California Trustees – What Would Keep Me Up At Night – November 2016

Trustee responsibilities are extensive and they arise from different sources including the wording of the trust itself, statutes and case law. Of course you have to cover all areas of your trustee responsibility, but here is my list of primary issues that would keep me up at night as a trustee. This list is not in any particular order.

First, do you understand what the trust says and requires?

Second, have you marshalled and safeguarded the assets that are in or that are supposed to be in the trust? Are they in the trust and under your control?

Third, do you really understand your legal responsibilities including the wording and requirements in the trust, what the probate code and case law require of you? As a trustee you are a fiduciary. You have one of the highest standards of care, responsibility, liability and unbiased fairness and good faith required by law.

Fourth, are the trust assets being invested, managed and recorded properly and prudently? You need to evaluate and manage the returns and the risks, in accord with the wording of the trust and your statutory and case law fiduciary duties. So, for example, the stock market goes up and down. If the market goes down, is your approach to the portfolio management designed to help you avoid liability for losses, not just because the market went down, but also because you have implemented a portfolio approach and might allow you to net losses against gains? And are your investments prudently diversified, also taking into consideration possible risks? You will find additional posts on this blog about investment responsibilities.

Next, do you have and use the proper fiduciary demeanor and decision making approach required of a trustee?

Sixth, is the trust cash flow prudently managed? You might, for example, through no fault of your own have a trust with declining asset values or liquidity issues.

Next, do you know what to do if you have beneficiaries who are disagreeing with your decisions, or who are threatening litigation, or who have initiated litigation?

Eighth do you know what information you must or possibly should provide to the beneficiaries, including, for example, possible accountings and other information? Even if an accounting isn’t required, I do recommend that you prepare an accounting, or some form of an accounting. And, of course, you do have to keep complete records. Even if an accounting is not required, courts very often will order that accountings be prepared anyway. And, court and probate code compliant accountings include specific and detailed requirements.

Ninth, do you understand that you have personal liability exposure for the actions that you take or don’t take as the trustee? You are required to be prudent with risk management. Also consider possible fiduciary insurance coverage although in most situations it isn’t required.

Tenth, do you know what additional planning opportunities, if any, exist or might exist? Similarly, are you aware of new or changing tax, probate code, planning, and investment statutes and rules? And have you calendared important planning and compliance dates?

And last on this list, do you consult with necessary and appropriate professionals to advise you on your fiduciary duties, trust administration management, compliance, taxes, investments, insurance, asset protection and preservation, communicating with beneficiaries, and other important or possibly important issues?

That’s it for now. Thanks for reading.

FINRA proposed financial exploitation rule change for elders and vulnerable adults

FINRA has sent to the SEC a proposed rule change to help protect seniors and vulnerable adults from financial exploitation: “FINRA is proposing amendments that would require firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account. In addition, FINRA is proposing a new rule that would permit firms to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold. The rule change is not effective until approved by the SEC.”

“A small number of states have enacted statutes that permit financial institutions, including broker-dealers, to place temporary holds on “disbursements” or “transactions” if financial exploitation of covered persons is suspected. In addition, the North American Securities Administrators Association (“NASAA”) created a model state act to protect vulnerable adults from financial exploitation (“NASAA model”). Due to the small number of state statutes currently in effect and the lack of a federal standard in this area, FINRA believes that the proposed rule change would aid in the creation of a uniform national standard for the benefit of members and their customers.”

The proposed rule change is quite lengthy. Of course, and assuming that the rule change is approved by the SEC, the real test is how the different FINRA members apply the rule in everyday occurrences, the policies and procedures that they put in place, and the training that they provide to their employees. You will note that FINRA acknowledges that the definitions are broad, which is typical in this area of law – see, for example, the California elder abuse statutes in the California Welfare & Institutions Code and the statutes pertaining to mental capacity and undue influence in the California Probate Code – but those are detailed discussions for other materials – I have given presentations for attorneys, fiduciaries and other professionals on these topics including elder abuse and elder protection, probate court procedures, and fiduciary standards of care.

Below are a couple of the pertinent rule change provisions.

“FINRA believes that “specified adults” may be particularly susceptible to financial exploitation. Proposed Rule 2165 would define “specified adult” as: (A) a natural person age 65 and older; or (B) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests. Supplementary Material to proposed Rule 2165 would provide that a member’s reasonable belief that a natural person age 18 and older has a mental or physical impairment that renders the individual unable to protect his or her own interests may be based on the facts and circumstances observed in the member’s business relationship with the person. The proposed rule change would define the term “account” to mean any account of a member for which a specified adult has the authority to transact business.”

“Because financial abuse may take many forms, FINRA has proposed a broad definition of “financial exploitation.” Specifically, financial exploitation would mean: (A) the wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult’s funds or securities; or (B) any act or omission by a person, including through the use of a power of attorney, guardianship, or any other authority, regarding a specified adult, to: (i) obtain control, through deception, intimidation or undue influence, over the specified adult’s money, assets or property; or (ii) convert the specified adult’s money, assets or property.”

In addition to (1) initially attempting to obtain from the client information about a trusted person who the member can contact in possible situations of exploitation, and (2) attempting to contact that trusted person when appropriate, “The proposed rule change would permit a member to place a temporary hold on a disbursement of funds or securities from the account of a specified adult if the member reasonably believes that financial exploitation of the specified adult has occurred, is occurring, has been attempted or will be attempted. A temporary hold pursuant to proposed Rule 2165 may be placed on a particular suspicious disbursement(s) but not on other, non-suspicious disbursements. The proposed rule change would not apply to transactions in securities.” I note that although the proposed rule change would not apply to “transactions in securities,” it would nevertheless apply to a distribution of the post-sale proceeds from an account.

You should also note that the rule change does not require the member to obtain trusted person contact information from the client (it only requires the member to try to obtain that information), nor does the rule change require the member to contact the trusted member in possible situations of exploitation, nor does the rule change require the member to put a temporary hold on the account or transactions in possible situations of exploitation.

I am sure that the proposed rule change goes only as far as it does because members obviously do not want to be liable for alleged failure to act. But FINRA members in California also should already be up-to-speed on the mandated reporter of suspected financial elder abuse provisions at California Welfare and Institutions Code section 15630.1, which in part provide – “(a) As used in this section, “mandated reporter of suspected financial abuse of an elder or dependent adult” means all officers and employees of financial institutions. (b) As used in this section, the term “financial institution” means any of the following: (1) A depository institution, as defined in Section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. Sec. 1813(c)). (2) An institution-affiliated party, as defined in Section 3(u) of the Federal Deposit Insurance Act (12 U.S.C. Sec. 1813(u)). (3) A federal credit union or state credit union, as defined in Section 101 of the Federal Credit Union Act (12 U.S.C. Sec. 1752), including, but not limited to, an institution-affiliated party of a credit union, as defined in Section 206(r) of the Federal Credit Union Act (12 U.S.C. Sec. 1786(r)).”

Additionally, there are separate California mandated reporter of suspected elder abuse requirements at California Welfare and Institutions Code section 15630 which provide that “(a) Any person who has assumed full or intermittent
responsibility for the care or custody of an elder or dependent adult, whether or not he or she receives compensation, including administrators, supervisors, and any licensed staff of a public or private facility that provides care or services for elder or dependent adults, or any elder or dependent adult care custodian, health practitioner, clergy member, or employee of a county adult protective services agency or a local law enforcement agency, is a mandated reporter.”

Some of the proposed rule change provides for pretty interesting reading. See, for example, footnote 14 which provides a possible example: “A customer’s request to change his or her trusted contact person may be a possible red flag of financial exploitation. For example, a senior customer instructing his registered representative to change his trusted contact person from an immediate family member to a previously unknown third party may be a red flag of financial exploitation.”

And of course I will be providing further analysis and updates on this topic. The proposed FINRA rule change has been a long time coming.

Dave Tate, Esq., San Francisco and California

California Trustee and Beneficiary Responsibilities and Rights

If you are a trustee you need to know your responsibilities, and if you are a beneficiary you should know your rights. The following is a summary paper discussing both the responsibilities and the rights. Of course the California Probate Code is considerably more detailed than the points discussed in this paper, there are also case law interpretations and decisions, and every case and situation is unique, but the paper will give you good insight. Click on the following link for the paper and discussion, A Summary of California Trustee and Beneficiary Responsibilities and Rights Dave Tate Esq 01052016.

Dave Tate, Esq., San Francisco and California

If a medical provider or SNF is sued for improper Medicare or Medi-Cal billing, is an estate or a trust entitled to reimbursement for lien payments made?

I am reading an uptick in DOJ and other actions against medical and nursing home providers for improper and sometimes fraudulent Medicare or Medicaid/Medi-Cal billing practices. And, in some of those situations the estate of a decedent or their trust may have been required to pay on a Medicare or Medicaid/Medi-Cal lien for services provided before the decedent died. So, I’m just wondering, and I don’t know the answer, but it is an issue – shouldn’t the estate or trust that paid on the lien be entitled to reimbursement of some or all of the money that it paid, or at least reimbursement for the improper or fraudulent billing amounts? It certainly seems so. Now, in many of those situations it might not be economically worthwhile to hire legal counsel to pursue the reimbursement if the lien payments are not sufficiently large. But in all of those cases where Medicare or Medicaid/Medi-Cal recover against medical or nursing home providers for improper payments, shouldn’t Medicare or Medicaid/Medi-Cal also have to affirmatively reach out and voluntarily provide refunds to the estates and trusts that were also overcharged on the resulting recovery lien?

Words for thought. Best, Dave Tate, Esq., San Francisco and California

 

 

Everyday is elder abuse prevention day – video cartoon – please pass it along

Here’s a different presentation approach – please do pass it along to your contacts and people who would be interested. This is an important topic that needs more discussion. Thank you. Dave Tate, Esq. (San Francisco and California)

Can You Stop An Aging Parent From Self-Neglect At Home – by Carolyn Rosenblatt

The following is a good discussion by Carolyn Rosenblatt, on a topic that is ongoing for many, many families – can you stop an aging parent from self-neglect at home? The link to Carolyn’s article is provided below.

When is it self-neglect or self-abuse, and what can or do you do about it?

Unless you have the cooperation of the parent (and other family members), and the needed financial, insurance coverage, and time resources, and know who to contact, the issues are even more difficult to resolve. I see many family members who are dealing with these issues in trust, power of attorney, and conservatorship situations. What are the responsibilities/duties and rights, and what options are available and can be achieved? I am also aware of one California case involving a finding of elder abuse in a situation where family members did not take action to try to remedy the situation.

These issues are or can be difficult even with cooperation and resources. To see Carolyn’s article, CLICK HERE.

Dave Tate, Esq. San Francisco and California