In a recent matter in our office we had to find a client legal document prepared several years earlier.  The client could not place her hands on it, so we tried to contact the attorney who drew up the document, only to learn that he had retired to Florida.  When we were finally able to reach the attorney, he had no way of putting his hands on the client files.

This is not unusual.  (In fact in this case what was unusual was that we were actually able to find and talk to the retired attorney.)  Lawyers change firms, choose another profession, retire, or pass away.  They may have no legal liability if they fail to preserve their client files or even to let them know if their situation changes.  But that doesn’t mean they shouldn’t plan for a way to give clients access to their papers.

For members of larger firms, this may not be an issue since the firm will continue long after each attorney has moved on and clients will continue to have access to their files.  It should be a concern for solo practitioners and members of small firms.  What will happen to their clients and their clients records if they become disabled, pass away, or, preferably, retire?  Every practicing attorney needs a plan.

They owe it not only to their clients but to themselves and to their families.  The difficulties created when no plan exists and the unexpected happens can be troublesome and time-consuming for all involved.  Further, a succession plan that permits another attorney or firm to continue representing existing and former clients can lead to residual income for the retiring attorney and his or her family.

The succession plan can come in many forms, whether the sale of a practice, its continuation by existing partners, or a merger into a larger firm.  But in addition to a succession plan for retirement, all solo practitioners also need contingency plans to continue their practices in the event of their own incapacity or death.

Our new clients are a young couple with two young children, both with limited disabilities.  The boy, who is eight years old, has severe attention deficit disorder.  His younger sister, who is six, suffers from hearing loss.  At this time, both are in regular public school classes and their parents hope they will be able to develop and function normally.  They’ll know better in another decade.

The precipitating circumstance that brought them to our office was the death of the father’s aunt, who named the eight-year-old boy as the sole beneficiary of her $1.1 million IRA.  At the time she named him as beneficiary, the girl had not yet been born.  This act of generosity by the great-aunt raises many issues, including the following:

• Within a year, the boy must begin taking minimum distributions based on his age.
• At age 18, the boy will have control over these funds, whether or not he has a disability due to his ADHD or simply due to teenage hormones.  Misuse of the funds can lead to drug abuse, extreme tax consequences, or simply waste resulting from bad decisions.
• Not only will the boy be much wealthier than his younger sister, he’s already wealthier than his parents.
•  Since the funds are all tax-deferred, they could be put into trust only after paying taxes on them.  If this were done immediately, much of the taxes would be paid at the top income tax bracket.

 While this is an object lesson on why the aunt should have sought legal advice – everyone would be better off if the IRA had been payable to a trust for the boy’s benefit (as well as the girl’s, if the aunt was so inclined) – the question now is what should the parents do.

 Our recommendation is to create a trust for the boy’s benefit and to transfer funds from the IRA to the trust every year for the next 10 years.  The amount withdrawn from the IRA will be taxable, but at a lower rate than if it were all withdrawn all at once.  Further, most tax professionals expect tax rates to increase due to the nation’s large budget deficit, so paying taxes today may in fact save money.

 The trust would protect the boy from his own potentially poor decisions while he is young.  It could also be drafted as a special needs trust to permit him to qualify for public benefits.

One question is whether the parents actually have the legal power to transfer their son’s funds into a trust, since doing so prevents his access at age 18.  In fact, the son could challenge this action.  But our feeling is that it’s better to put up this wall of defense, which may be attacked by the son when he reaches the age of majority, rather than leave the funds totally exposed.

What would you suggest?

A U.S. district court in Connecticut denies the state Departments of Social Services and Mental Health and Addiction Services’ motions to dismiss a class action lawsuit alleging that the state warehouses people with mental illness in nursing homes without providing them with information regarding their right to less restrictive treatment or access to such treatment. The court also certifies the class over the state’s objections. State of Connecticut Office of Protection and Advocacy for Persons with Disabilities v. The State of Connecticut (D.Conn., 3:06CV00179, March 31, 2010).

The Connecticut Office of Protection and Advocacy for Persons with Disabilities (OPA) is an authorized protection and advocacy agency tasked with protecting the rights of people with mental illness. The OPA, along with several individuals with mental illnesses who reside in nursing homes, brought suit claiming that, contrary to specific provisions of the Americans with Disabilities Act (ADA) and the Rehabilitation Acts, the state was warehousing people with mental illness in nursing homes when less restrictive treatment alternatives existed. The OPA also alleged that the state systematically failed to provide nursing home residents with information about their rights under the ADA, specifically the right to live outside of a nursing facility. The OPA filed a motion to certify the class of plaintiffs, and the state responded with a motion to dismiss.

The state first asserted that it was not liable because the patients were residents of privately run facilities. It also claimed that the plaintiffs had not properly framed their complaint, and that they did not meet a standard definition of “disabled” under the ADA. Finally, the state argued that the OPA did not have standing to bring the suit because it did not meet the test for associational standing.

The U.S. District Court for the District of Connecticut rejects the state’s motion to dismiss and approves the class. In regards to the state’s claim that the violations took place in a private facility, the court finds that “following the logic of the defendants’ argument, if Connecticut could structure a mental health system that ensured its consumers resided in privately run facilities, it could avoid its legal obligations in this area altogether. But Olmstead made clear that the actions of the state that led to a denial of integrated settings could serve as the basis for an ADA claim.” The court goes on to find that the OPA does have standing to bring suit against the state because “the constituents of OPA have the means to influence the priorities and activities of OPA in a meaningful way to such an extent that OPA is sufficiently identified with and subject to the influence of its constituents so as to have a personal stake in the outcome of this case.”

We continue to ponder what will happen this year and in 2011 as to the federal estate tax laws. I was wrong when I said repeal will never happen and I continue to be wrong when I say Congress will fix this problem.  It hasn’t happened yet.

A few possible scenarios, among others:

• Repeal in 2010 with a $1 million exemption and a 55 percent tax bracket in 2011.  Whoopee for those who die in 2011 — there is no estate tax.  But wait a second, there are the modified carryover basis rules.  Yes, but for those with larger estates, they still will be better off than if there was an estate tax at 45 percent.  Then, in 2011, we will have the big rollback of the estate tax laws to a $1 million exemption amount and a 55 percent estate tax bracket. Harsh, you might say.
• Retroactive fixing of the estate tax law.  Another approach is to fix the estate tax law now for 2010 and beyond with an estate tax exemption amount of $3.5 million while maintaining the step-up in basis rules.  This change would apply to anyone dying on or after January 1, 2010.  Of course, it is also possible to have the change commence at some date after January 1, 2010.
• The compromise.  One proposal that Congress is considering is to give the estates of those who die in 2010 a choice to pick either the 2010 laws as they exist today or choose the estate tax laws as they applied for those dying in 2009.  Why not give the best of both worlds to those who die in 2010, especially since they no longer have the best of this world? Then in 2011 there would be an estate tax exemption of $3.5 million and a 45 percent tax bracket. Compromise could lead us to a short-term solution of $3.5 million exemption and a 45 percent tax bracket for 2010 and 2011.

At this juncture, it is being reported that the House and the Obama administration support a $3.5 million exemption and a 45 percent top rate. However, uncertainty remains in the Senate, where neither those who advocate for permanent reform at a $3.5 million exemption and a 45 percent rate, nor those who advocate for reform at a $5 million exemption and 35 percent rate currently have the 60 votes needed for passage.

When Congress gets around to fixing this problem will they really “fix” the problem or make it worse.  Your guess is as good as mine. Stay tuned!

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 recently took effect for group insurance plans covering more than 50 people. This law requires plans that include coverage for mental illness to provide that coverage on an equal footing with coverage for other medical conditions. For instance, insurers are no longer allowed to charge higher co-pays for visits to mental health professionals than they would for visits to medical doctors. The health care reform law eventually extends mental health parity to all plans, regardless of the number of participants, and it goes one step further by including mental health care as “essential” care that plans are required to cover.

CLASS Plan Allows Voluntary Purchase of Long-Term Care Insurance

Despite the best efforts of insurance industry lobbyists to kill it, the new health care reform law includes the CLASS (Community Living Assistance Services and Supports) Plan, a program that allows individuals to purchase long-term care insurance from the government. Those who wish to participate would pay a modest premium (yet to be determined, although originally estimated to be $65 a month). After they had contributed for at least five years, participants would be eligible for a benefit that would vary depending on functional ability but that would average at least $50 a day. While the benefit would be modest compared to the average cost of nursing home care, it could be used instead to pay for a range of services that would help people stay in their homes. The CLASS program could be of greatest use for those people with special needs who do not require full-time nursing home care, but who will need additional in-home care as they get older.

New Office Will Help Integrate Medicaid and Medicare Benefits

A sizable number of people with special needs, known as “dual eligible” beneficiaries, receive both Medicaid and Medicare. As anyone with a dual eligible family member knows all too well, coordinating the various benefits offered by Medicaid and Medicare is next to impossible. What makes matters worse is that some provisions of Medicare law, especially prescription drug coverage, can directly contradict and cancel out better coverage offered by Medicaid. The health care reform law will create the Federal Coordinated Health Care Office to coordinate between the two programs and *word missing. encourage? force? the states to provide a higher level of care to dual eligible beneficiaries.

Dramatic Expansion of Medicaid

Current federal regulations require states participating in the Medicaid program to provide coverage for children in families living under the federal poverty level, and to extend coverage to their parents in certain situations. Although people who qualify for Supplemental Security Income (SSI) often obtain Medicaid benefits, for the most part adults who do not have severe disabilities and who do not have children have a hard time getting Medicaid. Under the health care reform law, states must offer Medicaid to all adults making less than 133 percent of the poverty level by 2014. This dramatic expansion of Medicaid could provide benefits to many people with special needs who do not otherwise qualify for the program because they are able to work, albeit in low-paying jobs. States that want to begin offering these benefits immediately can apply for federal funding of Medicaid expansion beginning this week.

Higher Medicaid Payments to Doctors

It can often be difficult to find doctors who accept Medicaid because of the program’s low reimbursements, which average only 72 percent of rates paid by Medicare. In 2013 and 2014, Medicaid’s reimbursements to doctors will rise to the same level as Medicare, making it more likely that a doctor will participate in the program.

Additional Training For Workers Who Assist People With Disabilities and Funding for Research