Tuesday, April 22, 2014

The State of Elder Law Scholarship: SSRN Articles

Here is a sampling of recent articles on elder law and related topics. All of these articles were posted on SSRN within the last month, so they represent the latest in elder law scholarship.

  • Memento Mori: Death and Wills by Karen J. Sneddon
    Death. The mere mention of the word sends shivers down the spine or provokes a nervous giggle. Modern reactions to death range from avoidance, as shown by the abundance of death euphemisms, to fascination, as shown by the number of movies and television shows centered on death, including Twilight's vampires and The Walking Dead's zombies. Estate planning is the legal environment in which a person confronts his or her mortality and participates in the formulation of his or her legacy. Contextualizing the experience as a memento mori experience promotes the function of the estate planning process, specifically the drafting of the Will. The Will is the document that nominates the representative of the testator and the guardians of the testator's minor children. The Will gives cherished mementos of a life lived. "Remember you must die" prompts reflection and contemplation.

  • Health Care Spending and Financial Security after the Affordable Care Act by Allison K. Hoffman
    Health insurance has fallen notoriously short of protecting Americans from financial insecurity caused by health care spending. The Patient Protection and Affordable Care Act (“ACA”) attempted to ameliorate this shortcoming by regulating health insurance. The ACA offers a new policy vision of how health insurance will (and perhaps should) serve to promote financial security in the face of health care spending. Yet, the ACA’s policy vision applies differently among insured, based on the type of insurance they have, resulting in inconsistent types and levels of financial protection among Americans.

    To examine this picture of inconsistent financial protection, this Article offers a taxonomy to describe ways in which health insurance regulation can promote financial security. It then uses this taxonomy to map the effect the ACA will have on the financial security of various insured populations. Specifically, it analyzes how much a person in poor health might spend out of pocket on health care in three scenarios: a person with average coverage through an individual-market health insurance exchange, a worker with employer-sponsored insurance, and a retiree with Medicare and a supplemental insurance plan. This analysis reveals two effects. First, the ACA alleviates financial risk from health care spending to some degree in all three scenarios. But, secondly, the ACA preserves (and may even exacerbate) variability in the degree and type of financial risk remaining across the three scenarios. In effect, the ACA asserts and affirms different visions of the role of health insurance in promoting financial security for different people. This inconsistency leaves some insured especially vulnerable to spending and creates complexity that may impede insured from comprehending these points of vulnerability.

  • Contemporary Trusts and Estates - An Experiential Approach by Jerome Borison, Naomi Cahn, Susan N. Gary, & Paula A. Monopoli
    In this essay in a special issue dedicated to teaching trusts and estates, the co-authors of Contemporary Trusts & Estates: An Experiential Approach (2d. ed. Aspen 2014) reflect on how the teaching of trusts and estates can integrate policy, practice, doctrine, and centuries of tradition. They describe the genesis of their problem-based casebook and the influence of the Carnegie Report on their choice of pedagogic framework. Each of the co-authors embraced the fundamental principles advocated by the Carnegie Report, which counsels that legal education should integrate "theoretical and practical legal knowledge and professional identity." This essay goes on to outline how the book incorporates a problem-based methodology as well as an innovative choice of ordering the chapters that tracks the chronological path of estate planning, addressing the lifetime use of trusts first, followed by issues of will validity and interpretation. Drafting exercises complement the problems as well as traditional cases that illuminate theory and practice. With chapters on planning for disability, the federal estate and gift tax, estate administration and charitable trusts as well as basic doctrine on intestacy, wills and trusts, the book reflects the contemporary challenges addressed by trusts and estates lawyers. The co-authors have found that the book’s innovative approach engages students in a way that makes the study of trusts and estates relevant and students practice-aware.

  • Viable Solutions to the Digital Estate Planning Dilemma by Jamie Patrick Hopkins & Ilya A. Lipin
    Countless people are dying without proper digital estate plans in place, leaving billions of dollars of assets unaccounted for in the digital world. This is occurring in part because individuals are often unaware that traditional estate planning tools and techniques, such as wills, are ill-equipped to handle the unique challenges of digital estate planning. As a result, the majority of Americans are vastly unprepared for their digital afterlife, unintentionally foregoing digital estate planning altogether and leaving their assets trapped in a digital purgatory.

    With the ongoing growth in our reliance on technology, interaction via social media, digitization of individual’s property, and further advancement of new Internet technologies, the amount and value of our digital assets are growing exponentially. In response to this immediate need for digital estate planning and management of digital assets, some businesses began to offer their users the ability to plan for the disposition of their digital assets upon their death. However, due to the novelty of this area of law, the business solutions currently afforded often leave more questions than answers about what happens to the individual’s digital assets, raise concerns about privacy and security, and augment disputes over their overall effectiveness in the estate plan. This Essay examines the importance and increasing prevalence of digital assets, discusses the challenges facing traditional estate planning in the growing world of digital assets, and suggests a workable strategy for the creation of a well-developed and manageable digital estate plan.

  • Who Said Learning Trusts & Estates Can't Be Fun? by Gerry W. Beyer
    From even before their first day of law school, Texas Tech University School of Law students have the opportunity to appreciate the importance of the estate planning area and to understand that it can be both an enjoyable and rewarding area of law in which to practice. During orientation, which takes place the week before classes start, new students participate in full-day programs centered on a particular area of practice either of their own choosing or assigned by the administration. For the 2013 entering class, I was in charge of two full-day Estate Planning Tracks with a total of approximately thirty-five entering students.

    As their legal education continues, students have additional exposure, some mandatory and some optional, to estate planning topics. In my first year required Property course, I spend several days reviewing the basic principles of intestate succession and wills. Texas Tech then requires all students to complete a four-credit introductory course entitled Wills and Trusts as a condition of graduation during their second or third year. Students desiring a more sophisticated treatment may take courses such as Estate Planning, Texas Estate Administration, Guardianship, Estate and Gift Tax, Elder Law, and Marital Property. Students may also compete for a coveted position as an editor for the Estate Planning and Community Property Law Journal that Texas Tech publishes.

    This Article reveals my basic teaching philosophy and the general pedagogical techniques I employ to make Trusts and Estates topics both fun and relevant. I will then share with you the specific tools I use when teaching the introductory course as well as the advanced courses such as Estate Planning and Texas Estate Administration. It is my hope that you may be able to gain insight from my approach to enhance your own teaching and the experience you provide to your students.

  • Older Persons and Compromised Decisional Capacity: The Role of Public Policy in Defining and Developing Core Professional Competencies by Marshall B. Kapp
    Issues frequently arise concerning the cognitive and emotional ability of older individuals to make certain legally significant decisions. In confronting these issues, the professional involvement of both attorneys and physicians (and other health care professionals), acting both individually and collaboratively, is desirable. This article describes the possible contributions of public policy in developing, through fostering innovations in medical and legal education, core competencies for physicians and attorneys that are essential to improving interprofessional collaboration on behalf of older individuals suspected of being compromised in their ability to make certain significant decisions. Additionally, ideas are suggested to address certain aspects of the current policy environment that may inhibit attorneys and physicians from optimal interprofessional interaction in this sphere.

Tuesday, April 8, 2014

Conundrum of Material Participation for Trusts Closer to Resolution

At the end of March, the tax court released a decision in Frank Aragona Trust v.Commissioner, 142 T.C. No. 9 (3/27/14). The long-awaited decision addresses the issue of whether a trust can materially participate in rental real estate activities so that the trust can avoid passive activity taxes.

Starting in 2013, the Affordable Care Act introduced a 3.8% Medicare Tax on certain investment income. The tax does not extend to non-passive trade or business income. Under § 469(c)(7) of the Internal Revenue Code, a taxpayer who material participates in business activities can classify the income from the activities as non-passive. So trusts can avoid the Medicare Tax if they can have their investment income classified as non-passive trade or business income.

Prior to Aragona Trust, the IRS maintained that a trust materially participates in business activities only if the trustee is directly involved in the operations of the trust's business activities on a regular, continuous and substantial basis. The trustee also has to be fiduciary of the trust, so the activities of special trustee whose role is limited to participating in the trust's business are not considered in determining if the trust material participates in the business. The IRS further maintained that if the trustee is also an employee of the underlying business, only activities performed by the trustee in his capacity as trustee count toward material participation, and not activities done as an employee.

In Aragona Trust, the trust attempted to have income from its rental real estate activities classified as non-passive business income. The Bloomberg BNA Estate Tax Blog summarizes that facts and arguments as follows:

In 1979, Frank Aragona formed a trust naming himself as the grantor and trustee and with his five children as beneficiaries. Frank Aragona passed away in 1981 and he was succeeded as trustee by six trustees. One of the trustees was an independent trustee and Frank Aragona's children comprised the other five trustees. Two of the five children had very little involvement with the trust or the business of the trust. Three of the five children worked full time for a limited liability company (LLC) that was wholly owned by the trust. This LLC managed most of the trust's rental real estate properties. It employed several people in addition to Frank Aragona's children including a controller, leasing agents, maintenance workers, and accounting clerks. In addition to receiving a trustee fee, the three children who were employed by the wholly-owned limited liability also received wages from the limited liability company.

During 2005 and 2006, the Frank Aragona Trust incurred substantial losses from its rental real estate properties. The trust also reported gains from its other (non-rental) real estate activities. In the Tax Court, the IRS argued that the trust's rental real estate activities were passive because a trust is incapable of materially participating in rental real estate activities. Alternatively, the IRS argued that even if a trust could materially participate in rental real estate activities, in the Aragona case, the court should disregard the activities of the three trustees who also work for trust's wholly-owned LLC because these trustees performed their activities as employees of the LLC and not in their duties as trustees. The trust contended that it could materially participate in its rental real estate activities, and that the activities of the three trustees who were also employed by the wholly-owned limited liability company should not be disregarded.

In its decision, the tax court held first that a trust is capable of materially participating in business activities through the activities of its trustees. The court then considered the Aragona Trust and found that on the facts of the case, the trustees' involvement in the business activities qualified as regular, continuous and substantial. The court held that the trustees' activities as employees of the LLC counted as the trust's participation because the trustees retained their duties as trustees of the trust while acting as employees of the LLC.

The holding of material participation in Aragona Trust is limited to the facts of the case, but the case provides some clarity on the issue and furnishes trustees with arguments to use in dealing with the IRS. As the Daily Tax Report puts it,

The case gives trustees, who have been suffering for decades from a lack of Internal Revenue Service guidance on material participation, another arrow in their quiver to say that a trust or estate can materially participate in a business—and that it isn't only the fiduciary acting solely in the fiduciary capacity that counts in making that determination.

Tuesday, March 25, 2014

When Is a Manditory Arbitration Clause in a Trust Enforceable? California Court Offers Answer

The California appellate court recently addressed the issue of whether an arbitration clause in a trust can bind a beneficiary. The case, McArthur v. McArthur, involves a dispute between two sisters, Pamela and Kristi. Their mother created a trust naming them as equal beneficiaries. Shortly before her death, she amended the trust to give a great portion to Kristi. She also added a clause requiring arbitration of disputes involving the trust. After the mother's death, Pamela sued Kristi, alleging that the amendment was invalid because of Kristi's undue influence and elder abuse. Kristi responded by invoking the arbitration clause. The trial court held that the clause did not bind Pamela because she was not a signatory to the arbitration agreement.

The appellate court affirmed the trial court by taking its reasoning one step further. No only was Pamela not a signatory to the agreement, she "ha[d] not accepted benefits under the 2011 Trust nor ha[d] she attempted
to enforce rights under the amended trust instrument." Since Pamela had not claimed any benefits under the agreement or indicated any assent to it, the arbitration agreement did not bind her. The Court also rejected Kristi's argument that public policy, as demonstrated by national trends, favors arbitration in trust disputes. Said the Court, "These are arguments best addressed to the Legislature, not to this court. . . . [W]hatever the national trend might be, Kristi fails to demonstrate that any other jurisdiction would compel arbitration under the facts of this case, where the beneficiary has not either expressly or implicitly sought the benefits of a trust instrument containing the disputed arbitration provision."

The Elder Law Prof Blog has a more in-depth discussion of the case and some of its implications.

Tuesday, March 11, 2014

The Digital Death Conundrum

What happens to your client's Facebook page after he or she dies? Does a decedent's executor have access to the decedent's Gmail account? These are some of the questions facing attorney's dealing with estate planning in the digital age. The current issue of the University of Miami Law Review features an article that tackles the issue of digital assets and attempts to provide answers to these questions.

"The Digital Death Conundrum: How Federal and State Laws Prevent Fiduciaries from Managing Digital Property," by James D Lamm, Christina L. Kunz, Damien A Riehl, and Peter John Rademacher, considers the problems that digital assets create for four types of fiduciaries: powers of attorney, conservatorships, probate administration, and trusts. From the article:

[T]he digital world is like the “Wild West,” in that its growth has outpaced legal and regulatory efforts. Although federal and state governments have enacted laws to control aspects of the digital world, some of these laws predate the World Wide Web and stand as inadvertent barriers to the execution of fiduciary duties in the digital world. State legislatures, private entities, and courts have made some efforts to correct these problems, but no current solutions provide the level of certainty that account holders and courts typically seek in fiduciary property management. Consequently, account holders are uncertain about the future of their digital property; fiduciaries must choose between refusing to manage digital property at the risk of civil liability, and executing their duties at the risk of criminal liability. . . . After illustrating the problems that digital property creates for each fiduciary, the article shifts to resolving these problems. It begins by debunking purported solutions by both private and governmental entities. It concludes by offering a holistic approach to resolving the conflicts facing account holders, fiduciaries, and service providers and providing the level of security sought in fiduciary property management, as well as a best-practices approach in the interim to a complete solution.

Tuesday, February 25, 2014

Public Housing and Medicaid Refreshers from the Congressional Research Service

Congress has released two new Congressional Research Service reports to the public. The reports, given to Congress in January, provide an introduction to two valuable government services.  

Introduction to Public Housing by housing policy specialist Maggie McCarty "serve[s] as an introduction to the federal public housing program. It provides information on the history of the program, how it is administered and funded, and the characteristics of public housing properties and the households they serve." The report reviews the trends in the public housing program and introduces the current debate surrounding the issue of private funding for public housing.

The second report, Medicaid: An Overview by Alison Mitchell, Evelyne P. Baumrucker, and Elicia J. Herz, looks at the basic elements of medicaid such as eligibility, services, and financing. The report then deals with selected issues relating to the Patient Protection and Affordable Care Act: "the ACA Medicaid expansion, the impact of the ACA health insurance annual fee on Medicaid, and the ACA maintenance of effort (MOE) with respect to Medicaid eligibility."

These CRS reports cover the issues at a basic level, but they are an excellent resource for a quick refresher on Medicaid and the federal public housing program. Whether you want to be sure your aware of the issues that are of interest to Congress or need a perspective on how to introduce a client to aspects of these programs, you'll find something useful in the CRS reports. At under 50 pages each, they're worth the read.

Tuesday, February 11, 2014

Estates Plans Are Not Just For The Old

In his article in the most February 2014 issue of Estate Planning, Attorney Sean R. Weissbart talks about an often overlooked estate planning client population--the young and wealthy. The article, "Estate Planning Strategies for the Young and Wealthy," discusses estate-planning strategies attorney's should consider for their young and wealthy clients. From the article:

Young and wealthy individuals do not fit the mold of the traditional estate-planning client, and advice for them should be tailored accordingly. To prepare for possible changes in life circumstances and unpredictable future tax laws over the course of these individuals' life spans, practitioners should use flexible strategies when advising the young and wealthy. This article addresses several of the most effective estate-planning strategies for clients in this enviable segment of the population. The strategies discussed in this article address how to provide the young and wealthy with the benefits that matter most to them: minimizing estate and gift tax, maintaining use and control over their wealth, and asset protection.

The strategies Weissbart explains include making completed gifts to trusts, with forced estate tax inclusion; transferring assets to self-settled domestic asset protection trusts; creating life insurance trusts; and maximizing exclusion gifting.

Tuesday, January 28, 2014

States Look to Reducing Estate Taxes to Keep Retirees

The New York Times reports that several states are taking steps to reduce their estate taxes, either eliminating the tax or increasing the exemption. According to the article by Paul Sullivan, five states and the District of Columbia have recently re-evaluated their estate taxes. Indiana and Ohio have eliminated their estate taxes entirely. Tennessee is phasing out its estate tax, and New York, Maryland, and D.C. have begun serious discussions about raising their estate tax exemptions to the federal level.

If New York, Maryland, and D.C. do increase their estate tax exemptions, more states will likely follow suit. From Sullivan's article:

“There is a strong possibility that the gap [between state and federal exemptions] is going to be closed over a few years,” said Jamie C. Yesnowitz, a principal at Grant Thornton and chairman of the American Institute of Certified Public Accountant’s state and local tax technical resource panel. “Once some of these other states see New York and D.C. are doing this, I would find it unsurprising if some of these other states join the bandwagon.”

The reason for the move to reduce estate taxes, says Sullivan, is competition from other states for residents and their tax dollars.

[G]overnors of cold-weather states (along with the District of Columbia) . . . have realized affluent residents are moving to states without estate taxes (and in some cases, income taxes) and in doing so, depriving their old state of the other taxes they paid, like property, sales and income tax.