Copyright © 2017 Joan E. Emery All Rights Reserved.
The 21st Century Cures Act was signed into law on December 13, 2016. The 21st Century Cures Act (“Century Act”), P. L. 114-255, contains many modifications to federal law, including a key provision from the Special Needs Trust Fairness Act. This post will focus on Section 5007 of the Century Act. Section 5007 is entitled “Fairness in Medicaid Supplemental Needs Trusts.” For the purposes of this discussion, supplemental needs trusts and special needs trusts are considered to refer to the same type of trust. Section 5007 contains only 7 lines, but it represents an important change to the federal rules which apply to supplemental needs trusts. Section 5007 adds the words “the individual” to Section 1917(d)(4)(a) of the Social Security Act, 42 U.S.C. 1396p(d)(4)(a), and provides that this change “shall apply to trusts established on or after the date of enactment of this Act.” Why is this change important?
The Omnibus Budget Reconciliation Act of 1993 provided, in Section 1917(d)(4)(a) of the Social Security Act, that if a disabled person was receiving governmental benefits, that person could have a trust which would supplement the governmental benefits that the disabled person was receiving. If a disabled person received an inheritance, personal injury award, or other assets and those assets were transferred to a properly drafted supplemental needs trust, the disabled person would continue to be eligible for governmental benefits. As originally enacted, Section 1917(d)(4)(a) of the Social Security Act permitted a parent, grandparent, legal guardian, or court to establish a supplemental needs trust containing the assets of the disabled person who was under the age of 65, but did not permit the disabled person to create such a trust.
Some commentators have opined that, as originally drafted, Section 1917(d)(4)(a)’s failure to permit a disabled person to establish a supplemental needs trust for his or her own benefit was the result of an inadvertent Congressional drafting error. Perhaps, in 1993, Congress simply overlooked those disabled persons who had the mental capacity to execute a trust, but due to physical limitations, were entitled to receive governmental benefits. This gap in the statute created problems for any disabled person who wanted to establish a supplemental needs trust, but who did not have a living parent or grandparent and who did not need a legal guardian. The result was that a disabled person, who was capable of handling his or her own financial affairs and who did not have a parent or grandparent who could establish the supplemental needs trust, was required to petition the court in order to establish a supplemental needs trust. The Section 5007 change was supported by those who argued that allowing a disabled person with the legal capacity to create a supplemental needs trust was an important way to support the independence of persons with disabilities. It took Congress 23 years to correct the error.
The ability to transfer assets to a supplemental needs trust is an important planning tool. If the disabled person is receiving governmental benefits and the assets are not transferred to a supplemental needs trust, then the existence of those assets will result in the disabled person being deemed ineligible for governmental benefits (such as SSI and Medicaid). Eligibility for governmental benefits can be reestablished after the assets are exhausted by being used to pay for the disabled person’s medical and other appropriate expenses. In contrast, if the assets are transferred to a properly drafted supplemental needs trust, those assets may be used to improve the quality of life of the disabled person without disqualifying him or her from receiving governmental benefits.
It’s important to note that the creation of a supplemental needs trust under Section 1917(d)(4)(a) does not shield the disabled person’s assets indefinitely. When the disabled person passes away or if the trust is terminated prior to death, the total medical assistance paid for the benefit of the disabled person must be paid from that trust to the state which paid the benefits. If the trust assets are insufficient to repay the state in full, then the entire amount in the trust would be paid to the state.
Section 5007 of the Century Act provides that this change is effective for trusts established on or after the date of enactment of the Act, and therefore this change applies to trusts established on or after December 13, 2016. If the law of a state does not permit the disabled person to establish a supplemental needs trust for his or her own benefit, it may not be possible for a resident of such a state to establish a self-settled supplemental needs trust until the law of that state is changed to permit such trusts. In my next two posts, I will discuss federal ABLE accounts and the Illinois supplemental needs trust statute.
Copyright © 2017 Joan E. Emery All rights reserved.
Cindy was involved in a serious car accident on April 11, 1997. She suffered severe head trauma as a result of the accident. After the accident, Cindy was in a comatose state. Cindy did not have a health care power of attorney or a living will. Since Cindy did not have any health care advance directives, her husband Tom began acting as surrogate decision maker for Cindy under the IL Health Care Surrogate Act, 755 ILCS 40/1 et. seq. In May of 1997, a dispute arose between Tom and some members of Cindy’s family, including Cindy’s brothers, Bill and Tom, Cindy’s sisters, Diane, Sheryl, and Stacy, Cindy’s mother Sally, and Cindy’s aunt Kathy. The dispute arose as a result of Tom’s statement at a May 29th family meeting that he felt it necessary to inform the family that he did not believe that Cindy’s chances were good and that he planned to have the feeding tube removed and let her go. On May 30th, Tom modified his position and told the family that he would let Cindy have 6 months or a year before he had the feeding tube removed. The other members of Cindy’s family wanted Cindy to be maintained on artificial life support for a longer period of time. On May 30, 1997, Cindy’s brother Bill filed a petition with the Circuit Court of McHenry County, asking to be appointed guardian of the person of Cindy. Tom then filed a counter-petition asking to be appointed as Cindy’s guardian. Bill later amended his petition and asked that Cindy’s sister Sheryl be appointed as Cindy’s guardian.
The trial court appointed a guardian ad litem (“GAL”). The GAL interviewed Tom and other family members, Cindy’s doctors, Cindy’s caseworkers at the Rehabilitation Institute of Chicago, reviewed Cindy’s medical records, and provided a detailed written report to the court. An evidentiary hearing was held on July 8, 1997. At that hearing, the court reviewed the GAL’s report (which recommended that Tom be appointed as guardian) and various medical records (including a videotape of Cindy in a comatose state) and heard the testimony of at least 8 witnesses. One of the most contested issues at the hearing was what medical treatment Cindy would have wanted. Tom and Cindy’s minor daughter Mandy testified that Cindy did not want any form of life support. Cindy’s mother, Cindy’s aunt, and Cindy’s 3 sisters testified that Cindy wanted to be kept alive if there was a chance that she could recover. At the end of this extensive hearing, the court found that Cindy was a disabled person and found that Tom was qualified to act as guardian. The court then appointed Tom as the plenary guardian of Cindy’s estate and person.
Other members of Cindy’s family were dissatisfied with the trial court’s ruling and so Bill filed a notice of appeal regarding the trial court’s decision. On appeal, no issue was raised regarding whether Cindy was disabled or whether Cindy needed a guardian. The only issue on appeal was whether Tom was the proper person to be Cindy’s guardian. Both Bill and Tom filed briefs on this issue with the appellate court and presented numerous arguments in favor of their respective positions. The appellate court issued its opinion on September 1, 1998. In re Schmidt, 298 Ill. App. 3d 682, 699 N. E. 2d 1123, 232 Ill. Dec. 938 (2nd Dist. 1998). In its 13 page opinion, the appellate court determined that Tom was the proper person to be Cindy’s guardian and affirmed the judgment of the circuit court. 298 Ill. App. 3d at 695.
Let’s briefly review the time line for this case. Cindy was in a serious car accident on April 11, 1997. The appellate court issued its opinion on September 1, 1998. That’s a period of 16 months. During that 16 month period, a petition and counter-petition were filed, an extensive hearing was conducted at the trial court level, comprehensive appellate briefs were filed, and oral argument was apparently also presented to the appellate court. During this process, significant time was devoted to this matter by the litigants, other family members, doctors, the GAL, and the courts. Additionally, the trial court work and appellate work would have been done by the parties’ attorneys at considerable expense. And what was the end result? Tom, as Cindy’s spouse, began acting as surrogate decision maker for Cindy after the accident. After 16 months of time consuming and costly litigation, the appellate court confirmed that Tom would continue to act as the health care decision maker for Cindy.
How could this significant stress, time, and cost have been avoided? The most effective way to have avoided this dispute would have been for Cindy to have signed a durable power of attorney for health care in which she specified her wishes regarding health care, including life sustaining treatment, and named an agent (and one or two successor agents) to carry out her wishes. As a backup, Cindy could have also signed a living will, which would have specified her wishes regarding medical treatment in the event that (1) she had an incurable and irreversible injury, disease, or illness judged to be a terminal condition by her attending physician and (2) no agent was available to act under her power of attorney for health care.
My next post should be around April 28th.
Copyright © 2017 by Joan E. Emery
The procedure for the court appointment of a guardian of the person is somewhat complicated. The appointment process generally begins with the filing of a Petition for Appointment of Guardian for Disabled Person. The Illinois Probate Act requires that a copy of the Petition and Notice of Rights of Respondent (the alleged disabled person) be served on the Respondent by the Sheriff or a court approved special process server not less than 14 days prior to the hearing on the Petition. Also, notice of the time and place of the hearing must be sent to all other persons whose names and addresses are listed on the Petition. Although many aspects of the appointment of a guardian of the estate are the same, the procedure for the appointment of a guardian of the estate is not included in this discussion.
The Summons describes the Respondent’s rights, including the right to be represented by a lawyer, the right to attend the hearing, the right to demand a jury hearing, the right to confront and cross-examine witnesses and to present witnesses, the right to request that the hearing closed to the public, and the right to request that an expert be appointed to examine the Respondent. These rights are provided by statute.
The Petitioner (the person who alleges in the Petition that the Respondent is a disabled person) must submit various additional court forms. One of the most important of these forms is the Report of Physician. The Report of Physician must be completed by a licensed physician. The physician who completes the Report of Physician must evaluate the Respondent within 3 months of the time when the Petition is filed. The Report of Physician must include the following: the nature and type of the Respondent’s disability; how the disability impacts the Respondent’s ability to make decisions; an analysis of the Respondent’s mental and physical condition; the physician’s opinion as to whether guardianship is needed and the nature and scope of guardianship needed; and recommendations regarding living arrangements for the Respondent and a treatment plan for the Respondent (if appropriate). The Report of Physician must be signed by the physician and his or her license number, state of license, address, telephone number, certifications, and other credentials must be provided.
Even if all of the appropriate court forms have been completed and the Report of Physician indicates that a guardian should be appointed, the court usually appoints a guardian ad litem (sometimes thought of as the “eyes and ears of the court”) to visit and evaluate the Respondent. If a guardian ad litem is appointed, the hearing on the Petition will not occur until after the court receives the guardian ad litem’s report.
Let’s assume that (1) all necessary court procedures have been complied with, (2) the Physician’s Report clearly demonstrates that the Respondent is disabled and needs a court appointed guardian of the person, (3) the report of the guardian ad litem concurs with the Report of Physician and concludes that Respondent is disabled and needs a court appointed guardian of the person, (4) the other persons listed in the Petition (including the nearest relatives of the Respondent) do not object to the appointment of a guardian of the person and do not object to the appointment of the Petitioner as the court appointed guardian of the person, and (5) the Respondent does not object to the appointment of a guardian of the person and does not object to the appointment of the Petitioner as the court appointed guardian of the person. Under these circumstances, it is extremely likely that the court will determine that the Respondent is a disabled person and will appoint the Petitioner as the guardian of the person of the Respondent.
Why go through the time, effort and expense of having the Petitioner appointed guardian of the person of the disabled person? The Illinois Probate Act and the Illinois Health Care Surrogate Act specify a few situations where the court must or may become involved. For example, Section 5/11a-17(d) of the Probate Act states that “[a]ny decisions by the guardian to forgo or withdraw life-sustaining treatment that are not authorized under the Health Care Surrogate Act shall require a court order.” This provision obviously exists to require court involvement when the decision to forgo or withdraw life-sustaining treatment is not covered by the Health Care Surrogate Act.
Additionally, Section 40/25 of the Health Care Surrogate Act provides for court involvement in two situations involving controversies about what constitutes the best course of medical treatment for a person who lacks decisional capacity. Section 40/25(a) provides that the decision of a majority of persons with an equal priority to act or the parent with custodial rights shall control unless the minority group or the parent without custodial rights initiates guardianship proceedings. Section 40/25(d) provides that if an individual in a higher, lower, or the same priority level or a health care provider seeks to challenge the priority of or the life sustaining treatment decision of the recognized surrogate decision maker, the challenging party may initiate guardianship proceedings.
The ability to initiate guardianship proceedings and seek to be appointed or to seek to have a particular person appointed as guardian of the person is an important power. It is important because, under the priority system of the Health Care Surrogate Act, once the court appoints a guardian of the person, that guardian is the number one decision maker under the Health Care Surrogate Act and thus has authority to make medical treatment decisions for the person who lacks decisional capacity. And as discussed in my last post, once a guardian of the person is appointed by the court, that guardian can make most health care decisions for the disabled person without further court order. 755 ILCS 40/25 and 755 ILCS 5/11a-17(d).
Next time I will discuss an Illinois case which involved a costly and time consuming dispute between family members about who should be the Health Care Surrogate Act decision maker and the medical decisions that had to be made. My next post should be around April 15th.
© 2017 by Joan E. Emery
Last time I discussed certain provisions of the Illinois Health Care Surrogate Act (“Surrogate Act”), 755 ILCS 40/1 et. seq. In this blog post, I will discuss other important parts of the Surrogate Act and one key aspect of the relationship between the Surrogate Act and the adult guardianship provisions of the Illinois Probate Act.
An important part of the Surrogate Act is the description of when and how the patient is determined to lack decisional capacity. Section 20 provides that a “determination that an adult patient lacks decisional capacity shall be made by the attending physician to a reasonable degree of medical certainty. The determination shall be in writing in the patient’s medical record and shall set forth the attending physician’s opinion…[and] at least one other qualified physician must concur in the determination that an adult patient lacks decisional capacity. The concurring determination shall be made in writing in the patient’s medical record after personal examination of the patient.” 755 ILCS 40/20(c).
Section 25 of the Surrogate Act specifies that the health care provider must make a reasonable inquiry as to whether there is an agent acting on behalf of the patient under a power of attorney for health care. If there is no such agent, the health care provider must make a reasonable inquiry as to whether health care surrogates specified in section 25 of the Surrogate Act are available. Once the surrogate decision maker(s) are identified by the attending physician, then the surrogate decision maker(s) are authorized to make those medical decisions described in the Surrogate Act for the patient. Section 25 of the Surrogate Act, 755 ILCS 40/25, lists those persons in the following order who may make medical decisions on behalf of the patient without court order or judicial involvement: 1) the patient’s guardian of the person; 2) the person’s spouse; 3) any adult son or daughter of the patient; 4) either parent of the patient; 5) any adult brother or sister of the patient; 6) any adult grandchild of the patient; 7) a close friend of the patient; 9) the guardian of the estate of the patient.
If the provisions of the Surrogate Act are complied with and if the patient lacks decisional capacity, the surrogate decision maker can make decisions regarding (1) whether to forgo life-sustaining treatment (but only when the patient has a qualifying condition) and (2) other medical treatment (the presence of a qualifying condition is not required). It’s important to note that the term “medical treatment” is used frequently in the Surrogate Act, but is not defined. Given the broad definitions of “health care provider” and “health care facility” in the Surrogate Act, it is likely that medical treatment is intended to mean most health care treatments.
The provisions of the Surrogate Act and the guardianship provisions of the Illinois Probate Act may appear to be somewhat contradictory. For example, in at least 5 places in the Surrogate Act, the Act refers to the right of patients to make medical treatment decisions, including decisions to forgo life-sustaining treatment, “without judicial involvement,” “without judicial involvement of any kind,” “without resort to the courts or legal process [this is stated twice]”, and “without court order or judicial involvement’ and yet the first person with priority to act as surrogate decision maker is the patient’s guardian of the person. 755 ILCS 40/25. Guardian is defined in the statute as “a court appointed guardian of the person.” 755 ILCS 40/10.
The Illinois legislature has apparently addressed this seeming contradiction between the role of the surrogate decision maker and the role of the guardian by stating in Section 5/11a-17(d) of the Illinois Probate Act that “[a] guardian acting as a surrogate decision maker under the Health Care Surrogate Act shall have all the rights of a surrogate under that Act without court order including the right to make medical treatment decisions such as decisions to forgo or withdraw life-sustaining treatment.” This clarification apparently means that once a guardian of the person is appointed by the court, the guardian can make medical decisions permitted under the Surrogate Act without any additional court order.
So is it better to have health care advance directives in place or to rely on the Surrogate Act? There are numerous reasons why some combination of a power of attorney for health care, living will, declaration for mental health treatment, and a DNR/POLST form are more effective than relying on the Surrogate Act. The first reason is that with one or more health care advance directives, the person can include his or her specific wishes in regard to various types of medical treatment. The second reason is that when using a power of attorney for health care or a declaration for mental health treatment, the person can specify who will carry out that person’s health care wishes. The third reason is that clearly worded health care advance directives avoid the complexity of statutes such as the Surrogate Act. The last reason is that if the person has valid health care advance directive(s), disputes regarding that person’s health care are minimized.
Next time I will discuss the procedure for the appointment by the court of a guardian of the person. Going forward, I will try to post blogs around the 15th and the last day of each month. My next blog will be around March 31st.
© 2017 by Joan E. Emery
Your friend Mark told you he signed a health care power of attorney and a living will as part of his estate plan. In my last blog post, I discussed various Illinois health care advance directives, including health care powers of attorney, living wills, declarations for mental health treatment, and DNR/POLST forms. You wonder, What if I can’t make health care decisions and I don’t have health care advance directives?
Illinois law provides two alternative methods for making health care decisions for someone who has no health care advance directives which address the health care decision(s) which must be made. The first alternative is the Illinois Health Care Surrogate Act (“Surrogate Act”). The second alternative is a court-appointed guardian of the person. Interestingly, these two alternatives overlap to some degree.
Both the Surrogate Act and a court supervised guardianship of the person can provide a way to make health care decisions for someone who does not have health care advance directives and who cannot make those decisions for himself or herself. In this and the next two blog posts, I will focus on the Surrogate Act and court supervised guardianship of the person.
The Surrogate Act, 755 ILCS 40/1 et. seq., was adopted in 1991. As stated in the findings of the Surrogate Act, one of the reasons the Surrogate Act was adopted was as a response to various court cases which resulted in protracted legal battles regarding the termination of life support measures. 755 ILCS 40/5(a). The purpose of the Surrogate Act is described as “to define the circumstances under which private decisions by patients with decisional capacity and by surrogate decision makers on behalf of patients lacking decisional capacity to make medical treatment decisions or to terminate life-sustaining treatment may be made without judicial involvement of any kind.” [emphasis added] 755 ILCS 40/5(b).
The Surrogate Act includes a list of definitions, a description of the scope of the Surrogate Act, a summary of decisions which may be made under the Surrogate Act, a list (in order of priority) of who may act as surrogate decision maker, and other related provisions. The Surrogate Act contains a total of 12 separate sections and is numerous single spaced pages in length – it’s a somewhat complicated statute.
I’ll briefly discuss 3 of the 20 definitions contained in the Surrogate Act. These 3 key definitions are “decisional capacity,” "qualifying condition,” and “surrogate decision maker.” Decisional capacity is defined as “the ability to understand and appreciate the nature and consequences of a decision regarding medical treatment or forgoing life-sustaining treatment and the ability to reach and communicate an informed decision in the matter as determined by the attending physician.” 755 ILCS 40/10.
A qualifying condition is defined, in part, as “the existence of one or more of the following conditions in a patient certified in writing in the patient’s medical record by the attending physician and by at least one other qualified physician: (1) ‘terminal condition’ [defined in the statute]; (2) ‘permanent unconsciousness’ [defined in the statute]; (3) ‘incurable or irreversible condition’ [defined in the statue].” 755 ILCS 40/10.
A surrogate decision maker is “an adult individual or individuals who (i) have decisional capacity, (ii) are available upon reasonable inquiry, (iii) are willing to make medical treatment decisions on behalf of a patient who lacks decisional capacity, and (iv) are identified by the attending physician in accordance with the provisions of this Act as the…[decision maker(s)].” 755 ILCS 40/10.
In terms of applicability, the Surrogate Act clearly states that it does not apply where the patient has a living will, declaration for mental health treatment, or power of attorney for health care and the patient’s condition falls within the coverage of the living will, declaration for mental health treatment, or power of attorney for health care. 755 ILCS 40/15. The Surrogate Act also refers to a do not resuscitate order, so it seems that the Surrogate Act would not apply to any medical treatment directives contained in a DNR/POLST form executed by the patient.
Since the Surrogate Act is intended to create a non-judicial decision-making process for medical decisions, then the next question is, What medical issues can be decided by a surrogate decision maker? The Surrogate Act divides medical decisions into the following 3 categories: 1) medical decisions by an adult patient with decisional capacity, 2) decisions concerning medical treatment on behalf of a patient without decisional capacity, and 3) decisions whether to forgo life-sustaining treatment on behalf of a patient without decisional capacity.
If an adult patient has decisional capacity, then decisions regarding medical treatment and decisions whether to forgo life-sustaining treatment may be made by the patient. 755 ILCS 40/20(a). If a patient lacks decisional capacity and the patient does not have a qualifying condition, then decisions concerning general medical treatment may be made by the surrogate decision maker(s) in consultation with the attending physician. 755 ILCS 40/20(b-5). If a patient lacks decisional capacity and the patient has a qualifying condition, then decisions concerning whether to forgo life-sustaining treatment may be made by the surrogate decision maker(s) in consultation with the attending physician. 755 ILCS 40/20(b).
You now realize that if you don’t have health care advance directives in place and you can’t make medical decisions for yourself, then family and friends who want to make medical decisions for you must rely on first, on the Surrogate Act, and second, on a court supervised guardianship of the person. The Surrogate Act is a complicated, sometimes difficult, way to make medical decisions. But we haven’t even reached the end of the Surrogate Act. In my next post, I will focus on several other important aspects of the Surrogate Act.
© 2017 by Joan E. Emery
Your friend Mark tells you that he recently completed his estate plan with his attorney. He says that, as part of that plan, he signed a health care power of attorney and a living will. He tells you that you should have a health care advance directive. You think, What is that and why should I have one? This blog post will discuss generally Illinois health care advance directives.
A health care advance directive is often defined as a document which contains a person’s health care wishes, so that those wishes are known and implemented if the person becomes unwilling or unable to make those decisions in the future. In Illinois, health care advance directives generally refer to four different documents, including a power of attorney for health care, a living will, a declaration for mental health treatment, and a Do-Not-Resuscitate/Practitioner Orders for Life-Sustaining Treatment form.
All Illinois health care directives generally require that the person creating the health care plan must have the mental capacity to execute the document and the document must be in writing. Specific signing formalities, the number of witnesses who must sign, and when the document takes effect, vary depending on the document being signed.
An Illinois power of attorney for health care (“POAHC”) includes the following: 1) a description of the health care decisions which can be made by the agent (sometimes referred to as the “attorney-in-fact”) acting on behalf of the person who signs the POAHC (the “principal”); 2) a date or event when the agent will begin acting on behalf of the principal; 3) the name a health care agent (or co-agents, if the principal prefers and the statutory short form power of attorney for health care is not used); and 4) possibly the name of one or more successor health care agents. A power of attorney for health care is the document with the broadest scope. It can address many aspects of health care decision-making, including all powers the principal has to be informed about and to consent to, refuse, or withdraw any type of health care and may extend beyond the principal’s death to include anatomical gifts, autopsy, disposition of remains, or access to medical records after death. Beyond the scope of this discussion is the ability of a parent to delegate the parent’s ability to control or consent to health care for a minor child.
An Illinois living will provides that if the person who signs the living will (the “declarant”) develops a terminable condition and death is imminent, then the declarant does not wish to have medical treatment provided which would prolong the dying process. The declarant also directs in the living will that all medical procedures which provide comfort care should be provided to the declarant. A living will has no effect so long as an agent is acting under a health care power of attorney and that agent is authorized to deal with the subject matter of a living will.
An Illinois declaration for mental health treatment deals with three types of mental health treatment – 1) electroconvulsive treatment, 2) treatment of mental illness with psychotropic medication, and 3) admission to and retention in a health care facility for a period up to 17 days. The person who executes the declaration (the “principal”) can specify whether he or she consents or does not consent to each of these three types of mental health treatment and can specify conditions and limitations for each of these treatments. The principal can also select the physician who will determine if the principal lacks the ability to give or withhold informed consent and can name an agent (referred to as the “attorney-in-fact”) and a successor attorney-in-fact to make decisions regarding the principal’s mental health treatment in accordance with the declaration for mental health treatment.
A Do-Not-Resuscitate (DNR)/Practitioner Orders for Life-Sustaining Treatment (POLST) form is made available by the Illinois Department of Public Health (“IDPH”). The IDPH DNR/POLST form allows a patient to define the parameters of the following three types of life-sustaining treatment: 1) cardiopulmonary resuscitation (“CPR”); 2) medical interventions (including intubation, mechanical ventilation, cardioinversion, IV fluids, and IV medications such as antibiotics and vasopressors); and 3) medically administered nutrition (including long-term use of feeding tubes). There are two CPR choices, namely attempt to resuscitate or do not attempt to resuscitate. The medical interventions are full treatment, selective treatment with the primary goal of treating medical conditions with some, but not all, medical measures, and comfort-focused treatment only. The medically administered nutrition options are long-term medically administered nutrition (including feeding tubes), a trial period of medically administered nutrition (including feeding tubes), or no medically administered means of nutrition.
One important goal of health care planning is to have all health care advance directives fit together so that a clear and cohesive health care plan exists. This health care plan is usually designed to be implemented if the person who signs the directive or directives cannot make health care decisions. I recommend that the appropriate health care directives be drafted by an attorney. The attorney should work with his or her client to create a health care plan which integrates all appropriate health care advance directives.
You tell your friend Mark that you now have a general understanding of Illinois health care advance directives. But now you wonder, What may happen if I can’t make health care decisions and I don’t’ have any health care advance directives? In my next blog posts, I will discuss what may happen if a person is incapable of making health care decisions and there are no health care advance directives in place.
© 2016 by Joan E. Emery
Year-end tax planning for 2016 is more complicated because of the recent presidential election. No one has a crystal ball and so it’s only possible to make educated guesses regarding what the tax future holds. Here’s what is known with some degree of certainty:
1. The federal tax rules for 2016 should be governed by the laws and regulations currently in place.
2. There will probably be significant federal tax law changes in 2017.
3. President-elect Trump and the Republican Congress do not agree on all the tax changes proposed by Mr. Trump.
4. President-elect Trump proposed numerous tax changes during his campaign, including the following:
a. Individual Income Tax Changes – reduce tax rates, fewer tax brackets, elimination of the 3.8% Medicare investment earnings tax, and elimination of the alternate minimum tax;
b. Corporate Tax Changes – reduce maximum corporate tax rate to 15%; and
c. Estate, Gift and Generation-Skipping Transfer Tax Changes – repeal of these taxes, but with elimination of basis step-up at death.
5. No one knows what will happen, but the following federal tax law changes seem likely to occur in 2017:
a. Individual Income Tax Changes – reduced tax rates and elimination of the 3.8% Medicare investment earnings tax;
b. Corporate Tax Changes – significant reduction in the maximum corporate tax rate; and
c. Estate, Gift and Generation-Skipping Tax Changes – other tax changes may take priority over the proposed estate, gift and generation-skipping transfer tax changes. It’s possible that simplification changes will be enacted in this area before or instead of repeal of these taxes.
6. Each person’s tax situation is unique. The following approaches are based on general tax concepts and may not be appropriate for an individual’s particular tax situation. The following are year-end tax planning options which should be evaluated by a tax advisor who is familiar with that person’s situation before implementing:
a. There are two classic year-end tax planning approaches, which may be especially useful for 2016:
1) Postponing income to 2017, to the extent permissible; and
2) Accelerating deductions into 2016, to the extent permissible.
b. Roth IRA conversions are generally more advantageous in a lower tax rate environment, such as is expected for 2017.
c. If a transaction would result in current gift tax being payable, it may be advantageous to structure the transaction to adopt a wait and see approach regarding whether gift tax is repealed.
d. An important consideration may be the impact on proposed transactions of the likely higher interest rates in 2017.
It’s likely that significant federal tax law changes are coming in 2017, but the nature and timing of those changes are unknowable. It is always best to consult your tax advisor before acting.
© 2016 by Joan E. Emery
Vena v. Vena, 387 Ill. App. 3d 389 (2nd Dist. 2008), app. den. 231 Ill. 2d 688 (2009) was the subject of my December 16th blog post. In Vena, the Illinois Appellate Court, Second District, invalidated a trust provision which provided that a majority of the beneficiaries of a trust could approve a trustee’s accounts and majority approval would have the same effect as if a court having jurisdiction over the trusts approved the accounts. The approval provision in the Vena case does not seem particularly unfair or controversial. What if a grandparent included a provision which disinherited any grandchild who married outside the grandparent’s religious faith? This seemingly more controversial provision was the subject of Estate of Feinberg, 235 Ill. 2d 256 (2009), reh. den. (2009), cert. den. 560 U. S. 939 (2010).
In Estate of Feinberg, the Illinois Supreme Court was called upon to determine whether a beneficiary restriction clause was void as a matter of public policy. Prior to his death, Max Feinberg executed a will and created a trust. Max subsequently passed away in 1986. Max’s will provided that his probate assets were to pour into his trust. His trust provided that his wife, Erla, was to be the primary beneficiary of the trust during her lifetime and, at her death, the remaining trust assets were to be distributed to Max’s descendants. Half of the trust was to be distributed to Max and Erla’s grandchildren, but if a grandchild married outside the Jewish faith or married a person who was not Jewish and the spouse did not convert to Judaism within one year of the marriage, that grandchild would be deemed deceased for purposes of the trust (“beneficiary restriction clause”).
Max and Erla had two children, Michael and Leila. Michael had two children and Leila had three children. Max’s trust gave Erla a limited power to distribute the entire trust assets (“power of appointment”) among Max’s descendants. In 1997, Erla exercised her power of appointment over Max’s trust and appointed the trust property so that each of their two children and any grandchild who was not deemed deceased under Max’s beneficiary restriction clause would each receive $250,000. Erla passed away in 2003. Of Max and Erla’s five grandchildren, only one, Jon, married someone who satisfied the beneficiary restriction clause. The record on appeal suggested that gifts of $250,000 to Michael, Leila and Jon would completely deplete the trust and the other four grandchildren would receive nothing from Max’s trust. Both the trial court and the appellate court held the beneficiary restriction clause was invalid.
The Illinois Supreme Court had to decide whether a decedent could exclude potential beneficiaries based on a religious requirement. The Court framed the primary issue before it as follows, “whether the holder of a power of appointment over the assets of a trust may, without violating public policy of the state of Illinois, direct that the assets to be distributed at the time of her death to then-living descendants of the settlor [the settlor was Max, the creator of the trust], deeming deceased any descendant who has married outside the settlor’s religious tradition.” 235 Ill. 2d at 262. The Court was thus called upon to decide if a property owner could impose a religious requirement on a potential beneficiary’s ability to inherit from that property owner.
The Court’s 28 page opinion analyzed numerous sub-issues prior to arriving at its decision. This blog post focuses on the conflicting public policy sub-issues which the Court had to reconcile in order to reach a decision. Public policy is generally in favor of or against certain actions of the citizens of that jurisdiction. Our Illinois public policy generally favors the ability to give your property to whomever you choose, the ability to freely make contracts, and the ability to marry whomever you choose. In Feinberg, the public policy in favor of freedom of testation (the ability to give your property to whom you want to in the way you wish to do so) and the freedom of contract was pitted against the public policy in favor of marriage. Problems arise when public policies such as these come into conflict with each other.
The Court began its analysis of testamentary freedom by reviewing various provisions of the Illinois Probate Act, Section 5/3(1) of the Illinois Trusts and Trustees Act (discussed my November 23rd blog post), and various other Illinois statutes. The Court concluded that “the public policy of the state of Illinois protects the ability of an individual to distribute his property, even after his death, as he chooses, with minimal restrictions under state law.” 235 Ill. 2d at 268.
Next the Court examined the public policy which encourages marriage and discourages divorce. The Court reviewed various Illinois cases and concluded that “beneficiary restriction clause as given effect by Erla’s distribution scheme does not implicate the principle that trust provisions that encourage divorce violate public policy.” 235 Ill. 2d at 273. Thus, the Court decided that the beneficiary restriction clause did not encourage the potential beneficiaries to divorce their spouses.
Then the Court had to decide whether the beneficiary restriction clause, which could have impacted the potential beneficiaries’ decisions whether and to whom to marry, violated public policy. The Court examined additional Illinois cases, and concluded that 1) Max and Erla’s grandchildren had no vested interests in Max’s trust, 2) since they were not heirs at law of Max and Erla, the grandchildren had nothing more than a mere expectancy, which was defeated by their marriages outside the Jewish faith, and 3) the distribution plan adopted by Erla had no prospective application. The Court then determined that “under these circumstances, even a complete restraint on marriage (i.e. distribution only to unmarried grandchildren) would be operative.” 235 Ill. 2d at 281. The Illinois Supreme Court then held that the beneficiary restriction clause did not violate public policy and reversed the judgment of the appellate court. 235 Ill. 2d at 286. Since the appellate court held that the beneficiary restriction clause was invalid, the reversal by the Illinois Supreme Court upheld the validity of the clause.
The Vena and Estate of Feinberg cases demonstrate that sometimes courts uphold the validity of provisions in wills and trusts and sometimes they do not do so. These cases also show that the seeming controversial nature of the provision is not a reliable guide to whether or not the provision will be upheld by the courts. What is your brother Tom, successor trustee of your revocable trust, to do to protect himself and the trust beneficiaries? When a person begins acting as trustee, it is wise for the trustee meet with legal counsel. Such an initial meeting and periodic additional meetings with legal counsel can assist the trustee in understanding the terms of the trust and complying with applicable state and federal statutes and case law.
My next blog post will discuss year-end tax planning. Happy holidays to everyone!
© 2016 by Joan E. Emery
You named your brother Tom as successor trustee of your revocable trust. Tom is designated to act as successor trustee if you cannot act as trustee during your lifetime and when you pass away. Both you and Tom want to learn about the rules governing Tom’s decisions as trustee when Tom becomes successor trustee. As discussed in a prior blog post, Tom’s powers and duties come from three sources – the trust agreement, statutes, and case law. This blog post will focus on the interrelationship among your Illinois trust agreement, Illinois statutes, and Illinois case law. Outside the scope of this discussion is the impact of the laws and judicial opinions of other jurisdictions.
You and Tom know that Tom’s powers and duties are generally set by your trust agreement, but you also know that Illinois statutes and Illinois case law can modify or limit the language of the trust agreement. The Illinois statute most closely related to trusts is the Illinois Trusts and Trustees Act (“Act”), 760 ILCS 5/1 et seq. As I mentioned in an earlier blog, the Act generally allows the creator to the trust to specify the rights, powers, duties, limitations, and immunities of the trustee in the trust agreement. The one crucial limitation on that rule is Section 5/3(1) of the Act, which provides that the language of the trust agreement controls so long as those provisions are not contrary to law. A trust provision may be contrary to law if it violates the requirements of a specific statute or if it runs afoul of a rule of law established by the Illinois courts.
You and Tom would like to know more about situations where a rule of law established by the Illinois courts would preempt the language of the trust. Vena v. Vena, 387 Ill. App. 3d 389 (2nd Dist. 2008), app. den. 231 Ill. 2d 688 (2009) is an example of a situation where an Illinois court was called up to decide whether the language of a trust violated the public policy of the State of Illinois.
In the Vena case, the trust creator, Harry, executed a trust agreement in 2002. Harry’s trust contained a trust provision which stated that a majority of the 19 trust beneficiaries could “approve the trustee’s accounts or the accounts of the successor trustee with the same effect as if a court having jurisdiction over the trusts approved the accounts.” 387 Ill. App. 3d at 391. The trial court ruled that this majority approval provision was effective and therefore enforceable by the court. In the trial court and on appeal, Philip, who was one of the 19 trust beneficiaries, argued that the majority approval provision was unenforceable because it improperly restricted judicial review of the trustee’s actions. Philip also argued that the trustee had breached his fiduciary duties by (1) failing to account to the beneficiaries, (2) providing inaccurate information, (3) mismanaging and wasting trust assets, (4) paying improper expenses, and (5) acting negligently in regard the sale of real estate held in the trust.
The Appellate Court extensively reviewed the applicable law and concluded that “the provision is an improper method for exculpating the trustee of serious misconduct – of acts done in bad faith, of intentional breaches of trust, or of breaches of trust committed with reckless indifference to the interest of the beneficiary. A majority-approval process does not provide effective oversight of the trustee for two reasons. First, responsibility is too diffused. Second, the trustee has too much control over the process.” 387 Ill. App. 3d at 397. The Appellate Court held that “the provision in Harry’s trust is contrary to public policy because of the limitations it places on redress for serious trustee misconduct… the majority-approval provision too thoroughly deprives an individual beneficiary of the ability to enforce his or her rights and too thoroughly insulates the trustee from accounting to a court.” 387 Ill. App. 3d at 394-395.
In Vena, the Appellate Court reversed the decision of the trial court and remanded the case to the trial court for further proceedings. Since the Appellate Court ruled that the majority approval provision was unenforceable, a majority of the 19 beneficiaries could not approve the account of the trustee and Philip, the beneficiary who objected to the trustee’s account and challenged the majority approval provision, would be able, upon remand, to present his challenges to the trustee’s account to the trial court.
The Vena case demonstrates that trust administration can be a bit more challenging than it initially appears to be. On its face, the Vena trust provision, which was held to be unenforceable, does not appear to be particularly unfair or controversial. In my next blog post, I will discuss an Illinois case which required the Illinois Supreme Court to rule on a more controversial trust provision.
© 2016 by Joan E. Emery
A trustee’s three key duties are the duty of loyalty, the duty of care/prudence, and the duty of disclosure. These three duties and some other duties were initially common law duties, because these duties arose as a result of cases decided by the judiciary. These and other trustee duties arose because when a trustee administers property which is not his or her own property and administers that property for the benefit of a person or persons other than himself, the trustee must act according to the high standards imposed on fiduciaries. I will discuss each of these Illinois common law duties separately and then discuss some duties imposed by the Illinois Trusts and Trustees Act.
In the example from my prior blog post, you have named your brother Tom as successor trustee of your revocable trust if you become incompetent during your lifetime. If you do not become incompetent during your lifetime, then your brother Tom is designated to become successor trustee when you pass away. Tom’s obligations to the beneficiaries of your trust are referred to as Tom’s duties as trustee. What are Tom’s duties?
The common law duty of loyalty requires a trustee to put the interests of the beneficiaries before the trustee’s own interests. This means that the trustee must avoid situations where the trustee’s interests conflict with the beneficiaries’ interests. The duty of loyalty also requires the trustee to be impartial in his or her dealings with all the beneficiaries and to not favor one beneficiary or group of beneficiaries over others.
The common law duty of care/prudence requires a trustee to use reasonable care, skill, and caution when acting as trustee. This duty of care/prudence generally means that the trustee must exercise significant competence in carrying out his or her responsibilities as trustee. This requirement is often described as requiring that the trustee exercise the competence of a prudent person with ordinary intelligence. If the trustee has greater skill or expertise, then the trustee must use that greater ability.
The common law duty to disclose is often said to arise from the duty of loyalty. In other words, the duty to disclose arises because a beneficiary needs to know if the trustee is administering the trust property in accordance with the terms of the trust, is being loyal to the beneficiaries, and is acting with care and prudence. Interestingly, the flip side of the duty of disclosure is the duty of confidentiality. Although the trustee generally must disclose certain information to the beneficiaries, the trustee must refrain from disclosing information about the trust and its beneficiaries to anyone who is outside the “need to know circle.”
The Illinois Trusts and Trustees Act (“Act”), 760 ILCS 5/1 et seq., contains at least 3 provisions which specify duties of a trustee. Those provisions are the Prudent Investor Rule, 760 ILCS 5/5, the Duty Not to Delegate, 760 ILCS 5/5.1, and the Duty to Account, 760 ILCS 5/11. Each of these statutory provisions will be discussed separately.
The Illinois statutory Prudent Investor Rule states, in part, that “a trustee administering a trust has a duty to invest and manage trust assets as a prudent investor would considering the purposes, terms, distribution requirements, and other circumstances of the trust.” This statutory provision contains numerous additional sub-parts which explain and expand on the general language quoted above.
The Illinois statutory Duty Not to Delegate provides that “the trustee has a duty not to delegate to others the performance of any acts involving the exercise of judgment and discretion, except acts constituting investment functions that a prudent investor of comparable skills might delegate…” This provision also contains additional language which explains how a trustee can delegate investment functions. Outside the scope of this discussion is the Illinois Directed Trusts statute, 760 ILCS 5/16.3, which permits the governing instrument (usually the trust agreement) to allocate certain trust functions among various persons or entities.
The Illinois statutory Duty to Account specifies that “every trustee at least annually shall furnish to the beneficiaries then entitled to receive or receiving the income from the trust estate, or if none, then those beneficiaries eligible to have the benefit of the income from the trust estate a current account showing the receipts, disbursements, and inventory of the trust estate.” This statute also discusses the effect of producing such a current account and also specifies the trustee’s duty to furnish a final account when the trust terminates.
Your brother Tom now knows that there are certain Illinois common law trustee duties and certain Illinois statutory trustee duties. In addition, the Illinois trust agreement you created may contain trustee duties which are in addition to or which conflict with these common law or statutory duties. How does Tom know which duties apply to him as trustee and which duties do not apply? That will be the subject of my next blog post.
I am an attorney practicing in the Chicago area.