Hawaii Estate Planning Blog

Update # 2 on Queens v. Koga

The Honolulu Star-Advertiser has featured several stories about Karen Okada, a 95-year-old woman who signed a “Death with Dignity Declaration” and a “Durable Power of Attorney for Health Care Instructions” back in 1998.  Both documents purport to control “in all circumstances.” 

In mid-2012, shortly after Karen was admitted to The Queen’s Medical Center for treatment for pneumonia, the doctors at Queen’s determined that Karen was essentially brain dead, or, in any event, had “permanently” lost the ability to participate in medical treatment decisions.  Accordingly, Queen’s wanted to enforce the provisions of her Death with Dignity Declaration and withdraw the feeding tube that had been surgically placed in Karen’s side more than six months before she was admitted to Queen’s.

On the other hand, Karen’s health-care agent (her brother), in consultation with doctors who are not associated with Queen’s, disagreed with the conclusions reached by the Queen’s physicians.  What Karen’s agent knew, and the Queen’s physicians did not find relevant, was that shortly before she came down with pneumonia, Karen was conscious and able to interact meaningfully with her family and caregivers.  During the time she was at Queen’s, Karen was unresponsive when doctors examined her, but she reportedly smiled at least twice at her adult grandchildren and nodded to her grandson when he asked her whether she was able to breathe freely. 

Although Karen breathes on her own, she has to do so through a tube that was inserted into her windpipe.  At some point in time, her family hopes the tube can be removed, which will enable Karen to eat normally.  In the meantime, Karen has to be fed through a tube that goes through her side and into her stomach.

Because Queen’s policy is to give precedence to an advance health-care directive over a durable power of attorney in all events, and because Queen’s believed that the terms of the directive required removal of Karen’s feeding tube, Queen’s sued Karen’s brother in order to get a court to order that Karen’s feeding tube be removed.

Delays in the court process ultimately caused Queen’s to relent and to allow Karen to be placed in another facility with her feeding tube intact.  As subsequently reported in the Star-Advertiser, Karen’s condition has improved to the point where she can once again interact meaningfully with her family members and caregivers.

In the meantime, Karen and her family experienced a drama that no one would want to repeat.  So what are some steps that you can take to spare yourself and your family from being the characters in a similar story?

If you do not have an advance health-care directive in place, get one.  Make sure your loved ones—including your children over the age of 18—have advance health-care directives too.

Learn all you can about the options that can be written into your advance health-care directive.  These are not “one size fits all” documents.  Your wishes may differ greatly from those of your friends and family members, and the document you sign should express your particular desires.

If you have an advance health-care directive that is more than 5 years old, there is a good chance that it will not accomplish what you think it will.  Review it right away with your legal counsel.  Make any appropriate changes and updates.

If you want to give a trusted family member or friend the power to make health-care decisions for you, make sure the power of attorney meshes well with any other instructions you may want to provide.

Be sure to give your health-care providers your permission to give your medical information to your family members or other trusted decision makers.  Federal and State privacy laws can restrict your doctor from talking with your health-care agent unless you specifically grant that permission.

Review your advance health-care directive periodically—at least once per year—to make sure it accurately states your current wishes.

Make sure you have a mechanism in place for giving you access to your advance health-care directive.  You never know when or where an emergency might occur.  Not all health problems happen in the home, and if you have a crisis situation while you are travelling, you will need a way to make your health-care documents accessible to your caregivers.

Talk with your family about your wishes BEFORE a crisis arises.  Make sure everybody is on the same page.  If your chosen decision makers indicate hesitation about carrying out your wishes, think about naming someone else who will.  Your assurance to your loved ones of how seriously you intend your instructions to be taken will give them the courage to carry them out.

Knowledge is power.  The more you know about advance health-care directives, and the sooner you act on that knowledge, the more likely it will be that your wishes will be carried out in the future.

Asset Protection Planning Pitfalls

In the real world, asset protection planning is not a game of silver bullets or invincible armor. However, this doesn’t prevent asset protection hucksters from marketing their "services" that way, and it doesn't prevent an unsophisticated public from buying into it.

A tale of gullibility, faked complexity, and predictable endings can be found in a recent Forbes article titled “Bill 'Bulletproof A$$et Protection' Reed's Complex Plan Pierced By Nominee And Alter Ego Theories.”  The case of U.S. v. Cohen, C.D.Ill. Case No. 08-3282 (Mar. 8, 2013), chronicles an asset protection plan that blew up in the faces of its intended beneficiaries.  Just the name used to market the scheme, “Bulletproof A$$et Protection,” should give pause to the prudent.

Asset protection is all about understanding the legal nature of your assets and the potential risks that may threaten your future use and enjoyment of those assets.  State and federal laws offer varying degrees of protection, as do time-tested legal strategies.  Understanding the applicable rules and the relative advantages and limitations of different strategies is critical.  Asset protection planning involves art as well as science, but it’s not magic.

Is it wrong to plan for Medicaid qualification?

Our law allows qualified individuals to seek governmental assistance in paying for long-term care, and it provides opportunities for individuals to plan ahead and take appropriate steps to meet those qualifications.  Some people are understandably squeamish when it comes to planning for possible qualification for what is often regarded as a “welfare” benefit.  In fact, there was a time when the Medicaid laws prohibited people from planning for Medicaid qualification (the so-called “Granny Goes to Jail” law).  The Medicaid laws also prohibited people from advising others about how to qualify for Medicaid (the so-called “Granny’s Lawyer Goes to Jail” law).  It turns out that nobody went to jail under these laws. 

The U.S. Attorney General declined to prosecute forward-thinking Grannies, and the Federal courts moved quickly to determine that banning lawyers from advising their clients about Medicaid qualification violates the First Amendment to the U.S. Constitution, which guarantees freedom of speech.  These decisions make a great deal of sense, especially in light of how we, as taxpayers and citizens, interact with our government in other contexts. 

For example, everyone knows that it is immoral and illegal to cheat on your income taxes.  But does that mean that any of us has an obligation to pay more taxes than the law requires?  Of course not.  The Internal Revenue Code allows us to take various kinds of deductions when we file our annual income tax returns.  As long as we deduct no more than the law allows, we are engaging in the noble practice of tax avoidance.  However, if someone knowingly takes a tax deduction in an amount or of a kind that the person is not entitled to take, the terminology changes to tax evasion.  For tax avoidance, a person is praised, for tax evasion, a person can be imprisoned. 

In the 1916 U.S. Supreme Court case of Bullen v. Wisconsin, reported at 240 U.S. 625, Justice Oliver Wendell Holmes wrote that “when the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits.  When an act is condemned as an evasion, what is meant is that it is on the wrong side of the line.”  Taking economic advantage of what our law allows—staying on the “safe” side of the line—is both legal and moral. 

Justice Louis Brandeis, whose tenure on the U.S. Supreme Court overlapped that of Justice Holmes, famously stated this same principle another way:

I live in Alexandria, Virginia.  Near the Supreme Court chambers is a toll bridge across the Potomac.  When in a rush, I pay the dollar toll and get home early.  However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge.  If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion.  If, however, I drive the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical and suitable method of tax avoidance.  For my tax evasion, I should be punished.  For my tax avoidance, I should be commended.  The tragedy of life today is that so few people know that the free bridge even exists.

Knowing the alternatives that are available to you is the essence of wise planning.  You cannot make a choice that you do not know you have.

The rules that govern Medicaid qualification are fairly clear-cut, but they allow for planning opportunities that are not all that obvious.  For some of us, learning about what those opportunities are can make the difference between leaving a modest inheritance to your children and leaving them with nothing.  As long as you follow the Medicaid rules, you can ethically, morally, and legally make a significant difference in your children’s financial future by leaving them what the law allows.  So if paying for long-term care is an issue for your family, learn all you can about Medicaid qualification so you can plan your and family’s financial future wisely.

Don’t Delay Discussing Your End-Of-Life Wishes

You may have heard the rather unfortunate story of Lorraine Bayless and the Glenwood Gardens nursing home.

Spoiler alert: Lorraine fell into cardiac arrest and the facility declined to administer CPR, despite the pleading 911 operator.  Why?  “Company policy.”

This matter has been taken up by Forbes in two recent articles, by two different authors. The first, by Howard Gleckman, is titled “The CPR Death At Glenwood Gardens: What Really Happened And Five Lessons You Should Learn.” The second Forbes article is penned by Carolyn Rosenblatt and is titled “Nurse Refuses To Give CPR, Senior Dies: Ethical Problem Or Legal Issue?”

Here are four key facts.  First, Lorraine was having a stroke and CPR was not likely to help her.  Second, the “nursing facility” was actually an independent living facility without skilled nurses.  Third, Lorraine herself had not wanted a long drawn out passing; and fourth, Lorraine and her family already had arranged for a Do Not Resuscitate (DNR) order.

Against this backdrop, each of us needs to know two fundamental wishes when it comes to our loved ones:

1)      What does your loved one want and need in a facility? Since the facility in question was not an actual nursing home and the “nurse” was not actually a skilled nurse, the staff was not allowed to perform CPR, both by “company policy” and by law. There are many types of facilities that offer varying degrees of medical or personal care. Someone placed in the “wrong” facility may mean not have his or her wishes concerning end-of-life care honored.

2)      Likewise, what does your loved one want (or not want) when it comes to end-of-life measures? What decisions has your loved one made regarding emergency care, resuscitation, or life-sustaining apparatuses (such as ventilators)?  Lorraine purposefully had a DNR order on file, had made her decisions regarding end-of-life measures, and her family clearly knew her wishes. Nevertheless, there are many additional considerations when it comes to making and communicating your wishes.

As you might imagine, it’s best for your loved ones to commit their wishes and decisions to writing.  The most common form is known by many different names, but is simply a written record of their healthcare directives made in advance.  As with financial matters, your loved ones also will want to sign durable powers of attorney for medical matters and appoint the “agents” they know and trust to carry out their wishes.  The power of attorney for health care and directive for end-of-life care can be wrapped up in one document. 

Another document to consider for someone who is unlikely to recover from attempted resuscitation is the Physician’s Order for Life Sustaining Treatment (POLST), sometimes called Medical Orders for Life Sustaining Treatment (MOLST).  In this document, a person can set out just how far he or she wants paramedics to go in resuscitation efforts.  A person may wish for all efforts to be made to keep him or her alive, or the person may simply want to be kept as comfortable as possible with no attempt at resuscitation.  The point is to spell out your wishes in writing.

Regardless, the object of these kinds of documents is to empower your loved ones to inform their loved ones, doctors, and medical facilities about their wishes now so those wishes can (and will) be carried out later.  As these end-of-life wishes can generate heightened emotions, it is best if everyone concerned is informed rather than surprised.

End-of-life planning isn’t just for "old folks."  Any one who has attained the age of majority should consider his or her end-of-life wishes.  The famous cases that have defined this area (Quinlan, Cruzan, Schiavo) involved young women.  Don't let your kids go off to college or deployment or a European vacation without signing an advance health-care directive.  Have you made your wishes known through proper documentation?  The best way to encourage personal responsibility in others is to lead by example.

What is a Generation-Skipping Trust?

If you want to scare the you-know-what out of your grownup kids, casually let them know that you are talking with your lawyer about leaving your assets to your descendants in "generation-skipping trusts."  The name implies that somebody is going to be skipped when it comes time to distribute your stuff after you are gone, but "somebody" may only be the IRS, along with your descendants' creditors and ex-spouses.

Of course, if you want to, you can snub your kids and leave everything to their kids, but that is not usually how a generation-skipping trust ("GST") works.  More typically, the GST agreement will name your children as beneficiaries, but not include a requirement that everything be distributed to your children.  For tax and asset protection purposes, it can make a great deal of sense to have your trust agreement give your successor trustee the discretion to make (or not make) distributions to your children and their descendants, and have the trust last as long as the law of your State (or the State in which the trust is created) will allow.  As long as the trustee is not a beneficiary or close relative or employee of a beneficiary, your descendants' creditors and ex-spouses will generally not be able to get their hands on any trust assets.

If you like, you can split your estate into as many GSTs as you have children, and then give each of your children the power to remove and replace the trustee of his or her GST.  That way, each child controls his/her trust during his/her lifetime.  You can also give each child the power (called a "power of appointment") to say where any remaining trust assets go after the child's death.  The default in the trust agreement might be that the assets continue in a trust or several trusts for the child's children, but the power of appointment could give each child the power to change the percentages going to the grandkids and even add stipulations to how and under what circumstances distributions will be made to the grandkids.

If you do all of the above in the right way, you can be pretty sure that the IRS will not get its estate tax hooks into your assets for a very long time after you are gone.  As long as the trust produces income, there will probably be income tax to pay, but payment of estate tax can be entirely avoided.

One of the best estate planning rules is that you can, within certain limits, write your own rules when it comes to your estate plan.  Talk with your trusted advisors about the kind of rule book that will best carry out your wishes for your estate.

Lifelong Careers – When Do You Retire?

Many were surprised at the recent announcement by Pope Benedict XVI to step down from his post. This decision is sure to go down in history, and it triggers an important question in those with lifelong careers – when is the right time to retire?

While you may not have the same problems or responsibilities as the Pope, have you reflected on your own future and when may be time to step down? This especially is true if you have no mandatory retirement age for your position.

A recent Marketwatch article titled “Retirement lessons from Pope Benedict” explored this timely issue. Whether you are the Pope, a business owner, or a CEO, there is always the question of succession. This is true in your personal life as well.  It is important to have a line of succession spelled out in the event that you become unable to make or enunciate decisions regarding your assets or your health care.

Whether you are responsible for millions or just a few, the take-a-way is the same - always be prepared.  You and those you care about will benefit from your taking the time to focus on the "what ifs" and put appropriate measures in place.

Adventures in Do-It-Yourself Estate Planning

If you want to, you can go it alone.  Or almost alone.  You can devise your own estate plan without the benefit of lawyers or other trained advisors.  All you need is a credit card, a computer, a printer, and access to the Internet, and you can come up with a set of documents that may or may not accomplish what you think they will accomplish.  The problem is that you will never know.  The ultimate success or the failure of an estate plan is rarely revealed during the lifetime of the planmaker.  (No, planmaker is not a real word, but you know what I mean.) 

You have seen the commercials.  You have heard the radio ads.  But before you go to a website to have your estate plan constructed by a computer program, be sure to ask yourself this:  Do you really believe that a brilliant lawyer or a highly-paid radio personality who hawks these kinds of programs would trust a website to come up with an estate plan for himself and his family?  If it’s not good enough for them, why would it be good enough for you?   You may not have as large an estate as Mr. Fancyshmancylawyer or Mr. Radiobucks, but everything you own is everything you own, and it probably makes a difference to you whether it goes where you want it to go after you are gone.  It probably also makes a difference to you who will make medical treatment decisions on your behalf if there is ever a time when you can’t make them yourself.  Do you want your hand-picked decisionmaker talking with your doctor as you lay there unable to speak, or are you willing to leave it to chance as to who steps up to the plate?

You may be thinking, “You’re a lawyer who makes his living putting together estate plans for clients.  Of course you don’t like those legal websites.  They cut into your bottom line.”  Well, not really.  A large portion of my practice involves fixing estate plans prepared by other lawyers.  A growing portion of my practice involves fixing estate plans prepared over the Internet.  The problem with computer-driven estate plans is that in the real world, more often than not, they don’t work.  An effective estate plan involves far more than a set of documents, even very well drawn documents that would stand up in any court in the land.  For one thing, wouldn’t it be better to have an estate plan that will help you and your family stay out of court altogether?  Going to court is not the end of the world, but it can be a royal pain.  I would sincerely prefer that you get your plan right the first time, and that you make sure that it continues to work according to your wishes in light of changes in your health, your stuff, the law, and the list of people you like and trust.  I’d much rather make my living by helping to create estate plans that work, than by helping families in crisis make the best of plans that missed the mark.

Bottom line:  There is a lot of really good information on the Internet.  There is also a lot of misinformation.  Do you have the training and background to tell one from the other when it comes to putting your estate plan in order?  If so, knock yourself out, Professor.  If not, there is something to be said for working with a live professional instead of an impersonal website that cares more about your credit card authorization than about what happens to you and your stuff if you become incapacitated or die.

Tax Breaks Available for Supporting Elderly Parents

It’s that time again – Uncle Sam is knocking on your door and ready to collect taxes. If you have been caring for an elderly parent, you may find that Uncle Sam can actually help with some of those care costs through favorable tax treatment. Depending upon your circumstances, you may be able to claim your parent as a dependent, take a dependency care tax credit, deduct a portion of their medical expenses, or get some combination of these tax breaks.

Forbes offers guidance on whether you might qualify in a recent article “How To Claim Tax Breaks For Supporting Your Parents." If you think you may qualify, consult your accountant or tax professional to maximize your tax savings.

Sadly, caregiving frequently also means managing end-of-life care . . . and the attendant expenses. While it may be difficult to focus on financial matters during these stressful times, tax breaks can help extend available resources. Of course, the first step is to determine which expenses qualify and to what extent. Expenses that frequently apply to people with advanced illness include health insurance premiums not paid through work, deductibles, co-pays, medication, alternative care, medical supplies such as bandages, dental care, Medicare B premiums, lodging while traveling for care, and transportation costs. The IRS has a very detailed list of what is and isn’t deductible in Publication 502. You can refer to this publication for details, as well as to another excellent Forbes article, “Save Money On Taxes At The End Of Life -- How And Why It Matters.”

Taxes can be tricky, so make sure you ask your accountant for tax assistance if you think you may have qualifying expenses. The tax savings will be well worth your time.

WHERE NOT TO DIE IN 2013

Now that 2013 is underway, there are finally some solid numbers from which to base your tax planning – at least from a federal tax standpoint. But what about those state taxes? If you reside in one of 22 jurisdictions that assess an independent inheritance or estate tax, it’s time to start paying attention to your state’s tax changes.

Forbes recently provided some helpful information in an article bluntly titled “Where Not To Die in 2013.”

There always are myriad state level taxes to consider. However, here’s the rub: several states may tax one estate.  For example, the family of the Seattle resident who spent summers in his Waikiki condo could have to face estate tax liability in both Washington and Hawaii, in addition to Federal level taxes. Twenty-two jurisdictions (including the District of Columbia) exact some form of taxation. The tax laws of many of those jurisdictions were not written with the current federal taxation limits in mind, because those have only been on the books since the beginning of the year.

The good news is that Hawaii tries to match the Federal Coupon amount (i.e., the amount that can be passed free of estate tax), and that amount is currently $5.25 million.  This means that estates of no more than $5.25 million ($10.5 million for couples who plan carefully to use both of their Coupons) can pass estate tax-free.  The bad news is that the Hawaii estate tax on the excess over $5.25 million is 16%--which is imposed on top of the 40% Federal estate tax.  Federal law does allow a deduction for State estate taxes paid (within limits), and this brings the overall tax bite down to about 50%.

So what states are the worst for 2013? It’s worth clicking over to the original article and map on Forbes.

Reference: Forbes (January 28, 2013) “Where Not To Die in 2013”

Trust Basics

A trust is the legal relationship that is created when a person transfers “stuff” to a trustee with the understanding that the trustee will manage it for the benefit of one or more beneficiaries.  We use the term “stuff” to mean any kind of property you can own.  It includes both real property—such as land and buildings—and personal property—such as bank accounts, stocks and bonds, and personal effects.  The person who transfers the stuff to the trustee is called a trustmaker.  This person is also known as a settlor, grantor, or trustor.  Usually, the trustmaker is also the trustee (or perhaps co-trustee) and the initial beneficiary of the trust.  It is not uncommon for husbands and wives to create two separate trusts and to be the co-trustees of both of their trusts during their joint lifetimes, and then, after the death of one spouse, to have the survivor serve either as sole trustee or co-trustee with one or more other individuals or a trust company.

A trust is controlled by a document called the trust agreement (sometimes called the trust instrument).  The trust agreement sets out the rules about how the trust will be run.  We often refer to a client’s set of estate planning documents as their “rule book,” and the trust agreement is the part of the rule book that controls the trust.

If the trust agreement says that the trustmaker can revoke it or change it, the trust is what we call a revocable trust.  If the trust agreement does not allow the trustmaker to change or revoke it, we have what is called an irrevocable trust.  Irrevocable trusts are used in many estate plans.  They allow trustmakers to make gifts but keep the recipients from having complete control over the gifted assets.  Irrevocable trusts play an important part in many estate plans.  They can help provide tax savings, creditor protection, and expert management of assets.

A living trust is one that you create and fund (transfer stuff into) during your lifetime.  It can be revocable or irrevocable, depending on how much control you want to maintain over the trust and its assets.  A revocable trust gives you complete control, whereas an irrevocable trust gives you limited or no control.  A testamentary trust is one that goes into effect and is funded following your death because it is governed by your last will and testament.

You remain in control of your trust assets as long as your trust is revocable.  The trustee is bound by the trust agreement.  You have final say over what the trust agreement says, and failure to abide by the trust agreement can make the trustee personally liable to the beneficiaries, including yourself.  This means that if the trustee messes up, that person may have to pay for the mess out of his or her own pocket.  Most often, the trustmaker of a revocable living trust is the initial trustee.  In that situation, the trustmaker does not have to worry about anyone questioning his or her management of the trust.  In fact, potential beneficiaries have a vested interest in not doing anything that might cause the trustmaker to revoke the trust or change the trust agreement in order to exclude a troublemaker.  This is a simple demonstration of the “golden rule” of estate planning:

The One who hath the Gold maketh the Rules

 

If your kids are good kids, they won’t stick their noses into what you do with your trust.  If they are bad kids, hopefully they are smart kids and will at least act like good kids as long as you’re alive because they won’t want to be disinherited.  If you do not have any children—or don’t have any that you like—don’t assume that revocable living trusts are not a good idea for you.  There are many good reasons for creating trusts, and some of them may apply to your situation.  One reason that many people create revocable living trusts is so that their stuff will not go through probate after they are gone, or through conservatorship if they become incapacitated.

Once assets are transferred to the trustee, the trustmaker no longer holds legal title to them—even if the trustmaker and the trustee are the same person.  Thus, if the trustmaker dies or becomes incapacitated, the trust continues, and the successor trustee (who is named in the trust agreement) takes over administering the trust. 

Trusts are often the building blocks of effective estate plans.  They provide simplicity, flexibility, and predictability in dealing with your assets.  The also give you the peace of mind of knowing that you have arranged your affairs to ensure that your wishes will be carried out, and that future transitions (such as your incapacity or death) will be much easier on your loved ones

Fiscal Cliff Deal’s Effect on Long-Term Care

Congress has averted the “fiscal cliff” for now, but there was one law that fell over the cliff anyway. The Community Living Assistance Services and Supports (CLASS) Act, which was intended to deal with the issue of long-term care for seniors, has been repealed. What did politicians do to address this issue? Not surprisingly, a “commission” was formed.

The CLASS Act and the new commission formed to study the delivery (and financing) of long-term care was the subject of a recent Forbes article titled “Fiscal Cliff Deal Repeals CLASS Act, Creates Long-Term Care Commission.” As summarized in the title of this Forbes article, The American Taxpayer Relief Act or ATRA – does two things in the field of long-term care: first, it officially ends the CLASS Act, and second, it forms a new bipartisan commission to “tackle” the matter.

Is it a good trade-off? For starters, the CLASS Act had already been abandoned by the administration and Congress alike. On the other hand, this new commission might not find an alternative new solution. As the Forbes article notes, the commission is a “political commission” rather than a panel of subject matter experts. The commission has been given a window of six months to conduct its business.

The crisis of long-term care in America is still an important issue, and it’s hard to tell what the future holds for this matter. Now is the time for individuals to take responsibility for their long-term care.  We suggest that you consult your trusted advisors to examine your options.