Holiday Presents from DC and Lansing

Lots to blog about in the aftermath of busy lame duck sessions in Washington and Lansing.  In order of importance:

• The Fiscal Cliff Law.  Among the components of the so-called American Taxpayer Relief Act of 2012 (that’s original), is the permanent fixing of the federal estate and gift tax unified credit at $5 million per person ($10 million per married couple) indexed for inflation and with the continuance of portability of the unused credit of the first spouse to die.  The highest rate was increased to 40%.  Although this represents no real change in the law, it punctuates the reality that estate plans for the vast majority of Americans no longer require federal estate tax planning components.  Over the last 10-12 years we have seen the federal estate tax removed as consideration in planning for middle class clients.  Practitioners who have historically relied upon A/B trusts and federal estate tax avoidance of justification for the documents they promote are going to have to change their tune.  It’s over.

 

• SOL on legal malpractice.  A long pursued objective of the Probate and Estate Planning Section became reality with the signing of Senate Bill 1296.  Now, a claim for legal malpractice expires at the earlier of 2 years after the claim accrues or six years from the date of the act or omission.  This is a big deal to estate planning attorneys who have documents that are created decades before they are tested. A big thanks to Senator Tonya Schuitmaker, who sponsored the bill (as well as her father, Harold, the esteemed probate attorney from Paw Paw); Mark Harter, the Section chair who finally got this done; and Becky Bechler, the Section’s lobbyist.  We are all forever in your debt.

 

• Annuity Suitability.  Of all the seemingly well-meaning but largely pointless (sorry) “elder abuse” laws that have been floating around over the past couple years, the signing of Senate Bill 467 is probably the most significant.  The bill requires people selling annuities to establish the suitability of the product before making the sale.  In my humble opinion, inappropriate annuity sales to senior citizens is the primary source of financial exploitation of vulnerable adults – and has been for years.  This bill should provide the state, and civil litigators, more tools to go after the bad actors that operate in this arena.

 

• Interstate Guardianships. Senate Bill 539 provides a process for a person appointed guardian in another state to become guardian in Michigan.  This law should be helpful in those few situations where this issue arises. 

 

Working on a Wire

My legal practice has become consumed with litigation. Litigation involving the resources of one (older) generation and the expectations and overreaching of the next (younger, but not young) generation. I have come to think of the work I do as being the work that arises as a result of the tension on a wire that is strung between and separates these two generations.

Over the past few years one part of my legal practice has exploded. Every day I find myself dealing with the issues that arise along the thin wire that separates our most senior generation from the generation just behind them.

At one side of the wire are what I would call the elders – 75 years or older. Typically, they worked all their lives, lived modestly, and have something to show for it. Their homes are paid off, and they have some savings.

Their children are what are commonly referred to as “baby boomers.” In many cases they have not planned for their futures, they are coming to the end of their working years, but have little to show for it, having spent most or all of whatever they earned. Many are burdened with debt, even as they enter their retirement years.

The elders fear that they will outlive their money, that their care costs will deplete their savings, or that the “government” will take what they have saved. They are vulnerable to, and targeted by, unscrupulous salesman and women who put on “free seminars” promising to share secret strategies for “protecting assets.”

The boomers meanwhile, or at least some significant portion of them, look at their parents’ resources as an answer to their financial challenges – one last shot at something to get them out of debt, provide for some future security, or at least extend the time until financial reality comes crashing down.

It all adds up to a tension, with elders confused and afraid about what to do with their resources, and boomers anticipating their parents’ demise and fearful that if their parents live too long, the money they expect to inherit may be lost on paying for their parents’ care.

Add to this the specter of the dementing illnesses that are epidemic among the elders and things get ugly fast.

Resources are being passed from one generation to the next under all sorts of unseemly circumstances. Children are grabbing resources that belong to parents. Children and bad actors of all sorts are pressuring parents to transfer property on the premise that doing so is somehow necessary to “protect” their estates or avoid some other vague undoing. Siblings turn their parents against other siblings in a frantic effort to secure a bigger piece of the dwindling pie.

Those “good” children, who want to protect their parents, face difficult choices. Should they drag their parents into court and take away their rights (and dignity) for their own protection? Sue their own siblings? How much will it cost? Will they win? And what will it do to their family relationships?

The tension on this wire is intense. The legal issues that it generates are difficult. Politicians pat themselves on the back as they pass new laws purportedly designed to cut down on the financial exploitation of vulnerable adult, which laws, although well-meaning, provide little promise to alter the current course of affairs. Meanwhile funding for adult protective services, the people who actually serve on the front lines of these battles, are being cut.

Houston….. we have a problem.

Rebutting Presumption of Undue Influence

It’s over – at least for now.  The Mortimore case.

This is a case I have spoken and written about quite a bit for the past year.

Common facts: Older gentleman.  His wife of many years dies.  New woman becomes involved. Alienates family.  He dies.  She produces a will (surprise) leaving everything to her.

At the trial level, which I did not handle, a will contest takes place.  Trial court rules in favor of the woman (and against the kids).  Trial court says: I don’t know what to make of this, two very different stories. I am upholding the will.

I am retained to handle the appeal.  We raise the issue that the trial court failed to consider the presumption of undue influence that arises when a person (1) has a fiduciary/confidential relationship with the decedent, (2) the opportunity to influence the decedent, and (3) benefits from the document thereby created.

The Court of Appeals not only agrees, but reverses the decision of the trial court and throws out the will.  They say: had the trial court considered the presumption, they would have found the presumption applied, AND that the Appellee failed to rebut the presumption.  Nice Result!!

But, not the go down easy, woman hires counsel to request the Michigan Supreme Court review the Court of Appeals decision.  They agree the presumption applies, but they argue that the Court of Appeals failed to apply the proper standard for rebutting the presumption.

The Michigan Supreme Court accepts the case, briefs are filed, and oral arguments are held.  At the Supreme Court hearing, I am grilled by the Chief Justice who is clearly convinced that the Court of Appeals erred – specifically, that the standard that the Court of Appeals used to rebut the presumption (preponderance of evidence) is too high.  The thinking is that if the standard to rebut the presumption is a preponderance, the result, in effect, is that by establishing the presumption the burden of the entire cases is shifted to the party defending the document.

The truth is that Michigan Court of Appeals cases are all over the board on this.  The last pronouncement by the Michigan Supreme Court on this point was more than 30 years ago in Kar v Hogan, 399 Mich 529, 542; 251 NW2d 77 (1976).

The options are anywhere from a scintilla of evidence to a preponderance, with most cases coming down somewhere in between.

In light of my treatment at oral arguments, I was not hopeful about my prospects.  So, wasn’t I surprised when we received an order from the Michigan Supreme Court vacating the original order accepting the case.  In other words, they changed their minds and decided (after hearing oral arguments) that they never should have taken the case in the first place. That means they left the Court of Appeals decision in place.  Whew….

The Chief Justice wrote on lengthy dissent which offers one perspective on this issue.

The truth is that this is an important issue, and we don’t have clear law.  The problem is that if, as argued by the Chief Justice, the presumption of undue influence is given as much respect as are presumptions in other areas of the law (which is very little respect), the role of the presumption in protecting vulnerable adults will be diminished, and depending on the new standard adopted, perhaps dramatically so.
Request for reconsideration to the Michigan Supreme Court was denied, so, for now, the case is back in the trial court with the will thrown out.  There are other interesting issues in this case, which could lead us back into the appellate courts again, but the Supreme Court walked away from this opportunity to address is important and complicated issue.

More Thoughts On Our New Durable Power of Attorney Law

In an earlier post I reported on changes to MCL 700.5501 brought about by Public Act 141 of 2012.  In this post I would like to point out some other intriguing aspects of this law.  A link to the law may be found at in that earlier post of June 12, 2012.

Planners need to be mindful of how these new developments impact planning options by a principal who later becomes incompetent, and the extent to which the documents created may limit the planning tools available to the agent, and the exposure of the agent to liability.

First, and most importantly, section 3(d) provides:

“The attorney-in-fact shall not make a gift of all or any part of the principal’s assets, unless provided for in the durable power of attorney or by judicial order.”

This section addresses one of most difficult issues of FPOA drafting, whether, and to what extent, to authorize an agent to make gifts.  Heretofore the law on this issue was vague. MCL 700.2114 can be extrapolated to mean that an agent may not gift to themselves without express authority, but this new law goes much further, and becomes much more of an obstacle to things like Medicaid planning by an agent.

Commonly, form FPOAs used by too many practitioners will include no expression on gifting, or will include a provision that limits gifting the federal annual exclusion amount.  These documents are likely generated without much discussion or consideration of the important role gifting plays in estate planning, VA benefits planning and Medicaid eligibility planning.  For planners interested in an FPOA that authorizes broad gifting powers, a form of such a document I use is available on the ICLE website forms bank, and as an exhibit in my ICLE book on Medicaid Planning

Where gifting is allowed, it is often best to limit that authority to gifts made in a manner consistent with the principal’s existing estate plan.

That’s not to say that gifting is always a good thing.  For many people, and for many reasons, gifting is not appropriate, and such documents should either remain silent on the issue or expressly preclude gifting by an agent.

Notably, the new law does not address the second leg of this issue, whether an agent can modify a revocable trust created by an incompetent settlor.  One would presume however, that Michigan law would not sanction such actions unless expressly authorized by the document.  Again, see my ICLE form for suggested language.

Another important issue not addressed expressly in the new law is the question: Are transfers from accounts jointly owned between the principal and agent, gifts by the agent?  Presumably if the joint ownership is created by a competent principal, the agent/co-owner’s removal of funds from such an account would not be a violation of the statute because it would not be an act of the agent in their fiduciary capacity.  That is not to say that such action, if taken, and where the agent did not contribute to the account, and/or where the joint ownership was established for convenience purposes, would not be actionable.

Section 2(e of the new law does say however that:

“Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact.”

Also important is section 2(g) of the new law, it provides:

“In the durable power of attorney, the principal may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty except for actions committed by the attorney-in-fact in bad faith or with reckless indifference.”

This section authorizes exculpation of the agent, but with a “bad faith” floor.  The Medicaid planning power of attorney included in my ICLE materials referenced above, provides such exculpation provisions, which planners may want to consider.