Once again I find myself not envying the job of our state Supreme Court.
Last week, our justices issued their ruling in the matter of the estate of Eugene Shipman. Eugene and his wife Arline, of Fairfax, in Gregory County, were married for over fifty years. Arline came down with dementia and had to move into a nursing home in April 2008. Her husband had to burn up $100K of their savings before they could qualify for Medicaid to pay for long-term care. During that time, Eugene also wrote his wife out of his will, saying he had "given sufficient consideration" to Arline during his lifetime and didn't need to leave her any of the estate. Eugene bequathed half the estate to his and Arline's son and the other half to their grandkids.
Eugene died unexpectedly in 2010, and the Department of Social Services contended that Arline was still entitled by law to her half of the $450K estate.
Disinheriting your wife—that's a hard thing to say. But we can all see what's happening here: Eugene was trying to save the Shipman inheritance for his and Arline's kids. I won't presume to speak for Arline, but I can look fifty years down my own road. After my wife and I have made millions of dollars preaching and teaching (ah ha ha ha ha ha! Hee hee hee hee hee!), I'd hate to see our amassed wealth go to no better purpose than keeping me alive in some lonely room with my brain permanently disconnected from reality.
For those of you who oppose the estate tax, consider the impact of the nursing home tax: should our descendants lose their inheritance because we suffer the misfortune of our brains dying months or years before our bodies?
The South Dakota Supreme Court had to rule that, indeed, South Dakota law trumps the intent of Eugene's will and the financial interests of the Shipmans' son and grandkids. SDCL 29A-2-202 says the surviving spouse has a right (Justice Zinter adds the italics) to a certain percentage of the estate, depending on how long they've been married. Stick it out for 15 years or more, and you automatically claim 50% of what's left, regardless of how many nice dishwashers or diamond rings or hospital stays your spouse paid for while you were together. Spouses have a duty to support each other until death does them part; South Dakota law says a deceased spouse has an additional, independent duty to provide for the surviving spouse after death.
The Shipman ruling says that the beneficiaries of a will have "no predetermined right to an inheritance" that is free of the spousal "elective share" established by law. So I wonder: can we extend that reasoning to the estate tax? The state recognizes a deceased spouse's duty to a surviving spouse; why not recognize a duty to a surviving community with an estate tax?
"So I wonder: can we extend that reasoning to the estate tax? The state recognizes a deceased spouse's duty to a surviving spouse; why not recognize a duty to a surviving community with an estate tax?"
Except that duty has already been paid on that estate. Eugene already paid his taxes on the wealth he accumulated over the course of his life. Why should his once-taxed accumulated wealth be taxed a second time?
Eugene's attorney didn't do a very good job on the will, apparently... shame.
This seems to me to be a bit tortured kind of decision, pulling twisting, and turning and then deciding that somebody who is demented has the right to decline or accept a share of an estate and apparently indicating that her appointed or selected guardian can't decide to decline her "share". The half bequeathed to the child and grandchildren was the remaining half apparently left after "her share" was already used for care.
Seems strange that the demented wife has a right to inheritance, but children do not. And, It seemed to me that the state distribution of estates was only applicable if no will had been written.
Perhaps others with more details can correct this if I am dead wrong on this issue.
If an attorney prepared the will and advised the family seems like he gave them pretty poor counsel.
No estate tax is one of the reasons so many people want to move here!
Oh Cory, you make it too easy sometimes, but that's why we love you. I must think the line "my brain permanently disconnected from reality" had to be written with a sly grin and the hope of a bevy of conservative comments.
To the substance of your post, long term care is expensive and people have been trying to figure out ways for Medicaid to pay for it for a long time. Individual stories can be heart wrenching but we legislate for the good of the masses and not for individuals. The good of the masses is served by reserving Medicaid for the poor.
Now if you want to have Medicare pick up the tab that's an entirely different and maybe needed conversation.
Death panels get a bum rap.
Nick, you caught me red-handed (red-grinned?) on the brain comment.
Indeed, who should pay for that end-of-life care, individuals or the community? And Nick, does Medicare not cover long-term care?
I don't think Medicare covers long term, but Medicaid does but doesn't kick in until assets drop below a certain level.
Actually, I wouldn't be surprised if the children could bring forward a case and be granted a conservatorship due to the dementia. Happens quite often. They could drain that account in a heartbeat, but I believe they would still be on the hook for 7 years.
A couple doesn't have to spend everything they have for one spouse to qualify for medicaid to pay for a nursing home. Medicaid leaves the non-institutionalized spouse money to live on, which it did for Mr. Shipman. Unfortunately and unexpectedly, Mr. Shipman passed away first so he no longer needed the money Medicaid left him to live on - Mrs. Shipman still did. The Supreme Court decision makes sense when you view it that way.
It is a common misbelief that Medicare covers long term care - it does not pay anything for long term care. Medicaid assistance is available to people who have exhausted their resources and assets, but the continued cuts to Medicaid rates do not cover the cost of providing long term care. Guess who makes up the difference?
And why haven't we included long-term care in Medicare, or created some other public mechanism? Too expensive? I see we repealed the long-term care policy that was in the PPACA as part of the fiscal cliff deal last winter. Nertz!
The current system penalizes folks who save. Doing nothing or having no end of life planning means essentially everything you saved during the course of life may enrich the boards and CEOs of nursing homes at the rate of $5k to 10k/month. Those of means balance the institutions' books for those on medicaid. Have elderly parents or are you one - read, "Bittersweet Season" and follow the blog, "The New Old Age" by Jane Gross and another. Gross's Mom burned through $900k in about 6 years. This is not uncommon. This is preventable with good end of life planning. Medicaid has a 5-year look back so one must anticipate 5 years in advance when one's admitted to the nursing home. Considerations include but are not limited to: giving away the majority of your savings while healthy; consider hard whether you can trust your kid or kids - if not, explore the trust route - and always consult a specialist attorney, not a generalist. Know your family medical history and genes - it costs $99 through http://www.23andme. Folks in our culture generally check out in 3 ways: one generalized way per decade of life - http://newoldage.blogs.nytimes.com/2008/07/08/how-many-of-you-expect-to-die/. If you, spouse, or parent have a chance of dementia, etc., planning is even more critical. You have options.
Nursing home costs are staggering, which is just one reason everyone should have end of life counseling. We should live our last stage of life how we want, so we can die with dignity based on our own value system. Incredible amounts of money are spent to extend life for the last few days and weeks for many who have not made their wishes known in writing with their physician. Without directives to limit care if that's your wish, or the wishes of your parents, extreme life saving measures will be performed. Mortality is not a fun subject to discuss but a hugely healthy one that makes it so much easier when the time comes to face these ugly issues.
This article happened to be on the Atlantic: http://www.theatlantic.com/health/archive/2013/06/a-better-way-to-die/276724/
The Journal of Palliative Medicine reported in 2010 that only around 20 percent of terminally ill elderly patients had their end-of-life wishes documented in their medical records. Much of the painful end-of-life decision-making is then shifted onto family members, who are frequently left feeling isolated and pressured into pursuing invasive treatments. As a result, despite the majority of Americans voicing the desire to die in comfort at home, CAPC statistics show that around 80 percent of deaths still occur in hospitals and intensive care units.
Research has also shown that hospitals could save $6 billion a year in costs by fully integrating palliative care programs across the U.S.
Around 25 percent of all Medicare spending is funnelled into end-of-life treatments, but a study conducted by Mt. Sinai School of Medicine found that beneficiaries still had to spend an average of $38,688 on medical bills in excess of Medicare during their last five years of life -- frequently crippling amounts at a time already fraught with pain and anxiety.
No medicare does not pay for long term care. I also think it's now 7 years medicare can look through. Unfortunately with so many of the older generation their idea of end of live is not how it turns out. My father thought that he and my mom would die at home. In a perfect world that would be great but life is not perfect. Fortunately he didn't need a nursing home and had good health insurance plus medicare when he passed away at a hospital so savings did not need to be used. Mom is not so fortunate and is now at a nursing home. All that he worked to hard to save will end up being used at the nursing home where mom resides. Yes I know he wanted to provide and give to his kids but I am not owed anything from my folks either. I'm not saying in wouldn't have been nice. I know he also had one non-profit he would have loved to give more money too. He is providing for my mom and that is important. Good estate planning is essential no matter the dollar amount. It is also essential to inform the family of your financial situtation. That seems to be another taboo for the older generation. I hope we learn through good financial counseling or from stories we read or hear about through others experiences.
Independent of the question regarding an estate tax, why should others be taxed to take care of Mr. Shipman's wife when, it seems, he (or in this case, his estate) is capable of doing so? Why should we be taxed so Mr. Shipman's grandchildren can divy up $450,000?
I'm perfectly willing to be taxed to support those who cannot support themselves. And I'm willing to see a tax as a means of forcing those who otherwise would not to make some provision for their later years themselves - that's what Social Security is, in effect.
But I'd prefer these taxes be configured in a way that encourages those who can to do it themselves. Maybe if we establish a tax credit for the purchase of long-term care insurance, or allow a full deduction of long-term care insurance premiums (currently, only the portion that exceeds 7.5% of adjusted gross income is deductible - and next year it'll need to exceed 10% of AGI). Yes, I'd rather not have all these credits and deductions but I know I'm spitting in the wind on that one, so if we're going to use the tax code to manipulate behavior...
Which, then, when it comes to an estate tax, if the estate tax means an individual is prevented or discouraged from making this kind of self-provisal, then it harms more than it helps.
"why should others be taxed to take care of Mr. Shipman's wife when, it seems, he (or in this case, his estate) is capable of doing so?"
PNR, I'm wrestling with that myself.
On one hand, our inheritance laws seem to have no consideration for considerations made during a marriage, and that isn't right. Why should my spouse get 50% of what's left if we had to spend 75% of our assets to care for her? That's not equitable.
On another hand, it doesn't seem right to allow people to get on the government dole when there are assets which can be liquidated to pay for care.
However, the liquidation of those assets then means the elderly can be left completely and utterly destitute, and completely reliant upon government care.
There's no reward for saving. Why scrimp & save and toil to accumulate a modest amount of wealth just to wind up losing it all to health care costs and being in the same boat as the guy who could never provide for himself? If you cannot give your progeny a boost, why bother?
The average cost for a nursing home is $85,000 a year. That $225,000 Mrs. Shipman is now entitled to probably won't last 2 years, as dementia patients usually are more costly.
My other question, though, is if the $450 in assets the Shipmans had left was "protected" from consideration of Medicaid, why will those assets suddenly be unprotected from consideration? $250k doesn't get you very far if that's all you've got left.