts, irrevocable trusts, charitable trusts, private foundations, and LLCs to accomplish their goals.

It is very important to me to include my clients' other advisors (CPAs, CFPs, Financial Advisors, Life Insurance Agents, etc.) in the planning process from the beginning. This helps ensure that there is a clear understanding among advisors of where the client is heading.