Estate Administration

It is not uncommon for my office to receive a call from a panicked family member of an elderly individual. The call may go something like this:

Caller: Hi, I'm calling to see how much it costs to get some estate planning done for my mom.

Paralegal: We'd be happy to help you if we can. Why don't you first tell me a little bit about your mom.

Caller: Okay. Well, mom's not doing too well these days. She's in an assisted living facility and mostly doesn't recognize us anymore. Although she sometimes has good days, most of the time she's confused and is asking for her husband who died three years ago.

Paralegal: Okay. What kind of property does your mom have?

Caller: Well, she has a home that's paid for. She has a brokerage account, a checking and savings account, some farm land in Tooele and I think she has some municipal bonds that she invested in once. But I'm not really sure.

Paralegal: Does your mom know what property she owns and does she understand its value?

Caller: Oh heavens no! She put me on her checking account years ago because she was so overwhelmed with trying to manage her finances. I don't think she has a clue how much she owns, nor could she keep it straight even if we told her.

Paralegal: I think we can help you, but you'll need to meet with an attorney to discuss some of the legal implications of your mother's situation.

Although this above excerpted conversation is a fictitious example, and a very abbreviated one at that, it illustrates a trap that many people fall into with regard to estate planning.

I’ve briefly discussed the case of the late Amy Winehouse before. She was young, very talented, and had found financial success and notoriety as an R&B singer. Here’s a great video of one of her performances in case you’re not familiar with her.

In the past, I’ve pointed out times when celebrities have really dropped the ball when it came to estate planning. And more often than not, when an estate plan fails big, it’s not that an estate plan was never done, it’s that an estate plan WAS done, but it was out of date or did not reflect the current wishes of the deceased individual.

In May, we reported about the federal government’s efforts to decrease spending in 2011 by making sweeping cuts to numerous federally funded programs to avoid a government shutdown. Four months later, the focus on cutting Medicaid and Medicare benefits has gained momentum, despite documented evidence of the many benefits of Medicaid, as well as the huge detrimental impact cutting either program can have on individual states.

Proposed Cuts

As has been widely reported, the Obama Administration is offering to cut tens of billions of dollars from Medicare and Medicaid as part of the negotiations to reduce the federal budget deficit. The depth of the cuts depends on whether Republicans will accept any increases in tax revenues.

It appears that hospitals and nursing homes will be the unwilling recipients of some of the cuts, as Administration officials and those involved in the negotiations say that the cuts can come from health care providers like hospitals and nursing homes without directly imposing new costs on needy beneficiaries or overhauling either program. Some of the proposals being considered are:

• Gradually eliminating Medicare payments to hospitals for uncollectible patient debt. Medicare currently reimburses hospitals for 70% of debt resulting in patients failing to pay deductibles and co-payments and the hospitals have made reasonable efforts to collect.

• Reducing Medicare payments to teaching hospitals for the cost of training doctors, caring for sicker patients and providing specialized services such as trauma care and organ transplants.

• Reducing the federal share of payments to health care providers treating low-income people under Medicaid and the Children's Health Insurance Program.

Lawmakers opposed to the cuts say it would impair access to care for the poor and shift costs to the states that are already facing a huge expansion in Medicaid eligibility and enrollment beginning in 2014 under the terms of the health care reform legislation passed last year. Hospital executives say that additional cuts (besides the reduction in Medicare payments already part of the health care reform legislation) will result in hospitals discontinuing services and increasing charges to patients with private insurance.

Last week, I explained how using a spendthrift trust can protect the inheritance you leave to your children from divorces, lawsuits, and creditors that your children may encounter in the future.

However, even in those states that do recognize the validity of a spendthrift trust, there is nothing that you can do to prevent a creditor from attaching (getting their hands on) those assets once they've been distributed to the beneficiary (your child). In order to protect such distributions from the reach of creditors, the creation of a discretionary trust is very effective.

The federal government is working frantically to decrease spending in 2011 by making sweeping cuts to numerous federally funded programs, in order to avoid a government shutdown. Unfortunately, many of the changes proposed will negatively impact seniors. The cuts began in House Resolution 1 (HR 1), passed by the House last month as a long term continuing resolution to cut fiscal spending this year and keep the federal government from shutting down. But 2011 spending cuts are only the beginning. Next, focus will turn to the 2012 budget where a new round of cuts will likely take place, with potential far-reaching negative impacts on seniors.

Immediate Cuts on the Horizon

According to the National Council on Aging (NCOA), the proposed spending cuts in HR 1 would harm senior citizens by severely cutting initiatives that help older Americans sustain their economic independence and health. HR 1 includes:

• Cuts of approximately $525 million in services specifically for low-income seniors (including a
  64% cut to the Senior Community Service Employment Program);
• Cuts of approximately $1 billion in funding for Community Health Centers that serve seniors;
• Cuts of $390 million for home energy assistance;
• Cuts of $305 million for Community Services Block Grants that currently assist 2.3 million   seniors;
• Cuts of $1 billion to programs that include senior volunteers; and
• Cuts of $625 million to the Social Security Administration (estimated to be over $1 billion by
   the Social Security Administration as noted below).