Trusts and Equitable Deviation (Illinois)

By Matthew A. Quick In the case of Church of the Little Flower v US Bank the Court was asked to reform a trust based upon the doctrine of equitable deviation. The Court held that this doctrine did not apply and the trust could not be reformed. The Court stated that the doctrine of equitable deviation should not apply for the sole reason of further rewarding the beneficiaries, but only in situations where the trust is so inefficient that its continuation would necessarily interfere with the trust's purpose.

The lesson: before executing a trust, ensure the provisions of the trust will properly distribute funds to the beneficiaries.

Avoid Probate without a Trust (Michigan)

By Matthew A. Quick Avoiding probate seems to be the goal in everyone's mind and, most often, for good reason. Although probate may be necessary at times, it can be time consuming, public and costly (with probate court fees and costs and publication fees alone averaging approximately $800 for an estate with property worth $200,000).

Remember, probate is the court process of distributing the property of someone's estate (what someone owns at death). If there is a will, the probate process distributes property pursuant to it. If there is not a will, the probate process distributes property pursuant to state law. A common misconception is that a will allows an estate to avoid probate. In fact, the opposite is true. In order for a will to be used, it MUST go through the probate process.

There are two main alternatives to relying on probate (that is relying on only a will or nothing at all). The first is the use of a trust, which is an agreement that requires a trustee to hold property for the use and benefit of someone else. Trusts are a great utility for families with loved ones that have special needs or minor children, because of certain protections and distribution provisions that are offered. However, sometimes a trust is not necessary.

If someone has basic wishes for distribution of his or her estate, designating beneficiaries on the titles of the property he or she wish to distribute is the effective and efficient alternative. Beneficiary designation works in the following way: as for a deposit account (checking, savings, investment), a "Transfer on Death" provision can be added allowing the owner of the account to give the funds of the account to another upon his or her death; as for a house, a deed can be written to create an interest for someone else upon death by use of a Lady Bird provision (a provision that states the owner shall own the real estate for his or her life and do with it whatever he or she pleases, but if the owner continues to own the real estate upon death, the real estate shall be transferred to certain beneficiaries); as for vehicles, a form can be filed with the Secretary of State by a spouse or heir (for more info on this click here); and personal property may be transferred before death or entrusted to someone to help distribute it after death.

Ask your attorney to help because beneficiary designation can be a bit daunting, but, if done correctly, it can save time and money.

NOTE: a will should always be prepared as a safety net, even if a trust or beneficiary designation exists. If an estate is planned to avoid probate, and organized appropriately, the will is not used.

Disability and Accountability for Negligence (Illinois)

By Matthew A. Quick The court in Glavinskas v William L Dawson Nursing Center, Inc, held that a disabled person is not accountable for negligence of his representatives. The disabled person's guardian and attorney in a personal injury suit did not adequately protect the disabled person's interests and the court allowed the disabled person to pursue their claim regardless of the negligence of the guardian and attorney.

Transfer of Vehicle Outside of Probate at Death of Owner (Illinois)

By Matthew A. Quick If you are looking for easy, how about property automatically transferring to a beneficiary upon the owner's death, without probate or any other administration. Deposit accounts (checking, savings) can have transfer on death provisions, so too can individual retirement accounts and life insurance. When it comes to vehicles, state law provides an opportunity to designate a beneficiary right on the title in the event the owner dies. 625 ILCS 5/3-104 provides:

The Secretary of State shall designate on the prescribed application form a space where the owner of a vehicle may designate a beneficiary, to whom ownership of the vehicle shall pass in the event of the owner's death.

Further, 625 ILCS 5/3-107 provides:

The Secretary of State shall designate on a certificate of title a space where the owner of a vehicle may designate a beneficiary, to whom ownership of the vehicle shall pass in the event of the owner's death.

If it fits into your estate plan, visit the Secretary of State to designate a beneficiary on your title. This process provides a great alternative to placing a vehicle in trust or having joint vehicle owners (too much liability!).

If, however, a beneficiary was not designated prior to the passing of a decent, consider the use of a small estate affidavit or attorney's affidavit. More information can be found by clicking here: Vehicle Title Transfers . Here is the Illinois Secretary of State Small Estate Affidavit.

The lesson: There are easier alternatives to transferring a vehicle than opening a probate estate. Please contact me with any questions.

The Estate, Issue Six

By Matthew A. Quick HIPAA

The Health Insurance Portability and Accountability Act of 1996 (referred to as “HIPAA”) was enacted as federal law to address two main issues: (1) health care insurance coverage of employees and their families when the employees change or lose their jobs; and (2) the establishment of a national standardized means of transferring health care information. When creating the standards regarding the transfer of health care information, privacy rules evolved concerning the dissemination of certain health information. These privacy rules regulate the use and disclosure of Protected Health Information that is held or transferred by Covered Entities. Protected Health Information is considered any information held by a Covered Entity which concerns health status, any provisions of health care, or payment for health care that can be linked to an individual. Protected Health Information has been interpreted rather broadly and, in practice, includes any part of an individual's medical record or payment history. Covered Entities include hospitals, health care professionals, mental health care professionals, health care clearinghouses (billing services, health information management services, etc.), health insurance providers, and any other entity that processes or facilitates the processing of Protected Health Information.

Generally speaking, Covered Entities must keep Protected Health Information confidential, with the exception of a few limited circumstances: (1) Covered Entities must disclose Protected Health Information to the individual upon request and when required to do so by law, such as reporting suspected child abuse; (2) Covered Entities may disclose Protected Health Information to facilitate treatment, payment or health care operations regarding the individual; and (3) most relevant to this article, Covered Entities may disclose Protected Health Information to identified agents if authorization is obtained from the individual.

It is important to address the HIPAA privacy rules when planning one’s estate in order to allow health care attorneys-in-fact (agents or patient advocates that make health care decisions for another) to lawfully receive protected health care information so that the attorney-in-fact can make educated and informed health care decisions. The authorization required to allow Covered Entities to disclose Protected Health Information to health care attorneys-in-fact is called a HIPAA Waiver. A HIPAA Waiver (also referred to as an “Authorization for Use and Disclosure of Protected Health Information”) waives the privacy rules of HIPAA as to Protected Health Information disclosed to certain, identified individuals (health care attorneys-in-fact).

The people who make health care decisions for us when we are unable need to be given broad access to our medical information to make the most informed decisions possible concerning our health care. For that reason a HIPAA Waiver is required for every estate plan.

-Educational Savings Programs-

On March 30, 2010, the Education Reconciliation Act was signed into law, which changes the repayment schedules for student loans. Students who borrow money starting in July 2014 will be allowed to limit payments to 10% of their income and, after 20 years, any remaining balance will be forgiven. Those who enter public service (military, teachers, nurses, and the like) will have any balance forgiven after 10 years.

The costs associated with this new legislation will not be the burden of the taxpayers. The savings associated with ending government subsidies to banks and other financial agencies that have been making and maintaining student loans will absorb the cost and allow a large increase in funds available for grants (money that does not need to be repaid). For example, the new law makes an additional $40 billion available for the need-based Pell Grants, which do not have to be repaid. In other words, by cutting the unnecessary middleman out of the process, the federal government is making the rising higher-education costs more bearable. Even while accounting for the savings associated with this new student loan policy, students will still have to bear significant education costs that continue to rise. In the interest of making the costs a bit more tolerable, there are a few saving techniques that have become quite popular over conventional savings or the use of funds earmarked for retirement. Of note, beginning in 2010, those financing a student’s education will be eligible for tax credits up to $10,000 over 4 years (a tax credit is a dollar for dollar reduction of the amount of tax owed, as opposed to a deduction that just reduces the amount of taxable income). The ability to take the tax credits has an adjusted gross income ceiling of $80,000 ($160,000 for joint filers).

The three main educational savings programs are Section 529 prepaid tuition plans, Section 529 college savings plans, and Coverdell education savings accounts (Section 529 refers to the Internal Revenue Code). A Section 529 prepaid tuition plan is state run and only available in a limited number of states (Michigan has the Michigan Education Trust and Illinois has the College Illinois! 529 Prepaid Tuition Program). A prepaid tuition plan typically locks in the current tuition rate for the amount deposited. For example, if an amount deposited today is equal to 50% of a year of tuition, then 50% of a year of tuition will be credited regardless of the future cost of tuition (even if the tuition has sincedoubled). This plan is simple and does not involve choosing investments or building a portfolio. Locking in the current tuition rate usually offers a better return on investment than a certificate of deposit, money market account or conventional savings account and the funds deposited are tax deductible, with some limitations. If, however, a contributor wishes to make investments rather than lock in the tuition rate, thus potentially resulting in more money over time, a Section 529 college savings plan or Coverdell education savings account may be preferable.

Similar to Section 529 prepaid tuition plans, Section 529 college savings plans are tax-exempt college savings utilities. Unlike Section 529 prepaid tuition plans, there is no lock on tuition rates and no guarantee of return on investment, because a Section 529 savings plan is an investment in a portfolio, which is subject to the market. The investment allocation under a Section 529 college savings plan can only be changed twice per year and must be invested through a money manager. Withdrawals from a college savings plan may only be used for qualified higher education expenses (college and up) in order to be withdrawn tax free. However, unlike the Coverdell education savings accounts, as discussed below, there is no age limit for contributions to a Section 529 savings plan and no income limit for contributors.

Similar to Section 529 college savings plans, Coverdell education savings accounts are funded through investment portfolios and are subject to the market, however, no money manager is required and there is no limit on investment allocation changes—investments may be controlled by the contributor. The student must be under the age of 18 to receive contributions and under the age of 30 to make withdrawals. The current maximum annual contribution amount is $2,000 and the current adjusted gross income limit is $95,000 for single filers and $190,000 for joint filers. Contributions to the Coverdell education savings account are generally not tax deductible, but the withdrawn funds are tax-free if used for qualified education expenses. Coverdell education savings withdrawals may be used for any level of education (K-12 and higher), as opposed to the Section 529 college savings plans that can only be used for post-secondary education.

Each of the programs discussed can be used together to effect the greatest possible outcome. Because this article could only consider the basics of each program, be sure to consult a financial professional for more information on eligibility for student loans, transferability of the plans, contribution limits, and when and how the funds must be used.

Transfer of Vehicle Outside of Probate at Death of Owner (Michigan)

By Matthew A. Quick Michigan law allows for the transfer of vehicles of deceased owners outside of the probate process with Secretary of State Form TR-29. The controlling law, MCL 257.236(2), provides:

If an owner of 1 or more vehicles, which vehicles do not have a total value of more than $60,000.00, dies and the owner does not leave other property that requires issuance of letters as provided in section 3103 of the estates and protected individuals code, 1998 PA 386, M.C.L. 700.3103, the owner's surviving spouse, or an heir of the owner in the order specified in section 2103 of the estates and protected individuals code, 1998 PA 386, M.C.L. 700.2103, may apply for a title, after furnishing the secretary of state with proper proof of the death of the registered owner, attaching to the proof a certification setting forth the fact that the applicant is the surviving spouse or an heir. Upon proper petition, the secretary of state shall furnish the applicant with a certificate of title.

Real Estate and a Certificate of Trust Existence and Authority (Michigan)

By Matthew A. Quick As provided in MCL 565.431, et seq., a certificate of trust existence and authority (referred to as a "certificate of trust") or the entire trust declaration may be filed at a register of deeds office. Filing either a certificate of trust or the entire trust declaration when real property is placed into trust is beneficial and, in some cases, necessary for the orderly administration of the trust (allowing for smoother transfer of real property held by the trust). Filing a certificate of trust over the entire trust declaration is beneficial for several reasons. First, a certificate of trust is a shorter document, which does not cost as much to file with a register of deeds office. Second, a certificate of trust is a much more private option because it only contains excerpts of the actual trust document and does not include distribution provisions, among others. Third, an updated trust declaration must be filed with a register of deeds office if portions of the trust declaration are modified or revoked. If a certificate of trust is originally filed, a new certificate of trust is only required if the excerpted portions contained in the certificate of trust are changed.

The requirements of a certificate of trust are as follows, pursuant to MCL 565.432:

(a) The title of the trust. (b) The date of the trust agreement and any amendments to the trust agreement. (c) The name of the settlor or grantor and the settlor's or grantor's address. (d) The names and addresses of all of the trustees and successor trustees. (e) The legal description of the affected real property. (f) Verbatim reproductions of provisions of the trust agreement, and any amendments to the trust agreement, regarding all of the following: (i) The powers of the trustee or trustees relating to real property or any interest in real property and restrictions on the powers of the trustee or trustees relating to real property or any interest in real property. (ii) The governing law. (iii) Amendment of the trust relating to the trust provisions described in subdivision (a) to (f)(ii). (g) Certification that the trust agreement remains in full force and effect. (h) A list of names and addresses of all persons who, at the time the certificate of trust is executed, are trustees of the trust.

Pursuant to MCL 565.433:

A certificate of trust existence and authority shall be executed by the settlor or grantor; an attorney for the settlor, grantor, or trustee; or an officer of a banking institution or an attorney if then acting as a trustee. The certificate shall be in the form of an affidavit.

On the issue of third-party reliance, MCL 565.435 provides:

A purchaser or other party relying upon the information contained in a recorded certificate of trust existence and authority shall be afforded the same protection as is provided to a subsequent purchaser in good faith under section 29 of chapter 65 of the Revised Statutes of 1846, being section 565.29 of the Michigan Compiled Laws, and shall not be required to further examine the trust agreement, unless an instrument amending or revoking the trust agreement or certificate of trust existence and authority is recorded in the same office in which the trust agreement or certificate of trust existence and authority was recorded.

Powers of Attorney and Living Wills (Illinois)

By Matthew A. Quick A health care power of attorney appoints an agent to act on a patient's behalf when he or she is unable, pursuant to a list of directives. On the other hand, a living will sets out a list of wishes, but does not give anyone the power to act on a patient's behalf (akin to a note to the doctor). Pursuant to Illinois law, if an agent is acting under a health care power of attorney, a living will is rendered inoperative. 755 ILCS 45/4-11.

Trust Subject to Attorney Approval (Illinois)

By Matthew A. Quick In light of the recent holding in Dunn v Patterson, Nos. 3-07-0881, & 3-08-0350, estate planning documents that do not allow amendment or revocation except with the drafting attorney's consent or upon order of court are not void as against public policy. The Court noted that it is reasonable for an attorney to include provisions to be sure requests for amendment or revocation were not based on undue influence or coercion, especially when a client has a special need to to age or disability.

Court Revoking Real Estate Contract for Disabled Person (Illinois)

By Matthew A. Quick In light of the recent holding in Perry v The Estate of Irene Carpenter, equitable considerations are a proper basis for a court to set aside a contract for sale of a disabled person's home, especially where circumstances indicate fraud and unfairness. As held in previous cases, “Courts are under a duty to protect the interests of a minor or a disabled person who is party to the judicial proceedings before it.” Valdovinos v Luna-Manalac Medical Center, Ltd, 328 Ill App 3d 255, 272; 764 NE 2d 1264, 1277 (2002). “Gross inadequacy of price is not of itself sufficient to set aside a judicial sale, yet when such inadequacy is shown, coupled with slight circumstances indicating unfairness or fraud, either upon the part of the officer, the purchaser or the party to the record benefitted by the sale, it will be sufficient for equitable intervention.” Milner v Denman, 21 Ill 2d 182, 190; 171 NE2d 654, 658 (1961); quoting Rogers v Barton, 386 Ill 244, 250; 53 NE2d 862, 865 (1944).

Powers of Attorney and Medical Records

By Matthew A. Quick Pursuant to the Illinois Health Care Surrogate Act and the Illinois Power of Attorney Act, to wit, 755 ILCS 45/4-7(a) and 755 ILCS 40/15, respectively, and the Michigan Estates and Protected Individuals Code, to wit, MCL 700.5506, a Power of Attorney delivered to a person’s physician is made part of the person’s medical record.

When consulting a medical professional, be sure to take a copy of your Power of Attorney for Health Care so that it may be made part of your medical record. Thus, if anything were to happen, your medical professional would have the contact information and the respective powers of your Agents and Patient Advocates.

Letter of Intent

By Matthew A. Quick A Letter of Intent is a document prepared by a caretaker of a loved-one with special needs and details his or her past, present and future information. A Letter of Intent can give information and instructions on medical care, personal care, education, religion, recreation, general needs and preferences, and any other information detailing the daily life of a loved one with special needs. Even though a Letter of Intent is not a legal document, it may be the most important document involved in special needs planning because courts, future caregivers, estate and financial planners, and others can look to it for guidance in understanding a loved-one with special needs—through a Letter of Intent the present caregiver can continue to inform of the best possible care for a loved-one with special needs.

Supplemental Needs Trust

By Matthew A. Quick A Trust is a legal arrangement in which legal title of property is given to a person or entity (referred to as the “trustee”) to hold for the use and benefit of another person (referred to as a “beneficiary”). A Trust contains instructions that the trustee is bound to follow in safekeeping the trust property. There are three main reasons to employ the use of a Trust: it keeps the principal’s estate from having to endure the probate process; it may have significant tax-saving advantages by reducing the taxable portion of an estate; and it shelters property from people or entities such as creditors, loved-ones who cannot handle large amounts of money, and the government. A Supplemental Needs Trust is defined by the instruction to distribute the Trust property for the use and benefit of a loved-one with special needs, but only for permissible “extra” quality of life items and services not provided by government benefits. Put another way, distributions from a Supplemental Needs Trust will supplement the benefits provided by the government, but not jeopardize eligibility for such benefits.

A Supplemental Needs Trust may be created by a third-person or by the loved-one with special needs. In the event a Supplemental Needs Trust is properly created by a third-person and properly administrated, then a loved-one with special needs will remain eligible for government benefits and not be required to reimburse the government for the same. Furthermore, the third-person who created the Supplemental Needs Trust can direct the further distribution of the property of the Supplemental Needs Trust upon the death of the loved-one with special needs.

On the other hand, if a loved-one with special needs receives property outright, then his or her eligibility for government benefits would be in jeopardy. To remain eligible for government benefits, the special needs loved-one would have to create a Supplemental Needs Trust that, upon the death of the special needs loved-one, would be subject to the benefit payback requirements of federal law. There are two (2) Supplemental Needs Trust options for this situation: first, a Medicaid Payback Trust established pursuant to 42 USC 1396p(d)(4)(A) (also referred to as a “(d)(4)(A) Trust”); or, second, a Community Pooled Account Trust established pursuant to 42 USC 1396(d)(4)(C) (also referred to as a “(d)(4)(C) Trust;” these Trusts are collectively referred to as “OBRA 1993 Special Needs Trusts” because of the federal law, the Omnibus Budget Reconciliation Act of 1993, that established the use of these Trusts).

Guardian v Conservator of an Adult (Michigan)

By Matthew A. Quick When people cannot care for themselves, others are required to help. If Powers of Attorney, Patient Advocate Designations or Living Wills have not been executed (meaning no one has been appointed to help) then people must rely upon a Court to select someone. A Court will choose anyone who is suitable and willing to serve and will designate them a Guardian or a Conservator, or both (a Guardian and a Conservator could be the same person or entity, or different people or entities). MCL 700.5313 and MCL 700.5409.

A Guardian is a person who has been qualified and appointed by the Probate Court to act on behalf of a ward with respect to personal care and custody. A ward, in most adult instances, means an incapacitated individual. An incapacitated individual is a person who, by definition, “is impaired by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, or other cause, not including minority, to the extent of lacking sufficient understanding or capacity to make or communicate informed decisions.” MCL 700.1105.

A Conservator is a person who has been qualified and appointed by the Probate Court to act on behalf of another person with regard to their property and financial affairs. The appointment of a Conservator is appropriate if both of the following exist: (i) The person for whom a conservatorship is sought is unable to manage their property and financial affairs due to mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, confinement, detention by a foreign power or disappearance; and (ii) The person for whom a conservatorship is sought has property that will be wasted without proper management, requires financial support or welfare or has a dependent that requires financial support or welfare. MCL 700.5401.

In sum, a Conservator does not have the power to consent to personal care and custody; and, if a Conservator is appointed, a Guardian does not have the power to consent to the care of property and finances.

As a practical note, to avoid the time and expense of guardianship and conservatorship proceedings, advanced directives, such as Powers of Attorney, Patient Advocate Designations and Living Wills, should be executed prior to incapacity. Not only do these documents allow someone the power to designate their own caretakers, but they also allow for instructions to be given as to care.