July, 2011, Friedman Law

Archive for July, 2011

New Class Action Gives People with Autism Their Day in Court

Posted on: July 18th, 2011 by Lawrence A. Friedman

Federal court in Potter v. Blue Cross Blue Shield of Michigan has authorized a class action against Blue Cross and Blue Shield of Michigan. Plaintiffs claim that Blue Cross and Blue Shield of Michigan improperly denied health benefit claims for applied behavior analysis therapy on grounds that it is investigative or experimental. The decision is procedural in that it simply allows plaintiffs to assert their claims on behalf of themselves and others who are similarly situated. However, full court proceedings are required to determine whether the claim has merit. Thus, barring an unusually quick settlement, the case is unlikely to be resolved for some time. While the case only affects Blue Cross and Blue Shield of Michigan claimants directly, it could help others bring similar claims. For further information on issues affecting people with autism and other serious disabilities see SpecialNeedsNJ.com special needs articles tab https://specialneedsnj.com/special_needs_trusts_articles.php and special needs FAQs https://specialneedsnj.com/special_needs_trusts.php

Compensation for Child’s Care of Parent Not Tax Deductible Absent Written Agreement

Posted on: July 18th, 2011 by Lawrence A. Friedman

The United States Tax Court just held that a New Jersey estate may not deduct a child’s charges for long term care provided to a deceased parent absent a written agreement by the parent to pay the child for the care. Estate of Olivo v. Commissioner (U.S. Tax Ct., No. 15428-07, July 11, 2011) http://www.ustaxcourt.gov/InOpHistoric/OLIVO.TCM.WPD.pdf. The estate claimed the child and parent agreed orally that the estate would pay the child for extensive long term care the child provided over many years. While the Tax Court acknowledged the child provided the care, the child’s law practice suffered dramatically as a result of devoting so much time to the parent’s care, the parent needed the care, and the care had substantial value, the Tax Court held that absent a written agreement, the estate didn’t satisfy its burden to prove the existence of a binding obligation to pay for the care.

The estate also couldn’t deduct the value of the child’s services in quantum meruit, whereby a quasi-contract may be inferred where it would be inequitable to deny payment to a person who confers a benefit on another. Essentially, quantum meruit allows a plaintiff to recover the reasonable value of services that are accepted by the recipient of the services and provided with a reasonable expectation of payment. However, New Jersey’s Supreme Court has held that services by family members residing in the same household are presumed to be provided for free and the estate lacked evidence to overcome the presumption. Waker v. Bergen, 132 A. 669, 669-670 (N.J. 1926).

One piece of good news for taxpayers was the Tax Court’s willingness to allow deductions for statutory commissions to an estate personal representative that haven’t been approved by a court. The Tax Court also indicates that an estate may deduct properly documented attorney fees paid to the personal representative in accordance with New Jersey law.

The moral of this case is to document through written agreements at the earliest possible date all payments to family members that are intended to be tax deductible. However, be careful because the family member providing services must treat the compensation as taxable income that generates state and federal income and payroll tax, which could more than offset the value of tax deductions.

Finally, as discussed throughout SpecialNeedsNJ.com, care agreements always must be reduced to writing before care is provided or the payments likely will be considered gifts that can trigger Medicaid transfer of asset gift penalties.

New Class Action Gives People with Autism Their Day in Court

Posted on: July 18th, 2011 by Lawrence A. Friedman

Risky Business- Combining Medicaid Planning & Promissory Notes

Posted on: July 15th, 2011 by Lawrence A. Friedman

Since enactment of the Deficit Reduction Act of 2005, some elder law attorneys have promoted promissory notes as a way to accelerate Medicaid eligibility and preserve funds when a family member requires long term care. I and other elder law attorneys have been concerned that Medicaid authorities might attack such notes as trust like devices. On July 12, 2011, the United States Court of Appeals for the Third Circuit ruled that the kinds of promissory notes typically used in Medicaid planning are Medicaid disqualifying trust like devices. Sable v. Velez https://www.casemine.com/judgement/us/59146358add7b049342642f9. The court noted was suspicious of Medicaid planning promissory notes because they typically are repaid from the loaned funds rather than having an independent feasible repayment plan, are not arms-length transactions, are between family members not in the business of lending money, and loan timing and amounts are tied to qualifying for Medicaid.

While it is too early to determine the long term impact of Sable, it now seems quite risky to engage in Medicaid planning involving promissory notes. Nevertheless, various other techniques remain available to preserve assets when a loved one may need long term care. Further information is available at the elder law Q&A tab https://www.specialneedsnj.com/elder_law.php and the elder law articles tab https://www.specialneedsnj.com/elder_law_articles.php.