September 2014

CURRENT ISSUES IN THE AREAS OF ESTATE, TAX

AND PERSONAL AND BUSINESS PLANNING

The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.

Penalties For Estate And Guardianship Non-Compliance. I will be speaking at the 36th Annual Judge Robert H. Staton Indiana Law Update at the Indiana Convention Center on September 24, 2014, concerning elder law developments. Among the changes to be addressed will be certain changes in Indiana law pertaining to the authority of the court to impose a penalty by order if a third party (such as a bank or an insurance company) refuses to comply with the request of a guardian or personal representative, or in conjunction with a small estate affidavit when there is no formal estate administration. It is not unusual for a guardian or a personal representative, or for an individual estate beneficiary when there is no formal estate administration, to request a third party holding funds or other assets to deliver those assets or to transfer them in accordance with the request. In the case of a small estate affidavit, this would arise in a situation involving less than $50,000 in estate assets, in which case an individual beneficiary can request the funds, or the transfer of the funds, in accordance with an affidavit after waiting 45 days from the death of the decedent and providing certain additional information. Several sections of the Indiana Probate and Guardianship Code were amended by Senate Enrolled Act No. 36, effective July 1, 2014, to allow a court to impose a penalty by order if there is a failure to comply with the request of a guardian, personal representative, or in conjunction with a small estate affidavit. The court can also order attorneys fees and costs. The essential requirement in all such cases is that a person fails to comply with a written demand or instruction which is consistent with Indiana law. Other changes under SEA No. 36 were briefly addressed in our June 2014 newsletter.

Child Not Responsible For Mother’s Nursing Home Expenses. In Hutchison v. Trilogy Health Services, LLC (Ind. App. 2014), Ind. Ct. App., 30A01-1307-SC-316, the Indiana Court of Appeals ruled that a daughter who signed a nursing home admission agreement as a responsible party was not liable for her mother’s expenses because she did not have authority over her mother’s finances. It should be noted that federal law prohibits a nursing home certified as eligible for Medicare or Medicaid reimbursement from requiring a guarantee of payment as a condition of admission or extended care. Federal statutes do not state specifically that these facilities are precluded from requiring an individual who has legal access to a resident’s income or resources to sign a contract (without incurring personal financial liability) to provide payment from the resident’s income or resources. A provision of the Indiana Administrative Code provides that a nursing facility may require an individual who has legal access to a resident’s income or resources to sign a contract, without incurring personal financial liability, to provide payment to the facility from the resident’s income or resources. The Court did not address the legality of responsible party provisions and whether they are inherently illegal, and instead found that it was unnecessary to reach that result. The Court found that there was no evidence that the daughter ever had any authority to manage, use, control or access her mother’s income, financial accounts, or other resources. The Court found that the admission agreement obligated the financial party only to the extent that the responsible party had access or control of the resident’s income and resources.

Alternatives To Medicaid Coverage Of Nursing Home Care. Many people think that Medicare will cover a significant portion of nursing home costs, but that is incorrect. Medicare Part A will cover only up to 100 days of care in a skilled nursing facility for a period of illness, which must follow a stay of at least three days in the hospital. Medicare actually only covers 100 percent of the cost for the first 20 days. For days 21 through 100, assuming that the person receives skilled care, the individual must pay a co-payment of $152 per day (in 2014). The co-pay will generally be covered by Medi-Gap (Medicare supplemental) insurance. If the individual is no longer making progress, then the patient may be informed that Medicare coverage will end. It should be noted, however, that it is a misconception that the patient must be making progress, when in fact any benefit from the treatment, even if it simply slows down deterioration, merits its continuation. Consequently, family members may advocate for continued therapy for the patient. Once Medicare coverage ends, unless the individual has long term care insurance, in the absence of Medicaid eligibility the patient will become a private pay patient. Nursing home costs in the area of Evansville, Indiana, now frequently run more than $7,000 per month. Previous issues of this newsletter have addressed various aspects of long term care insurance. Readers are encouraged to access our website to revisit the considerations applicable to the purchase of long term care insurance.

Tax Deductibility Of Assisted Living Expenses. I frequently encounter families who are unaware that some or even most of their parents’ assisted living expenses may be deductible for federal income tax purposes as medical expenses. For taxpayers 65 and older, only the medical expenses above a threshold amount equal to 7.5 percent of adjusted gross income will be tax deductible. For many older taxpayers, that expense will offset most of their taxable income. In general, a resident must be considered “chronically ill” in order for assisted living expenses to be tax deductible. This means that the resident cannot perform at least two activities of daily living, such as eating, toileting, transferring, bathing, dressing, or incontinence, or requires supervision due to a cognitive impairment, such as Alzheimer’s Disease or another form of dementia. To qualify for the deduction, the personal care services must be provided according to a plan of care prescribed by a licensed health care provider. If the resident is chronically ill and in the facility primarily for medical care and the care is being performed according to a certified care plan, then room and board charges are a part of the medical care plan and may be deductible. Even if the person is in the facility primarily for custodial and not medical care, some of the costs may be deductible to the extent that they are for medical care. People should not overlook the potential tax deductibility of assisted living expenses.