Wednesday, January 17, 2018
FINRA, the Financial Industry Regulatory Authority, Inc. (a private corporation that acts as a self-regulatory organization (SRO)). has released a series of questions and answers designed specifically to address elder financial exploitation. Frequently Asked Questions Regarding FINRA Rules Relating to Financial Exploitation of Seniors (FAQ's) explains new rules that take effect on February 5, 2018.
The SEC recently approved: (1) the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers; and (2) amendments to FINRA Rule 4512 (Customer Account Information) to require members to make reasonable efforts to obtain the name of and contact information for a trusted contact person (“trusted contact”) for a customer’s account. FAQs Nos. 1 and 2 deal with temporary holds, No. 3 deals with trusted contacts, and No. 4 with disclosures. The FAQs are available here.
FINRA Rule 2165 allows a FINRA member firm that reasonably believes financial exploitation may be occurring or has occurred to place a temporary hold of up to fifteen (15) business days on the disbursement of funds or securities from the account of a “Specified Adult” customer. A Specified Adult is either (a) a person aged 65 or older; or (b) a person, aged 18 or older, who the firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interest.
Rule 2165 also establishes additional recordkeeping requirements in order to comply with the rule including identification, escalation and reporting of matters related to the financial exploitation of Specified Adults.
Further, Rule 2165 requires a member firm’s supervisory procedures to identify the title of the person authorized to place, terminate or extend a temporary hold. The person specified at the member firm must serve in a supervisory, compliance or legal capacity.
The rule allows member firms to exercise discretion in placing temporary holds on disbursements of funds or securities from the accounts of Specified Adults. The rule serves as a safe harbor from violations of other FINRA rules, but Rule 2165 raises the question as to whether a stockbroker is qualified to pass judgment on the mental condition of his or her clients.
Additionally, the rule requires members to develop and documents training policies or programs reasonably designed to ensure that associated persons comply with its requirements to aid in identifying tell-tale signs of elder financial abuse.
Monday, November 27, 2017
Nursing homes have devised numerous strategies to legally seek reimbursement from residents' family members in light of federal and state laws prohibiting them from demanding that family members personally guarantee payment of a resident's nursing home bill. The Nursing Home Reform Act (NHRA), for example, which governs skilled nursing facilities and nursing facilities accepting Medicare and Medicaid assisted residents facilities cannot “require a third party guarantee of payment to [its] facility as a condition of admission (or expedited admission) to, or continued stay in, [its] facility.” 42 U.S.C. § 1395i–3(c)(5)(A)(ii); 42 U.S.C. § 1396r(c)(5)(A)(ii); see also 42 C.F.R. § 483.12(d)(2).
Nursing Home admission agreements are, therefore, filled with alternate provisions, such as those requiring that family member or agents assist in obtaining Medicaid or other government assistance, or those requiring family member agents to ensure that the resident's assets are spent down on nursing home care. Planners are concerned that these provisions might negate or interfere with otherwise lawful spend down strategies, such as spending assets for improvement of a home, or for purchase of a car for a resident's spouse.
Supporting these efforts to find alternative reimbursement is a recent decision by an Ohio Court of Appeals. The Court ruled in favor of a nursing home suing a resident's agent for breach of contract, holding that the nursing home is entitled to damages if the agent had control of liquid assets at the time the nursing home invoice came due even though some of the assets were paid to maintain the resident's home. Classic Healthcare Systems, LLC v. Miracle (Ohio Ct. App., 12th Dist., No. CA2017-03-029, Nov. 13, 2017).
David Miracle was his mother's agent under a power of attorney. When his mother entered a nursing home, he signed the admission agreement on her behalf and agreed to use his mother's finances to pay the facility. Mr. Miracle paid the nursing home infrequently, and his mother owed more than $100,000 by the time she was discharged.
The nursing home sued Mr. Miracle for breach of contract. Evidence showed that Mr. Miracle used $56,486.63 of his mother's resources to maintain her real estate and spent an additional $12,971.54 on payments not related to his mother. The trial court found that the additional payments were unauthorized and awarded the nursing home damages in that amount. The nursing home appealed, arguing that it was also entitled to the money that was used to maintain Mr. Miracle's mother's home.
The Ohio Court of Appeals reversed and remanded the case to the trial court. The Court held that the nursing home is entitled to damages for breach of contract if Mr. Miracle "had control over liquid assets at the time an invoice came due." The court ruled that the trial court improperly looked at the entire nursing home stay as one transaction. According to the court, if Mr. Miracle "had control of [his mother's] liquid assets on the due date that were not paid to [the nursing home] then that amount constitutes damages properly payable to [the nursing home]."
For the full text of the opinion, go here.
Saturday, October 28, 2017
More than ever, workers are continuing to work into their 70s and beyond. The general rules governing retirement accounts require nearly every individual account owner to begin taking Required Minimum Distributions (RMDs) by April 1 of the year following the year in which the owner turns 70½. There exists a notable exception for employer-sponsored 401(k) accounts owned by employees who continue working past age 70½.
If the plan allows, an owner who leaves funds in the 401(k) can avoid RMDs if s/he remains employed with the employer who sponsors the plan. Moreover, the owner can also continue to make contributions to the 401(k)!
This exception has some significant requirements, though. The current employer must sponsor the 401(k); an owner cannot change employers and defer RMDs beyond age 70½. In other words, if a former employer sponsors the relevant 401(k), the owner must take RMDs even if continuing to work for another employer that also sponsors a 401(k). If the owner has more than one 401(k) and the plans allow for rollovers, however, it may be possible to roll all 401(k) funds into the 401(k) of a current employer and delay RMDs on all of the funds if the still working exception applies. Combining accounts will also simplify RMD planning once the owner stops working, because the RMD on each account would have to be determined separately.
The plan, too, must permit the exception. Because not all 401(k) plans permit the exception, even though permitted by law, an account owner must ensure that his/her plan actually does allow the funds to remain in the plan to avoid a steep 50 percent penalty that apply to missed RMDs.
The exception does not apply if the plan is an IRA (whether a traditional, SEP or SIMPLE IRA). As an aside, remember that RMDs do not apply to Roth IRAs during the original account owner's lifetime.
Despite these carefully prescribed and limited conditions, the last condition, that the owner continues to work for the employer, is without a concrete definition, and therefore, may permit flexibility. Because the IRS does not provide a provides a concrete definition of what it means to continue working past age 70½, it may be possible for an owner to continue working on a reduced-hours or consulting basis and still defer his or her RMDs past the traditional required beginning date.Of course, if special arrangements are crafted by an employer and employee, it is advisable to consult an attorney to document the special relationship in order to ensure that it won't be deemed a sham or fraudulent arrangement by the IRS.
While an account owner may generally avoid taking RMDs from his or her 401(k) as long as s/he continues working past age 70½, many small business owners are not permitted to take advantage of this exception, because the exception does not apply to participants who are five percent owners of the business sponsoring the retirement plan. Plan participants who own a portion of the business sponsoring the 401(k) must also be aware of the constructive ownership rules that apply when determining whether s/he is a five percent owner; interests held by certain members of the owner's family (e.g., spouse, children, parents, etc.) and by certain entities which the owner controls will be added to the ownership interest of the participant/business owner in determining whether the 5 percent threshold has been crossed.
Monday, October 2, 2017
From McKnight's Long Term Care News: complaints filed against nursing homes between and including the years 2011 and 2015 were up by a third, according to a federal report.
In 2011, there were 47,279 complaints, which had risen to 62,790 by 2015, notes the new report from the Office of Inspector General Report from the Department of Health and Human Services. More than half were prioritized as high priority or resulting in immediate jeopardy, triggering onsite investigations within 10 working days. A third of complaints were substantiated, according to the OIG.
The increase in complaints may not reflect declining care quality, authors suggested, but instead, may reflect better options for filing and tracking the reports. For those concerned with care quality, however, the increase in complaints suggests that, even if care quality is not decreasing, care quality remains a significant challenge. More than half of complaints related to quality of care/treatment or resident/patient/client neglect. Examples given included a lack of blood glucose strips for a patient with high blood sugar who was later found deceased, and a resident who called for assistance after a bowel movement and wasn't helped until three and a half hours later.
The summary of the Report reads:
"State survey agencies must conduct onsite investigations within certain timeframes for the two most serious levels of complaints-those that allege serious injury or harm to a nursing home resident and require a rapid response to address the complaint and ensure residents' safety. However, previous reports by OIG and the Government Accountability Office found that States did not conduct onsite investigations within the required timeframes for some of these complaints.
Each year, half of all nursing home complaints were at the level of seriousness that requires a prompt onsite investigation, and the most common allegations among these related to quality of care or treatment. During the period we reviewed, States conducted nearly all the required onsite investigations. Although almost all States conducted most of their onsite investigations within required timeframes, a few States fell short. Furthermore, almost one-quarter of States did not meet CMS's annual performance threshold for timely investigations of high priority complaints in all 5 years. Lastly, States substantiated (i.e., verified with evidence) almost one third of the most serious nursing home complaints.
Tennessee accounted for most of the immediate jeopardy complaints in the five-year period, the report says. Additionally, Tennessee, Arizona, Maryland and New York accounted for almost half of the high priority complaints not investigated onsite within 10 working days.
Monday, September 25, 2017
Aging in Place: Use of Inappropriate Psychotropic Medications More Likely in SNFs with Over-Worked Staffs
New evidence suggests a link between overwork staffs in nursing facilities and the inappropriate use of psychotropic and antiphsychotic medications. Dutch researchers recently reported the results of a new study designed to identify possible patient and non-patient causes behind prescribing psychotropic drugs. The study included a sample of nearly 350 nursing home residents with a psychotropic drug prescription and dementia, according to an article published in McKnight's Long-Term Care News.
The findings, published in International Psychogeriatrics, showed that the more patients and years of experience a physician had, as well as the higher the nursing staff's workload, the more likely the patient was to receive inappropriate psychotropic drug prescriptions. Less appropriate prescriptions were also identified when residents had more severe anxiety, a diagnosis of dementia other than Alzheimer's, and more time spent with a physician.
Older residents and those with more severe aggression, depression and agitation were more likely to receive appropriate psychotropic prescriptions.
The link between more pronounced symptoms and more appropriate prescribing “implies that physicians should pay more attention to the appropriateness” of prescriptions when symptoms are less obvious, the researchers said. The researchers also acknowledged that some of their findings may seem counterintuitive, and require more research before concrete recommendations are made.
Of course, this new evidence only supports the argument for planning to "Age In Place." For more information regarding Aging in Place planning, and the use of an Aging in Place suitable estate plan, go here.
Of course, this new evidence only supports the argument for planning to "Age In Place." For more information regarding Aging in Place planning, and the use of an Aging in Place suitable estate plan, go here.
For more regarding negative health outcomes of the use of such medications in skilled nursing facilities, see Antipsychotics and Psychotropic Drugs Increase Fall Risks in Nursing Homes.
Thursday, September 21, 2017
The death toll from the Florida skilled nursing facility that lost its air conditioning following Hurricane Irma rose to nine residents on Tuesday, as the provider geared up for a legal battle with state officials over its loss of Medicaid funding.
Carlos Canal, 93, is the ninth resident from The Rehabilitation Center at Hollywood Hills whose death officials have blamed on the soaring temperatures inside the Hollywood, FL facility after the air conditioning went out. Canal died of pneumonia with a 105 degree fever, his daughter told the Miami Herald.
This week also brought continued vitriol between The Rehabilitation Center and Florida Governor Rick Scott's (R) administration.The provider filed a lawsuit late Tuesday requesting an injunction against the state's orders to cut Medicaid funding from the facility, claiming the abrupt funding cut and admissions moratorium violated its due process, according to a news service report.
“With the stroke of a pen, [the Agency for Health Care Administration] has effectively shut down Hollywood Hills as a nursing home provider in Broward County,” the suit reads. “These illegal and improper administrative orders took effect immediately and without any opportunity for the facility to defend itself against unfounded allegations.”The lawsuit also argues that the facility followed its emergency preparedness plans while dealing with the air conditioning loss.
Scott disputed that claim in a statement issued Tuesday, saying the facility erred in not calling 911 sooner or evacuating residents to its partner hospital.“No amount of finger pointing by the Hollywood Hills Rehabilitation Facility … will hide the fact that this healthcare facility failed to do their basic duty to protect life,” Scott said. “Through the investigation, we need to understand why the facility made the decision to put patients in danger, whether they were adequately staffed, where they placed cooling devices and how often they checked in on their patients.”
Saturday, August 5, 2017
There are 40 million family caregivers in the United States helping with everyday activities and personal tasks ranging from bathing, dressing, wound care and medication management to transportation and finance. The “typical” family caregiver is a 49-year old woman who takes care of a relative. Men are not traditionally seen as caregivers.
A recent AARP Public Policy Institute report suggests the the tradition is changing; men are increasingly filling care giving roles. The report, Caregiving in the U.S., found that men represent 40 percent of all family caregivers. That means that 6 million males serve as family caregivers.
Jean Accius, a Ph.D. with the AARP Public Policy Institute has penned an article explaining the ramifications gleaned from the pertinent data:
"These husbands, brothers, sons, sons-in-law, partners, friends, and neighbors are joining—either by choice, obligation, or necessity—the army of family caregivers providing care across the country. Male family caregivers are performing medical and nursing tasks as well as a range of personal care activities."
In many cases, male family caregivers are caring for a spouse or partner. The PPI report shows that spousal caregivers in general face unique challenges, in part because they may lack an adequate support network.
There were notable differences, however, between males caring for a spouse and those caring for a parent. Male caregivers, according to the report, provide more hours of care, and are more likely to be primary caregivers with little to no support from other family members, compared to male family caregivers taking care of a parent or other relative.
Men caring for a spouse reported having been a caregiver for a longer period of time than other unpaid male family caregivers (5.1 years compared to 3.9).
Dr. Accius reported:
"...the study found that male family caregivers were more likely (66 percent) to be working compared with female caregivers (55 percent). The large majority of employed male caregivers were working 40 or more hours per week at the time of caregiving.
Regardless of gender, caregiving responsibilities often require family caregivers to make workplace accommodations. The study found that nearly two-thirds (62 percent) of male family caregivers had to make changes in the workplace as a result of their caregiving responsibilities [reference omitted]. Moreover, their caregiving duties affected their work in other significant ways:
- Nearly half (48 percent) of male family caregivers went in late, left early, or took time off to provide care.
- About 15 percent of male family caregivers took a leave of absence or went from working full time to part time to provide care.
- Less than 10 percent of male family caregivers turned down a promotion (8 percent), received a warning about their performance or attendance (7 percent), or retired early or gave up working entirely (6 percent).
- Nearly two-thirds (62 percent) of male family caregivers indicated that their caregiving experience was moderately to very stressful.
- Almost half (46 percent) of male family caregivers experienced moderate to severe physical strain due to caregiving responsibilities.
Qualitative studies indicated that younger men had more “difficulties” in the caregiving role and communicated particular “psychological stress” when having to choose between work responsibilities and caregiving responsibilities. [reference omitted]. More than one-third (37 percent) of male family caregivers did not inform their employers about their caregiving responsibilities. The percentage of male family caregivers who did not inform their supervisors was even higher for millennials (45 percent).Despite this trend, though, considering the aging of the population, increases in life expectancy, and shrinking families, the supply of family caregivers is unlikely to keep pace with future demand. Aging in place planning, therefore, is extremely important. The planning shoul consider the unavailability of typical caregivers, and should consider the unavailability of family caregivers.
Wednesday, July 26, 2017
Tuesday, July 25, 2017
Attorney John M. Goralka has written an excellent article for Kiplinger, entitled, Philip Seymour Hoffman’s $12 Million Estate Planning Mistake. The article teases, "A few moves could have saved the loved ones of actor Philip Seymour Hoffman a lot of money. Even if you don’t have a $35 million estate, like Hoffman’s, there are some things you could learn from it." Attorney Goralka is correct.
Philip Seymour Hoffman was one of my favorite actors. He starred in Charlie Wilson's War, Hunger Games, Pirate Radio and many more major movies. His roles covered a wide range, from a priest in Doubt to a coach of the Oakland A's in Moneyball, which evidenced his unique ability as an actor.
The lack of planning results in his estate owing estate tax of approximately $12 million. If Philip had married Mimi, his family would have saved approximately $12 million and paid no estate tax whatsoever.
Philip also stipulated that funds were to be used for his kids to visit major metropolitan areas for the express purpose of providing his children with access to the arts. This is an example of an incentive provision or trust to help motivate his kids to become the adults that Philip wanted them to become.
The use of a will requires probate, resulting in delays, additional costs and public proceedings. For example, the probate costs for “ordinary services” in California, where I’m based, amount to largely statutory fees, resulting in approximately $376,000 for the first $25 million in estate value and an additional "reasonable amount" to be determined by the court for the remaining $10 million of estate value if that probate is based in California. Those fees are based upon the gross value of the assets without any reduction for liens, selling costs or mortgages. In addition to the statutory fees for ordinary services, extraordinary fees are paid for services related to the sale of real property or a business, tax matters, debt collection or negotiation.
Additional costs for a "living probate" or guardianship for each of the three children may also be required. In California, this typically would require a court appearance and fees every two years until they each turn 18. Fees can be substantial and will vary based widely upon the circumstances and needs of the minor child and the value, type and number of assets involved. They would receive any share of assets to be distributed to them at that time. Not a good age to receive significant wealth. Complete access to funds may result in his kids becoming the trust fund kids Philip hoped to avoid.
An average probate in California without litigation or other issues takes between nine months and 1.5 years. Philip's probate will almost certainly take longer due to the size and complexity. After the probate is completed, Philip's estate will be at risk after distribution to Mimi if she is sued, challenged by her creditors or even in a later divorce if she remarries. That legacy may also be reduced by a second estate tax on her death.
Philip could have provided for Mimi with a Personal Asset Trust, which would help protect her from divorce, lawsuits by predators or fortune hunters, creditors and even a second estate tax imposed on Mimi when she dies.
The original article is available here.
Monday, July 24, 2017
According to an article by Jordan Rau, writing for Kaiser Health News ("KHN"),nursing home companies have begun selling their own private Medicare insurance policies. Pledging close coordination between caregivers and institutions, and promising to give clinicians more authority to decide what treatments they will cover for each patient, these plans are marketed to seniors likely to or already requiring long term care. These plans are recent additions to the Medicare Advantage market, where private plans have become an increasingly popular alternative to traditional fee-for-service coverage. There are currently nearly 18 million enrollees in the overall Medicare Advantage market.
Medicare pays private insurers a set amount to care for each beneficiary. In theory, this payment method gives the insurers motivation to keep patients from needing costly medical services such as hospitalizations.Unlike other plans, these alternate policies offered by long-term care companies often place a nurse in the skilled nursing facility or retirement village, where they can talk directly to staff and assess patients’ conditions. Some provide primary care doctors and nurses to residents in the homes or in affiliated assisted living facilities or retirement villages with the aim of staving off hospitalizations. According to Advantage proponents, this model offers patients a more individualized approach to their care.
Supporting the use of Advantage plans sold by nursing homes, Angie Tolbert, a vice president of quality at PruittHealth, which began offering its plan to residents in 10 of its nursing homes in Georgia last year, told KHN that:
“[t]he traditional model is making decisions based on paper, and in our model, these decisions are being made by clinicians who are really talking to the staff and seeing the patient. It’s a big shift in mindset.”
“There’s a conflict there,” Toby Edelman, a senior attorney with the Center for Medicare Advocacy told KHN. Attorney Edelman should know; she has spent a career advocating on behalf of the elderly.
An insurance agent represents the insurance company. When disputes arise between the insurance company, the health care provider, and the insured, the agent is typically in the corner of the insured. At a minimum, the agent's duty is to the insured vis-à-vis the health care provider. In this most recent development in the insurance market, the agent works for both the insurance company and the health care provider. Where do the loyalties and duties of an agent employed by the health care provider lie in payment and coverage disputes?
In addition, given that both insurance companies and health care providers may support low cost modalities offered by the provider rather than those offered by others, will these cheap substitutes be provided when they do not necessarily serve the interest of the insured patient? Collusion between insurance company and health care provider regarding cost can impact quality of care. If anything, health care providers are accused of recommending expensive unnecessary tests and treatments, but what if they are necessary and unavailable through the provider; will they still be recommended? Might both collude to provide less expensive alternatives offered by the provider rather than better, more expensive services offered by third parties?
In the real world, these complexities are causing some to doubt the advantages of the arrangement. KHN reported regarding some patients who are in disputes with the insurers who have faulted the nursing home staff — who work for the same company — for not helping challenge decisions about coverage:
They complain that the company holds an unfair advantage over Medicare beneficiaries.
In an Erickson Living retirement village in Silver Spring, Md., Faith Daiak signed up for an Erickson Advantage plan sold by a nurse whose office was in the main village building, according to her son, J.J. Daiak. After a bout with the flu last February weakened her enough to need a 10-day hospitalization, she was sent to her village’s skilled nursing facility. There, the insurer repeatedly tried to cut short her stay.
Erickson Advantage first said it would stop paying for Daiak, 88, because she wasn’t getting healthier in the nursing facility. Her son appealed by pointing out that Medicare explicitly said as part of the 2014 settlement of a class-action lawsuit that patients do not have to be improving to qualify for skilled nursing care.
Daiak’s appeal was denied, but the issue was sidelined in March when her rapid weight loss in the nursing home sent her back to the hospital, he said.
After Daiak returned to the nursing home with a feeding tube in her stomach, the insurer again tried to curtail her time there, saying she did not need that level of care. The family successfully appealed that decision after noting that Medicare’s manual said feeding-tube maintenance required the skilled care of a nursing facility.
In April, Erickson Advantage again said it would not continue paying for Daiak’s stay. It reversed that decision after Kaiser Health News asked the company about the case, J.J. Daiak said. He said the plan did not explain its turnaround.
While this Medicare Advantage plan touts its “team that knows you personally and wants to help,” J.J. Daiak said he found the registered nurse at Erickson’s Silver Spring community not helpful. “All I see is her trying to get Erickson out of having to pay for the nursing home,” he said. He subsequently switched his mother to traditional Medicare coverage with a supplemental Medigap policy, which she had until this year.
Erickson Living, the parent company of the nursing home and insurer, declined to discuss individual cases but noted that Medicare has given its insurance plans the best quality rating of five stars. In a written statement, the company said that “medical service determinations for Erickson Advantage members are based on reviews by licensed clinical staff and clinical guideline criteria. Our primary focus is always on ensuring that the healthcare being provided for our residents matches a patient’s needs and established clinical treatment protocols.”
Edelman said the dispute was particularly troubling because Erickson’s retirement villages are marketed on the promise that the company will care for seniors in all stages of aging. “They don’t tell you what they won’t pay for,” she said.
Will nursing homes be able to evaluate properly the competence of a consumer, or will they sell policies to those too diminished to understand fully the policies or their implications? Will consumers feel pressure to purchase policies, worried that nursing homes mght dump them as residents if the policies are rejected? Will nursing home agents dissuade patients from superior alternatives that may separate the patient from the nursing home, or from the insurance company? Will nursing homes seek reimbursement for services based upon profitability rather than necessity? Why can't nursing homes work with insurance companies for better quality care without demanding the additional compensation that comes from sale of the policies?
This writer would take more seriously pledges and promises if they were not ransomed for additional profit. Why should consumers pay nursing homes more for care that they should already be receiving?
Conflicts of interest may not always be improper, and may not lead to improper decisions, but always have at least the appearance of impropriety. Consumers deserve better than the "appearance of impropriety" at the inception of a relationship. This writer recommends that every consumer reject these arrangements.
Sunday, July 23, 2017
Can a trust be reformed to add beneficiaries where the trust as originally drafted fails to include beneficiaries? According to a recent Florida trust case, a trust can be reformed to add a residual beneficiary clause.
In Megiel-Rollo v. Megiel, 2015 Fla. App. LEXIS 5601 (Fla. Dist. Ct. App. 2d Dist. Apr. 17, 2015), the decedent had prepared a will naming her three children as equal beneficiaries. Some years later, the decedent prepared a revocable trust. She also deeded her real property to the trust. The trust, however, failed to name any beneficiaries of the trust upon the death of the decedent. The trust, instead, stated that, upon the death of the settlor, the corpus should pass according to a "Schedule of Beneficial Interests," which was supposed to be prepared and attached to the trust. At the time of death, no Schedule of Beneficial Interests was located.
Of course, it not uncommon for documents (wills, trusts, beneficiary designations, and the like) and attachments to come up missing after death. The case presents an object lesson why one should not rely upon attachments or schedules to nominate fiduciaries or beneficiaries, and should instead incorporate both in the body of the instrument, and further, why it is important to ensure the integrity of the instrument through time. For more information regarding this aspect of planning, go here (the link will take you to series of articles regaring planning protection or vaulting).
In this case, a dispute arose among the three children of the decedent, with two claiming that the decedent intended to name the two of them as the sole heirs, with the third child contending that the trust was void and/or could not be reformed. Under the third child's contention, the trust would be split into three equal shares for the children. In support of the claim of the two, the drafting attorney filed an affidavit admitting that he had made a mistake and should have prepared the Schedule of Beneficial Interest naming only two the decedent's children as the beneficiaries of the trust. Based on this affidavit and other information, the two children argued for trust reformation.
The Florida Trust Code, as of 2007, contains a trust reformation provision that allows a trust to be reformed to correct a mistake, Section 736.0415:
Upon application of a settlor or any interested person, the court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor's intent if it is proved by clear and convincing evidence that both the accomplishment of the settlor's intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement. In determining the settlor's original intent, the court may consider evidence relevant to the settlor's intent even though the evidence contradicts an apparent plain meaning of the trust instrument.
The third child argued that the trust itself failed under the "merger" doctrine, which requires that a trust have some separation of interests in the corpus. The Court rejected this argument (internal citation omitted:
[t]he failure of the Trust instrument to designate any remainder beneficiaries would ordinarily result in a merger is correct as far as it goes. "In order to sustain a trust entity, there must be a separation between the legal and equitable interests of the trust. If there is no separation of these interests, the doctrine of merger may apply and the trust be terminated." "If the designation of beneficiaries is deemed too indefinite for enforcement of the provisions of a trust, the usual result is that the trust is void and 'the designated trustee holds the corpus under a resulting trust in favor of the estate of the settlor.'" Based on these general principles, we agree with Sharon that--absent reformation--the failure of the Trust to designate any remainder beneficiaries would have the result that upon the Decedent's death, then Denise, as successor trustee, would hold the Trust assets upon a resulting trust for the benefit of the Decedent's estate.
The Court. then permitted the requested reformation of the trust:
It is beyond argument that the statutory reference to "a mistake of fact or law" is not limited by any qualifiers. The broad scope of the language used in the statute is inconsistent with the notion that reformation is available to correct some mistakes in a trust, i.e., "simple scrivener's error," but not others. "[W]hen the language of the statute is clear and unambiguous and conveys a clear and definite meaning, . . . the statute must be given its plain and obvious meaning.
Giving the statutory language of section 736.0415 its plain and ordinary meaning compels the conclusion that the remedy of reformation of the Trust is available to correct the alleged drafting error resulting from the omission to prepare and incorporate into the Trust the contemplated Schedule of Beneficial Interests. The absence of any language of limitation in the statute--other than the requirement of proof by the heightened standard of clear and convincing evidence--is additional evidence that the legislature did not intend the construction of the statute for which Sharon contends. For this court to read such a limitation into the statute would amount to judicial legislation of the sort in which we will not indulge.
The case should comfort those that worry that their wishes may not be accurately or completely expressed in their estate planning documents. On the other hand, others may be worried that their expressed wishes may be changed by family, friends, or advisers after their death. Of course, proper planning, and continued efforts to support the plan will reduce or eliminate such risks.