Monday, April 27, 2015
Recent news reports in the Sarasota Herald-Tribune have focused on "elder guardianships" in Florida. The articles include:
- The Kindness of Strangers: Inside Elder Guardianship in Florida, a three part "special project."
- A Civil Dispute Over Guardianship, detailing a conflict between co-trustees for a man in his 90s over costs of care. One trustee was concerned about what appear to be charities named as remainder beneficiaries and was described as making "imaginative" use of a guardianship to challenge the wife's role as the other named trustee. A sidebar in this article describes bills pending in the Florida legislature seeking to clarify the legal effect of a "power of attorney" when a guardianship petition is filed.
- Film to Detail Horror Stories from Florida Guardianship, describing a video project to share "stories about Florida's adult guardianship system," supported by a local "nonprofit organization called Americans Against Abusive Probate Guardianship."
April 27, 2015 in Current Affairs, Dementia/Alzheimer’s, Elder Abuse/Guardianship/Conservatorship, Estates and Trusts, Ethical Issues, Health Care/Long Term Care, Property Management, State Cases, State Statutes/Regulations | Permalink | Comments (0) | TrackBack (0)
Sunday, April 26, 2015
Sunday's New York Times has a feature article on aging and financial skills, and the message is not "just" for individuals with dementia:
"Studies show that the ability to perform simple math problems, as well as handling financial matters, are typically one of the first set of skills to decline in diseases of the mind, like Alzheimer’s, and Ms. Clark’s father-in-law, who suffered from mild dementia, was no exception. Research has also shown that even cognitively normal people may reach a point where financial decision-making becomes more challenging."
The article gives several example of individuals who were vulnerable to exploitation, because of their reduced interest in or understanding of financial decisions. David Laibson, an economics professor at Harvard, one of the researchers cited in the article said "he believed that crystallized intelligence tended to plateau when people reached their 70s." Further, "he wishes all 65-year-olds would start by simplifying their financial lives, reducing the money clutter to just a few mutual funds at a reputable institution."
The article, As Cognition Slips, Financial Skills Are Often the First to Go, offers several links to recent reports and studies, as well as examples of "early signs."
Hat tip to Penn State's Dickinson Law 1L student Spencer Flohr for sharing the link to this article -- and noting the probable relevance to law students' studies of trusts and estates law. Good catch!
April 26, 2015 in Cognitive Impairment, Consumer Information, Dementia/Alzheimer’s, Elder Abuse/Guardianship/Conservatorship, Estates and Trusts, Property Management | Permalink | Comments (0) | TrackBack (0)
Wednesday, April 22, 2015
Most of my family likes the PBS television show "This Old House." (Not me: I prefer "International House Hunters.") I have a good friend-- we'll call her Louise -- who is getting ready to celebrate her 90th birthday and has the ability to turn a good phrase. For years she has been saying her plan was to stay in her home, a lovely "old house" built in the 1920s, until "whatever happens next." (She also refers to my writings here for Elder Law Prof as my "blobs.")
Recently, however, Louise admitted to considering a new plan. One thing after another in "this old house" was going wrong. First it was her land-line phone that would intermittently crackle and pop, eventually making all calls impossible. Next it was seemingly random problems with loss of electricity to one side of the house or the other. Finally, when everything in the kitchen lost power, she got serious. Soon there was a big trench behind the house, as the electricians tried to locate the problem.
Eventually they found about a 4 foot length of burned wiring in the ground, inside of the buried conduit leading to the house (!). They explained the wiring in and to Louise's house was just "too old." Fortunately, my friend could afford the massive repairs (not cheap), but that still meant living with her daughter 45 minutes away, and commuting to meet with the workers during the weeks without any power. And as she asked, "what's next?" Her house is about 3 years older than Louise.
Louise's story plus a recent article from the Patriot News got me thinking. In Harrisburg, PA, the mayor was proposing a way to help a 92 year-old-woman get help to deal with sewer line repairs from the street to her house that cost $10,000. Helping one person -- the proposal was for $2,000 -- was just the tip of the iceberg (so to speak -- I'm running out of metaphors). The article explained:
Friday, April 17, 2015
Scott E. Townsley, a very bright attorney, an adjunct associate professor at UMBC's Erickson School of Aging Studies, and a principal with CliftonLawsonAllen LLP, invited me to join him recently for a presentation to the 2015 Mid-Atlantic Region Resident Council Conference in Silver Spring, Md. (The lovely D.C. area cherry trees were in full bloom that day.)
Our theme was "Hot Topics in Continuing Care." Scott, a regular consultant to nonprofit CCRCs, used his deep experience in senior housing to outline his perspective on the biggest issues facing CCRCs. In preparation for my part, I reached out to my contacts in resident groups around the country and asked them to share with me their biggest concerns.
We then trimmed down our two respective lists and used a Point/Counter Point approach to the debate. Do any of our readers remember 60 Minutes' James Kirkpatrick and Shana Alexander? (Okay, how about Dan Aykroyd and Jane Curtin's lampoon of the Point/ Counter Point format? I think it is fair to say that we were less political than the first combo, and more polite -- if less humorous -- than the SNL crew. But we had fun.)
With a tip of the hat to David Letterman in borrowing his "top ten" format, here is a very distilled version of my list of Resident Concerns:
10. What does it really mean to be a nonprofit CCRC in 2015?
9. Do we need to worry about conversions of nonprofit CCRCs to for-profit?
8. What is the right response to the trend that residents are older and more disabled, even when first entering the community?
April 17, 2015 in Consumer Information, Dementia/Alzheimer’s, Discrimination, Health Care/Long Term Care, Housing, Property Management, Retirement, State Statutes/Regulations, Web/Tech | Permalink | Comments (3) | TrackBack (0)
Thursday, April 16, 2015
The U.S. Department of Labor has released a new proposed rule intended to protect consumers from conflicts of interest among an array of folks who want to give advice about how and where to invest 401(c) and IRA retirement funds. The new rule would impose a "fiduciary duty" standard on those advisors, rather than the current, lower "suitability" standard for investment advice.
A DOL press release explains the goal:
"This boils down to a very simple concept: if someone is paid to give you retirement investment advice, that person should be working in your best interest," said Secretary of Labor Thomas E. Perez. "As commonsense as this may be, laws to protect consumers and ensure that financial advisers are giving the best advice in a complex market have not kept pace. Our proposed rule would change that. Under the proposed rule, retirement advisers can be paid in various ways, as long as they are willing to put their customers' best interest first."
Today's announcement includes a proposed rule that would update and close loopholes in a nearly 40-year-old regulation. The proposal would expand the number of persons who are subject to fiduciary best interest standards when they provide retirement investment advice. It also includes a package of proposed exemptions allowing advisers to continue to receive payments that could create conflicts of interest if the conditions of the exemption are met. In addition, the announcement includes a comprehensive economic analysis of the proposals' expected gains to investors and costs.
The New York Times covers the new rules in "U.S. Plans Stiffer Rules Protecting Retiree Cash," and notes the history of opposition to this kind of reform from -- surprise, surprise -- the "financial services industry." There is a 75-day window for public comments on the latest proposal.
Perhaps my biggest surprise was the remarkably "consumer friendly" presentation of the proposed change by the Department of Labor on its webpage, beginning with this simple video describing conflicts of interest.
Tuesday, April 14, 2015
The Washington Post reminds us that changes to federal law for government-backed reverse mortgages, adiopted in 2014, are about to kick in:
"Interested in a reverse mortgage without a lot of hassles? Better get your application in fast. As of April 27, the federal government is imposing a series of extensive 'financial assessment' tests that will make applying for a reverse mortgage tougher — much like applying for a standard home mortgage.
[D]uring the years of the recession and mortgage bust, thousands of borrowers fell into default because they didn’t pay their required property taxes and hazard insurance premiums. On top of that, real estate values plunged, producing huge losses on defaulted and foreclosed properties for the FHA. The losses got so severe that the Treasury Department had to provide the FHA with a $1.7 billion bailout in 2013, the first in the agency’s history since its creation in the 1930s.
All of which led to the dramatic changes coming April 27. Applicants are now going to need to demonstrate upfront that they have both the 'willingness' and the 'capacity' to meet their obligations. Reverse-mortgage lenders are going to pull borrowers’ credit reports from the national credit bureaus, just as they do with other mortgages.illion bailout in 2013, the first in the agency’s history since its creation in the 1930s."
For more details see the full Post article at Window Is Rapidly Closing to Get Hassle-Free Reverse Mortgage.
Tuesday, March 31, 2015
As we have described often on this Blog, there is a fair degree of concern about whether members of the public understand the potential significance of a Power of Attorney before they sign the document. Apparently the U.S. is not alone in this concern.
Recently, Northern Ireland's Law Society (for comparison purposes, an organization which somewhat of a hybrid of the American Bar Association and a state's licensing board or disciplinary authority), issued an interesting pamphlet about "enduring powers of attorney" or EPAs, to serve as a guide for members of the public, using a Q & A format. EPAs are similar to our durable POAs, and, of course, their utility depends on being executed in advance of any need. Topics addressed include:
- Do I lose control when I sign an EPA?
- Is this just a note of my wishes?
- Do I need an EPA if I have a will?
- If I don't have investments or property is there any point?
- What if all my assets are jointly owned?
- Can I have more than one attorney [agent]?
- Who should I appoint as my attorney [agent]?
- What power does an attorney [agent] have?
- What responsibilities does my attorney [agent] have?
- Is my attorney [agent] paid for work undertaken?
- Can I change my mind and revoke an EPA?
- If I recover my capacity, who is in charge of my affairs?
- Is it expensive to make an EPA?
You are curious about the answers, aren't you! For the cleanly written answers to these questions, access the PDF from the Law Society here. Thank you to my Dickinson Law colleague Laurel Terry for the pointer.
Friday, March 27, 2015
As reported in the ABA Journal, "A New Jersey lawyer has been sentenced for 10 years in prison for her part in a scheme to steal $3.8 million from 16 elderly victims:"
Prosecutors say the group took control of the finances of their victims by forging a power of attorney or obtaining one under false pretenses. They then added their names to the victims’ bank accounts and transferred the victims’ funds into accounts they controlled. As part of a plea deal with prosecutors, Lieberman has agreed to pay $3 million in restitution and testify against her co-defendants.
Here are more details. And here. And here. And here. And according to one news source, the attorney actually served on the New Jersey Supreme Court's Ethics Committee while already engaged in misusing client funds. Hat tip to retired New York Attorney Karen Miller, now living in Florida, for sharing a link to the ABA Journal article on this sad set of facts.
Tuesday, March 24, 2015
Has Acceptance of Same Sex Marriage Created Opportunities for Recognition of Other "Family Relationships?"
Columbia Law Professors Elizabeth S. Scott and Robert E. Scott have a new article, "From Contract to Status: Collaboration and the Evolution of Novel Family Relationships." They describe the successful movement to achieve marriage rights for LGBT couples as creating potential opportunities for recognition of other legal relationships that do not depend on "traditional" notions of marriage or family, such as "cohabiting couples and their children, voluntary kin groups, multigenerational groups, and polygamists."
In analyzing relationships that may gain greater legal recognition, the authors examine the possible influence of statutory obligations, including Pennsylvania's filial support laws used to impose care obligations on adult children, or more recent statutes granting visitation rights to grandparents:
"Probably the strongest candidate for full family status is the linear family group composed of grandparent(s), parent(s), and child(ren). It is clear that this familiar type of extended family can function satisfactorily to fulfill family functions. Further, the genetic bond among the members, together with well-defined family roles, reinforces already existing norms of commitment and caring. The primary challenge for these extended families may be the creation of networks with other similar families pursue their goals of increasing public support and attaining official family status.More complex multigenerational groups pose a greater challenge because they are less familiar to the public and less likely to be bound by family-commitment norms than are linear family groups. Partly for this reason, regulators may find it more difficult to verify the family functioning of these unconventional multigenerational groups."
The article was published in the Columbia Law Review, March 2015.
Monday, March 16, 2015
GW Law Professor Naomi Cahn and Amy Zeittlow, affiliate scholar with the Institute of American Values, have collaborated on a new article that is fascinating. In "Making Things Fair: An Empirical Study of How People Approach the Wealth Transmission System," to be published in a forthcoming issue of the Elder Law Journal, they ask fundamental questions about whether traditional laws governing testate and intestate wealth transmission reflect and serve the wishes of most Americans. Professor Cahn previews the article as follows:
Based on an empirical study of intergenerational care for Baby Boomers, the article shows how the inheritance process actually works for many Americans. Two fundamental questions about the wealth transfer system guided our analysis of the data: 1) does the contemporary inheritance process respond to the changing structure of American families; and 2) does it reflect the needs of the non-elite, who have not traditionally been the focus of the system?
Our study shows that the formal laws of the inheritance system are largely irrelevant to how property is transferred at death. While the contemporary trusts and estates canon focuses on the importance of planning for traditional forms of wealth in nuclear families, this study focuses on the transmission of wealth that has high emotional, but low financial, value. We illustrate how the logic of “making things fair” structured how families navigated the distribution process and accessed the law. Consequently, the article recommends that law reform should be guided by the needs of contemporary families, where not only is wealth defined broadly but also family is defined broadly, through ties that are both formal and functional. This means establishing default rules that maximize planning while also protecting familial relationships.
The article is part of a new book by the authors titled "Homeward Bound," with planned publication in 2016, and the authors welcome comments and suggestions.
March 16, 2015 in Books, Current Affairs, Elder Abuse/Guardianship/Conservatorship, Estates and Trusts, Ethical Issues, Property Management, State Cases, State Statutes/Regulations, Statistics | Permalink | Comments (0) | TrackBack (0)
Tuesday, March 10, 2015
In Draper v. Colvin, petitioner sought judicial review of SSA's denial of her application for SSI benefits. Her claim was sympathetic, as "[e]ighteen-year-old Stephany Draper suffered a traumatic brain injury in a car accident in June 2006."
In an admittedly "hard line" ruling on March 3, the 8th Circuit rejected her argument that her parents' intent to establish a valid third-party-settled special needs trust, using proceeds from a settlement of a personal injury suit on her behalf, should permit her to claim SSI.
The ruling means that over $400,000 will be treated as "available resources," thus requiring spend down before she would be eligible for benefits. The court explained (minus citations):
Admittedly, some evidence in the record supports Draper's claim that her parents intended to act in their individual capacities. Draper's parents identified themselves individually as settlors and trustees, and the trust document explicitly states that it was established “pursuant to 42 U.S.C. § 1396p(d)(4)(A)," a provision which notes that a third party, such as a parent, must create the special needs trust for the benefit of the disabled person. Nevertheless, as discussed [earlier in the opinion], other facts provide substantial evidence to support the conclusion that Draper's parents acted using the power of attorney when establishing the trust.
The Court continued on to its tough bottom line:
March 10, 2015 in Cognitive Impairment, Estates and Trusts, Federal Cases, Federal Statutes/Regulations, Health Care/Long Term Care, Medicaid, Property Management, Social Security, State Statutes/Regulations | Permalink | Comments (0) | TrackBack (0)
Friday, March 6, 2015
Harvard Law Professor Robert H. Sitkoff is speaking at University of Illinois School of Law on Monday, March 9. The topic is "Revocable Trusts & Incapacity Planning: More then Just a Will Substitute."
Here are details provided by Illinois Law Professor Richard Kaplan:
The use of trusts has evolved from means of transferring property to mechanisms for managing assets and more recently, to will substitutes for avoiding probate and simplifying post-death transfers. But lawyers increasingly use revocable trusts in planning for possible client incapacity to avoid the costs and publicity associated with custodianship and guardianship. State-level reforms of trust law to accommodate older uses of these devices are not, however, well-suited to this newer use of trusts, and this lecture will examine those reforms in this context.
Professor Sitkoff was the youngest professor to receive a chair in the history of Harvard Law School. He previously taught at New York University School of Law and at Northwestern University School of Law. After graduated from the University of Chicago Law School with High Honors, he clerked for then Chief Judge Richard A. Posner of the United States Court of Appeals for the Seventh Circuit. Professor Sitkoff is an active participant in trust and estates law reform. He is a liaison member of the Joint Editorial Board for Uniform Trusts and Estates Acts within the Uniform Law Commission and has been a member of several drafting committees for acts involving trusts and estates matters. Sitkoff is also a member of the American Law Institute’s Council and has served on the consultative groups for the Restatement (Third) of Trusts and the Restatement (Third) of Property: Wills and Other Donative Transfers.
Word from Dick Kaplan is that Rob's presentation will be available (eventually) via a recording, and his presentation will also be captured as an article in University of Illinois' Elder Law Journal.
My students often ask why all casebooks can't be as engaging to read as the "Dukeminier" text on Wills, Trusts & Estates -- and I suspect one reason is that Rob Sitkoff, although uniquely prolific and gifted, is still only human and cannot write them all!
Postscript: I asked Rob to send me something other than his "official" Harvard photo. The one above seems to capture his spirit and the smile I sometimes detect in his footnotes.
Pennsylvania Bar Association Program on New Rules of Professional Conduct & Disciplinary Enforcement
On Wednesday, March 25, 2015 (1:30 to 3:30 p.m.), the Pennsylvania Bar Association (PBA)'s Elder Law Section is hosting a panel session at the annual PBA Section/Committee Day to discuss important changes in the Pennsylvania Rules of Professional Conduct and the Disciplinary Enforcement Rules.
Several of the recent changes, including rules mandating greater oversight for trust accounts, timelier handling of complaints, and specific new prohibitions or restrictions on attorney involvement in marketing of "investment products," were a response, at least in part, to serious cases of attorney misconduct resulting in tragic financial losses for individuals. In some instances the clients were older persons who entrusted large retirement assets to the care of a small number of attorneys.
In planning the program, Elder Law Section Chair Jacqui Shafer commented that the program reflects the continuing commitment of the Bar and the Section to take affirmative steps to address and prevent misappropriation of funds from any client, including vulnerable seniors and their families.
Panelists include experienced private practitioners in elder law or estate planning practices and representatives of the Disciplinary Board and PBA's Legal Ethics and Professional Responsibilities Section. Several participants were members of the Pennsylvania's recent Supreme Court Elder Law Task Force.
Here is the link for more details on the program, including the link for required registration (free, including lunch). The deadline for on-line registration is March 20.
March 6, 2015 in Crimes, Current Affairs, Elder Abuse/Guardianship/Conservatorship, Estates and Trusts, Ethical Issues, Legal Practice/Practice Management, Property Management, State Cases, State Statutes/Regulations | Permalink | Comments (0) | TrackBack (0)
Thursday, March 5, 2015
Yesterday I wrote about the Utah Supreme Court decision rejecting application of Nevada law to determine the nature of an asset protection trust. Would the same result occur if the claimant was an "ordinary" creditor, rather than a spouse and co-settlor?
One way to get in on the discussion would be the ABA's "Jurisdiction Selection Series" on "Domestic Asset Protection Trusts." And as luck would have it, the next in the series of 5 webinar sessions covers Arizona, Maryland, New Hampshire --- and Nevada law. The program is Tuesday, April 14, 2015, and will be followed by a session on June 9, 2015 covering Hawaii, Kentucky, South Dakota and Utah. Here are some of the topics to be addressed:
- What is an inter vivos QTIP trust and how can it help my clients?
- Will domestic self-settled asset protection trusts benefit my clients?
- Do the costs of creating a trust in one state for creditor protection or taxation benefits really outweigh the creation of such a trust in another?
- Is the trust really protected from creditors?
- Can the trust be used to avoid the income tax in the grantor's state of residence?
- Can a same sex couple benefit from the use of these trusts?
- Is using an offshore trust better?
A number of states have laws governing "full blown self-settled asset protection trusts" or permit some form of similar trust. Here is the link to the details about registration, cost and timing for all of the ABA sessions.
Hat Tip to Penn State Law Professor James Puckett for sharing the timely info on this series.
Wednesday, March 4, 2015
In Dahl v. Dahl, the Utah Supreme Court was asked to examine the effect of a choice-of-law clause in a trust that purported to be "irrevocable." The clause provided:
"Governing Law. The validity, construction and effect of the provisions of this Agreement in all respects shall be governed and regulated according to and by the laws of the State of Nevada. The administration of each Trust shall be governed by the laws of the state in which the Trust is being administered."
The first sentence of the provision was significant, because the trust granted husband-settlor continuing rights of control, even as he argued the "irrevocable" label was valid, prohibiting wife from claiming any marital interest in assets used to fund the trust.
Monday, March 2, 2015
The White House Council of Economic Advisors released "The Effects of Conflicted Investment Advice on Retirement Savings" in February 2015, and the report is a must-read for anyone teaching courses on aging policy.
The major focus of the analysis is on evidence of "conflicts of interest" for those advising individuals on roll-over investment of IRA accounts, but the findings undoubtedly have relevance beyond that window on retirement planning.
The decision whether to roll over one’s assets into an IRA can be confusing and the set of financial products that can be held in an IRA is vast, including savings accounts, money market accounts, mutual funds, exchange-traded funds, individual stocks and bonds, and annuities. Selecting and managing IRA investments can be a challenging and time-consuming task, frequently one of the most complex financial decisions in a person’s life, and many Americans turn to professional advisers for assistance. However, financial advisers are often compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the adviser’s bottom line.
The report focuses on the quantifiable cost from conflicted advice, concluding that savers receiving such advice "earn returns roughly 1 percentage point lower each year." But isn't there also a deeper cost, as the large swath of middle-income Americans, who may have justified fears of being able to safely evaluate investment risk and their investment advisors, do nothing productive with their savings?
The New York Times editorial board draws upon the White House Council's report to call for adoption of reality-based rules on fiduciary duties for the financial services industry. See NYT's "Protecting Fragile Retirement Nest Eggs."
Tuesday, February 10, 2015
With the shift from defined benefit pensions to 401(k)plans, the welfare of retirees increasingly depends on their ability to make sound financial decisions. This situation has raised concerns that the cognitive decline that comes with age could compromise the elderly’s decision-making ability and thereby their financial well-being. This brief, based on a recent study,1 addresses this issue using a unique dataset that follows a group of elderly individuals over time.
The report is divided into four parts: literature review, data, analysis and conclusion. The conclusion paints an interesting picture
The findings confirm that declining cognition, a common occurrence among individuals in their 80s, is associated with a significant decline in financial literacy. The study also finds that large declines in cognition and financial literacy have little effect on an elderly individual’s confidence in their financial knowledge, and essentially no effect on their confidence in managing their finances. Individuals with declining cognition are more likely to get help with their finances. But the study finds that over half of all elderly individuals with significant declines in cognition get no help outside of a spouse. Given the increasing dependence of retirees on 401(k)/IRA savings, cognitive decline will likely have an increas-ingly significant adverse effect on the well-being of the elderly.
Friday, January 9, 2015
Michigan Governor Rick Snyder signed Michigan Senate Bill 886 and related bills (SB 887, 888 and 889) into law on December 30, 2014. The new law is described as "an ongoing effort to continue to support consumer choice and protection while encouraging continued investments into vital care facilities" in the state of Michigan, focusing on continuing care retirement (CCRCs) and life care communities.
The law, titled the Continuing Care Community Disclosure Act, would appear to replace prior law, and thus it will be important to sit down with the new provisions and examine them carefully, especially given the announced reasons for passage. I'm guessing there might be some trade-offs here, with both consumers and providers having interests at stake. According to press releases, some of the "major" provisions of the new law include:
- A limit on amortization of the entrance fee to 1.5 percent for each month of occupancy
- A requirement for any continuing care community to register with the Department of Licensing and Regulatory Affairs (LARA)
- Setting a $250 registration fee and a $100 renewal fee
- Organizations must report if any executive officers or director has been convicted of certain felonies
- A feasibility study with a business plan must be included in each application
- Exemptions from promulgated rules governing different types of facilities could be granted if the rules interfere delivery of care or with moving residents between different facilities
- Regulations on the fees facilities may charge and how refunds are provided to potential and former residents
- A continuing care community could petition for a guardian if a resident became incapacitated and unable to handle his or her personal or financial affairs
The legislation reportedly had the support of LeadingAge in Michigan. I'm curious about the background on this new legislation -- perhaps some of our readers know the history and reasons for new laws here?
Tuesday, January 6, 2015
The New Mexico Court of Appeals recently rejected the claim by El Castillo, a Continuing Care Retirement Community (CCRC), for charitable property tax exemptions. I was particularly interested in this ruling, as I have visited the campus several times over the years, and have come to know many residents, who are some of the most active, socially aware seniors I've encountered. Just trying to keep up with 78-year old friends who are walking, walking, walking (at 7,000 feet) to their meetings can be a challenge. The campus is very pleasant, quite modestly appointed, and fairly compact -- but perhaps most important of all, it has a terrific location. I suspect that is a large part of the reason it is on the tax assessor's radar. The campus is just a few blocks from the heart of beautiful Santa Fe and steps away from Canyon Road's art galleries.
El Castillo has operated as a CCRC since 1971, with a Type A or "Life Care" structure, where residents age 65 and older pay non-refundable entrance fees, plus monthly service fees, with the expectation that all needs, whether in so-called "independent" apartments, assisted living units or nursing care, are provided on the same campus. El Castillo is not associated with a particular faith nor with any fraternal organization, but it has operated since its inception under Section 501(c)(3) of the Internal Revenue Code, and thus is exempt from income taxes based on historical rulings that permit charitable tax exemptions for "homes for the aged." However, as we have discussed in the past in this Blog, a state's standards for charitable property tax exemptions can be quite different than the IRS approach to charitable income tax exemptions.
State and local governing bodies are constantly in search of tax revenues, and CCRC campuses, especially in urban locations, can be a tempting target. Under New Mexico's state constitution, at Article VIII, Section 3, "all property used for educational or charitable purposes shall be exempt from taxation." Prior cases interpreting this provision did not require a facility to be operated "exclusively" for charitable purposes, but the landowner has the burden to show it operates "primarily and substantially for a charitable purpose."
Key to the court's denial of the tax exemption was its observation that El Castillo appeared to operate as a self-sustaining unit funded entirely by fees paid by residents, with little or no "charitable" base. The Court rejected El Castillo's argument that its charitable mission was to provide life-time care for residents who could (and sometimes do) become personally unable to pay, and that such a mission was only possible through "subsidizing" such residents by, in essence, pooling the fees paid by all residents. As demonstrated by contrasting rulings on property tax exemptions in other states, the financial analysis necessary to support a charitable use property tax exemption may require detailed analysis and advanced planning. There is a fine line for any nonprofit to balance costs, sources of revenues and the goal of sustainability. In some instances, I have seen denial of property tax exemptions be the final straw for some nonprofit operators, especially those struggling with rising costs or occupancy rates after the 2008 financial downturn.
In New Mexico, there is both a constitutional basis for seeking a property tax exemption and a statutory basis. The ruling on El Castillo -- which by the way, when translated from Spanish, means "The Castle" (a bit of irony perhaps, given the court's seeming hostility towards the exemption claim, pointing to the lack of "indigent" residents) -- was based only on the state constitution. It appears the tax assessor actually failed to perfect his attempt to appeal a separate portion of the lower court ruling that had granted El Castillo the right to charitable tax exemptions on statutory grounds. Thus, it would appear that El Castillo would not immediately feel the effects of the Court's ruling, at least not for the specific tax years at issue in the multi-year litigation. In a footnote, the Court of Appeals judges acknowedged that their decision on El Castillo creates a "dfferent result" than the same court's 2013 ruling on charitable property tax exemptions for a different life-care community, La Vida Llena, in Albuquerque, N.M. The Court distinguished the La Vida Llena ruling as based only on statutory grounds.
For the complete ruling, including a complex jurisdictional issue, see El Castillo Retirement Residences v. Martinez, Case No. 31, 704, decided December 17, 2014.
Wednesday, December 31, 2014
On December 23, 2014, the Maryland Court of Appeals issued a detailed opinion explaining the disbarment of Attorney Michael C. Hodes, in proceedings initiated by the state's Attorney Grievance Commission. Hodes, an attorney with 39 years of experience, reportedly held himself out as concentrating his practice in estate planning and elder law. At the core of the charges against Hodes was "self-dealing," by improperly using money from a specific decedent's account and over $270,00 from a related trust account for his own needs. He attempted to avoid disbarment, arguing that the sums should be characterized as a loan, that he had made restitution and his alleged misconduct was not in his role as an "attorney."
The Court concluded, however, that an attorney can be disciplined for violations of Rules of Professional Conduct, including conflict of interest, arising from conduct as an agent and trustee for an irrevocable trust created from assets from a decedent's estate, even if the attorney had been acting in a personal or non-legal capacity.
Hodes argued as mitigation that he had an established reputation as a trustworthy and knowledgeable attorney, with no prior history of disciplinary sanctions, and pointed to his roles as an adjunct professor at two area law schools and his role as a regular commentator on "elder law" for the radio. The court was unpersuaded, observing, "Yet, with all of his knowledge and experience in the practice areas of elder law and estates and trusts, Respondent displayed a remarkable lack of insight into his professional responsibility as an attorney and fiduciary. He continued to insist that he had taken a 'loan' of $270,000.00 from the Trust in order to pay personal bills, as if this form of self-dealing was acceptable."
The Maryland Court of Appeals also rejected Hodes' argument that the sanction of disbarment was excessive, as compared to prior disciplinary cases. The Court noted that to the extent the cases could be cited as permitting leniency for intentional misconduct, they "are no longer part of our modern attorney discipline jurisprudence."
For more, see here (Baltimore Business Journal), describing Michael Hodes' future plans.