Suppose a daughter is her mother’s caregiver, all around business and medical manager and is her “power of attorney” and trustee of her living trust. Suppose Mom says “Honey, you are so helpful. I want to show you how much I appreciate it. Write a check for a thousand dollars to yourself.” What should the daughter do? The answer may surprise you.
I wrote in an earlier blog post, A Tale of Two Daughters, how a daughter ran afoul of the law when acting as her Mom’s power of attorney Agent and her Trust as Trustee. The post was based on a case decided in January by the Michigan Court of Appeals, LaForest vs. Swiss. Her siblings took her to court and got judgment of $134,152 against her. What part of the law did she fail?
I’m sure like most children the daughter thought she was “merely taking care of Mom’s business.” She might have said something like “Call me power of attorney, call me trustee. What difference does it make? I’m just helping my Mom.” Indeed most children of aging parents that I work with only see themselves as children doing what a parent wants or needs to be done. But in this context, titles do make a difference.
First comes a “fiduciary” relationship
Whether one is an agent under a power of attorney or trustee of a trust, the power given creates a legal “fiduciary relationship.” When that arises “the fiduciary has a duty to act for the benefit of the principal regarding matters within the scope of the relationship.” Prentis Family Foundation, Inc. v. Barbara Ann Karmanos Cancer Inst., 698 NW 2d 900, 266 Mich. App. 39 (2005). Part of the meaning is that an agent may not personally profit by handling the principal’s business. One might think that all that means is that the “fiduciary” need only do “what Mom wants.” We saw that was insufficient in the LaForest case.
In the elder law context a fiduciary relationship implies control over the elder that can sway the elder’s mind. Take a look at items one and two of the following definition of “fiduciary relationship”. It comes from a case by the Michigan Supreme Court:
“[a] relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships—such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client-require the highest duty of care. Fiduciary relationships [usually] arise in one of four situations: (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer.”
In re Estate of Karmey, 468 Mich 68, 73 (2003).
Then comes “undue influence”
Once the finding of a fiduciary relationship in the elder context is found, the next step of the presumption of undue influence comes easily
“A presumption of undue influence arises upon the introduction of evidence that would establish (1) the existence of a confidential or fiduciary relationship between the grantor and a fiduciary, (2) the fiduciary, or an interest represented by the fiduciary, benefits from a transaction, and (3) the fiduciary had an opportunity to influence the grantor’s decision in that transaction.”
In re Erickson Estate, 202 Mich. App. 329, 331 (1993).
Putting it together, if a child is a fiduciary, an agent or a trustee, of an aging parent and if a parent tells the child to do something with the parent’s property that benefits that child only, then it is presumed that the child caused the parent to make that decision. If other parties object, they can take the fiduciary to court, reverse the transaction and make the fiduciary pay for it.
What is the daughter/agent/trustee to do when a parent says to her “You are the only one who helps me and visits me. I want you to have . . . “
LaForest provides clear guidance in cases where the child is a trustee-beneficiary. Let’s hit a couple points. The creation of a trust creates interests in the “beneficiaries” and in the case of a family trust not only is Mom a beneficiary but the children are as well. That means that their approval may be needed for a transaction that is not detailed in the trust document.
A long quote from LaForest vs. Swiss, emphasizes the importance of following procedures when one is acting as trustee:
“As a co-trustee, appellant owed the beneficiaries [] a duty of loyalty provided for in MCL 700.7802(1) and (2), which state:
(1) A trustee shall administer the trust solely in the interests of the trust
beneficiaries.
(2) Subject to the rights of a person dealing with or assisting the trustee as
provided in section 7912, a sale, encumbrance, or other transaction involving the
investment or management of trust property entered into by the trustee for the
trustee’s own personal account or which is otherwise affected by a substantial
conflict between the trustee’s fiduciary and personal interests is voidable by a
trust beneficiary affected by the transaction unless 1 or more of the following
apply
(a) The transaction was authorized by the terms of the trust.
(b) The transaction was approved by the court after notice to the interested
persons.
(c) The trust beneficiary did not commence a judicial proceeding within
the time allowed by section 7905.
(d) The trust beneficiary consented to the trustee’s conduct,”
In summary, if a transaction may benefit a trustee there are three ways it may be approved: 1) if it is in the trust, 2) if the trust beneficiaries agree or 3) if a court approves.
While there is no such explicit requirement in the law for agents acting a power of attorney, the three options may be simply prudent in these cases as well.
I know that many elders would be outraged to learn that they have to ask permission of their children to make a gift. This problem is easily avoided by drafting a trust stating that the children are not vested beneficiaries and having the parent retain a “power of appointment.” The problem can be avoided in a power of attorney by granting the child-agent authority to “self deal.” However these fixes do open up the possibility of unreviewable actions by the agent/trustee who may be committing financial elder abuse, only to be caught when all the money is gone.
It is possible for a parent to reward the contributions of helpful child and not cause legal problems for the entire family.
What might an elder do who wants to give a significant benefit to a child “fiduciary”? First I must say that the elder should hire an attorney. What will the attorney do? He or she will make sure the elder is not being unduly influenced or coerced. A suitable legal document will be drafted recording elder’s reasons and consent to the action. Notice will be given to other children, if the elder consents, so that they may “speak now or forever hold their peace.”
Depending on the trust is written, consent may be needed from the other sibling-beneficiaries or approval sought from the probate court.
In the last analysis while an elder may retain the absolute right do what she wants with her property. How that is legally and safely done will depend on the individual circumstances and drafting the legal documents accordingly.
Once again we see that a “trust” or a “power of attorney” is not just a piece of paper but a legal document that creates legal relationships. If they are not drafted according to a client’s individual circumstances they can cause more harm than an elder would ever have contemplated.
A Big Thanks Doug Chalgian, one of Michigan’s best elder law litigation attorneys, who commented a court case, LaForest vs. Swiss, that otherwise may have passed unnoticed. More on this thanks later.
Let me relay two stories of a daughter who has a mother in a nursing home..
First Daughter.
The court case tells us of a lady in a nursing home. She had six children. One daughter handled all of her affairs. She was Mom’s agent under a power of attorney and the trustee of her trust. Mom went into a nursing home and the daughter hired an elder law attorney to engage in Medicaid planning. She saved virtually everything Mom owned from the nursing home. There were three major asset transfers. In chronological order:
The result of this daughter’s transactions was that she ended up with ALL of Mom’s assets. She claimed that her mother wanted her to have everything. The siblings took her to court and won.
Conclusion: This is clearly the case of a greedy daughter who used her power to get the property of her vulnerable mother.
Second Daughter.
This court case involves a daughter’s mom who was in a nursing home for 11 years. In all of those years some of her children visited once. Or, perhaps twice. The dutiful daughter, who was also responsible as her agent and trustee, visited her every day of those 11 years. The daughter, hired an attorney to engage in “Medicaid planning.” The attorney concluded that Mom, his client, wanted the dutiful daughter to have her property. One could understand if Mom felt she had been abandoned by her other children. Perhaps she was angry? We don’t know. The court does not say. She had a condo, a car and cash in the bank. These were transferred to the daughter. All of the transactions were allowable under the Medicaid rules. Of course, when Mom died the other children were there looking for their inheritance that the dutiful daughter preserved.
Conclusion: This is clearly the case of greedy children who cannot be bothered to help their mother while she was in a nursing home but have no bother at all helping themselves to “their inheritance.”
There is a relationship between the two daughters. They are the same person.
The Case
The court case is the Michigan Court of Appeals decision in LaForest vs. Swiss. It is an unpublished decision that might have otherwise gone unnoticed but for Doug Chalgian’s January 9th blog post Tangled Webs. Doug’s commentary is certainly worth a read and contemplation.
I would like to offer another take on the case. I work in the realm of government benefits, e.g. Medicaid, and not litigation. I am much more likely to see a child helping a parent through the nursing home Medicaid morass than I am to see children who never visit their parent. How does a child follow a parent’s intention? How does an attorney know and effect a clint’s intentions? LaForest gives some guidance in such situations. Here are a couple of pointers:
The take away from LaForest is that the “story” is not enough. The legal procedures to effect the parent/applicant/client’s wishes must be followed lest the law will impose its own solution. I’ll be writing more about those procedures in later posts.
Moral: Do The Right Thing, The Right Way.
Jim
[responsive_vid] Do you need an attorney to help you file an application for Medicaid? Sometimes the answer is a clear “yes,” a clear “no” and “maybe.” Let’s talk briefly about these and some of the pitfalls and traps for the unwary.
A Michigan Medicaid application looks deceptively simple. It is only four pages long. The trap comes in the proof of every item that is written. The Michigan Department of Human Services does not take the applicant’s word for anything. You must prove everything. For example you will need a birth certificate for date of birth, social security card for the number, the “award letter” to state the amount of the monthly check and Medicare card to prove coverage. There is much more.
The application must disclose the applicant’s complete financial status. This includes the obvious such as bank accounts, CDs, safe deposit box contents, savings bonds, annuities and IRAs. There are what we might call “hidden assets” such as cash value of a life insurance policy or stock ownership in the company. The ownership and value of all of these must be proven and if spent then the amount received and what it was spent on must be proven by paper. One of the indicators for hiring an attorney is if you are not sure of the applicant’s financial state. This often happens when a parent is in a nursing home and the children, who are handling the application, do not know their parent’s financial affairs. It is better to have an attorney do it right the first time than risk a denial with the possibility of unpaid nursing home bills. Some nursing homes sue children who do not get Medicaid to pay the entire bill.
Failure to have paper proof for every statement is cause for application denial.
There are some times when you can be sure you don’t “need” an attorney to handle the application. For example you have have handled all a parent’s finances for years and are confident that everything is spent down. Of course, even in this case you could hire an attorney for the convenience of not having to deal with the Medicaid office.
One large area of “Yes, you need an attorney” is the realm of having a spouse at home. If the couple has more than $25,000 in savings the elder law attorney can help the at home spouse retain the savings for his or her future needs. Your attorney will save you much more than you spend plus you will have the convenience of not dealing with the Medicaid office.
Another situation of “Yes, you need an attorney” is when the applicant’s financial affairs are complicated. He or she may own many parcels of real estate, may have many accounts at banks and credit unions. The Medicaid office will require proof of how much was in each account and where the funds went. The extra real estate may need asset protection strategies to save it.
And for now, the final category of “Yes, you need an attorney” is when there is a large amount of money that will have to be spent down. An attorney can always help you save a portion of countable assets.
With the average monthly cost of a nursing home near $8,000 per month, the stakes are sky high. It is only prudent and good sense to have an experienced elder law attorney review a Medicaid application be fore filing even if there is no money to save – you don’t want to be stuck with a huge bill.
I think you can see from the above why we say we “save you money, you don’t have to deal with bureaucratic hassle when you least need it and we give you peace of mind.
Give us a call at 248-356-3500. We’re friendly and helpful <G>
Jim
[responsive_vid] Spend down is the process/method a Michigan Medicaid nursing home applicant becomes financially eligible for assistance. An applicant may have $2,000 in “countable” assets. We might say there are two categories of assets for Medicaid: Exempt or “Excluded Assets” and “Countable Assets.” There are other asset rules such as the “community spouse” allowance, rules for treatment of joint property, business assets and “unavailable assets.” These later rules deal with whether any particular asset will be countable and subject to spend down or not.
Excluded or exempt assets are not subject to spend down and include:
A residence where the applicant has lived, value limited to $536,000 unless spouse lives there then no limit;
A motor vehicle, no stated limit;
$1,500 in face value life insurance and funeral preparations;
Prepaid funeral, limited to approximately $11,700 if paid for by cash and $9,400 if paid for by life insurance;
Burial space including cemetery plots.
“Countable assets” includes any other asset that may be reduced to cash and used for spend down. This category includes:
A. Money in:
1. Cash, savings and checking accounts, credit union share and draft accounts
2. Certificates of deposit
3. U.S. Savings Bonds
4. Individual retirement accounts (IRA), Keogh plans, (401Ks, 403Bs)
5. Nursing home trust funds
6. Prepaid funeral contracts which can be canceled
7. Trusts (depending on the terms of the trust)
B. It also includes non-cash assets that could be sold. These include equity in:
8. Real estate
9. second motor vehicle, boats or recreational vehicles
10. Stocks, bonds and mutual funds
11. Land contracts or mortgages held on real estate sold
Spend down does not mean that all the money goes to the nursing home. As a broad rule of thumb, the applicant may spend on things for himself or his property. For example, he may pay for clothing and a funeral for himself . Or he may pay for repairs or improvements to his home. He may repair his car or buy a new car. All of these purchases will be reviewed by the Medicaid office and so prudence must be exercised.
An applicant may also spend down by transfer of countable assets to a spouse or disabled child.
There are many strategies that maximize savings by planned spend down such as divestment of assets combined with a Medicaid annuity.
The best plan for strategic spend down that results in the maximum of savings is to hire an experienced elder law attorney.
Got a Michigan Medicaid problem? Just give me a call and let’s get started,
Jim
[responsive_vid]
(Caution: this is a complicated are of law filled with rules and exceptions. If this is your situation see an elder law attorney about a caregiver contract.)
Can a child be paid for helping an aging parent? General Michigan law and the Michigan Medicaid program presume that a child renders all services to a parent for free. That means the services are of NO legal value, unless there is a contract between the parent and child to pay for the service.
Example: Mom has died and Dad cannot live at home anymore due to dementia, it might be Alzheimer’s. The family finds that senior living communities will only take him on an “assisted living” basis. The cost is in the neighborhood of $4,000 per month. So what if the oldest daughter offers to have dad move into her home? It often happens that a child takes care of a parent for some years before the parent must go to a nursing home. Suppose she takes good care of him for years. But then he fell and broke his He has a fall and breaks his hip. He is discharged to a nursing home. He cannot return to daughter’s home. She got to the point where she can no longer take care of him 24 hours a day. They are distressed to see that she took so much better care of him than they do in the nursing home. After the Medicare skilled days are over they are shocked to learn the nursing home will charge $8,000 per month. Dad will rapidly run out of money. The family asks: “Can Dad now pay daughter for those years of excellent care?”
The surprising answer is “No.”
Unless Dad agreed to pay for daughter’s service under a contract the law will presume all service was rendered for free. If the family now tries to take payment out of his savings they could be charged with elder abuse and when they apply to Medicaid to pay the nursing home, Medicaid will be denied due to the “divestment” of money.
Under general Michigan law the presumption of gratuitous service may be rebutted by proof of an agreement to pay. If it is not in writing it can be oral but proof of that may be difficult with a key party in a nursing home with advanced dementia. Michigan Medicaid requires additional steps including a doctor’s finding that the services are necessary to keep him out of a nursing home. The program also has other requirements and limitations that are discussed separately.
Under general Michigan law there is a limited exception to the rule of “no contract, no pay” and that is the theory of “quantum meruit.” Where the proof can be made that a person received a product or service that was of significant commercial value and where the receipt implied, but did not prove, an understanding that there should be payment then the law will make the party pay the fair commercial value for the product or service. In Michigan “quantum meruit” has been applied to family situations. A lawyer is needed to prosecute a claim under this theory. However, the Michigan Medicaid program does not recognize “quantum meruit” as a valid reason for payment and if such claim were to be made it would likely be resolved in court on an appeal of a denial of Medicaid.
In a second video I explain what Michigan Medicaid requires of contracts for family care.
Got a question, give us a call! 248-356-3500,
Jim