A People’s Lawyer

A client recently posted a review of my services on AVVO, the independent legal resource website. You may CLICK HERE to read the review.

This client referred to me as “A People’s Lawyer,” and wrote the following:

William Gatesman assisted me in having my father’s trust terminated and the trust assets distributed to me and the other beneficiaries of the trust before the time that those assets were supposed to be distributed. We did this with a petition to the circuit court and the court allowed the distribution without holding a hearing based upon Mr. Gatesman’s written petition. And, while I engaged Mr. Gatesman to obtain this result, he went a step further and negotiated with the Trustee’s attorney to get the trustee to reimburse me for expenses I had paid relating to my father’s death, something I had been trying to do without success. Finally, Mr. Gatesman proposed and worked out an arrangement whereby the other trust beneficiaries agreed to reimburse me for a portion of my legal fees.

I am very pleased with Mr. Gatesman’s representation. He was easy to work with, he got me the result I had requested, and he made suggestions for other ways I could benefit from the representation and succeeded in obtaining those results. I highly recommend William M. Gatesman.

When a Parent Dies Owning a House with a Mortgage, May the Children Inherit the House Without Getting a New Mortgage?

When a parent dies owning a house that is subject to a mortgage, the question arises whether a child or other beneficiary of the parent’s estate can inherit the real property without obtaining a new mortgage by simply continuing to make the payments on the existing mortgage.

In general, mortgages are subject to a “due on sale clause,” which is a term in the mortgage agreement that allows the lender to accelerate the loan (that is, immediately collect the balance due) upon the transfer, or retitling of the real property to another person. However, under Federal law, there are a number of transfers that may be made without triggering a due on sale clause, including a transfer of the property to a relative of the deceased owner as a consequence of the owner’s death.

That Federal law is known as the “Garn-St Germain Depository Institutions Act of 1982”, which is codified at 12 USC 1701j-3.

Under that law, for residential real property with less than five dwelling units, the following transfers will not trigger a due on sale clause, or, put another way, the lender who holds the mortgage cannot force payment of the outstanding balance due on the mortgage if any of the following transfers occur:

1. the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

2. the creation of a purchase money security interest for household appliances;

3. a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

4. the granting of a leasehold interest of three years or less not containing an option to purchase;

5. a transfer to a relative resulting from the death of a borrower;

6. a transfer where the spouse or children of the borrower become an owner of the property;

7. a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; and

8. a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.

William M. Gatesman works with clients to craft estate plans and asset preservation plans, some of which involve changing the ownership of real estate. Careful consideration must be made of the effect of any such transfer and whether a due on sale clause may be asserted as a consequence of the transfer.

William M. Gatesman, Attorney at Law

William M. Gatesman assists clients in Maryland and D.C. in the areas of elder law and Medicaid planning, asset protection planning, special needs planning, estate planning, probate and estate administration, wills, trusts, powers of attorney, and health care decision making documents.  Mr. Gatesman is available to meet with clients in his offices in Rockville, Columbia, Frederick and Hagerstown, Maryland, and is available to make house calls as needed in those locations and in other areas of Maryland and D.C.

Call 301-260-0095 for more information or to make an appointment.

The purpose of this website is to educate consumers and their advocates regarding legal developments that may affect their lives. Mr. Gatesman has written the articles that follow, organized by date of publication. To assist you in locating articles of interest, there is a search feature and a subject matter index in the column on the right side as you scroll down this page. You also may sign up to receive newly published articles by email in the newsletter signup box on the right.

Beware the Revocable Trust Creditor Trap

In Maryland, creditors may not make a claim against a deceased person’s estate once six months have passed since the person’s death. What that means is that a creditor seeking to assert a claim six months or more following someone’s death will not be allowed to collect the debt.

One exception to this rule is that a creditor who has a secured interest, for example, a bank that holds a mortgage on the deceased person’s real property, will still be able to collect against the proceeds of the sale of such real property, and retains the right to foreclose on the real property if the mortgage payments are not being made. However, such bank would be precluded from collecting more than the sales proceeds if the house sells for less than the mortgage loan balance if the bank did not make a claim in the estate of the deceased person within six months following that person’s death.

Another significant exception to this rule involves Revocable Trusts. When a person creates a revocable trust and transfers his or her assets to the trust, those assets are not considered to belong to the person for probate purposes, and when that person dies, those assets are not included in the deceased person’s probate estate.

Under the law then, if, when that person dies, no probate estate is opened because all of that person’s assets are titled in the revocable trust, then the six month limit on creditor’s claims does not apply. In that instance, if the trustee of the revocable trust distributes assets to the trust’s beneficiaries six months after the creator of the trust dies, but then, later, a creditor of the deceased person makes a claim or demand on the trustee to pay the deceased person’s debt, that trustee may find himself subject to personal liability for the debt if he cannot recover the funds he distributed to the trust beneficiaries.

This is one of the little known problems with revocable trusts, which are popular probate avoidance tools. Indeed, people who meet with attorneys who advocate using revocable trusts to avoid probate, more often than not, are not advised of this issue.

This was a problem without an easy solution until late last year. In October, 2015, however, Maryland’s new Trust Code became law, and that new law provides a solution to the Revocable Trust creditor claims problem.

What the law now provides is that, if a probate estate is opened for the person who created the trust, then the same six month creditor claim limitation period that applies to the probate estate also applies to the trust. This is true only if the probate estate is a regular estate or an estate under modified administration. This claims limitation rule does not apply for revocable trusts if the deceased person’s estate is not opened for estate administration, or if the estate is opened as a “small estate.”

In addition, the new law adds protections for trustees even if there is no regular estate or modified administration for the deceased person. Under the new law, a trustee can publish a notice following certain strict procedures, and if that notice is published, then creditors will not be able to assert a claim against the trust six months following the publication of the notice. It is important to note that, with respect to revocable trusts, creditor’s are precluded from asserting a claim six months following the publication of the notice by the trustee, whereas, for assets in a probate estate, creditors are precluded from asserting a claim six months following the individual’s death.

Even with a probate estate, there are some creditors, such as the State of Maryland, who have six months following the publication of a notice, even with respect to assets in a probate estate, for claims relating to Medicaid benefits provided by the state.

Many people use revocable trusts, thinking them to be a panacea for various ills, and they are touted by some lawyers seeking to sell such trusts as probate avoidance mechanisms. However, using revocable trusts have a number of serious pitfalls, pitfalls that often are not addressed by the people who advise clients to use them. The creditor claim problem discussed in this article is just one of the potential problems that might arise for people who employ revocable trusts without proper legal guidance.

William M. Gatesman works with clients to utilize revocable trusts in appropriate circumstances, and counsels clients when not to use such trusts if doing so would cause them problems in the future.

New Procedure to Obtain Estate Tax Return Closing Letter

The Internal Revenue Service will no longer routinely issue estate tax closing letters when it finishes satisfactorily processing an estate tax return. In an online Notice published -HERE-, the IRS states that “estate tax closing letters will be issued only upon request by the taxpayer.” That Notice sets forth the procedure whereby a taxpayer or tax preparer may obtain a Transcript in lieu of a closing letter to ascertain that an estate tax return has been accepted by the IRS.

Circuit Court Upholds Decision to Eliminate Exemption for Joint Assets

On December 1, I wrote an article, Medicaid Exclusion for Joint Assets Under Attack. That article addresses an instance where the State of Maryland Medicaid authority reversed its long time practice of disregarding jointly owned stock where a co-owner who is not the Medicaid applicant refused to sell such stock.  This exclusion is based upon a provision of the Maryland Medicaid Manual that allows for such treatment.

The matter was appealed and an administrative law judge upheld the decision of the Medicaid regulator, so the individual appealed to the Circuit Court of Maryland.  That court has now issued its opinion upholding the decision of the Administrative Law Judge.

My December 1, article concluded that: “This is not the proper way for the Medicaid authorities to change their policy. The proper way is to propose rule changes, either by changing the Code of Maryland Regulations, or by changing the Maryland Medicaid manual. Simply leaving a rule in place that exempts joint assets from consideration, but then attacking such an arrangement by imposing Medicaid ineligibility on a case-by-case basis on unsuspecting Medicaid applicants is bad public policy.”

Now that the Circuit Court has upheld the Administrative Law Judge’s decision, there is great uncertainty as to how jointly owned assets will be treated if one of the joint owners refuses to participate in a sale of such property.  If the Circuit Court ruling were to be treated as binding, then such exemption may no longer be in force, however, there still is a rule in the Medicaid Manual that allows such exemption.

William M. Gatesman stands ready to assist clients in navigating the troubled waters of the Medicaid rules in light of rapidly changing currents, the most recent being the Circuit Court decision eliminating the exemption for joint property where there is a refusal to sell by a co-owner.

Medicaid Exclusion for Joint Assets Under Attack

It is a well established principle of the Maryland Medicaid rules that certain jointly owned assets such as stocks or real property will not be counted as available resources to a nursing home resident who applies for Medicaid benefits if the other joint owner refuses to participate in a sale of the property.

For decades, such assets have been disclosed by nursing home residents on their Medicaid applications and such assets have been valued at zero for purposes of determining Medicaid eligibility.

Recently, however, a Medicaid applicant was denied Medicaid coverage for nursing home care because the applicant owned stock, in certificate form, with her son in joint ownership, even though the son had refused to participate in a sale of the stock. Ordinarily, such a denial by a Medicaid caseworker would be overturned when the case was appealed to an Administrative Law Judge, but in this case, the Administrative Law Judge ignored the specific regulation in the Maryland Medicaid Manual that explicitly states that jointly owned stock should not be a countable asset where the joint owner refuses to sell.

Such denial has implications, not only for the particular individual whose Medicaid application was denied, but for Medicaid applicants statewide. Indeed, this case has been appealed to the Circuit Court of Maryland where a senior Assistant Attorney General, representing Maryland’s Medicaid authority, the Department of Health and Mental Hygiene, essentially has requested the Circuit Court to issue a decision that radically revises the long standing Medicaid policy concerning such jointly owned assets.

If the Circuit Court were to uphold the decision of the Administrative Law Judge in this particular case, then it would shroud the process of dealing with jointly owned assets in a cloud of uncertainty. No longer would Medicaid applicants and their advisers be able to act with certainty regarding jointly owned assets, as there would exist the possibility that Medicaid caseworkers could arbitrarily ignore the applicable rule on the strength of judicial precedent.

This is not the proper way for the Medicaid authorities to change their policy. The proper way is to propose rule changes, either by changing the Code of Maryland Regulations, or by changing the Maryland Medicaid manual. Simply leaving a rule in place that exempts joint assets from consideration, but then attacking such an arrangement by imposing Medicaid ineligibility on a case-by-case basis on unsuspecting Medicaid applicants is bad public policy.

The State’s efforts to deny benefits in the case under discussion in this article is an example of such bad public policy.

William M. Gatesman is following the progress of this case closely and will inform the readers of this website of any new developments as they arise.

In the meantime, Mr. Gatesman stands ready to assist clients with prudent Medicaid eligibility and asset protection planning in the context of a changing landscape.

Protecting Property After Death

Mother dies with a will leaving all of her assets to her three children in equal shares. One of her adult daughters receives Medicaid benefits because her assets are less than $2,000 and she has a very low income due to a disability. Such daughter is expected to receive a distribution of $25,000 from mother’s estate. This will cause daughter to lose her public benefits, which will be disastrous for daughter given the very high costs of her medications.

While daughter could petition a court to create a special type of Supplemental Needs Trust, known as a “d4a trust” and once she receives the distribution from the estate, deposit the funds into such trust, there are significant costs to establishing such a d4a trust, and there are administrative burdens associated with such trust, including annual reporting to the State Medicaid authority. Moreover, a d4a trust requires payback to the state for any Medicaid benefits if there are funds remaining in the trust when the trust beneficiary dies. Given the amount to be distributed, one must weigh whether it is worth the cost of setting up a d4a trust if there are other less costly alternatives.

Fortunately, Maryland law provides an opportunity for a trust to be created in a simpler way. Under the Maryland Discretionary Trust Act, a trust may be established for a beneficiary, and the assets in the trust will not be considered to be available resources for Medicaid purposes. Moreover, unlike a d4a trust, there is no requirement to pay back Medicaid for benefits received during lifetime after the beneficiary dies.

While Mother in her will could have provided for a Maryland Discretionary Act trust for daughter, she failed to do so. Nevertheless, the Maryland Discretionary Trust Act provides that “any person having a right to transfer property to another person may create a trust as a transferor under [the Maryland Discretionary Trust Act].” Under this law, the term “person” includes any legal entity, and a probate estate is a legal entity.

William M. Gatesman presently is working with clients to come up with creative solutions to allow estate beneficiaries to retain their essential public benefits where the decedent’s will did not provide for asset protection in light of those public benefits. Establishing a Maryland Discretionary Trust Act trust is one of the tools in Mr. Gatesman’s tool kit to achieve the objective of protecting a beneficiary’s eligibility for public benefits.

How to Prevent The Never Ending Estate

Some workers who have received judgments in their favor from their former employers for work related disease or injury, such as asbestos related injuries or coal mining related diseases, find that the judgments are paid out over time, sometimes in the form of small amounts paid now and then over a period of many years. Some of these individuals have died and their probate estates have been wrapped up and closed. Then, out of the blue, another check arrives with a payment on the injury or disease settlement.

Once such check arrives, notice must be given to the Register of Wills in the county in which the estate had been opened, a supplemental inventory and account filed, and distribution made (with the payment of an additional probate fee in some circumstances). If a lawyer assists with this process, there will be legal fees as well. This is a cumbersome and costly endeavor, sometimes for a very small amount of money.

This continuous process of reopening the estate each time a settlement check arrives can be avoided with the proper assignment of future settlement payments to the beneficiaries of the estate when the final estate administration account is filed and the estate closed. Such assignment can grant the Personal Representative of the estate continuing authority to transact checks to make the distributions to the beneficiaries.

The Gatesman Law Office assists clients with the process of simplifying life for estate beneficiaries by arranging for the distribution of such settlement awards that might be received after an estate is closed without the necessity of continually filing supplemental inventories and accounts year after year.

Income Deposits and Permanent Medicaid Ineligibility

In order to get Medicaid to pay for one’s long term care costs in a nursing home, one can have no more than $2,500 in assets.  While social security and pension income is deposited into one’s account each month, as long as that money is spent before the end of the month, bringing the account balance below $2,500, then Medicaid benefits will not be affected.   One routinely spends such income each month because Medicaid requires that the bulk of the Medicaid recipient’s monthly income be paid to the nursing home as a contribution to the individual’s cost of care.

A problem arises, however, when one’s income deposit is made on the last day of the month, as some pension payments are structured, because Medicaid will look at the account balance as of the first moment of the first day of the following month to determine whether the individual has more than $2,500.

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