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 Will “HIPAA” Sabotage Your Estate Plan?

You may have recently noticed that your doctor, other health care providers and pharmacy now ask you to sign a receipt for their "Notice of Privacy Practices". 

The reason for this is a new law - - one intended to protect your personal information from identity theft or public disclosure - - which, unfortunately, also dramatically impairs your estate plan in several unforeseen and unintended ways.

The Health Insurance Portability and Accountability Act ("HIPAA") was passed by Congress to provide a secure way for health information to be passed from one health provider to another, or from health providers to insurance companies and to individuals (including the person whose information is involved).

HIPAA strictly limits the disclosure of your medical information by virtually every physician, dentist, psychiatrist, nurse, other health care provider and pharmacist, and imposes fines of up to $250,000 as well as jail time for up to 10 years, in the event any health information is wrongfully disclosed.

Why HIPAA Affects Your Estate Plan

Statistically, there’s better than a 50% chance you’ll someday suffer a serious accident or illness and become unable to handle your financial and medical decisions. In that event, your estate plan documents provide for a successor to take over for you. Your Living Trust and/or your Durable Power of Attorney for Property ("Estate and Personal Planning Uses") take care of your financial decisions. Your "Durable Power of Attorney for Health Care takes care of your health care and treatment decisions. 

Your successor decision makers named in your Living Trust or Power of Attorney cannot step in and make decisions for you unless they first have knowledge of your inability to make decisions yourself. If your successor can’t get a confirmation of your condition, he or she may instead have to go to court to declare you "incompetent" - - in what can be an expensive, lengthy and embarrassing conservatorship proceeding. Furthermore, your health care decision makers will urgently need access to your medical information in order to make critical health decisions for you!

Clearly, you would prefer for your successors to have immediate, hassle-free access to your medical records so they may obtain information from your doctor regarding your situation in order to handle your important matters right away. Unfortunately, HIPAA can prevent your successors from getting the medical records and doctor letters they need and force them to go into court!

Sorting out this new law and figuring out how to respond to it has been a huge process for health providers and for us. That’s why you haven’t heard from us, even though the new law became effective in April of 2003. Over the past two years, we have attended numerous continuing education programs, and spent a lot of time doing legal research! Fortunately, the health care providers are only now starting to seriously implement HIPAA, so we haven’t run into any significant problem in getting a client’s medical information so far – but it will be a real problem in the immediate future!

Isn’t an Authorization to Release Medical

Information Sufficient?

Our policy has always been to thoroughly research new laws and develop practical solutions we feel confident are going to work, rather than to immediately jump in and recommend estate plan changes. For example, we have already seen numerous estate planners advise their clients to merely sign an “Authorization to Release Medical Information” and tell their clients that’s all they need to take care of the problem – but that’s wrong!

First of all, HIPAA does not provide one standard “form” for such authorization. And relying on an authorization form provided by a specific health care provider, a government authority or agency, or even one attorney speaking at a continuing education program may be a big mistake! We have critically examined the exact wording of the law, and almost all forms we’ve see are inadequate!

Many planners creating HIPAA authorizations fail to include certain required disclosures to the signing party and fail to refer to specific terminology of the Act, thereby threatening the validity and acceptance of the authorization by third parties holding your medical information. Worse yet, many authorizations are overly broad and may give others access to your medical information when it’s not yet necessary or appropriate!

Most importantly, very few planners have considered the impact of HIPAA on your other estate plan documents. Your Living Trust, Durable Power of Attorney for Property and Advance Health Care Directive all should be updated to include provisions that will permit your successor trustee or agent to sign a valid authorization on your behalf if you become disabled and your authorization is invalid due to changes in the law, or because it’s too old or simple can’t be located.

These documents also need to provide a set of alternate or back-up procedures if your authorization or the one signed by your successor trustee or agent can’t be properly implemented, even thought it may be valid. For example, your doctor might refuse to honor your authorization because he may question your legal capacity at the time it was signed or he narrowly interprets the kind of information permitted to be released and decides to withhold some important item. Or, because he’s scared off by all the severe penalties, he may refuse to write a letter stating you are incapacitated. If you don’t have a back-up procedure in your estate plan documents to cover these kinds of events, then you may be forced into a court conservatorship! 

As if all of this isn’t complicated enough, we also have to consider what may happen if you’re disabled or deceased and one of your successor trustees or agents then becomes incapacitated. How will your documents permit the next named successor to step in immediately if they don’t have a proper Authorization to Release Medical Information from the first successor who can no longer act? We have come up with a practical mechanism to deal with this issue so, again, you can avoid going to court.

You must get all of your documents upgraded, so that your estate plan continues to function smoothly, as intended, should your or one of your successor trustees or agents ever become incapacitated because of illness or accident. This package includes an Authorization to Release Medical Information, an Amendment to your Living Trust for those of you who have a Revocable Living Trust estate plan, a new Power of Attorney for Property and a new Advance Health Care Directive. If you have a Will Package only, you need to have it updated also with a new Authorization to Release Medical Information, Power or Attorney for Property and Health Care Power of Attorney.

If you would like a referral to a qualified Elder Law attorney near you or have questions about HIPPA, please use our quick contact form located at the top and bottom of this page.

Q. What is Estate Planning?

A. Typically, most of us think about Estate Planning as a plan to handle the distribution of your assets after you pass away. However, Estate Planning also encompasses what happens to your assets should you become incapacitated and unable to manage your own affairs, and also it should encompass your plan in the event that you or your spouse end up in a long term care situation.

Q. What will happen to my property if I die and don’t make a Will or establish a Trust?

A. Each state has a statute which determines who gets your assets/property when you pass away without doing any Estate Planning done by establishing a Will or a Trust.
 

Q. Why is Probate so bad?

A. Probate may or may not be bad depending on the state in which you die. Some states have simplified Probate processes and many people can handle an estate through the Probate process. Other people have great difficulty taking an estate through the Probate process because they are not good with numbers, they don’t have the required patience, or they get flustered by government forms, etc.

Q. Why is Probate necessary?

A.  Probate may or may not be necessary depending on the type of estate that you have. If you have a Will, then the assets of the estate typically will go through the Probate process. Probate exists essentially to make sure that the title on the assets is changed from the name of the individual who has died, into the name of the beneficiaries who are to take the assets under the Will. The Probate process in each state also has a mechanism whereby the creditors of a decedent are allowed to come in and file claims against the estate of the deceased. This is to insure that the debts owed by the deceased are paid out of the decedent’s assets. Probate is also where Will contests are filed if appropriate.

Q. Is there anyway to avoid Probate?

A. Yes. Probate can be avoided with estate plans established around a Revocable Living Trust, and by titling of assets typically in joint name with right of survivorship. However, you must be careful about doing this as quite often improper asset titling can defeat the purpose of the plan for the distribution of the decedent assets as set forth in the Will or the Trust.

Q. Will our children have to pay taxes on our estate when we die?

A. When you talk about taxes in reference to an estate, you are talking typically about the Federal Estate Tax and also any State Estate Tax. In many states if the estate does not owe a Federal Estate Tax, the estate also does not owe a State Estate Tax. Again, in other states, they may have a separate estate/inheritance tax system which is not dependent on whether the estate owes Federal Estate Tax. The estate will typically owe Federal Estate Tax if in the year 2005, the decedent passes away and the decendent’s estate is in excess of $1.5 million dollars of net worth. The exemption increases every year and you should contact a competent Estate Tax attorney or CPA to determine what the exemptions are in future years.

Q. I have heard that when I die if I leave everything to my spouse that there will be no estate taxes. Is this true?

A. Yes, it is true. The Internal Revenue Code allows an individual to leave an unlimited amount to his or her spouse without taxation. This is called The Marital Deduction. However, the problem comes when the second spouse passes away. If at that time the assets of the second spouse are in excess of $1.5 million in the year 2005 and $2 million dollars in the year 2006, then there will be an estate tax on the assets over $1.5 million in 2005 which will begin at a rate of 47%.

Q. But what if I want to leave all of my assets to my spouse when I die. Is everything over $1.5 million taxed if I die in the year 2005?

A. No. Everything left to the spouse typically will qualify for the Unlimited Marital Deduction, even if it exceeds $1.5 million dollars in assets. So theoretically, you could leave an estate of $10 or $20 million dollars to your spouse and there would be no Federal Estate Tax. Depending upon what state you live in there may or may not be a State Death or Inheritance Tax. Again, the problem comes in when your spouse passes away and is leaving assets to your children. In that case again anything over $1.5 million dollars in 2005 will be subject to the Federal Estate Tax.

Q. What if my estate is in excess of $1.5 million? Can I put my children’s names on my brokerage accounts or other financial accounts and avoid the Estate Tax?

A. No. Again, for Federal Estate Tax purposes the financial accounts upon which you place your children’s names will be considered to be your assets for Federal Estate Tax purposes when you die unless the children can prove they contributed any assets to those accounts. Therefore, putting your children’s names on your financial accounts will only determine whether or not those accounts have to “go through the Probate process”, and will not determine whether or not those assets belong to you for Federal Estate Tax purposes. Furthermore, if you put your children’s names on your real estate, then you will consider to have made a gift to them of ½ of the value of the property based upon the fair market value of the real estate at the date that you made the gift. Another issue here is that once you put your children’s names on your accounts, although the financial accounts will avoid Probate, if the children are sued or any legal claims are raised against your child, then your property will be at risk.

Q. Someone told me that I need a Power of Attorney. Exactly what is a Power of Attorney?

A. A Power of Attorney is a legal document in which you appoint someone called an Attorney-In-Fact or agent to act on your behalf. A Durable Power of Attorney will survive your physical and/or mental incapacity so that when you cannot act for yourself your attorney in fact or agent will be able to act on your behalf to, for example, deposit your checks, pay your bills, invest your money, etc.

Q. Who should I name as my agent or Attorney-In-Fact on my Power of Attorney?

A. Generally speaking, most couples will typically name their spouse first and then their children in some order, if those children are least 18 years of age, and legally competent.

Q. Should all my children be named as my Attorney-In-Fact or Agent on my Power of Attorney?

A. That may or may not be appropriate in your particularly situation. Typically, we name the spouse first, if there is a spouse and the spouse is competent, and then we name the children in some chronological order, such as oldest to youngest, assuming that they are all over the age of 18 and legally competent. We typically do not recommend naming children as Co-Agents or Co-Attorneys-In Fact because many financial institutions have problems dealing with Co-Agents, and it may inhibit or slow down the process when actions need to be taken quickly.

Q. What’s this thing called a limited Power of Attorney?

A. Typically a limited Power of Attorney is just that, it sets forth very specific and limited things that the Agent or Attorney-In-Fact is able to accomplish on your behalf. Many times, when we want to sell a house after we’ve been transferred to another city or state, we may give our Real Estate Agent a limited Power of Attorney to sign the deed on our behalf at closing.

Q. Does a Power of Attorney last forever?

A. No, your death will revoke the Power of Attorney. You may also revoke your Power of Attorney by filing a new Power of Attorney which contains a revocation of any previously signed and filed Power of Attorney, or you just may sign and file in your appropriate county office a revocation of a previously signed Power of Attorney.

Q. How does a Power of Attorney become effective?

A. Typically, each state has their own requirement as to how a Power of Attorney becomes effective. Some states require only two witnesses, some states require only a Notary to witness your signature, other states require two witnesses and a Notary. You need to check the requirements for your specific state.

Q. Are there alternatives for managing property when a person becomes incapacitated?

A. Yes. Assets in a Living Trust may be managed by your chosen successor Trustee. Or, a Durable Power of Attorney can be used. Another is a guardianship or conservatorship whereby a guardian or conservator is given the power to make personal decisions for another. This usually requires the filing of a petition.

Q. What is a Health Care Power of Attorney?

A. With a Durable Health Care Power of Attorney you can name a person of your choice to make a broad range of decisions for you. These decisions cover everything to do with medical matters, such as selecting doctors, hospitals, treatments, procedures, or medications. You also need a HIPAA Authorization to allow your loved ones to talk to your physicians and obtain your medical records if necessary.

Q. I’ve heard about a “Living” Trust. What is it?

A. A Living Trust is a legal document which provides for the distribution of your assets after you pass away similar to that of a Will. However, the Living Trust also has various other advantages such as
(1) it can avoid the expense and hassle of Probate proceedings assuming that all assets are appropriately titled into the Trust,
(2) the Trust offers great flexibility in that it can be revoked or amended or changed at any time, usually with minimum costs,
(3) your alternate or successor Trustees can easily step into your shoes to manage the assets of your Trust should you be incapacitated,
(4) the Living Trust can be drafted with what we typically refer to as A/B subtrusts to minimize the impact of Estate Taxes, just as a Will may be,
(5) all assets properly titled into the Trust avoid the Probate process and the Living Trust does not have to be filed in the Probate Court upon your death.

Q. If I set up a Living Trust, what bank will my Trust be located in?

A. Your “Living” Trust will not be located in any specific bank. You will still maintain control of your Trust and if your name is John Doe, your Trust will be titled “John Doe, Trustee of The John Doe Living Trust dated June 1, 2005 (or whatever date you sign the trust)”. You will still have complete control of all of your assets, you will still file your own 1040 Income Tax Return, your property taxes will not change, you can revoke or amend the Trust when you die, and your accounts wherever they were before you established a Living Trust will remain at those specific financial institutions as you will only retitle those accounts into the name of your Trust, etc.

Q. May I be my own Trustee of my Living Trust?

A. Yes, in fact most people become the Trustees of their own Trust. And, generally speaking, the children are named as the Successor or alternate Trustees upon the death of their parent or parents.

Q. Should I retitle all of my assets into my Trust?

A. No, you should not attempt to retitle IRA’s or Tax Deferred Annuities into the name of your Trust. Your Trust cannot own these types of assets.

Q. What kind of asset protection does a Living Trust provide?

A. Generally speaking, there is no asset protection provided by the Trust until you die. At that time, the Trust typically becomes irrevocable and therefore provides asset protection for the children in some cases. However, the Trust can be drafted so it specifically does provide asset protection for your children upon your death.

Q. If I have a Living Trust then I don’t need to make a Will? Am I correct?

A. That’s incorrect. You always need a Will. Typically in the situation where we draft a Living Trust for our client we also draft what is known as a “pour over” Will. This is a term of art which basically means that when you die if there are any assets that are not titled in your Trust which should be titled in your Trust, then these assets will generally flow through the Probate process and then become titled in your Trust and can then therefore be distributed to the appropriate beneficiaries as determined by the language in your Trust.

Q. When will my Trust end?

A. Your Trust will typically end after you pass away and the assets in your Trust have been distributed out to the appropriate beneficiaries of your Trust.

Q. What happens if the tax laws change? Is my Trust still good?

A. Yes, in case there are changes in the tax laws, the Trust is still good. However, amendments, if any are made, must comply with the new law.

*Compliments of www.medicaidsecrets.info Copyright © 2005-2006 Senior Strategies

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1. Designate who will manage your affairs if you become disabled and when you pass away.

2. Plan for Medicaid and its impact on your estate if you must go into a nursing home.

3. Avoid Probate, during your lifetime and when you pass away.

4. Protect children from a prior marriage if you pass away first.

5. Protect assets inherited by your heirs from lawsuits, divorces and other claims.

6. Impose discipline upon children (and/or grandchildren) who may not be capable of experienced in managing money.

7. Provide for special needs children and grandchildren.

8. Insure that a specific portion of your estate actually gets to grandchildren, charities, etc.

9. Protect a portion of your estate if you pass away first and your surviving spouse remarries.

10. Address different needs of different children.

11. Prevent or discourage challenges to your estate plan.

12. Reward/ encourage heirs who make smart life decisions, and prevent the depletion of your estate from those who do not make smart choices.

13. Assure an education for children/grandchildren, despite what they (or your parents) dream of doing with the inheritance.

14. "Brady-Bunch" family estate planning: assure the step-parent doesn't spend your children's inheritance and/or provide for a spouse without sacrificing the intended legacy for children of a prior marriage.

* Remember tax reform cannot solve all of your estate planning problems!