Ouch, That SMARTS!

July 19th, 2012 | written by Nancy Larson

In recent attempts to pull Illinois into financial responsibility, Governor Quinn and the Illinois legislature have taken steps that effect seniors of all income levels.  He has given estate tax breaks to the wealthy and taken away services for the middle class which include new Medicaid rules that affect long-term care recipients.

Specifically, on January 1, 2012, new Medicaid rules were put in place that include several important changes.  The most notable change was to the look-back period on the transfer of assets (for less than fair market value) from three (3) years to five (5) years.  This change is one of the most frequently asked questions from our clients as it relates to gifting money or assets to family members.  Another transfer that can cause a penalty is paying family members to help with taking loved ones to doctor appointments, run errands, housekeeping chores, etc.  If these payments to friends or family go undocumented and are of any value, Medicaid will penalize you for transferring your assets for less than fair market value.

The SMART Act,  known as Save Medicaid Access and Resources Together Act, was signed by the Governor on June 14, 2012.  Officially it is Senate Bill 2840 and Public Act 07-0689.  The not-so  SMART Act makes even more changes to the new Medicaid rules that directly affect seniors facing long-term care and nursing home placement, including but not limited to the termination of the prescription drug programs.

As of July 1, 2012, the Illinois Cares Rx program was terminated.  This means that seniors who received assistance with payment of their prescription drugs and Medicare Part D premiums will no longer receive such funding.  It is important that those affected by this funding cut contact their Medicare Part D prescription drug plan to find out what their premium and prescription drug costs will be starting July 1, 2012.

The SMART Act also limits the amount that can be spent on an irrevocable pre-paid funeral from $10,000 to now only $5,874.  Also noteworthy is the change in the homestead equity exemption from $750,000 to $500,000.  There are also provisions in the SMART Act that make it even more difficult for spouses who have their loved one in the nursing home to maintain their hard-earned savings from being depleted down to $109,560 in order for their loved one to receive Medicaid benefits.

On another note, in a surprise move at the end of 2011, the Illinois legislature amended the Illinois estate tax exemption so that there is no estate tax at death unless an estate is $3.5 million or more in 2011 – or $4 million or more in 2013.

Now this certainly does effect some of our clients in a positive way, but anyone with a more modest estate will be not be effected at all.  Federal estate tax was adjusted to $5 million in 2012. Unless the US Congress takes further action, the federal transfer tax exemption will drop to $1million in 2013 with a taxable rate of 55%.

It is time to be more alert than ever as our state and federal governments continue to change the rules, which makes planning to save and conserve our hard-earned life savings even more of a challenge.  Stay tuned!

Submitted to BND 7/19/12


February 1st, 2012 | written by Nancy Larson

A loved one dies and the phone rings urgently with creditors demanding payment on credit cards and medical bills.  Letter after letter demands immediate payment in full on credit cards of a family member who has recently died.  Who, if anyone, is responsible?

Debts don’t magically disappear at death nor do they automatically get paid by the surviving spouse or family.

Creditors collecting from an estate of a deceased person must file their claims in writing to the executor or to the attorney for the estate within six months of opening a probate estate.  It is the executor’s duty to advise creditors of the death of the family member, but it is the assets of the deceased that are used to pay the debts – unless there was a co-signer on the account.  Collection attorney, Tom LeChien, advises to read the fine print on credit card agreements to determine ultimate responsibility for credit card balances that survive after death.

If a balance exists, a credit card company has the right to payment from the assets of the estate but the creditor must file a claim and the claim must be set for hearing in the probate court.  If the creditor fails to appear in court at the hearing, the claim will be denied.

If the estate doesn’t have enough money to pay all the claims filed against it, then Illinois law directs the executor to give first priority to funeral bills, burial expenses, and expenses of administering the estate – including executor fees, court costs, and attorney fees.

If you are the spouse or relative of a decedent and have joint accounts or co-signed on a loan, then you, as the surviving account holder, are responsible for payment of the debt.

If you inherit a car from your mother, the loan on the car will not go away at Mom’s death.  You will either have to refinance the car, pay the balance on the loan in full, sell the car for more than the balance due and keep the overage, or simply allow the car to be repossessed.  If a Will directs for payment of debts, then the executor will pay the loan on the car and deliver title to you.

If you are named the executor of an estate or the trustee of a trust, seek legal advice before paying any bills.  In the world of Wills and trusts, sometimes the squeaky wheel does not get oiled first!  In other words, in Illinois, the priority in which debts are paid does not give first priority to credit cards and has other nuances that may come as a surprise.  As the executor or trustee, only move forward with the advice of an attorney so the estate is administered according to the law.

If you are expecting a distribution from Mom’s estate, that will only happen after all claims and debts have been settled.  In an estate that is insolvent  ( “upside down”), the beneficiaries or heirs-at-law will get nothing. The good news is that they will not be responsible for the debts of the estate unless they co-signed or were joint on a loan or credit card account.


July 29th, 2011 | written by Nancy Larson

Due to recent changes in the law, this is a great time to review your existing estate planning documents, particularly your Powers of Attorney. It is so important that each of us take the time to execute a Property and Health Care Power of Attorney to ensure that our wishes are honored and carried out on our behalf if we become disabled or incapacitated.  With that, you should carefully consider the appropriate agent to appoint who you believe will honor your intentions when you are no longer able to communicate your desires.

Now, let’s get down to business.  The new Illinois Power of Attorney Act for Property and Health Care is hot off the press and became effective July 1, 2011.  The purpose behind the major overhaul of the Act was to make the power of attorney forms more user-friendly, and at the same time provide additional protections from financial exploitation through the Property Power of Attorney and physical abuse through the Health Care Power of Attorney.

Under the Property Power of Attorney, the new law creates a higher standard of care for the agent appointed.  Specifically, the agent once exercising their power, shall use due care, competence, diligence and act in good faith for the benefit of the principal.  Also, the agent must act in accordance with the principal’s expectations and not its own.  The agent is required to keep a detailed record of all receipts and disbursements, including significant actions taken on behalf of the principal.  At any time, the agent can be required to provide copies of their transactions upon request from the principal and other significant representatives, including heirs of the principal. Failure to uphold this new standard of care could cause an agent to become liable to the principal or the principal’s successors in interest to restore the lost value of property.  For this reason, the new law requires that a notice be given to the agent describing the agent’s responsibilities before the agent accepts the appointment!

Under the Health Care Power of Attorney, the changes to be aware of include language to address the Health Insurance Portability and Accountability Act (HIPAA) and the Disposition of Remains Act.  If you have been to a doctor in the last few years, you would have been asked to sign a HIPAA form.  That form acknowledges the requirement that the doctor’s office must keep your identifiable health information private and that only certain individuals can access your medical records.  The new Health Care Power of Attorney form now includes the HIPAA language and grants your agent the authority to access your health information and this authority.

Additionally, the new Health Care form incorporates recent changes to the Disposition of Remains Act. Your agent is granted the power to authorize an autopsy and make decisions regarding the disposition of your remains, including cremation and/or funeral arrangements.  Lastly, it attempts to clarify your preferences regarding the withholding or removal of life-sustaining treatment.

Another new addition to the law for both Property and Health Care Powers of Attorney are the prohibition of certain individuals signing as a witness to the principal’s execution of their Power of Attorney documents.  It is a conflict of interest for doctors, mental health providers, owners and operators of a healthcare facility where the principal is a resident, family members, a named agent or successor agent, or any relatives of the individuals listed to serve as a witness.  Another layer of protection to avoid undue influence is the new requirement for a second witness to attest to the principal’s signature.

It is to everyone’s benefit to take a moment to contact a local estate planning attorney and schedule an appointment to update existing powers of attorney – or get some initial documents in place – to ensure that your wishes will be carried out on your behalf if and when you are not able to.

 (Submitted to BND, July 29, 2011)


April 4th, 2011 | written by Nancy Larson

Leaving a Legacy For Your Pet

The old saying goes, “You can pick your friends, but you can’t pick your relatives.”  Some of our best friends are four-footed and furry and become a part of our family.  They offer us their loyalty and unique personalities.  Our pets share our lives and give us their unconditional love.  For anyone who has ever loved a pet, consider your pet’s life without you.

English law has traditionally looked favorably on the practice of providing gifts to support specific pets, but that custom was not adopted into our state laws until recently.  In 2004, Illinois enacted the Pet Trust Act, amending the Trusts and Trustees Act, to permit trusts for the benefit of domestic animals.  By following provisions of the new statute, pet owners may provide for the care of their furry friends after they have died through their estate plans with careful guidance from an estate planning attorney.

Much like small children, pets are unable to speak or care for themselves.  They are at the owner’s mercy.  The first and possibly most important decision to make is finding a person willing to act as a trustee and caregiver for the pet.  One person can act as both caregiver and money manager or the roles can be divided.  It is best to review such arrangements ahead of time with the caregiver to ensure that the caregiver is of the same mindset as the pet owner.  There should be a thorough discussion about how the caregiver would provide for the pet in different situations.

As a practical matter separate from the trust, the caregiver should be provided with the history of the animal, including name, age, medical history, and instructions for care and feeding.  The veterinarian’s name, address, and phone number should be provided to the caregiver, as well as any additional written instructions that would be helpful.

The pet owner will also need to determine how much money to allocate to the pet trust.  Costs of routine care and emergency veterinary care should be taken into consideration.  If the trustee and caregiver are not the same person, then the trustee may want an annual report from the veterinarian regarding the condition of the pet.

The trust terminates if there is no animal alive to care for, at which time the remainder will be distributed as the owner has designated.  A pet trust that is funded very generously might encourage litigation from heirs or beneficiaries who are overly eager to get their share of the estate.  Some pet owners direct that assets remaining in the pet trust will ultimately be distributed to a charitable organization benefiting animals or another favorite cause.

For additional information on providing for pets in your estate plan, check out the following sources:  www.legacyforyourpet.com and the book entitled All My Children Wear Fur Coats by Peggy R. Hoyt, J.D., MBA.

(Submitted to BND, 04/04/11)