HB 221 overwhelmingly passed both houses under the Golden Dome this 2017-2018 session. The bill was heavily promoted by the State Bar of Georgia via its Fiduciary Section, which also worked as a wordsmith of sorts on the bill. This legislation seeks to modernize Georgia’s power of attorney statute by outlining the duty, liability and authority for agents, co-agents and successor agents. The bill also provides for the applicability, meaning, effect and termination of a power of attorney. To be titled as OCGA §10-6B-1:81 upon signing by the Governor, the new legislation also contains a statutory form. The new law will also amend OCGA §10-6-7 and OCGA §16-8-10 concerning affirmative defenses to criminal charges related to misuse of power over another’s property. If the Governor signs it, the law will become effective by its terms on July 1, 2017. You can review the legislation for yourself here.
Since LBJ signed into law health insurance for elderly people in July, 1965, Medicaid has grown from an oversite, thought to care only for the poor, to the providence of some 74 million Americans–1 in 5–covering their needs from the womb to the grave. Thus, Medicaid is now central to the nation’s healthcare system.
Moderate Republicans were unwilling to gamble with deep cuts in Medicaid and therefore helped doom the GOP’s drive to “Repeal & Replace” the Affordable Care Act (“ACA”) aka “Obamacare.” Representative Frank LoBiondo (R-NJ), a centrist, noted that almost 1 in 3 of all his constituents were covered by Medicaid. Likewise, Senate Republicans and Republican state governors expressed worry about jeopardizing care for the working poor, children and people with disabilities, and reducing funding for the care of elderly people in nursing homes.
Last week’s doomed GOP bill that would largely have undone the ACA would have ended the open-ended federal funding of the largest share of states’ Medicaid costs and replaced the same with block grants. Block grants were not precisely stipulated, thus the concern that some states would be treated differently or more unfairly than others (see Georgia’s Nathan Deal’s expressed concerns). Moreover, the unanswered question of what states would do if their block grant money ran out in say, month 9 of a 12-month period–simply tell recipients that their care wouldn’t be covered for the last 3 months? Block grants or a fixed-annual sum per recipient were the two options available and either would have clearly led to major cuts in coverage over time.
Nevertheless, many GOP governors and members of Congress intend to continue efforts to curtail Medicaid due to budgetary concerns. In 2015, the total cost of Medicaid nationally was more than $532 billion. The federal government funded about 2/3 (63%) of that and the states picked up the remainder. But, last week’s defeat of the GOP’s AHCA shows how difficult it is to take away an entitlement. This reality prompted Vermont’s Bernie Sanders to again promise to introduce a single-payer act in Congress. Indeed, California is actively considering a single-payer system for its healthcare needs. States often have different names for the program, but whether you know it as Medi-Cal, MassHealth,or TennCare in Tennessee, it’s just Medicaid by another name. And the percentage of people who support cutting Medicaid spending has never exceeded 13%. Even Donald J. Trump recognized Medicaid’s political potency during his campaign, when he declared that Medicaid should be saved “without cuts” and repeatedly Tweeted support for Medicaid, stating as “wrong” Republicans who wanted to cut Social Security and Medicaid.
Medicaid pays for nursing home care and other long-term care for more than 6 million Americans older than 64 years. But the Republican bill, the AHCA, would have only allowed Medicaid payments to grow per recipient at an inflation rate less than the true inflation rate of health care costs. Thus, the AHCA would have eroded benefits over time. Beneficiaries would have had to re-enroll every six months instead of annually. This threat to the elderly led Florida Representative Daniel Webster to vote “No” on the legislation. Central Florida constituents in one retirement center alone, The Villages, number greater than 150,000 residents. So, even as Medicaid has gained some hint of a stigma with all the political polarization from the Obama years, the reality that some people can’t afford health insurance whether or not they were “able-bodied” and working has caused even Republican-led states to expand Medicaid coverage. The expansion has helped with the opioid epidemic, birth defects, and the fact that 10,000 Baby-Boomers per day are still turning age 65. So, despite the stigma that, “people don’t deserve [free care],” no one wants to see someone they know lose their healthcare due to unaffordable costs. Perhaps equally as important, Republicans recognized that any bill that would lead to drastic cuts in Medicaid would simply hurt too many of their constituents.
Last week, the House and Senate committees that oversee health policy and GOP leadership released a white paper detailing initial structure of the replacement of large sections of the Affordable Care Act (“ACA” or “Obamacare”). Importantly politically, the plan allows its most critical provisions to be passed through a special budget process that requires only 50 Senate votes. These procedural mechanisms will allow fulfillment of Trump’s promise that repeal and replacement would occur “simultaneously.”
Currently, it appears that the major changes will be to expand the number of Americans who could benefit from federal assistance in buying health insurance coverage. But, the plan will change who benefits most from that federal assistance.
The ACA extended health coverage to 20 million Americans by expanding Medicaid for low income and needy in participating states, and by offering income-based tax credits for middle-income people so they could buy their own insurance. Effectively, Obamacare redistributed wealth from the rich to the poor.
This new GOP plan would alter both those two existing mechanisms. First, it will drastically cut funding for states in providing free insurance through Medicaid to the low income and needy. Secondly, it will change how tax credits are distributed by giving all American not covered through their employment a flat credit. But there’s the sticker: the credit will be determined by age, not income levels, the latter being entirely disregarded in the calculus.
So, the larges financial benefits will go to older Americans. For example, Warren Buffett will get the same amount of financial assistance as someone his age, living in poverty. Likewise, a Trump Cabinet member, 64 year-old multi-millionaire Secretary of State Rex Tillerson, if he didn’t have access to government coverage, will get substantially more money than a poor, young person, but the same amount of financial assistance as any given 64 year-old American living in poverty.
To be sure, older people tend to have higher medical bills and so are charged more by insurers even under the ACA. So, matching tax credits to age has a rational basis–to a degree. And the new plan would simplify the current system in that verification of applicant income to optimize just the right amount of financial assistance would be eliminated. And, it would also eliminate incentives for low-income people to avoid earning more to avoid facing a reduction in benefits. But the GOP plan will result in more low-income people losing coverage if they can’t find the money to pay the difference between their tax credit and the actual cost of their health insurance. The ACA is set up to ensure low and middle-income Americans can afford the premiums charged for healthcare insurance.
Moreover, older people without employer-based insurance typically earn more than young people starting out their careers. Independent estimates of similar tax credit plans from Speaker Paul Ryan and Secretary of HHS Tom Price show changes based on tax credits will result in millions losing coverage.
Now, in moving resources from the poor to the rich, limits to deposits in Health Savings Accounts (“HSAs”) will increase. Generally, those with higher incomes paying more in taxes tend to benefit more from HSAs and recent studies show that HSAs are disproportionately held by families with higher earnings. The new program will also eliminate a number of taxes on the health care industry at large.
Curiously, the new plan omits changes to any of the Obamacare regulations the GOP have argued drive up costs of health insurance: the rules including mandates that every plan cover a standard package of benefits, and those requiring companies to charge the same prices to healthy and sick Americans (removal of pre-existing condition penalties). These rules can’t be changed through the budget process and so will require 60 votes in the Senate. It is yet unclear how these proposals will affect Aged, Blind & Disabled Medicaid assistance programs, if at all.
The new plan will undoubtedly change as it moves through committee hearings. But the above seems to set forth the outline of the discussion. So, against this backdrop essentially approved by every major committee working on health care in Congress, it seems that President Trump’s promises to provide a beautiful plan of health insurance for “everybody” are truly speculative.
Retirement plans offer some long-term protection even in the event of a Black-Swan event such as a bankruptcy. While the discussion of 401(k) plans and Roth IRAs generally revolve around tax-deferred growth benefits, these devices, along with insurance-based vehicles, really show their true potential in terms of their respectively available asset protection features–even in the event of a bankruptcy.
OJ Simpson has had a judgment of $33 million plus against him since 1997. Yet, Simpson’s NFL defined benefit plan still holds over $4 million that is sheltered under ERISA law from his creditors on that judgment: the Ronald Goldman and Nicole Brown-Simpson families.
Similarly, Lance Armstrong has faced several lawsuits from entities seeking to recoup their payments to him after Lance admitted to doping while winning seven Tour de France races. These creditors even include the US Government and the US Postal Service! Yet, because Armstrong did a lot of asset protection planning in the form of trusts to help shield his assets, his retirement assets will likely stay away from the reach of creditors.
Currently, 401(k) plan assets are protected in an unlimited dollar amount against creditors in bankruptcy proceedings. Upon retirement, if the employee/investor transfers the 401(k) balance into a rollover IRA, and doesn’t commingle those same funds with personal contributions to the same IRA, the protection from creditors remains unlimited. But, IRAs comprised only of traditional IRA contributions and IRAs comprised of rollovers from an employer plan commingled with personal IRA contributions are capped at a maximum of $1.245 million (continues to be inflation-adjusted from 2005 basis).
Several states like California have become increasingly aggressive in pursuing traditional IRA assets in liability cases. So, investors should seek to keep as much as possible in segregated ERISA-sponsored retirement investments, as they still provide unlimited protection for the assets in the plan, even against these aggressive states.
Bottom line: good asset protection planning can start with such a simple move as keeping proper form in your retirement plan assets.
For the first time in history, two generations are downsizing simultaneously: Boomers and their parents. And millennials don’t want “heavy” assets tying them down in case they need to relocate for a job opportunity. So, it’s best to start facing the inevitable and address the disappointments and sentimentality early on, so you can make appropriate arrangements ahead of the time you’re going to have to take action. Here’s a great article that provides some tips, insights, and solutions: http://www.forbes.com/sites/nextavenue/2017/02/12/sorry-nobody-wants-your-parents-stuff/#1c10cd5f3afe
5. Lack of Planning: What To Do?
The most important first step is planning, but not necessarily estate planning. By the time one of these situations has begun, it’s too late for thorough estate planning. Indeed, many of these situations occur despite good estate planning. Instead, your client needs to prepare for battle. That does not mean racing to the courthouse to sue everyone in sight. It does mean thinking through your options and taking initial steps to prepare for a potential fight.
The second step is to remember that the loved one’s will is not the only issue. In fact, for most people, the will is much less important than other documents. A last will and testament controls only assets belonging to the deceased’s estate. Most people, however, do not have significant assets in their estate. Instead, most people’s sizable assets pass outside the estate, probate and are not controlled by the will.
For example, most retirement accounts, investment accounts, and life insurance policies use payable-on-death beneficiary forms which designate who gets the particular asset at issue. The will does not override these forms.
So, as an estate dispute is simmering, it is vitally important to make sure that these non-probate assets are considered. Otherwise, there is a great risk of winning the battle over the will, but losing the war over the real assets.
3. Blended Families
Despite good intentions, this can lead to problems. For example, the husband may predecease the wife who eventually loses touch or becomes estranged from her stepchildren. If the husband’s will left assets to her with the expectation that her will would pass the assets along according to their long-term wishes, all certainty is lost. She can then make a new estate plan based on her own wishes. Depending on her relationship with her stepchildren, she might decide to leave everything to her own kids.
2. Late-in-Life Spouse
For lack of a better term, “gold diggers” exist—there are individuals who seek close personal relationships with elderly persons for their own financial gain. This was the case with J. Howard Marshall and Anna Nicole Smith and John Seward Johnson (of Johnson & Johnson) and his third wife (though, despite what these high-profile cases may indicate, gold diggers aren’t limited to one sex).
Sometimes, a late-in-life spouse has no ill intentions and simply can’t get along with the preexisting children, be it over matters of inheritance or just not being welcomed (or making an effort to fit) into the existing family paradigm.
Such scenarios often result in estate disputes between the late-in-life spouse and adult children or other persons who once stood to inherit. The spouse claims true love, the children claim undue influence, and the disputes almost always are fueled by personal animus and resentment between the parties.
4. The Trusted Caregiver or Confidant
When there are no family members to take care of an elderly client, he is often forced to rely on caregivers and other professionals for care. Unfortunately, these paid professionals can, likewise, be opportunists, preying on the weakened faculties and necessary dependency of their charges. In such a case, a client’s children and grandchildren may be disinherited (or have their inheritances significantly reduced) in favor of the nurse, attorney or other caregiver.
By way of example, a number of parties are currently litigating the estate of Ernie Banks, the famous Chicago Cub and baseball hall of famer, who made substantial estate planning changes late in his life in favor of a personal nurse and to the detriment of adult family members.
1. Local/Distant Siblings
Disputes often arise when a “local” sibling provides care and support for a parent at the end of life, while the other sibling is “distant,” either physically, psychologically or otherwise. In this scenario, the local sibling typically “helps” with (i.e., controls) most aspects of the elderly parent’s life—including bank accounts, doctor appointments and care providers. Thus, the local sibling often feels entitled to more from the parent, regardless of the parent’s wishes.
Over time, the local sibling may use proximity to the parent to begin a “money grab.” For example, the local sibling is added as a signatory to the parent’s checking account, ostensibly for convenience. Sometimes the local sibling exercises such control over the parent that he or she orchestrates an entire new estate plan or arranges to be added as a joint tenant on the parent’s house. Very often it is not until the parent’s death that a distant sibling learns about what has happened. The distant sibling suspects undue influence on the part of the local sibling, and a dispute arises, often creating contentious litigation.