Amy Winehouse will sets an example

Amy Winehouse, the British soul singer who died recently and tragically at age 27, demonstrated the importance of preparing a will.

Under British law, her estate would have passed to her ex-husband, Blake Fielder-Civil, in the absence of a post-divorce will, according to Forbes. Fielder-Civil, who reportedly introduced Winehouse to hard drugs, is currently serving a 32-month sentence for burglary and possession of an imitation firearm.

Instead, Winehouse’s estate (estimated to be at least $16 million) will pass to her father, mother, and brother, reports.

Her father has announced plans to establish a foundation in Winehouse’s name to assist those struggling with addiction.

Winehouse’s will shows the truth of an old estate planning adage: if you don’t like the law’s default estate plan, prepare your own.

Family caregiving in U.S. valued at $450 billion in one year

Family members who provided care to another adult with functional limitations contributed an economic value of approximately $450 billion in 2009, according to a recent report.

The report, issued by the AARP Public Policy Institute, says that family caregivers incur direct out-of-pocket expenses, as well as lost wages and retirement income, lost productivity, higher health care costs, and more stress on their physical and emotional health.

At $450 billion, up from $375 billion in 2007, the economic value of family caregiving is therefore “more than total Medicaid spending in 2009, including both federal and state contributions for both health care and long-term supports and services ($361 billion),” the report says.

The full report, Valuing the Invaluable: 2011 Update; The Growing Contributions and Costs of Family Caregiving is available here.

New ruling clarifies law on Medicaid liens

Appeals court judges earn their pay interpreting the meaning of laws that seemingly conflict.

Consider, for example, a recent case about Medicaid liens. (Tristani v. Richman, Nos. 09-3537, 09-3538, rendered by the United States Court of Appeals for the Third Circuit, June 29, 2011.)

Pennsylvania had asserted liens on proceeds from lawsuit settlements that several Medicaid recipients had received. The state said it was entitled to the liens because the proceeds were compensation for medical expenses, which Pennsylvania had paid for the recipients through Medicaid benefits.

The recipients objected, saying there were two problems with a lien to recover Medicaid benefits. First, federal law prohibits liens on the property of Medicaid recipients. Second, another federal law bars the state from recovering Medicaid benefits from recipients. How can Pennsylvania have a lien to recover its Medicaid benefits if there’s a law against liens and another against recovering benefits from Medicaid recipients?

Pennsylvania, on the other hand, pointed to two other statutes – one requiring the state to recover medical expenses paid by third parties, and another saying that Medicaid recipients must assign their rights to recovery of medical expenses to the state. We have to go after these proceeds, the state said, and these recipients were required to assign us their recovery rights.

How can you reconcile these laws that seem to mandate recovery of medical expenses while simultaneously barring recovery?

Making these decisions is what courts are for.

Here’s the short answer: the state can assert a lien against the Medicaid recipients’ settlement proceeds, as long as the recipients have a chance to contest the amount of the lien.

To see how the court arrived at this decision, let’s look more closely at the statutes:

Assignment provision

Under federal Medicaid law, states must require recipients of benefits “to assign [to] the State any rights … to support … and to payment for medical care [the recipient has] from any third part.” 42 U.S.C. § 1396k(a)(1)(A). This is called the assignment provision.

Reimbursement provision

States must also “ascertain the legal liability of third parties … to pay for care and services” for Medicaid recipients and “in any case where such a legal liability is found to exist after [Medicaid benefits have been paid, to] seek reimbursement … to the extent of such legal liability.” 42 U.S.C. § 1396a(a)(25)(A)-(B). This is called the reimbursement provision.

Anti-lien provision

No lien may be imposed against the property of nay individual prior to his death on account of [Medicaid benefits] paid or to be paid on his behalf … except –

(A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or

(B) in the case of the real property of an individual – [who is in a nursing home and required by law to spend his own income on those expenses, and who cannot reasonably be expected to return home].

42 U.S.C. § 1396p(a)(1). This is called the anti-lien provision.

Anti-recovery provision

Federal law also provides that “[n]o adjustment or recovery of any [Medicaid benefits] correctly pai9d on behalf of an individual … may be made, except [in limited circumstances not at issue in this case].” 42 U.S.C. § 1396p(b)(1). This is called the anti-recovery provision.

Resolving the conflict

When statutes conflict, courts try to read the statutes together and try to give each its fullest possible meaning.

In this case, the trial court where the case was originally brought had ruled that the state could recoup its medical costs paid by third parties. However, because of the anti-lien and anti-recovery provisions, the state could not collect from the property of Medicaid recipients (and the trial court considered lawsuit proceeds to be the recipients’ “property”). Instead, the court held that the state had to recoup its Medicaid dollars by its own action – either filing suit directly against third parties or “intervening” (becoming an additional party) in lawsuits filed by Medicaid recipients.

The appeals court agreed that Pennsylvania could recoup its medical costs from lawsuit recoveries. “[T]he only way to harmonize the conflicting language of the anti-lien and anti-recovery provisions with the later-enacted reimbursement and forced assignment provisions is to conclude that the anti-lien and anti-recovery provisions do not apply to medical costs recoverable from third parties,” the court ruled.

But the appeals court disagreed that the state had to intervene in lawsuits to recover those costs. It noted that over 30 states use liens to recoup these costs and that Congress has “chosen not to prohibit this widespread and pervasive practice.” As a result, Pennsylvania can  recoup such costs simply by imposing a lien, the court said.

Lien amount

Then there is the question of how much the state is due. A lawsuit may seek recovery for medical costs, pain and suffering, lost wages, and other damages. The state’s lien is limited by law to medical costs only. But a settlement is typically a lump sum, with no allocation made between the types of damages. So how much goes to the state?

Pennsylvania’s answer was to adopt the rule that it is entitled to one-half of the lawsuit proceeds (after expenses) or the state’s actual expenditures of medical costs on behalf of the recipient, whichever is less. A dissatisfied litigant has appeal rights. “If a court does not adjudicate the amount of the [state’s] claim against a settlement, the Bureau of Hearings and Appeals has jurisdiction to hear and determine an appeal by a beneficiary contesting the amount of the claim.” 55 Pa. Code § 259.2(d).

The appeals court found Pennsylvania’s apportionment scheme to be valid.


How would this ruling apply in a typical case?

Suppose you’re a Pennsylvania resident who was injured in an automobile accident, which resulted in medical costs that the state paid through Medicaid benefits. You receive a settlement of $100,000 (after attorney fees and other litigation costs).

Under this new ruling, Pennsylvania can impose a lien to recoup it actual medical costs paid on your behalf, but this lien cannot exceed $50,000. There is no requirement that the state intervene in your case against the negligent driver or file its own lawsuit. If you disagree with the amount of the lien, you can appeal (as long as a court did not apportion the amount of the settlement attributable to medical costs).

Who should you name as your trustee?

Trusts are increasingly common – even in middle class estate planning – for their effectiveness in avoiding probate, protecting assets, helping minor children, and serving the disabled.

If you’re not the trustee of your own trust, who should you name? Even if you are the initial trustee, who should you name to succeed you if you become incapacitated?

These questions are important but the answers are not always easy.

A family member often serves as trustee for a number of reasons. First, there is often a trusted family member, such as an adult child, who already helps out with financial matters. Using that person fit naturally into the current family scheme. Second, the client usually has a high degree of trust in a close family member. Their goals may be very similar, and a family member often knows a great deal about the intentions of the person who created the trust. Third, the family member may perform as trustee for little or no compensation.

It is important to note that the trustee has important responsibilities and fiduciary duties. Reliability and trustworthiness are therefore crucial. Many family members are honest and trustworthy enough to perform this task, but keep an eye out for indications of family disharmony, addiction problems, and mismanagement in other areas of life.

Naming co-trustees can address concerns about the ability of any one trustee to serve competently and responsibly. I have found that clients often wish to name co-trustees for other reasons, such as not wanting to single out any individual child. Whenever a trust names co-trustees, it should specify whether each co-trustee may act independently, without the signature or consent of the other co-trustee, or not. Having non-independent co-trustees can help ensure responsible action, but clients must balance that goal against the burdensomeness of always obtaining two signatures to take any action.

A corporate trustee can often be a good choice. While generally more expensive, a corporate trustee can bring professionalism and expertise that are well worth the cost. Trust officers have experience making distributions, filing tax returns, and keeping accurate accounts of their activities. A corporate trustee also offers longevity – the bank or trust company will likely be around in 25 years and able to serve, while a family member may not.

Many of these trusts will remain in place for 5, 10, 20 years or more. Spend some time at the beginning making a good choice about who can serve effectively during that time.

Medicaid estate recovery: don’t lose assets on the “Back 9”

Golfers know the heartbreak of building an impressive score on the first nine holes, only to see it slip away into disaster the “Back 9.”

Something similar can happen in Medicaid planning. People sometimes do well protecting assets during their lifetimes, only to lose them after death.

With Medicaid, one of the major lurking water hazards is Pennsylvania’s estate recovery program.

You may know that for Medicaid purposes, some assets are non-countable or exempt, meaning you don’t need to sell them or spend them down to qualify for benefits. There’s a catch, though – they’re only exempt while you’re alive.

You may have a house, car, furniture, bank account, and insurance policy that were untouchable during your lifetime, but they’re all up for grabs after you’re gone if you have received Medicaid benefits after age 55.

Pennsylvania’s Medicaid program keeps track of every dollar paid for your care, and the Commonwealth’s estate recovery program makes a claim on your estate in that amount. Your estate cannot pass to anyone else until the estate recovery claim is paid.

That’s why it’s important to take steps with titling and beneficiary designations to make sure you don’t inadvertently give away your assets to the state.

Take your life insurance policy, for example. Let’s say you have a policy through your retirement program that pays a death benefit of $50,000. If it’s a group term policy, like most retirement policies, it won’t count when you apply for Medicaid benefits. But if you made your estate the beneficiary, or the proceeds go to your estate because the beneficiary you named has died, your $50,000 payoff will go first to the estate recovery program. Your relatives will get what (if anything) is left over.

If you were careful to name a living beneficiary, and preferably some alternates in case your first choice dies, your proceeds could pass to a loved one, with no obligation to pay any estate recovery claim.

Our attorneys can help you craft a good plan to keep you from losing assets on the “Back 9” of your life.