Sacking the Monday Morning Quarterback - Proactive measures to protect the decisions of clients and fiduciaries in the context of diminished and ...

Sacking the
Monday
Morning
Quarterback
Proactive measures to protect the
decisions of clients and fiduciaries in
the context of diminished and
diminishing capacity

Graying of America

• 55 million Americans over age 65
        • 17% of the population
        • 25% of these people will live past 90
        • 10% will live past 95
• By 2050, over 65 population expected to increase to about 73 million
        • 10,000 a day
        • 22% of the population
        • Fastest growing segment is age 85 and older
• Over 6 million Americans diagnosed with Alzheimer’s Disease
        • By 2050, this number will triple
        • 250,000 people under age 65

Beneficiaries with Special Needs

•More than 60 million Americans are living with a disability

       •18% of U.S. population

       •One in six children ages 3 to 17 have a developmental disability

       •One in 54 children have autism

Defining Diminished and Diminishing Capacity

• Model Rules of Professional Conduct 1.14

• Diminished Capacity – commonly accepted concept – an individual whose
  intellectual abilities are impaired because of illness, condition, or injury such
  that the person lacks the ability to make informed financial, medical or
  personal decisions

• Diminishing Capacity – harder to define – someone who is exhibiting signs of
  impaired decision-making but who in the opinion of the attorney/advisor
  could make informed decisions regarding financial, medical or personal
  matters

Practitioner’s Playbook

• Proactivity – Actions to take in advance of diminished capacity

• Process – Actions by practitioners to determine diminished or
  diminishing capacity

• Procedures – Actions by practitioners to be taken with diminished
  or diminishing capacity exists

Offensive Coordination - The Basics

Proactive Planning for possible future incapacity

   •   Heath Care Directives
   •   Living Wills
   •   HIPAA Authorizations
   •   Revocable Trusts
   •   Durable Financial Powers of Attorney
   •   Trusted Contact Person

Revocable Trusts

• Incapacity of Settlor
• Removal of trustee for incapacity
       • Sensitive issue for clients
       • Difficult to confront one’s own mortality or incapacity
       • Concern that a third‐party will too quickly judge them incapacitated and
         they will lose control of their own assets
       • Who determines
       • Method to determine
       • Failure to cooperate
       • HIPAA waiver

Powers of Attorney

• Modify existing trusts
• Modify testamentary scheme
• Gift‐giving
       • Carry out or continue an existing plan
       • Implement new plan based on changes in law or circumstances
• Remove, replace or appoint trustees

Offensive Coordination – No Contest Clauses

Proactive provision utilized when a contest is or can be reasonably
anticipated (whether capacity is at issue)

A clause in a will or trust that leaves a subjectively significant
bequest to an individual with the caveat that if the individual
contests the instrument in any manner the contesting individual will
be completely or partially disinherited

Identifying Diminished & Diminishing Capacity

• Legal or Medical Determination?
   • Different standards for different documents

• For existing clients – review of historical decisions, family considerations and
  changes

• New clients – far more challenging

• ABA Commission on Law & Aging - Handbook on Diminished & Diminishing
  Capacity

ABA/APA – Capacity Worksheet for Lawyers

• Provides formality to an assessment process lawyers are often
  already informally conducting. Asks the lawyer to make
  observations in the following categories:

      (1) Cognitive
      (2) Emotional
      (3) Behavioral
      (4) Mitigating Factors that may be affecting the client

ABA/APA – Capacity Worksheet for Lawyers

• Another segment discusses elements of legal capacity which are
  document and task specific and requires the practitioner to answer
  questions regarding those task specific factors

• This process is geared towards a determination of the clients’
  understanding of their decisions, ability to articulate those decisions,
  and show an understanding of the consequences of those decisions

• Such a review might render different commentary from the
  practitioner depending on the task and the capacity required to
  complete it

ABA/APA – Capacity Worksheet for Lawyers

• Segment for the practitioner to record his or her preliminary
  conclusions about capacity and provides a decision tree for
  consideration when a practitioner feels the client is evidencing
  diminished or diminishing capacity

• When and how often should a practitioner complete such a
  worksheet? How do practitioners develop a strategy around doing
  so?

Offensive Coordination – Physician’s Letter

• Requesting a physician’s letter regarding a client's capacity

• The practitioner must consider why they are making the request and
  how their client will react to it

• Is it standard, for whom, is it objective?

• End Game: Objective policy intended to safeguard a client’s decisions
   • Like any other policy, you must follow it if it will be given weight in future legal
     proceeding

Offensive Coordination – Communication

• Advance Notice of Change that will be in place as of client’s passing
  and the reasoning for that change

• Conversation is good, written communication may be better

• A writing in the client’s own handwriting, explaining why the client
  is doing what he or she is doing. – There are some defensive
  components to this practice as well

The Defensive Coordinator

• Consider consulting litigation counsel who can speak to the client
  generally about the process of challenging the estate plan and the
  likelihood of success of the different types of challenges that could be
  brought

• Expect in the event of a challenge the counsel so consulted would
  assist in the defense of a client’s estate plan

Defensive Coordination

• Protect the integrity of a client’s estate plan

• Protect the practitioner’s practices

• Protect the practitioner’s reputation

• Protect the practitioner’s ethical integrity

Defensive Coordination – Contemporaneous Gifts

• Consider advising a client to make a relatively significant gift to
  family members affected by an estate plan or changes to an estate
  plan contemporaneously with the gift(s) being made

• If family member accepts the gift, they may be tacitly ratifying the
  fact that the client had capacity to make that gift, and by extension,
  the capacity to change the estate plan at that same time

Defensive Coordination – Psychology & Technology

• Using audio and video technology (gotten more comfortable
  conceptually since COVID)

• Objective practice of videotaping all document signings where an
  interested party is being disinherited or receiving less than his or
  her intestate share or less than what was in a prior document

Defensive Coordination – Psychology & Technology

• Record client interview and document signing

• Address questions that speak to testamentary or contractual capacity

• Discuss the estate plan and ask client to explain their intentions and
  understanding of the plan and how the plan affects the “interested
  parties”
• Discuss why someone is being left out or receiving less than before

Special Teams   Advisors & Accommodations

Special Teams – Other Advisors

• Team of Advisors – but who’s the QB?

• Having client meet with each member of the “Team”
  independently and explain the changes he or she wants to make
  and why

• Beneficial to other “team” members and the client and can help
  defend any attacks on the estate plan

Special Teams – Accommodations

• Accommodating sensory and cognitive changes

• Evaluate your office layout, décor, workflow

• Clients need to feel and be comfortable given the decisions they
  are making and the sensitive family information they are discussing

Sensory Accommodations - Hearing

• Minimize background noise

• Look at the client when speaking (they may be reading your lips)

• Consider the pace of your speech, speak loudly, clearly and more deliberately

• Sit close to the client so you can speak without shouting – but maintain
  appropriate distance

• Supplement meetings with written communications and summaries

Sensory Accommodations - Vision

• Increase Lighting
• Seat clients with their backs to light sources to minimize
  glare
• Format documents with larger print and significant spacing
• Give clients time to review documents they are being asked
  to consider
• Have reading or magnifying glasses available in your
  conference rooms
• Arrange office furniture to make the space navigable

Accommodations for Cognitive Impairment

• Slow down!
• Break down concepts and issues and discuss one at a time
    • Consider multiple sub-projects
• Where appropriate provide cues to assist with client recall
• Repeat & summarize concepts in order to ascertain a client’s
  understanding of those concepts
• Schedule multiple and shorter appointments at time of day
  when client is best able to participate in discussions
• Provide summary notes and writings
• Possibly meet in client’s home for comfort

Special Teams: Gradual Counseling

Recognized as a series of steps where the practitioner:
     (1) Identifies, confirms and reconfirms a client’s basic goals
     (2) Obtain feedback from the client to confirm that he or she
         agrees with the statement of basic goals
     (3) Ascertain and review the client’s values
     (4) Describe the best approach to meeting the client’s stated
         goal and review the client’s reaction to that option
     (5) Explain each other relevant option and obtain the client’s
         feedback to those options
     (6) Provide feedback to the client’s reaction and document it

The Trustee’s Playbook
Best Practices for Trustees who are Managing Assets for
Beneficiaries with Diminished or Diminishing Capacity

Basic Rules of Fiduciary Conduct

• Duty of Loyalty

• Duty of Care

• Duty to Act in Good Faith

• Prudent Investment

General Exercise of Discretion

• Established process for review and consideration of beneficiary
  requests

• Follow established process and policies in making distribution
  decisions

• Exercise independent judgment rather than deferring to a
  beneficiary or representative of the beneficiary

General Exercise of Discretion

• Follow directives in the trust document
• Balancing immediate needs of beneficiary with probable future
  needs of the remainder beneficiaries if the trust so requires
• Process protects the fiduciary and the beneficiary
• Recognize and accommodate conflicts of interest
• Courts struggle to balance oversight and discretion when a
  beneficiary has diminished or diminishing capacity

Diminished Capacity, Disability & Discretion

• What is the trustee’s role in protecting the beneficiary?
• Establishment of fiduciary arrangement when diminished capacity
  or disability is known to the testator/grantor
   • Maintenance of government benefit eligibility
   • Fear of mismanagement or misuse by beneficiary
   • Fear of ill-intentioned person taking advantage of compromised
     beneficiary

Diminished Capacity, Disability & Discretion

• Courts give deference to a trustee when they have followed their
  established processes and protocols. That can break down when
  cognitive loss enters the picture
• Courts may be loathe to defer to the discretion of the trustee and
  often substitute their judgment when reviewing discretionary
  decisions. That can lead to hindsight decision-making
• Net effect: trustees being unsure how their decisions will be
  measured and are often reluctant to make them without court
  intervention

Unique Challenges of Trust Administration

• The law and practice in traditional fiduciary administration
  presumes that a beneficiary is competent and capable of
  communication and self advocacy.

• Administration of trusts for beneficiaries who have
  diminished or diminishing capacity presents unique
  challenges in three primary areas: communication,
  documentation, and settlement.

Unique Challenges of Trust Administration

• Beneficiary communication - beneficiary may be incapable of
  communication
• Documentation - family and informal supports may be unreliable,
  conflicted or dishonest, and formal supports (often through Medicaid
  funded programs) may be overworked or inept
• Distribution decisions must take into consideration rules and
  programs that are not within the traditional expertise of most
  fiduciaries, leaving a trustee unable to document the basis for its
  decision
• The line of demarcation between what a trustee can delegate and
  what the trustee must handle as part of its commission or
  compensation is not clear

Policy,
Procedure, &
Protocol
Recommendations
for Fiduciaries

Establishing a Protocol for Communication

• Trustees need to make informed decisions
    • When a beneficiary lacks the capacity to communicate or to do so effectively,
      and there is no guardian or agent under power of attorney, or that person is
      not reliable, how can the trustee obtain information? How does the Trustee
      communicate and remain informed?

• Establish a communication protocol that includes:
       -        the beneficiary if capable
       -        guardian/agent if available
       -        concerned family member/friend if appropriate
       -        educators/program staff if available

Establishing a Protocol for Communication

• If there are no credible family supports, no court
  appointed guardian, no agent under power of attorney
  and no reliable Medicaid funded staff, the trustee
  should consider retaining a private case manager, social
  worker, or advocate to serve as its objective “boots on
  the ground” to obtain information the trustee can
  consider when making a distribution decision

Recommendations Regarding Communication
Protocol
• When a trustee accepts appointment, the trustee should complete the following
  analysis:
    • Is the beneficiary competent to communicate and advocate directly?

   • If the beneficiary cannot communicate directly, is there a court appointed
     guardian or agent under power of attorney who is able to speak reliably on behalf
     of the beneficiary and provide information to the trustee?

   • Is the beneficiary supported by reliable family members, friends, or other
     informal advocates?

   • Does the beneficiary have program staff (common in SNT administration) who can
     help communicate requests for goods and services to supplement what
     government benefit programs are providing?

   • Can the trustee hire a private care manager or other advocate to provide periodic
     assessments and recommendations for distributions?

For SNTs – Assessing and Reviewing Services

• What if responsibility is outside the area of traditional expertise of
  a trustee?
    • Availability of public benefits and means tested goods and
      services those benefits provide
    • The adequacy of those goods and services
    • Impact of a distribution on continuing eligibility

For SNTs – Determining Whether a Program Pays

• What it really means when a beneficiary is Medicaid eligible

• Availability of goods and services, availability of staff - consider
  staffing shortages around the country

• Ensuring available public services are adequately utilized

For SNTs – Assessing Adequacy of Alternatives

• Should a trustee supplement or supplant an available good or
  service?

• Availability vs. adequacy and appropriateness

• Before using trust assets to supplement or supplant a government
  funded good or service, trustees should have a process in place to
  confirm what the program is providing and a means to document
  the beneficiary would benefit from something better

For SNTs – Assessing Adequacy of Alternatives

• How does a Trustee support a distribution decision?
• Establish a validation process.
   • Assess whether family or other informal supports are reliable
   • Determine whether Medicaid funded staff can provide answers and
     support
   • Retain a private case manager or other paid advocate to provide objective
     assessment of program eligibility, use, and adequacy and who can make
     credible recommendations

For SNTs – Impact of Distributions on Benefits

• What if any benefit programs is the beneficiary participating in at
  the time of the contemplated distribution?

• Document the benefit programs, the known impact on those
  programs and the reason the choice was made despite the impact

For SNTs – Impact of Distributions on Benefits

• How does a Trustee prove that distribution decisions were made with
  knowledge of impact on program rules and services?
   • Establish a process to verify financial benefits annually
   • Establish a process to verify Medicaid funded and other available
     services on an annual basis
   • Utilize a case manager or other professional to provide an annual
     assessment. These assessments serve as evidence that the trustee
     made an informed decision to supplement Medicaid funded supports
     and other publicly funded supports with private dollars and is relying on
     an objective source

Accountings

• Purpose: Obtain approval of activities of the Trustee, settlement,
  discharge and at the end, full release

• Informal Accountings vs. Judicial Settlement

• Challenges when beneficiary has diminished or diminishing
  capacity

Accountings

• State Variations – Some require annual accountings of a trustee’s
  activity, others do not

• Often trusts that are managed for a beneficiary with diminished or
  diminishing capacity are administered without ongoing oversight

• If the trustee wants to resign or seeks to have its accounts settled
  upon death, the trustee’s discretionary decisions will be subject to
  second guessing inherent in proceedings for judicial settlement

Accountings

• Mitigate the risk of belated challenge by keeping the beneficiaries
  regularly informed of trust activity

• Effectiveness of the approach will be based on:
   • format of disclosure
   • frequency of disclosure
   • capacity of the beneficiaries

Accountings – Adequate Disclosure

• When a beneficiary has diminished or diminishing capacity simple
  financial statements may not be enough and may be inappropriate for at
  least three reasons:
   • Inability to review and understand, therefore inability to consent

   • Statements alone with a consent will not preclude a later challenge

   • Financial statements can be complex, if the information presented is not clear and
     complete, a release based on such information may not be enforceable and will
     certainly meet scrutiny in a judicial proceeding where capacity is at issue

Accounting Recommendations

• Annual Accounting
  • Prepare an annual informal accounting of trust activity and provide copies
    to the beneficiary, if the beneficiary has capacity, and if not, to the court
    appointed guardian or agent under power of attorney

  • If the trust happens to be a supplemental needs trust and the beneficiary
    is receiving Medicaid funded services, send a copy to the responsible
    Medicaid district

  • If the beneficiary is a minor, send a copy to the beneficiary’s parents

Accounting Recommendations

• If the beneficiary is receiving means tested benefits, the
  informal accounting should clearly delineate distributions that
  would have an impact on benefit eligibility, or which provide a
  derivative benefit to third parties and should provide
  information in the explanatory schedules

• The trustee may wish to send a separate plain English
  summary explaining what each schedule means and is
  reporting

Accounting Recommendations

• Periodic Judicial Settlement

   • Trustees should consider periodic judicial settlement to wipe the
     slate clean

   • This is especially the case if the trustee is making regular or
     significant distributions from a well funded trust

Accounting Recommendations

• In the context of a supplemental needs trust, and where a
  beneficiary is cognitively compromised there are additional
  variables

  • Public benefit rules
  • Guardian ad litem to represent compromised beneficiary
  • Medicaid program representatives review of distributions and
    objection due to reduction in remainder available for state payback
    (in first party supplemental needs trusts)

Accounting Recommendations

• What if periodic informal settlement not a possibility?

   • Provide voluntary, informational annual accountings of trust activity to
     beneficiary’s guardians, responsible family members, and the Medicaid
     Program

   • Not binding but establish a record of keeping the beneficiary (or her
     representative) informed and may support an argument that failure to
     object constitutes ‘ratification’ that would preclude objections in a formal
     accounting

   • Periodically petition for judicial settlement on notice to all parties

Accounting Recommendations
• Pre-approval by Court

• For significant transactions or transactions which would clearly
  result in a benefit to someone other than the beneficiary, the
  trustee may wish seek prior court approval
   • Consider certain large expenditures even if otherwise appropriate
     under terms of trust (e.g., purchase of a home or payment of caregiver
     compensation to a parent or other relative)

   • Note: some courts may take the position that these decisions fall within
     the scope of the trustee’s discretionary authority and may dismiss the
     petition

Accounting Recommendations

• The approach when a beneficiary is compromised asks for
  oversight rather than seeks to avoid it
   • Sounds expensive and it can be

• Disservice to beneficiaries and trustees
   • level of exposure faced by the trustee (this is especially so in the
     context of supplemental needs trusts)
   • when practitioners try to draft around the formalities of
     comprehensive trust administration when you have compromised
     beneficiary

Adoption of offensive and defensive
           practices and protocols by practitioners and
End Game   fiduciaries can help safeguard the decisions
           where those involved suffer diminished or
           diminishing capacity