Bigstock-Law-Legal-Rights-Judge-Judgeme-95353457

Analyzing the Zahner Holding: Moving Forward Using Short-Term Annuities as Successful Planning Tools

October 1, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software

In 2014, the U.S. District Court for the Western District of Pennsylvania held that three separate Medicaid Compliant Annuities with "short" term repayments were sham transactions for less than fair market value, as the intentions of these annuities were to shield resources from Medicaid eligibility. The claimants appealed the decision. This month, the United States Circuit Court of Appeals for the Third Circuit issued their decision regarding the claimants’ appeal. The Third Circuit’s decision sets a precedent is important for Elder Law practitioners, not only in Pennsylvania, but potentially in our field at large.

The Holding

Each case involved Medicaid claimants who purchased annuities after making uncompensated
transfers to qualify for Medicaid benefits. Two of the purchasers were married at the time of purchase and one was not. One case involved an 18-month annuity purchase, while the applicant's life expectancy was 9.5 years. The second appellant purchased a 14-month annuity, with a life expectancy of almost 7 years. The third appellant purchased a 12-month annuity, with a life expectancy of 11.3 years.

The District Court made two holdings in the Zahner case. First, the District Court held that federal law preempted the Pennsylvania rule stating all annuities held by a Medicaid applicant and / or his spouse are not assignable, and thereby countable resources, as the Pennsylvania rule was in direct conflict with federal Medicaid law. The Third Circuit upheld this portion of the District Court decision. Second, the District Court ruled that the purchases of the annuities were sham transactions for less than fair market value. The District Court reasoned that because the annuity terms were not correlated closely enough to the life expectancies of the claimants, they were actuarially unsound. The Third Circuit overturned this portion of the District Court’s decision, opining that an annuity is actuarially sound if its term is less than the annuitant's reasonable life expectancy under the safe harbor provision.

What We Have Learned as Practitioners

By examining in detail the Third Circuit’s Zahner holding, we can get a much better picture of what to look for in annuities moving forward, and how to protect our clients in their purchases of Medicaid Compliant Annuities. It is exciting knowing that short-term annuities are a valid planning tool, in accordance with the Third Circuit’s decision.

The Safe Harbor Provision

The Safe Harbor Provision, 42 US §1396p(C)(1)(F), (G)(ii), states that certain annuities do not disqualify those otherwise eligible from receiving Medicaid benefits. The federal Medicaid law, through the Deficit Reduction Act (DRA), establishes a four-part test for annuities to fall within the Safe Harbor Provision. An annuity must (1) name the State as remainder beneficiary; (2) be irrevocable and non-assignable; (3) be actuarially sound; and (4) provide for payments in equal amounts, during the term of the annuity with no deferral or balloon payments. The Pennsylvania Department of Human Resources (DHS) attacked the annuities on two separate grounds. The first ground was that the annuities were not irrevocable, and the second ground was that the annuities were not actuarially sound. These are the prongs of the Safe Harbor Provision that we will look to in analyzing the Third Circuit’s decision.

Assignability

Pennsylvania Statute Sec. 441.6(b) states that "any provision in any annuity … owned by an
applicant or recipient of medical assistance … that has the effect of limiting the right of such
owner to … assign the right to receive payments thereunder … is void." Pennsylvania DHS argued that this law caused all annuities purchased by Medicaid applicants in Pennsylvania to fail the safe harbor test. The District Court and the Third Circuit held that this is untrue. The Third Circuit opined that all states that wish to participate in the federal Medicaid program must comply with federal eligibility requirements. The Federal Medicaid Act allows states to establish more liberal requirements than the federal rules when implementing the State Medicaid plans, but they cannot provide more restrictive ones. Therefore, citing the Supremacy Clause, the Third Circuit said that the state rule was pre-empted by the federal law and the state must acknowledge the assignability of an annuity in accordance with the intent of Congress. The Third Circuit went on to further express Congress' intent by stating that in married cases any annuity that was payable to the community spouse would count as an income source to the community spouse and could not be a resource for the institutionalized spouses.

Actuarially Sound

The Pennsylvania DHS made two arguments that the annuities were not actuarially sound. First, they argued that the annuities were trust-like in that they were transfers made to a trustee or trustees with the intention that the annuity be held, managed, or administered by the trustee(s) for the benefit of the grantor or certain designated individuals (beneficiaries). Pennsylvania Transmittal 64. The Third Circuit stated strongly that there is no fiduciary relationship between the insurance company and the annuitant like that of a trustee and a beneficiary, as the insurance company has no duty to invest for the benefit of the annuitant, as long as the payments are made on schedule.

Second, the Pennsylvania DHS argued that the annuities were not actuarially sound because the annuity terms were shorter than a "term of years," and the annuitants lost money in each fact pattern presented to the Court. The Third Circuit held that as long as annuity terms are not longer than the reasonable life expectancy of the individual, the transfer is not being made for less than fair market value and the trust remains actuarially sound. The Third Circuit further interpreted "term of years” to be any reasonable time period, and while minutes or days may be a sham period of time, that was not the case here, as the term of months comported with the annuitants’ life expectancies.

National Impact

As Lawyers with Purpose attorneys desiring to use the best planning tools for our clients moving into the future, this ruling is important in many of its findings. The ruling holds that while the state may allow more liberal interpretations of the federal Medicaid rules, it is against the U.S. Congressional intent and in violation of the Supremacy Clause for the state to be more restrictive on Medicaid eligibility than the federal rules allow. The holding further makes a clear distinction between annuities and trusts on the federal level, stating that there is no fiduciary relationship between the annuitant and the insurance company as the insurance company has no obligation to invest in any way in the best interest of the annuitant. The Third Circuit also offers a more clear definition of what a period of time is for purchases of Medicaid Qualified Annuities, allowing purchases for less than a term of years if the time period of payout is in proportion to the annuitant’s life expectancy. In conclusion, the Zahner decision provides solid legal precedent for the continued use of short-term annuities in Medicaid planning.

Please join Dave and me in Phoenix as we discuss the potential implications of the ruling on Medicaid Compliant Annuities in our focus session on Wednesday, October 21st at the Tri-Annual Practice Enhancement Retreat. There are only a few spots left and the doors close TODAY at 5!

Kimberly Brannon, Legal-Technical and Software Trainer at Lawyers With Purpose

Bigstock-Forms-Concept-with-Word-on-Fol-95979155

Focus on Forms: Third Party VA Forms – the 21-22a and 21-0845

September 29, 2015

by Lawyers With Purpose with 5 Comments Estate Planning Drafting Software Legal Technical VA

This post is an installment in the Focus on Forms series, which considers and discusses some of the most common forms associated with Department of Veterans Affairs (VA) pension claims. The goal of this post – like all those in the Focus on Forms series – is threefold: to define the purpose of the forms; to discuss how they should be completed; and to recommend what to file with these forms. Today’s subject is the forms related to third parties that may be involved in a pension claim, specifically, the 21-22a and the 21-0845.

Purpose of the 21-22A and the 21-0845

The VA forms 21-22a and 21-0845 are used to establish representation of a claimant by a third party and authorize the release of information to a third party, respectively. The VA does not recognize Powers of Attorney and will only speak or release information to a claimant unless a third party has been recognized by the VA as the claimant's authorized representative or recipient of personal information. The only other person who would be able to communicate or obtain information from the VA regarding a claimant would be the person appointed as fiduciary after an award has been adjudicated and when a claimant has been deemed incompetent. These forms do not have any impact on the processing of the VA claim other than to identify to whom the VA can disclose information. If there is no third party representing the claimant, these forms do not need to be submitted to the VA.

Form 21-22a is entitled, “Appointment of Individual as Claimant’s Representative” and is to be used by accredited attorneys, accredited agents, private individuals, or service organization representatives who want to be recognized in the “preparation, presentation, and prosecution of claims for VA benefits for a particular claimant.” It is a two-page form with instructions embedded in the fields. The individual named on this form should be copied on all correspondence issued by the VA regarding the claimant.

Form 21-0845 is the Authorization to Disclose Personal Information to a Third Party and was recently updated by the VA. The current version is dated May 2015 on the lower left corner of the form. The new version is available in the latest release of the Lawyers with Purpose VA software. It consists of a single page with an introductory first page of general information and specific instructions. It is used to identify non-accredited third parties that can be given information about the claim, but it does not imply that these parties in any way “represent” the claimant. For example, a child, home health care company or assisted living facility may be listed as having authority to obtain information. Note that forms 21-0845 signed by VA beneficiaries who have been deemed incompetent will not be accepted. Therefore, it is best practices to have the claimant sign this form before submitting a claim for benefits, which is a time frame wherein the VA presumes the person is competent.

Completing the 21-22a and the 21-0845

Both of these forms are fairly straightforward. Per the Respondent Burden field in the upper right corner of these files, they should each take no more than 5 minutes to complete. This is an accurate assessment. What is likely to take more time on the VA form 21-22a is getting all the necessary signatures in the appropriate places. It can be confusing, but the claimant and the representative each sign twice – once on each page. Most of the other fields are self-explanatory. An important feature that may easily be overlooked on the 21-22a is a cleverly hidden field that has no number. It is on the second page in the section called “Conditions of Appointment.” The very fine print here indicates that if the individual named on the form as representative is “an accredited agent or attorney, this authorization includes the following individually named administrative employees of my representative.” In the space that follows, you may list all such non-accredited team members who may need to call the VA regarding the status of a claim.

The 21-0845 has similar fields to those in the 21-22a, with the notable exception that the latest version of the 21-0845 now sports the individual character boxes to aid the VA in computer processing of forms at intake. The 21-0845 also allows you to select a security question and answer that you may need to provide as confirmation that you are the person identified when you telephone the VA.

What to file with the 21-22a and the 21-0845

There is nothing in particular that is required to be filed with either of these two forms. They both should be submitted with an Intent to File a Claim or the Fully Developed Claim. They should also be included with any other correspondence you may need to address to the VA, particularly when the third party is the individual signing the correspondence.

The individual appointed as the claimant’s representative on the form 21-22a will automatically be authorized to receive the information accessible by the form 21-0845. So you may ask, why file the 21-0845 in addition to the 21-22a? Some VA call center agents employ the extra security layer provided by the form 21-0845 and will require the response to the security question before they release any information over the telephone. Furthermore, you cannot have more than one 21-0845 on file with the VA at any one time. By filing one with your client’s claim, you ensure from the outset that your firm is the only third party with access to that claim information. Subsequent 21-0845s that are filed will not replace the active one on file until the claimant has notified the VA that he/she wishes to withdraw it.

As mentioned above, neither of these forms will directly affect the adjudication of a pension claim, but when in place they allow you to manage the claim more effectively. Without the powers these forms bestow, you are dependent on receiving information secondhand and perhaps not in a timely manner, which can in turn lead to unnecessary denials.

If you want to sharpen your VA technical legal saw, we offer a free "VA Tech School" webinar the first Wednesday of every month. Click here and join us on Wednesday, October 7th at 12 EST. This month's topic is "Denied Benefits Due to Transfers of Assets: How to Appeal and Win!" Register today!

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC and Director of VA Services for Lawyers with Purpose.

Victoria L. Collier, Veteran of the United States Air Force, 1989-1995 and United States Army Reserves, 2001-2004. Victoria is a Certified Elder Law Attorney through the National Elder Law Foundation; Author of “47 Secret Veterans Benefits for Seniors”; Author of “Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit”; Founder of The Elder & Disability Law Firm of Victoria L. Collier, PC; and Co-Founder of Lawyers With Purpose, www.LawyersWithPurpose.com.

Bigstock-Debate--Two-People-Speaking-D-14929292

Annuity or Promissory Note?

September 23, 2015

by David Zumpano with One Comment Asset Protection Estate Planning Drafting Software

I'm intrigued with how many lawyers use Medicaid-qualifying annuities when doing crisis Medicaid planning. Medicaid-qualifying annuities address a core issue in crisis Medicaid planning for applicants with excess resources. The annuity acts as a “spend down,” which often leads to immediate eligibility for the client. The promissory note has the exact same impact and use in this fact pattern, but interestingly, it is used less often, even though it’s much easier to achieve eligibility, which will disqualify the individual for benefits for a period of time. The question becomes which to use and why.

The Omnibus Reconciliation Act of 1993 (OBRA) was the first legislation that began to set parameters for annuities to be Medicaid-qualifying. Essentially, it requires the annuity to be irrevocable, non-assignable, to have no cash value, and to be payable over the life expectancy of the annuitant. The Medicaid-qualified annuity rules are further enhanced by the Deficit Reduction Act of 2005 (DRA), wherein it also required that all annuities must have equal monthly payments with no delay in or balloon payments, and the annuity must name the state as the irrevocable beneficiary after the death of the annuitant. This significantly reduced the use of Medicaid annuities as a spend-down strategy to only married applicants, but it still allows them to be used in a crisis case to become “otherwise eligible” and use the annuity funds to be used for payment of long-term care costs during any disqualification period created by any uncompensated transfer.

DRA 05 also provided the first legislative permission for Medicaid-qualified promissory notes. DRA specifically provides that a loan to a third party by a Medicaid applicant will be deemed as a compensated transfer if it is irrevocable and pays over the life expectancy of the applicant. Essentially, DRA 05 permitted every individual to create a private annuity. The one risk, however, is that the statute does not require a promissory note to be non-assignable, so if it is assignable, it will be a countable resource in determining Medicaid eligibility because it is saleable and has a value. To avoid this, ensure that your promissory note is non-assignable.

So the question becomes, if you can do your own promissory note, why would you ever use a Medicaid-qualifying annuity?

The answer comes down to your state's application of the DRA 05 laws regarding promissory notes. While the federal law is clear that they are permissible, some states still don't permit them and count them as an available resource in determining the eligibility of a Medicaid applicant. This perplexes me, as federal law is clear, and under federal law, the state law cannot be more restrictive than the federal law. Most states that have taken a position against promissory notes have seen that position overturned by legal proceedings, whereas many states that do not permit promissory notes have not been effectively challenged.

Notwithstanding, as estate planners we are not litigators, and we strive to avoid litigation. So if your state does not permit promissory notes, then the path of least resistance is using Medicaid-qualifying annuities. When given the choice, a promissory note is easier, it can be done within the confines of your own office and it can be customized to the individual needs of the client, whereas Medicaid-qualifying annuities are typically restricted by the minimum period of time required by the insurance companies (typically a 24-month payout). To learn how to effectively use a Medicaid annuity versus a promissory note, let LWP show you.

We still have a few spots left in the room at the Tri-Annual Practice Enhancement Retreat but register now. Registration closes October 2nd and we WILL reach capacity … (we always sell out)! If you're an estate or elder law attorney, you don't want to miss this! Click here to register now.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Bigstock-Fountain-Pen-On-Appeal-51919675

Don’t Appeal the VA – Find Another Way!

September 14, 2015

by Lawyers With Purpose with One Comment Asset Protection Estate Planning Drafting Software VA

When a claimant has received an unfavorable decision from the Veterans Administration, the first inclination is to appeal. The appellate process can take years to resolve. Elderly seniors seeking the wartime pension do not usually have years to wait, as death could occur at any time. When a claimant dies, the claim usually dies too. Thus, it is critical to speed up the process to get an approval sooner rather than later.

A preferable alternative to appealing is seeking a Request for Consideration. This is when a claimant requests that the VA reconsider one of its decisions that has not yet become final. A decision becomes final one year after it is issued. Thus, you must file a request for reconsideration within a year of the original decision. There is no specific form to file a request for reconsideration; however, we recommend using VA Form 21-4138, Statement in Support of Claim.

Common reasons to request a reconsideration of a decision for a pension claim include, but are not limited to, the following:

Denial of Pension claim for excess income (or only partial approval)
Denial of Pension with Aid and Attendance
Denial due to excessive net worth
Incorrect effective date of the award

Denial of pension claim for excess income (or only partial approval). To qualify for VA pension, the claimant must meet income limitations. Often, in order to meet the limitations, the claimant has recurring out-of-pocket medical expenses that can be deducted from the income, which then reduces the income for eligibility purposes. When the claim is denied or approved for less than expected, it is usually because either the claimant does not have enough medical deductions or the VA did not properly deduct permissible medical expenses. For example, the VA is to deduct all medical expenses for both a veteran and the veteran’s spouse; yet, the VA often does not deduct the spouse’s medical expenses. In that case, a request for reconsideration is a useful strategy to submit the expenses (again) and request that the VA recalculate the award.

Denial of pension with aid and attendance. When a claimant needs the assistance of another person to help with at least two activities of daily living (bathing, dressing, transferring, eating, incontinence/toileting), or needs the regular supervision of another due to dementia (memory loss), then the claimant can receive a supplemental monthly income called aid and attendance. But, before aid and attendance can be granted, the claimant must submit VA Form 21-2680, Application for Aid and Attendance, completed by their treating physician, to the VA. The form must be filled out with very specific language to meet the VA’s standards. When a claim is denied for aid and attendance, it is usually because the claimant either did not submit this form or the physician did not fill it out sufficiently. Getting a new form filled out properly and submitting it with a request for reconsideration will generally garner an approval by the VA.

Denial due to excessive net worth. To qualify, the claimant must have limited resources. If the VA denies a claim due to excessive net worth, once the assets are no longer excessive, the claimant may submit verification of the reduced assets and request the claim be adjudicated again.

Incorrect effective date of award. When filing for pension benefits, it is important to obtain the earliest effective date possible. The sooner the date, the more money the claimant receives. Under the fully developed claim process wherein the VA requires that the claimant submit all application forms and supporting documents simultaneously, months can go by while waiting to obtain a divorce decree, death certificate or the physician’s affidavit for aid and attendance. Instead of waiting in vain (without getting benefits), the claimant can file an Intent to File a Claim on VA Form 21-0996 to “lock in” the eligibility date. This form should only be filed when the claimant meets all financial and medical criteria but is waiting on supporting documents. Once the supporting documents are in hand, then, subsequent to filing the notice of intent, the claimant will file the fully developed claim. There may be months between the two. Once the VA issues its decision, it may have overlooked the intent to file a claim locking in the effective date and instead award the date from the filing of the fully developed claim. So as not to lose the intervening months, you should file a request for reconsideration with a copy of the intent to file a claim that was previously filed.

Although appeals can take several years to resolve, we are seeing that requests for reconsideration are taking less than six months, often only 30 days, to resolve. This is a much better outcome for the client.

If you want to learn critical information on building a thriving practice while serving those who serve our country, register for our FREE WEBINAR this Wednesday at 12 EST.

Here's Just Some of What You'll Discover During this Complimentary Event…

How and Where to Obtain Quality Clients
How to Present the Value Proposition
What to Charge for Planning
What to Include in Your Engagement Agreement

Victoria L. Collier, Co-Founder, Lawyers with Purpose, LLC, www.LawyersWithPurpose.com; Certified Elder Law Attorney through the National Elder Law Foundation; Fellow of the National Academy of Elder Law Attorneys; Founder and Managing Attorney of The Elder & Disability Law Firm of Victoria L. Collier, PC, www.ElderLawGeorgia.com; Co-Founder of Veterans Advocates Group of America; Entrepreneur; Author; and nationally renowned Presenter.

Bigstock-Illuminated-light-bulb-in-a-ro-85128830

When to Use the KIT™Trust

September 9, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software

Over the years, LWP has become known for its MIT, FIT and KIT trusts for asset protection and long-term care benefits planning, but few understand the KIT and its flexibility. Let's do a quick review…

A MIT Trust, or “My Income Trust,” is an income-only irrevocable IPUG asset-protection trust that allows the client to maintain control of assets, benefit from them to the extent they're willing to put them at risk, and modify or change the trust in all regards at any time other than in regards to the protection of which they seek.

The FIT Trust, or “Family Irrevocable Trust,” is an irrevocable IPUG asset-protection trust that allows the client to be in control of the assets, manage them and identify who gets distributions from it and when, but the client does not retain any rights to the income or principal.

Finally, the KIT Trust, or “Kids Irrevocable Trust,” is created by the children of the benefit of the MIT or FIT client where assets have already been conveyed to the children prior to being educated as to the benefits that the MIT or FIT could provide for the client's assets. The typical use of the most difficult form of KIT Trust is when mom and dad transfer the family farm (or other major assets) to avoid losing them to the nursing home. The KIT Trust is a strategy to protect assets that have already been conveyed to the kids (or others) before the client got to you.

How do KIT Trusts work?

A transfer of assets by individuals to their children may protect the assets from their long-term care costs and other risks, but it puts them squarely at risk from the creditors and predators of the children to whom they were transferred. For example, if one of the children that the farm was transferred to gets divorced, sued or dies, that child's ownership interest is no longer subject to the client’s influence, but rather is subject to the child's estate plan, or worse, lack of an estate plan.

That's why the KIT Trust is a great tool to use when assets have already been conveyed to the children. A properly designed KIT Trust will be created by the children as co‑grantors, and it will be an irrevocable IPUG asset protection trust, which allows the children to be a sole trustee or co‑trustee with their parents in the management of assets transferred to the trust.

Once it is created and the assets are transferred to it (typically the assets the children received from their parents), the assets are protected from the children's creditors and predators. In fact, as a third-party trust, it is not even countable in mom and dad's Medicaid eligibility calculation if they were named beneficiary of the trust. The question is how to properly create a KIT irrevocable trust.

The key point when creating a KIT Trust is understanding that the children become the client in the context of the trust creation. The KIT Trust is a grantor trust, but to the children. Therefore, all income generated by the trust, regardless of whom it’s distributed to, will be passed to the children who created it, so ensuring a proper investment strategy that works well with the children's tax planning is essential.

Another key element with a KIT Trust is identifying the beneficiaries. Can you make mom and dad the income or principal beneficiary of the KIT Trust? Well, the answer is yes, but it's up to each attorney and their comfort level. I have successfully named parents beneficiaries of the income and principal of a KIT Trust for years without it becoming an available resource when determining their Medicaid eligibility.

The key distinction is the fact that it is a “third-party trust,” not a trust created by the parent as Medicaid applicants, but rather, by a third party, their children. Many raise the issue of it being funded with assets that were the parents', but that is not a fact at issue, as the children are not applying for Medicaid and the assets of the irrevocable trust are not subject to the look-back period related to parent eligibility.

Again, although it is permissible, some attorneys are not comfortable naming the parents principal beneficiary. In reality, it may not be necessary to name the parents as principal beneficiary, since it was evident by the giving up of the asset to the kids that they no longer needed to have access to them. A more conservative approach is to allow them access to income only, but it is in no way reckless to permit access to principal.

The final question in creating a KIT Trust is what to do when mom and dad die. Since the trust is created by the children (siblings), there can be an inherent gift upon the funding of the trust if the children transfer the asset from the parents to the KIT Trust, depending on how it’s created. Presumably, upon mom and dad’s death, the kids get back their share of the remaining assets, but a complete gift will occur during the parent’s lifetime whenever a distribution is made from the trust. In addition, even if the children receive equal shares upon the death of mom and dad, under tax law it is not presumed that the share they receive was the share they put in.

So, by creating a KIT Trust, if it is not properly designed, there could be inherent gift tax issues between the children upon the funding of the trust and upon the termination of the lifetime trust after the death of the parent. One way to alleviate this concern is to set up separate shares and ensure that all distributions to any beneficiary are made equally from each separate share, and at the termination of the lifetime trust, each child gets their separate share balance back. This should mitigate any risk of gift tax issues and offer the opportunity to convert the KIT Trust to a separate MIT Trust or FIT Trust for each of the children's separate shares upon the death of the parent. It all requires a clear knowledge of the subject and a software system to keep your practice aware of the key issues.

If you want to learn more about Lawyers With Purpose and in particular would like a free demo of our estate planning drafting software, click here now to schedule a call.

Our Tri-Annual Practice Enhancement Retreat registration is open. If you want to experience what it's like to be a Lawyers With Purpose member consider experiencing it first hand by being in the room with us October 21-23 in Phoenix, AZ. But register soon and save – the price goes up 9/19! We are half way at capacity and the first few days are completely SOLD OUT!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Good News – Bad News!

September 2, 2015

by Lawyers With Purpose with No Comment Estate Planning Drafting Software Legal Marketing Systems & Processes Team Building

PRACTICE WITH PURPOSE IS SOLD OUT! PLEASE READ!

Wow ….

It takes A LOT to shock me, but I’ve just confirmed that the Practice With Purpose portion of our October Retreat has officially SOLD OUT only two weeks into registration.

With that crazy update comes good and bad news.

Bad news: I’ve called the hotel today personally. We are in the largest room possible and there is nothing else available at our venue. We are not allowed to add seats either because of fire laws. So unfortunately, we have to close registration down for this portion of the program.

If you had your heart set on attending the Practice With Purpose portion of the week and bringing your team, please send me an email to get on a wait list. I will contact you personally if someone is not able to make it and a space opens up.

Now, for the good news.

The remainder of the retreat week is still available and will ROCK! Just about everyone attending Practice With Purpose has chosen to stay the entire week because our breakout sessions and team programs are just phenomenal this quarter.

We have the largest ballroom on the property for this portion of the program—so as of right now, there is STILL SPACE! But, I was informed that we are creeping up on capacity limits here as well. Please don’t wait to reserve your spot!

And, because the full-week registration option is no longer available, we have decided to slash the registration price for the remainder of the retreat. For a limited time, you can join us at a discounted rate when you attend from Wednesday, October 21- Friday October 23.

Oh, and you can STILL bring three team members, absolutely FREE as our gift to you. This portion of the program is all about equipping not only the attorney, but the entire staff for success—so take advantage of being able to snag FREE tickets for your team while you can!

To view the class schedules and retreat agenda, simply click here.

If you have questions, please feel free to email me at mhall@lawyerswithpurpose.com. I’m happy to schedule a call with you to discuss the sessions and/or registration options that are best for your law firm.

Here’s to an AMAZING October Retreat!

Molly

Bigstock-Hand-Inserting-Gold-Coin-Into--86529890

Maximizing the Benefits of a Well-Planned IRA Beneficiary Designation

September 1, 2015

by David Zumpano with 2 Comments Asset Protection Estate Planning Drafting Software

Many attorneys and financial professionals struggle over how to properly designate the beneficiary of an IRA. While it can be confusing, understanding the core elements of the procedure greatly simplifies the designation process and offers multiple solutions. The three key elements one must analyze before designating the beneficiary are as follows: first, what is the overall intention of the IRA owner; second, who is the intended beneficiary; and third, what is the proper language to use on the IRA beneficiary designation form. As we examine and grow to understand these three issues, great practice opportunities will emerge.

The most important element in determining the proper IRA designation is the overall goal of the IRA owner. If the owner’s goal is simply to transfer the IRA interest to someone else at death, then a simple designation to the individual will suffice. The challenge comes when we start to identify more advanced goals. What happens if the IRA owner intends for the beneficiary to receive the IRA protected from the beneficiary’s predators and creditors? What if the owner wants the beneficiary to receive the IRA over a lifetime rather than all at once? These are situations in which a mere direct designation to the beneficiary will not accomplish a client’s goal.

The U.S. Supreme Court, in Clark v. Remeker, ruled that funds held in an inherited IRA do not constitute “retirement funds” and thereby do not derive the same protection benefits as the original IRA. (573 US, 2014). The one exception to this ruling occurs if the beneficiary is the surviving spouse and the surviving spouse rolls the decedent’s IRA into his or her own IRA. However, although the surviving spouse may be permitted to make distributions from the IRA over his or her life expectancy, such withdrawals will not necessarily be protected. Further, while a surviving spouse can maintain the protection of the original IRA owner, the surviving spouse can lose the IRA proceeds to his or her long-term care costs.

If the goal of the IRA owner is to preserve the IRA for the benefit of his or her beneficiaries and protect it from said beneficiaries’ creditors and predators, then a direct designation of the beneficiary must not occur. Currently, the only way to absolutely protect an IRA from the creditors and predators of the beneficiaries is to designate an irrevocable trust as the IRA beneficiary and designate the intended IRA beneficiaries as the beneficiaries of said trust. This two-step approach assures continued protection of the IRA funds after the death of the original plan holder and for the lifetime of the trust. The challenge for practitioners now becomes how to effectively name a trust as the IRA beneficiary and how that designation impacts the individuals intended to benefit from the IRA.

A trust can be a qualified designated beneficiary of an IRA without violating the IRS rules that require a “stretch out” of the payments from the IRA over the lifetime of the beneficiary. The four criteria to ensure compliance with the “stretch” rule necessitate the trust (1) to be valid under state law, (2) to be irrevocable at the death of the grantor, (3) to have all beneficiaries clearly "identified" within the statutory time period, and (4) a copy of the trust must be provided to the IRA plan administrator. These conditions can easily be met, but the most common violation is in having a qualified beneficiary that is identifiable.

An identifiable trust beneficiary must be clearly identified by the terms of the trust prior to September 30 of the year following the IRA owner's death. While this seems simple, it typically is violated in two fashions. First, a nonhuman beneficiary is named, creating a situation where there is no measurable life in being (i.e. a charity). Second, the terms of the trust do not clearly identify a beneficiary that can be named within the statutory time period. This violation typically occurs when the terms of the trust require some condition precedent to the vesting of the beneficial interest. While appearing complicated, once a practitioner has an understanding of these two issues, language can easily be inserted into the trust to ensure that those provisions are not violated. As Lawyers with Purpose members, our client-centered software system has all necessary language to ensure that the provisions are not violated by providing clear and proper warnings when an attorney makes choices that could put the stretch out in danger. Once the trust beneficiaries are properly identified, a trust can be named as beneficiary to maintain the asset protection for a non-spousal beneficiary (or spousal beneficiary if long-term care costs are an issue).

The final step lies in properly naming the trust as the beneficiary of the IRA. This requires an attorney to have a clear understanding of the distinction between outside beneficiary designations and inside beneficiary designations. Outside beneficiary designations reference beneficiary designations made outside of the trust on the beneficiary designation form of the IRA itself. Typical outside beneficiary designations are the trust, a specific article within the trust, or a particular beneficiary within the trust pursuant to a particular article. Examples of these outside designations could be as follows: “Pay to the trustee of the ABC trust dated 1/1/2015,” “pay to the trustee of the family trust under Article Four of the ABC trust dated 1/1/2015,” or “pay to the trustees of each separate share trusts under Article Five of the ABC trust dated 1/1/2015.” These three outside beneficiary designations distinguish which beneficiaries of the trust will receive the IRA. More importantly, these designations will also distinguish the stretch period based on the life expectancy of the oldest beneficiary inside the designated trust (the general trust, the family trust, or the separate share residuary trusts).

Inside designations refer to the specific beneficiaries named inside the trust document. When the proper inside designations are made after the correct outside designation, meaningful and comprehensive protection is afforded the client. Typically, a family trust will name the spouse and children of the client as beneficiaries. In such a situation, the oldest beneficiary would likely be the surviving spouse and therefore trigger a much shorter stretch-out period. In addition, a second stretch period at the death of the surviving spouse would be lost because it was not rolled into the surviving spouse’s IRA. Alternatively, when a residuary trust is named as outside beneficiary, the IRS would then examine all beneficiaries inside the residuary trust and choose the oldest beneficiary for the measuring life of the stretch. Finally, when the outside beneficiary is designated as separate share trusts, each separate share trust under the particular article would be analyzed to identify the oldest beneficiary therein. Typically in each separate share trusts there is only one beneficiary, so each beneficiary would use his or her age as the measuring life for stretch calculations.

Disclaimers are an important tool to consider in conjunction with outside and inside designations in IRA planning. Disclaimers may be effectively used on both outside and inside beneficiary designations. The use of disclaimers can create a variety of options to meet the overall goals of the client after death.

Proper inside and outside beneficiary designations together with the effective use of disclaimers are powerful planning tools. As an example, let’s analyze a situation in which a client desires to leave his IRA to his spouse of the same age, while still getting the most return on his investment for his wife and children. In this scenario, the client’s outside IRA beneficiary designation form names a family trust as the primary beneficiary and the surviving spouse as the contingent beneficiary of the IRA.

When the client names the family trust on the outside beneficiary designation form, the trustee of the family trust accepts the IRA designation. The surviving spouse, as sole inside beneficiary of the family trust, may choose not to benefit from the IRA. In accordance with the terms of the family trust, she can disclaim her interest in the family trust within the trust document. The IRA must then be paid in accordance with the trust terms to the residuary trust and the oldest of the residuary trust beneficiaries (in this scenario, the client’s oldest child) becomes the measuring life for the stretch.

Alternatively, as primary outside beneficiary, the trustee could disclaim the trust’s interest in the IRA in accordance with the outside beneficiary designation form before it is ever transferred into the family trust, resulting in the IRA going directly to the contingent outside beneficiary designation, the surviving spouse. The surviving spouse could then roll the inherited IRA into her own IRA and get all the benefits associated therewith. As evidenced, this plan permits an examination of the surviving spouse's health and income with regard to long-term care costs at our client’s death. In doing so, we have given our client and his spouse the greatest opportunity to ensure that the overall protection goals of the IRA owner (client) are met.

By understanding and implementing the three key elements in determining IRA beneficiary designations (the overall intention of the IRA owner; the intended beneficiary; and proper language to use on the IRA beneficiary designation form), we as LWP attorneys are able to provide our clients with the best IRA distribution plan to fit their desires and needs.

For a deeper understanding of Lawyers With Purpose and what we have to offer your estate planning and/or elder law practice, join us in Phoenix, AZ, in October. If you are even considering coming to this event register today – The first 2.5 days of the program are officially SOLD OUT and the room is at capacity. We still have a few spots left for the BIG Tri-Annual Practice Enhancement Retreat that kicks off Wednesday afternoon. For registration information contact Amanda Ross at aross@lawyerswithpurpose.com or call 877-299-0326.

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

When Is It Too Late to Protect Assets?

August 21, 2015

by David Zumpano with No Comment Asset Protection Estate Planning Drafting Software

Many people are accustomed to the concept of "protecting their assets," but few are clear on the details of how to do it. The primary concern for clients is the loss of their assets to long-term care costs. Most people believe they need to wait five years to protect their assets, and once they enter a nursing home, they believe it's too late. The truth is, it's never too late to protect assets. As the LWP™ Medicaid Calculation software shows, individuals can qualify immediately for Medicaid, even if they have assets in excess of half a million dollars. The trick is to know the Medicaid laws and rules and how they apply to each client fact pattern.

I'll use Mary as an example. Mary called my office frantic because her mother was admitted to a hospital, and she was advised that mom would be going to a nursing home. She immediately contacted her dad's lawyer to see what to do. Dad's lawyer was swift to give them advice on protecting their assets from the threat of mom's impending long-term care costs. Mary was thrilled that the lawyer showed them how to protect $175,000 of their $450,000. Although they were losing $275,000, they were thrilled to protect the balance.

Mary eventually called me because her sister knew me and insisted she get a second opinion. When we put Mary's mom's fact pattern through our Medicaid qualification software, we were quickly able to determine that, in fact, Mary's mom qualified for Medicaid immediately and all $450,000 of her assets were safe and protected for dad, who still resided at home. In fact, I run into dad frequently at breakfast, and six and a half years later, mom is still in the nursing home and he's still at home with 100 percent of his assets protected. So, the question is not whether it is too late. The question is, how much can we protect and how soon?

It’s easy with the LWP Medicaid Calculation software. It shows you how. If you would like a FREE demo of our Estate Planning Drafting Software click here to schedule a call now!

David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center

Big Brother is Watching: Fiduciary Accounting

August 19, 2015

by Lawyers With Purpose with 3 Comments Estate Planning Drafting Software VA

What is it?

When the Department of Veterans Affairs (VA) determines that a claimant is incompetent and needs assistance managing their VA pension, it approves the nomination of a fiduciary to do just that. The fiduciary is responsible for opening a dedicated bank account for VA funds only and for spending VA funds according to an agreement that the VA field examiner arranges and approves. In order to ensure that the fiduciary is doing what he or she is supposed to be doing, the VA may require the fiduciary to submit an annual accounting that documents how VA funds were spent.

Who completes it?

There is more than one type of fiduciary. The most common type you may encounter is the federal fiduciary, as opposed to a court-appointed fiduciary. Federal fiduciaries can be a spouse or other family member, a legal custodian, or even an organization like a state/local government entity or a health care facility.

When do you complete it?

It is up to the field examiner to decide whether a fiduciary should be required to submit an accounting, and if so, how often. For example, an accounting should not be required of a spouse payee unless there are unusual circumstances. If it does need to be completed, it is generally required annually, although the VA can request one at any time. For a regular annual accounting, the fiduciary should receive a letter a few months before the deadline explaining that the accounting is due. The due date is 30 days after the end of the accounting period, which is generally a one-year period that begins with the anniversary of the date on the letter appointing the fiduciary. You can request an extension if necessary.

How do you complete it?

The fiduciary accounting is fairly straightforward, although it can be confusing the first time you do it. The VA should send you two forms to complete: the VA form 21-4706b Federal Fiduciary’s Account and the 21-4718a Certificate of Balance on Deposit and Authorization to Disclose Financial Records. The second form is to be completed by the bank where the VA account was set up and is used to document the current balance plus any interest earned. Once completed by the bank, the form 21-4718a also needs to be signed by the fiduciary. These two forms should also be filed with copies of all bank statements for the VA account during the one-year accounting period.

The VA form 21-4706b, which is to be completed by the fiduciary, is used to report all activity of the VA account during the accounting period. It should not include any other accounts that the claimant may own. Despite the fact that the form requests “Amount received from Social Security” or “Amount received from other sources,” these are not reported on this form unless this income is being deposited in the VA account. Section I – Statement of Account on the first page comprises the following five parts:

Money Received
Money Spent
Total Estate at End of Period
Assets at End of Period
Total Assets

In part 1, “Money Received,” where it states under Item A, “Total Estate at beginning of period,” you must enter the balance of the VA account at the start of the accounting period. If this is the first fiduciary accounting, that balance may have been $0. Once you fill in this starting balance, you itemize what monies were received in the VA account in the boxes below. Any regular, monthly VA benefits should be listed under Item 1B, where you are provided with two lines in case the monthly benefit changed during the accounting period. Any lump sum deposits of retroactive VA benefits should be listed separately as items 1E to 1H and classified as VA lump sum.

In part 2, “Money Spent,” you list any expenses that were paid for the claimant during the accounting period from the VA account. Most of the time these expenses are medical in nature and can be listed under items 2G to 2L, since none of the pre-printed categories include medical. By subtracting the total spent in part 2 from the total received in part 1, you obtain the figure in part 3, “Total Estate at End of Period.” Part 4 is then where you list all current assets, which is usually what is contained in the VA account. If savings bonds were purchased with VA funds, you would also provide the total value of such bonds under item 4D and list those bonds individually on the second page. By totaling the assets in part 4, you obtain the figure in part 5, “Total Assets.” The goal of the fiduciary accounting is that the figure in part 3, “Total Estate at End of Period” matches the figure in part 5, “Total Assets.” If they do not, then review your entries and calculations, because you are missing something.

Result

Once the fiduciary hub has audited and approved the accounting, you will receive a letter stating as much, which may also tell you if future yearly accountings will be necessary. If you do not complete the accounting on time, you risk a temporary termination of benefits, the appointment of an alternate fiduciary, and even an investigation for possible misuse of funds. For more information, visit http://www.benefits.va.gov/FIDUCIARY/references.asp for a list of further resources regarding the VA fiduciary program.

If you want to learn more about what it means to be a Lawyers With Purpose member, consider joining us for the only event for estate law, asset protection and elder law professionals AND the teams that support them! Our Tri-Annual Practice Enhancement Retreat is October 19-23rd. Registration is open and you can still grab a spot at Early Bird Pricing. To register contact Amanda Ross at aross@lawyerswithpurpose.com or 877-209-0326 x 103.

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC and Director of VA Services for Lawyers With Purpose.

Victoria L. Collier, Veteran of the United States Air Force, 1989-1995 and United States Army Reserves, 2001-2004. Victoria is a Certified Elder Law Attorney through the National Elder Law Foundation; Author of “47 Secret Veterans Benefits for Seniors”; Author of “Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit” Founder of The Elder & Disability Law Firm of Victoria L. Collier, PC; Co-Founder of Lawyers with Purpose; and Co-Founder of Veterans Advocate Group of America.

Bigstock-Inspirational-Typographic-Quot-69544021

Looking forward to Phoenix for so many reasons …

August 17, 2015

by Lawyers With Purpose with No Comment Estate Planning Drafting Software Systems & Processes Team Building

As the Education Director for LWP™, it has been my privilege to take part in the development of the TAPER programs and to work with the amazing staff that makes these events unique. We’ve all been to the (yawn) lawyer conferences that should be advertised as a cure for insomnia. Our goal at LWP was to create a unique experience that advances the members to the next level by providing the tools to create a dream future, gain energy, engage the team and get focused. It only takes a moment to feel the energy in the room and know that you are not at an ordinary legal training event!

As an LWP trainer, the Tri-Annual Practice Enhancement Retreats (TAPERs) offer the opportunity to “pay it forward” and pass along some of the lessons that experience has taught. I’m particularly excited to be presenting a focus session on adding an Associate Attorney to your LWP firm.

As an LWP Mentor Coach, there is incredible satisfaction in watching from the sidelines as teams break through the barriers and find the road to success. The TAPERs are an opportunity to touch base with those teams, put names with faces, and really see the energy develop around their own futures.

As a member of LWP, the Practice Enhancement Retreats have always been a highlight, something that goes on our annual calendar the moment we learn the dates. We look forward to them as a team because we are anxious to shift focus and work ON the practice rather than IN the practice. The retreats are aptly named “retreats” because they are truly a time to get away from our day-to-day world, reflect on where we’ve been AND set the course for the future (whether that means the next weeks, months or years).

There is no denying the energy burst that comes from attending an LWP Retreat, and that is why LWP is doing them more often. If we could get an energy burst once a year, imagine how powerful three of those bursts per year would be! Triple the impact! For the last two years, I have shut down my law firm not once, but three times each year – and I really mean “shut down,” since the ENTIRE TEAM attends every retreat. That is the value of these events – every single member of the team gets a customized experience with the opportunity to focus on both professional and personal growth. What a difference! The team has taken ownership of the firm, and ownership of its own growth and development.

As a business owner, the thought of shutting down the business for any reason is scary. We ask: “What about the lost revenue?” “What about the expense of flying everyone around the country and putting them in hotel rooms?” “What about feeding them?” “Dollars seem to be flying out the window!” All of that is real. It IS expensive to attend three retreats every year, until you realize that this is NOT an expense – it is an investment. It is an investment in the future of the business made without hesitation because the ROI is exponential. The payoff is a team committed to the firm’s future, a team working together for common goals, a team dedicated to personal and professional growth, a team poised to push each other toward personal goals, a team that understands the power of teamwork!

And it shows in the bottom line. Despite and because of the three weeks per year of shutdown, our revenues have never been higher. That is the power of the LWP Tri-Annual Practice Enhancement Retreat.

Don’t take my word for it; find out for yourself. Join us in Phoenix and feel the power!

Early Bird registration is open! If you're ready to reserve your spot now email Amanda Ross at aross@lawyerswithpurpose.com or just call 877-299-0326 and she's standing by to help get you're seat reserved!

Susan Hunter