SJC rules on Nadeau and Daley Cases

See https://mirickoconnelltrustsandestateslawblog.wordpress.com/2017/05/30/sjc-rules-on-nadeau-and-daley-cases/.

 

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Planning for Pets

I was recently quoted in the Bangor Daily News in an article A Trust fund for a pooch? .  From time to time I do have clients interested in planning for their pets, though it is not a frequent request.   Thankfully the law in Maine and Massachusetts have evolved and allow for pet trusts.  Below are talking points regarding pet trust planning.   These materials are not intended to constitute legal advice and shall not be used to establish proof of the formation of an attorney-client relationship.  These materials are provided at no cost and may constitute a form of advertising.   These materials were prepared for general use. 

1.What is a Trust?

To simplify things, it is important to understand that a “trust” isn’t a “thing” so much as an agreement or arrangement involving at 3 people and some sort of property.  That’s all a trust really is.

The people involved in a Trust are:

  • A Settlor (a.k.a. Trustor, Trust Maker, Grantor, Donor): This is the person that creates or establishes the trust.  In the case of a Testamentary Trust (a trust established under a Will), this is the Testator/decedent.
  • A Trustee: This is the person charged under a trust with a fiduciary obligation to do what is called for by the Settlor of the trust with the trust property for the benefit of the beneficiary of the trust.
  • A Beneficiary: This is the person that the trust is intended to benefit.  The Beneficiary may be one or more people and may change over time.

That’s all a “trust” really is – an agreement between the Settlor and a Trustee that the Trustee will accept property from the Settlor and use that property for the benefit of another, the Beneficiary.

2. The Problem with Animals is…The problem with, and great thing about, animals is that they aren’t human.

  • Historically, pet trusts were invalid for two reasons.
    • There was no human beneficiary capable of enforcing the trust; and
    • The rule against perpetuities: As an animal’s life could not be used as the measuring life, this made pet trusts problematic when considered in light of the rule against perpetuities

3. Law Catches Up with the Times

As demand for pet trusts increased, the law began to bend to accommodate them.

  • Honorary TrustsTrustee must agree to do it or must return it. An early solution was to characterize the pet trust as an honorary trust under which the trust would not be invalid if the trustee was willing to carry out its terms but the law would not enforce the trust for the benefit of an animal.
  • Statutes Evolve: Overtime, states began to adopt statutes that specifically allow for enforceable pet trusts.

Maine Law – Legal Basis for Pet Trust

In Maine, Title 18-B (the Maine Uniform Trust Code) gives us two statutory provisions, Section 408 and Section 409.  I will address Section 408 in some detail but will only generally comment on the application of Section 408. See the end of these materials for Massachusetts’ Law relative to pet trusts.

Section 408. Trust for care of animal

  • What is it? A trust created for the continued care and maintenance of a particular animal or animals.
  • What goes in it? The trust must be funded with some amount of money or property. Excess funds may be subject to removal.
  • Who manages it? A trustee must be designated to administer the trust but an enforcer can also be appointed to oversee the actions of the trustee and caretaker.
  • When is it formed or established? A Pet Trust can be established under a Will or in a separate trust instrument.
  • Who can it benefit? Animals alive during the Settlor’s life.
  • When does it terminate? When the animal dies.

A Review of Maine’s Section 408

             Establishment and Termination of Trust

  • A trust may be created to provide for the care of an animal.
  • Animal must be alive during the Settlor’s lifetime.
  • Trust terminates upon the death of the animal or last surviving animal if there is more than one animal.

             Enforcement[1]

  • A trust established pursuant to Section 408 may be enforced by a person appointed in the terms of the trust.
  • If no such person is appointed, a person may be appointed by the court to enforce the trust.
  • A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust.
  • A person having an interest in the welfare of the animal may also request the court to remove a person appointed to enforce the trust.

             Intended Use

  • Property of the pet trust may generally only be applied to the intended use.
  • Presumably this “intended” use is to provide for the “care” of an animal as that is what Section 408(1) authorizes. However, arguably “care” may be construed broadly to cover items such as food, shelter, medical care, as well as the payment of the fees of an enforcer or caretaker. Point is, ideally the trust will provide some direction as to what the “intended use” of the trust is with regard to expenses.
  • If, however, a court determines that the value of the trust exceeds the amount required for the intended use of the trust, property not required for the intended use must be:
  • Distributed to the Settlor, if living,
  • Distributed to the Settlor’s successors in interest[2] if the Settlor is not living; or
  • As provided by the terms of the trust.
  • Ideally the trust will provide what should occur if a court determines that the value of the trust exceeds the amount required for the intended use. Care should be taken in drafting a pet trust to head off possible claims by others that the trust contains excessive funds. Additionally, care should be taken in funding the trust to ensure that excessive funds do not fund the trust to start with.

          Termination

  • Pet trusts generally terminate upon the death of the animal or last surviving animal.
  • However, should the trust be small (under $100,000), a trust created for the care of an animal can also be terminated by the trustee or court under Section 414 if the Trustee concludes that the value of the trust property is insufficient to justify the cost of administration.
  • Termination of a trust under that section, however, requires that the trustee or court develop an alternative means for carrying out the trust purposes that is consistent with those purposes. See Section 414(3). However, this may simply result in an outright distribution to the caretaker which may or may not be in the best interest of the long term care of the pet.
  • In drafting a pet trust, some consideration should be given to whether or not the Settlor wants to prevent an early termination of the trust under Section 414 and other sections of Title 18-B.

Section 409 and Trusts for Animals Generally

Pet Trusts under Section 408 are distinguishable from trusts having broader objectives such as the prevention of cruelty to animals or the benefit of animals generally such as through the maintenance of wildlife sanctuaries or animal habitat which may qualify as charitable and tax exempt. Section 408 does not address these broader animal-related and wildlife-related arrangements, but Section 409 may be applicable to those animal-related activities that do not qualify as charitable in nature.   However, the scope of the discussion under Section 409 is beyond the topic of “pet trusts” generally and will not be further addressed herein.

4.  Practical Pointers for Pet Trusts

There are numerous practical matters for attorneys to consider when drafting pet trusts. In Maine, due to our informal probate procedures, most pet trusts can be included in a Will.  In other states, such as in New Hampshire, most pet trusts will be drafted as inter vivos trusts, so as to avoid continuing probate court oversight that will occur with a testamentary trust.

  • Nominate the trust enforcer. Of utmost importance in a carefully drafted pet trust is the nomination of the trust enforcer. This enforcer will stand in the shoes of a “qualified beneficiary” for purposes of reporting and disclosure required under the UTC. Attorneys who usually draft trusts waiving all reporting and disclosure obligations (other than those required under the UTC) may want reconsider that position in the context of pet trusts. It is in the client’s interest to make sure that the trust enforcer has full and complete information when looking out for the pet’s best interests. The trust enforcer may also be given the authority to remove or replace the trustee or the pet’s caregiver.
  • Consider nomination of a pet care panel. A “pet care panel” is basically an advisory board for the trust consisting of friends, relatives, the pets’ veterinarian, and any others with an interest in the pets’ well-being. The pet care panel can make decisions and recommendations relating to the standard of care for the animal(s), health care decisions (such as the decision whether and when to euthanize), the choice of caregivers, the caregiver’s salary and bonus, and other matters relating to the well-being of the beneficiary pets. Having a pet care panel can make the pet trust a living, flexible instrument and can relieve the trustee (which can be a financial institution) of the burden of making decisions for which it is not equipped. Like the trust enforcer, the pet care panel can be given the authority to remove or replace a trustee or caregiver. The pet care panel can also advise the trustee in the event of an unexpected event, such as the animal’s running away.
  • Consider nomination of a caregiver. With a well drafted pet trust, the caregiver need not be nominated in advance. The trustee, trust enforcer, and/or, if applicable, pet care panel may be given authority to appoint the caregiver when the need arises. Of more importance, as noted above, is that someone have the authority to remove or replace the caregiver. Obviously, the caregiver should not be someone who is also a remainder beneficiary under the trust, due to the inherent conflict of interest involved.
  • Consider payment to the caregiver. Payment to the caregiver in reimbursement of expenses can occur in one of two different manners. One method would be to distribute a fixed periodic amount (for example, $500 monthly) to the caregiver regardless of actual expenses. Using this method could result in the caregiver getting a windfall during a month when the pet incurred very little in actual expenses, or a shortfall during a month when the pet incurred extraordinary expenses. The second manner of making distributions would only reimburse the caregiver for actual expenses incurred for the benefit of the pet. The latter method, of course, requires more paperwork and documentation from the caregiver. The client should also decide whether to pay the caregiver a salary. Some pet trusts are drawn up with bonuses to be paid to the caregivers for the longevity of the pets in their care.
  • Consider the likelihood of an out-of-state move. Inadvertent estate planning consequences can result when a client executes estate planning documents, moves, and fails to update those documents. This is particularly true with respect to a settlor who has executed a pet trust document, given the lack of uniformity in state law. Clients should be advised that these trusts may be considered as honorary trusts or even held invalid should the trust not be recognized by an out-of-state court. Still, it is prudent to include a choice of law provision in the trust document stating that Maine law, specifically, is to apply to the interpretation of this trust. It might also be helpful to include a contingency provision describing what should happen in the event that the trust is deemed invalid.
  • Estimate the amount needed for the care of the pet or pets. It is important to accurately calculate the amount needed to fund the trust to properly care for the settlor’s pets, as the Maine Trust Code restricts the funding of the trust to only that amount required for its intended use. The amount needed to care for the pets can be quite large, as in the case of a family with seven or eight pets who wish them to reside in the family home for the duration of their lives with a hired caregiver. In that case, the trust must pay for the maintenance and taxes on the real property, upkeep of the animals, and a caretaker’s salary. In the case of one elderly cat to be placed in the caregiver’s own home, however, the amount needed to fund the trust might be minimal. For a larger trust, an investment plan can be drawn up, taking into account the expected lifespan of the pet and the tax consequences discussed herein.
  • Consider the standard of care. Critical in estimating the amount required to fund the trust is setting forth the standard of care that the settlor expects the trust to provide for the pets. Regardless whether the trust calls for a Pet Care Panel to make such decisions, the settlor/pet owner may be most comfortable setting forth his wishes as to the pet’s standard of care in writing. It is a good idea to have the client help prepare a “Pet Profile,” a document which outlines the pet’s care needs, medical history, and even personality quirks. Moreover, written guidance in the standard of care can give the court guidance in the event that somebody brings suit to challenge the amount set aside in trust for the care of the pets. Obviously, food, housing, grooming, and medical care are all appropriate care for pets. Purchasing an automobile to transport the pet is probably excessive.
  • Consider liability insurance for the trust. The decision should be made, based upon the personality and type of pets benefiting from the trust, whether the trust should be insured with respect to any damage, whether property damage or personal injury, attributable to the settlors’ pets.
  • Identify the pet animals clearly. Under the Maine Trust Code, the trust can last no longer than the lifespan of the animals alive during the settlor’s lifetime. To protect the animal’s interest, clear identification of the specific animal or animals benefited by the trust should be made; a microchip implanted in the animal is a very secure means of identification. Tattooing is another option.
  • Consider the remainder beneficiary. Consider that it may be a conflict of interest for the animal’s caretaker to be the remainder beneficiary of the trust. Also consider the possibility of a remainder beneficiary or heir of the settlor challenging the amount funding the trust as excessive. If that is a possibility, a “no contest” clause in the trust, limiting the amount that may be received by a beneficiary who challenges the trust, may serve at least as a disincentive to challenge the trust. As an alternative, a pet trust established with a charitable organization as remainder beneficiary may be less likely to be challenged.

5. Pet Trust Alternatives

If a pet trust isn’t right for your situation, there are options for providing for your pet. Your Last Will and Testament could provide for your pet through:

  • Conditional bequests. You may be able to give money to a specific person, with the condition that the money is to be used for your pet’s care. However, without a pet trust, enforcement of this bequest may be impossible.
  • Bequeathing (leaving) your pet to a specific person, along with money for pet care. Again, without a pet trust, enforcement of this bequest and any assurance that your pet will actually be taken care of may be impossible.

6Tax Issues

A person might be tempted to forgo the formality of a pet trust and simply bequeath money to a person with an informal understanding that it be used for the care of a pet.  At least for tax reasons, there may be some advantage to doing this and the planner should consider the implications of Subchapter J of the Internal Revenue Code.

7. Incapacity

In the case of incapacity, an agent acting under a durable power of attorney should be given some direction or instructions in the principal’s durable power of attorney document as to what to do with his or her animals.  Ideally, such a durable power would provide for the ability of the agent to make gifts, establish trusts, and perhaps may reference and incorporate by reference the pet trust directions set forth in a Will execution contemporaneously with the power.   Point is, not only do pet owners need to plan for the care of their pets in the event of their demise, they also have to consider what should be done if they suddenly lost the capacity to care for their pets.

Massachusetts Law

Massachusetts law also contains statutory provisions for pet trusts and is generally very similar to Maine’s provisions.  When the Uniform Trust Code was adopted in Massachusetts in 2012, the old law dealing with pet trust was repealed and replaced with the provisions found at Massachusetts General Laws, Chapter 203E, Section 408.

 

These materials are not intended to constitute legal advice and shall not be used to establish proof of the formation of an attorney-client relationship.  These materials are provided at no cost and may constitute a form of advertising.   These materials were prepared for general use. 

 

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Age 70 1/2 Confusion for Retirement Accounts

This article from the Slott Report, https://www.irahelp.com/slottreport/age-70-%C2%BD-confusion-retirement-accounts, concisely explains the rules regarding when you have to take your first Required Minimum Distribution. Besides the Slott Report, another great resource for retirement planning is Appleby Retirement Consulting Inc. http://iraeducationcenter.com. Of course, the primary source materials for this area of the law is Employee Retirement Income Security Act (ERISA) and related portions of the Tax Code and Public Health Service Act (PHSA) but working your way through this area can be difficult.

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Nadeau v. Thorn, MA SJC-12205

MA Supreme  Judicial Court appeal hearing in Nadeau V. Thorn. 1-5-2017.  http://www.suffolk.edu/sjc/archive/2017/SJC_12205.html

Summary: Administrative Law; MassHealth Benefits– Whether the settlor is entitled to MassHealth long-term care benefits where the settlor’s former residence is held in an irrevocable trust.

This is an important case and the hearing is worth listening to.

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THIS IS SERIOUS…

As Ming Ming on the Wonder Pets says (I am  the parent of 2 toddlers), THIS IS SERIOUS…a ten year lookback period for MaineCare Planning, block grants (when the State’s money runs out, MaineCare eligibility runs out). The long-term care planning landscape is likely to change significantly. We’ll keep you posted:

In response to questioning by senators, President Donald Trump’s pick to run the Department of Health and Human Services (HHS) said that the right to Medicaid could end under a block grant system.

As reported by CNN, in a contentious hearing before the Senate Finance Committee, Sen. Robert Menendez (D-N.J.) noted that Medicaid is currently an entitlement program under which anyone who meets eligibility criteria has the right to be covered.

“When you move to a block grant, do you still have the right?” Menendez asked the HHS nominee, Rep. Tom Price (R-Ga.).

“No,” Price replied. “I think it would be determined by how that was set up.”

Turning Medicaid into a block grant program has long been a Republican goal, and on January 22, President Trump’s senior adviser Kellyanne Conway confirmed that the administration’s plans to replace the Affordable Care Act would include turning Medicaid into block grants to the states. Conway claimed that converting Medicaid to block grants would ensure that “those who are closest to the people in need will be administering” the program.

But giving states more flexibility while shifting costs to them could result in radically changed eligibility rules. For long-term care purposes, some have suggested that the look-back period for transfers might be extended to 10 years, or protections for community spouses eliminated.

In Louisiana, Gov. John Bel Edwards, a Democrat, told The New York Times that he was troubled by the prospect of a block grant with deep cuts in federal funds. “Under such a scenario,” he said, “flexibility would really mean flexibility to cut critical services for our most vulnerable populations, including poor children, people with disabilities and seniors in need of nursing home and home-based care.”

Because large portions of a block grant proposal could be achieved through budgetary reconciliation, it could pass the Senate without Democratic support, since it would only require 51 votes, according to the PBS Newshour’s explanation of the block grant concept.

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Clio is great but have you considered Actionstep?

I have been a Clio user for about 6 years but recently made the switch to Actionstep.  http://www.actionstep.com.  The move has been expensive, relatively, both in terms of cost and time, but we think in the long term the investment will be worth it.   I think any shift from one client management service to another is going to involve some down time, so I don’t think there is anything unique in our experience on this point.  We choose to use an outside service for much of the work (after trying to do it ourselves first – bad idea) and had to make some software upgrades, which is why I say it was expensive.  The total cost was not considerable but for a small practice the cost was noticeable.

Key features that drew our attention were the ability to integrate Hot Docs (document automation), custom work flows that drive matters to completion (prepackaged work flows can be acquired if you don’t want to build them, or you can have someone build them for you (which is what we are doing)) and full integration with email.  Additionally, the ability to create a number of customized data entry fields for tracking client data is handy, though Clio supports this too.    The data shift was painful but with the help of an outside service provider, we survived.  My primary point in making this post is that if you are just getting started in your practice, make sure you consider Actionstep as an alternative.   If you manage a lot of staff, Actionstep’s workflows also might be a good reason to consider it as an alternative to Clio.

I really enjoyed the ease of Clio and its overall simplicity but now need something more robust.

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Electronic Wills Act – New Hampshire Senate Bill SB40 Scheduled for Hearing

 

SENATE BILL 40 AN ACT relative to electronic wills. SPONSORS: Sen. Bradley, Dist 3; Sen. Innis, Dist 24; Sen. Carson, Dist 14; Sen. Woodburn, Dist 1; Sen. D’Allesandro, Dist 20; Rep. Hunt, Ches. 11; Rep. Danielson, Hills. 7; Rep. Wall, Straf. 6 COMMITTEE: Commerce
───────────────────────────────────────────────────────────────── ANALYSIS This bill establishes the New Hampshire electronic wills act which authorizes an additional method of creating valid wills that are written, created, and stored in an electronic format and executed using electronic signatures.

According to Michael Panebianco, Chair of Trust & Estate Law Section, this Senate Bill has moved from Committee and is now schedule for a hearing on Tuesday, January 31 at 1:00 sb40-electronic-wills-act pm in Room 100 of the State House.

 

 

 

 

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Is Providing Successor Trustees with Guidance Beneficial?

I have never seen a trust drafted by another lawyer that attempted to provide guidance to a successor trustee but I have seem many successor trustees operating in the complete dark for years.  Often the result is the failure to file trust returns but worse outcomes do occur, which proper guidance might have avoided.  Many people simply don’t want to seek advice.  Is that simply the successor trustee’s problem or did the client/drafting attorney/trust assume too much of the successor trustee?

There seems to me to be an easy solution to this problem.  When you anticipate that a successor trustee might not be the best choice but your client insists on naming a family member or friend as trustee, include a requirement that the successor trustee must seek and retain counsel to advise them as to the duties and responsibilities of a trustee.  The provision can require compliance before the successor powers are effective or could be precatory in nature.  Compensation could also be withheld if the successor did not comply with a mandatory provisions.

Here is a sample precatory provision I sometimes use.

Before a successor Trustee, other than the Settlor’s spouse or an Independent Trustee, assumes the role of a Trustee or Co-Trustee under this Trust, but in any event within ninety (90) days of his or her acceptance of Trusteeship, said successor shall provide the qualified beneficiaries (or a legal representative thereof) of the Trust or any then serving Trustee with a written statement from a practicing attorney stating that:

I, _________________, an attorney actively practicing in the State of ________________, have met with and/or spoken with   (Name of Successor Trustee)  for a reasonable amount of time and in doing so have generally advised (Name of Successor Trustee)  of the duties imposed on a Trustee under Title 18-B M.R.S.A.  801 et. seq., of the Maine Uniform Trust Code (or its successor provision) (including but not limited to the duty of loyalty, the prohibition against self-dealing, the duty of impartiality, and the duty with respect to prudent investment and management of trust assets).  I have reviewed the terms of this trust with said (Name of Successor Trustee) and in doing so have advised him/her of who the beneficiaries are and of his/her duties and responsibilities thereto under said trust.  I have also provided said (Name of Successor Trustee) with the attached memorandum for his/her future guidance in said capacity, which generally reviews the powers, duties and responsibilities of a Trustee in the State of Maine or a copy of relevant provisions of the Maine Uniform Trust Code that set forth the powers, duties and responsibilities of a Trustee.

The legal costs so incurred shall be chargeable to the Trust. Notwithstanding the failure of any successor Trustee to deliver such a statement as required, any actions taken by said successor shall have the same power and effect as if said successor had delivered such a statement as required but said successor shall not be entitled to compensation until he or she has complied with this provision, albeit such compliance may be achieved after the ninety (90) day period stated hereinabove.

Happy drafting!

 

 

 

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Revised Additional Instructions for Advance Health Care Directives

Sometime ago now I blogged about the importance of empowering clients to prepare additional instructions regarding their wishes that go beyond what traditional boilerplate Advance Health Care Directives and/or Living Wills provisions.   Recently I undertook a significant revision of my additional instructions form to take matters to the next level.  What is the next level?  To me the next level was providing for prompts to encourage regular updates and communication with physicians and/or agents and providing for alternative  directions in the event a spouse is unable or unwilling to exercise discretion regarding end of life. The    If you are an attorney and would like to receive a free copy of these additional instructions please contact me and I will send you a PDF copy.  If I share these additional instructions with you, you agree that by doing so I am not providing legal advice and that by doing so we have not established an attorney-client relationship.

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Are we there yet?

Life Care Planning; Law Office of Smilie G. Rogers, PLLC       Planning takes time.  Meaningful planning requires vigilance, doesn’t it?  How do you as an estate planner maintain vigilance?  Assuming the client wanted to patriciate, how would you meaningfully accomplish this?   Would it be cost effective for the client?  Would it be cost effective for you?  What would your continuing malpractice exposure be?

These are not easy questions to answer and likely, depending on your practice time horizon, your client base, the level of vigilance your are willing to implement and your skill set the answers will vary.

These are questions I have struggled with since opening my own practice several years ago.  I don’t have all the answers but I think today I have more than I had when I started out.   Today, our office is moving in new directions, some charted, some uncharted, but and we think that the future of estate planning is going to be more challenging and require more skill sets than it ever has.   As for our answer to the question of vigilance –  for people coming in to the practice of estate planning/elder law, my advice is think about “relationship law” and how to methodically, even if it only starts out with a light touch, to serve the relationship and the needs that arise over the course of time.  Planning takes time.

 

 

 

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