Tuesday, March 14, 2017

What happens if you have no Executor when you die?

If you don’t have a Will, you don’t have an Executor.  Your Executor is the person you name to carry out the terms of your Will, meet your post-mortem legal obligations, and distribute your estate to your heirs.
So what happens if you don’t have a Will? Or you do have a Will but the Executor is unable to serve for some reason?
Well, someone still needs to be in charge or winding up your affairs, collecting your property, paying your bills and taxes, and distributing what is left to your heirs. If you don’t have an Executor to be in charge, the government is going to have to name someone. This person is typically referred to as the Administrator of your estate.
In naming am Administrator, your local court (usually acting through an Orphans or Probate division) will be guided by state law. Each state has laws which set out a hierarchy of who is authorized to administer your estate if you don’t have an Executor. Pennsylvania law is fairly typical. The Pennsylvania hierarchy is set out in Subchapter D of Chapter 31 of the "Probate, Estates and Fiduciaries Code."
If there is no Executor, Pennsylvania law gives top priority to (1) those persons who are entitled to your residuary estate under your will (if you have a will). Next in priority is (2) the surviving spouse, if any. Then things get a little murkier and discretion is given to the Register of Wills.
The Register of Wills is the county officer who processes the estate paperwork when someone dies. The Register of Wills issues documents (“Letters”) that authorize the executor or administrator to act on behalf of the estate. The Register is the office that accepts that filing of documents needed to complete the estate administration and serves many additional functions including collecting inheritance tax due to the Commonwealth of Pennsylvania.
In some cases, the law gives the Register of Wills discretion in determining who will be appointed as administrator of estate. The Register has quasi-judicial authority and can, if necessary, conduct hearings to determine who should be appointed. If no one is entitled to appointment under the (1) residuary estate or (2) surviving spouse provisions, Section 3155(b) of the Pennsylvania law directs the Register to issue Letters to:
(3)  Those entitled under the intestate law as the register, in his discretion, shall judge will best administer the estate, giving preference, however, according to the sizes of the shares of those in this class.
(4)  The principal creditors of the decedent at the time of his death.
(5)  Other fit persons.
(6)  If anyone of the foregoing shall renounce his right to letters of administration, the register, in his discretion, may appoint a nominee of the person so renouncing in preference to the persons set forth in any succeeding paragraph.
(7)  A guardianship support agency serving as guardian of an incapacitated person who dies during the guardianship administered pursuant to Subchapter F of Chapter 55 (relating to guardianship support).
(8)  A redevelopment authority formed pursuant to the act of May 24, 1945 (P.L.991, No.385), known as the Urban Redevelopment Law.
Section 6 above is used frequently. It allows someone with priority (.e.g. a surviving spouse) who doesn’t want to take on the responsibilities of being the Executor to nominate someone else to serve. The law also sets out categories of persons who are not entitled to serve as the administrator of an estate:
Persons not qualified.
No person shall be qualified to serve as a personal representative who is:
(1)  Under 18 years of age.
(2)  A corporation not authorized to act as fiduciary in the Commonwealth.
(3)  A person, other than an executor designated by name or description in the will, found by the register to be unfit to be entrusted with the administration of the estate.
(4)  The nominee of any beneficiary, legatee or person having any interest whatsoever, when such beneficiary, legatee or person is a citizen or resident of any country outside the territorial limits or possessions of the United States, when it shall appear doubtful to the register that in the distribution of the estate any such person will have the actual benefit, use, enjoyment or control of the money or other property representing his share or interest therein.
(5)  Charged, whether by indictment, information or otherwise, by the United States, the Commonwealth or any of the several states, with voluntary manslaughter or homicide, except homicide by vehicle, in connection with a decedent's death unless and until the charge is withdrawn, dismissed or a verdict of not guilty is returned.
In most cases it is going to be much easier and better for your survivors if you have a Will that names an Executor who is able and willing to serve. So make a Will and update it every five years or so, or sooner if circumstances change. Here are a couple of additional tips for you to consider when you do create or update your Will:
- If you have a Will, consider whether the person you named as Executor is still the best choice. Are they able and willing to serve?
- In your Will be sure to name a backup for your primary choice as Executor. Don’t force the Register of Wills to name an administrator for your estate.
- Recognize that you probably also own assets that will pass automatically to a beneficiary without the involvement of an executor or administrator. Examples include (A) assets owned jointly with right of survivorship, (B) Retirement accounts, life insurance policies and annuities; (C) Investments held in transfer on death (“TOD”) accounts; (D) Assets held by a trustee.  Talk with your lawyer to make sure that the disposition of these beneficiary designated assets are properly coordinated with the dispositions created under your Will.
Further Reading

Sunday, March 5, 2017

Sad End for Penn Treaty Insurance

Long-term care insurance policies were initially developed in the late 1960s to supplement Medicare skilled care payments for nursing home care. By 1990 policies had evolved to cover a wide range of non-skilled long term care services including home care and assisted living as well as non-skilled nursing facility care.   
The market was there. A majority of elderly Americans require long term services and supports at some point during their lives. Unfortunately traditional private long-term care insurance (LTCI) has failed to live up to early expectations as an effective means to meet that risk.  
Twenty years ago the market for LTCI was busy with over 100 companies selling policies. One company active in central and northeastern Pennsylvania was Penn Treaty Insurance. Penn Treaty distinguished itself by its lax underwriting standards. It was very easy to qualify for a Penn Treaty policy. The underwriting and benefits appeared to be “too good to be true” and made Penn Treaty policies very risky.    
And, as all the companies learned, the traditional LTCI model was flawed. As described in a National Association of Insurance Commissioner Report:
As required by state insurance laws, private LTCI policies were always sold as guaranteed renewable—they could only be cancelled for non-payment of premium—and as level-funded. While the premium charged varied by age at purchase, once an individual purchased a policy, the premium was designed (although never guaranteed) to be level for life. Finally, almost all policies reimbursed the actual costs of care up to a daily benefit maximum.
The level-funded nature of the product persists to this day and poses unique challenges to insurers. Insurers can only adjust premiums subject to regulatory approval if experience is countering their pricing assumptions. Most insurers’ LTCI policies issued before the mid-2000s have seen adverse experience when compared to their original pricing assumptions. Rising claims, low mortality and lower than expected lapses have led to higher prices often unaffordable to a large segment of the affected population. A number of insurers have also opted out of the market, leaving only a relatively few insurers to provide much needed LTCI products. The State of Long-Term Care Insurance: The Market, Challenges and Future Innovations, National Association of Insurance Commissioners, May 2016
Even companies with stronger underwriting standards and deeper pockets than Penn Treaty have failed to weather the devastating conditions for LTCI. Most companies selling individual stand-alone LTCI policies exited the unprofitable market. Sales of traditional individual policies declined from 754,000 policies in 2002 to only 129,000 policies by 2014. New models of long term care coverage have now appeared that are hybrid products based on annuities or universal life or whole life insurance.
In this environment Penn Treaty’s aggressive LTCI underwriting made it particularly vulnerable to disastrous failure. It was forced into receivership and eventual liquidation by the Commonwealth of Pennsylvania. Here is how the situation of Penn Treaty and its subsidiaries were described in a 2015 Pennsylvania court opinion.
The Companies’ troubles began in the 1990’s, when they widely sold policies carrying generous benefits, which proved to be underpriced and poorly underwritten. These policies are referred to here as “OldCo policies,” because by 2002 the Companies were issuing better underwritten policies (the “NewCo policies”) which became profitable. The financial fallout from the sale of OldCo policies, however, resulted in the involvement of numerous state regulators, including the Pennsylvania Insurance Department, which commenced an eight-year period of formal supervision of the Companies. Rate increases for OldCo policies were a linchpin in the Companies’ prospects for improving their financial condition, but these required approval from state regulators across the nation, and efforts to obtain such approval attained disparate results. The inability to secure enough increases, and the Companies’ deteriorated solvency, apparently led to their ultimate consent to rehabilitation [and eventual liquidation]. In Re Penn Treaty Network,  PA Supreme Court, July 20, 2015.
On March 1, 2017 the Pennsylvania insurance commissioner announced it is now completing the final liquidation of Penn Treaty. Fortunately, policyholder losses are mitigated somewhat due to the existence of the state guaranty association system. Nevertheless, 50 percent of policyholders are expected to have claims in excess of what will be paid by the guaranty association.
Here is the Press Release Issued by the Pennsylvania Insurance Commissioner on 03/01/2017
Insurance Commissioner Announces Court Approval of Liquidation of Penn Treaty and American Network Insurance Companies; Assures Policyholders Claims Will Be Paid by State Guaranty Funds Pursuant to State Law
Harrisburg, PA - Insurance Commissioner Teresa Miller today announced the Commonwealth Court approval of petitions to liquidate Penn Treaty Network America Insurance Company and American Network Insurance Company, with policyholder claims to be paid through the state guaranty association system, subject to statutory limits and conditions.
“After a long and difficult eight-year legal process, the Court’s decision to approve the liquidation recognizes the companies’ financial difficulties are too great to be remedied, and that consumers are best protected through the state guaranty association system,” Commissioner Miller said. 
Commissioner Miller said the two companies have approximately 76,000 policyholders nationwide, with 9,000 residing in Pennsylvania.  More than 98 percent of Penn Treaty and American Network’s policies are long term care insurance.
Over the past several years, long term care insurance has posed significant challenges to insurers on a national level. The pricing of these policies for many insurance companies has proved to be insufficient as a result of claims greatly exceeding expectations and low investment returns.  Claims have exceeded expectations due to incorrect assumptions concerning the number of policyholders who would drop their coverage and the number of policyholders who would utilize their policy benefits, as well as the cost of providing those benefits. The pricing deficiencies and resulting financial losses have resulted in many long term care insurers seeking large premium rate increases and some leaving the market. 
In the case of Penn Treaty and American Network, the Pennsylvania Insurance Department determined that the magnitude of additional premium rate increases needed to remedy the companies’ financial difficulties (exceeding 300% on average) would severely harm policyholders and would not be permitted by state regulators, leaving no alternative other than to place the companies into liquidation.
“Policyholder claims will continue to be covered by the state guaranty association system pursuant to law, and policy claims will be paid subject to the applicable state guaranty association coverage limit and conditions. Policyholders should continue to file claims as they have been in the past, and must continue to pay their premiums in order to be eligible for guaranty association coverage,” Commissioner Miller said.  “State guaranty associations were created to protect state residents who are policyholders of an insolvent company that has gone out of business.  In each state, other insurance companies licensed in that state pay into a guaranty fund, and that money is used to cover claims when a company becomes insolvent and is liquidated.”
Under Pennsylvania law, claims of policyholders residing in Pennsylvania are paid up to the maximum amount provided for by the policy, subject to the guaranty association cap of $300,000.  The liquidator and the court will determine whether any payments for claims above the cap can be made from the companies’ remaining assets to any policyholders who may have claims in excess of the cap.  Actuarial models show about 50 percent of policyholders are expected to have claims in excess of what will be paid by the guaranty association covering their policies. 
Guaranty associations may seek to increase premiums.  Any guaranty association rate increase will be subject to approvals required by law which, depending on the state, may include a review process similar to rate requests filed by long term care insurers with state insurance regulators.
Policyholders should continue making premium payments to the following address:  Penn Treaty, P.O. Box 70257, Philadelphia, PA  19176-0257.  Claim submissions should continue to be sent to:  Penn Treaty, P.O. Box 7066, Allentown, PA  18105-7066.  Policyholders with questions about policies, claims, or related to liquidation should call Policyholder Services        at 1-800-362-0700.
Consumers can also contact the Insurance Department Bureau of Consumer Services at www.insurance.pa.gov, or 1-877-881-6388.
Further Reading:
The State of Long-Term Care Insurance: The Market, Challenges and Future Innovations, National Association of Insurance Commissioners, May 2016 (downloads a .pdf file).

Monday, February 20, 2017

Older veterans - help with home care costs

Many older veterans are unaware that they can qualify for financial help in paying for the cost of home care. Most veterans completed their military service and moved on with their lives without looking to VA for any help.  But VA pension benefits can become important for these veterans in later life.
To qualify for VA pension the veteran must be 65 or older (or permanently and totally disabled for reasons not related to military service). In addition the veteran must have low income and only modest net worth. The veteran must have had 90 days of military service that included at least one day during a period of war.
To receive a pension, the veteran’s income must be below the maximum annual pension rate (MAPR) set by the government.  The pension program is designed to bring the veteran’s income up to that allowance. An increase in the MAPR is available to veterans (and widows of veterans) who are housebound or are in need of “aid and attendance.”
In determining the amount of the veterans income the VA will allow the deduction of unreimbursed amounts the veteran has paid for “medical expenses.” Depending on the circumstances medical expenses can include home nursing services such as assisting an individual with bathing, dressing, feeding and other activities of daily living.
Because medical expenses reduce countable income, an aging veteran who needs (or whose spouse needs) ongoing long term care services and supports may now be able to qualify for financial assistance from the VA. The extra funds can make all the difference in allowing the veteran to get the support needed to remain at home.
Pension eligibility is often overlooked because people are not aware of it at all or do not know that countable income is reduced by your out of pocket medical expenses. Pension benefits can also be available for a veteran who resides in an assisted living facility - where the entire cost may be deductible.
Pension, aid and attendance and housebound benefits can be a godsend for middle-income wartime veterans who are depleting their savings to cover health care costs. Our veteran earned these benefits by serving our nation during a time of war. Let’s make sure they get what they deserve.

For more information on VA pension benefits you can check with your County Director of Veterans’ Affairs, a Veterans Service Organization, or a lawyer who has been accredited by the VA. My law firm of Marshall, Parker and Weber has three lawyers on staff who have been VA accredited.

Friday, February 17, 2017

What is a "Durable" Power of Attorney?

A Power of Attorney is a legal document you use to authorize another person to act on your behalf. The rules governing powers of attorney are generally a matter of state law. Many state laws are based on the Uniform Power of Attorney Act. But the terminology and rules can vary substantially from state to state.  This article is based on Pennsylvania law as it exists in February 2017.
In Pennsylvania, the person granting the power is called the “principal.” The person who receives the authorization is called the “agent.” 
The authority granted by a POA depends on the language used in the document. Some powers of attorney are “limited.”  This means that the agent’s powers are limited to performing a single act or set of acts. For example you might give a limited POA to authorize someone to sell your car or house. On the other hand, the term “general” power of attorney is typically used to describe a document that gives the agent very broad powers.
Prior to 1974, the Pennsylvania law regarding powers of attorney was based entirely on the common law of agency. One aspect of that law was that an agent’s authority would terminate if and when the principal died or became incompetent. The disability of the principal served to revoke the agency.
However, many people wanted to be able to create a power of attorney that would designate someone else to act for them exactly because they had become incapacitated. They wanted to avoid the complications of creating a formal trust or the need to be subjected to guardianship proceedings. The aging of society and increasing longevity was exacerbating the need for a simpler and more accessible way for people to plan for their potential future incapacity.  
To meet this need, Pennsylvania enacted Act 295 of 1974 which modified the common law rule and allowed individuals to create a “durable” power of attorney. Pennsylvania law was modified a number of times thereafter and now provides[1] that unless specifically provided otherwise in the power of attorney, all powers of attorney shall be durable as provided in section 5604of Title 20 (durable powers of attorney). Section 5604 says:
§ 5604 Durable powers of attorney
Definition.--A durable power of attorney is a power of attorney by which a principal designates another his agent in writing. The authority conferred shall be exercisable notwithstanding the principal's subsequent disability or incapacity. A principal may provide in the power of attorney that the power shall become effective at a specified future time or upon the occurrence of a specified contingency, including the disability or incapacity of the principal.

Durable power of attorney not affected by disability or lapse of time.--All acts done by an agent pursuant to a durable power of attorney during any period of disability or incapacity of the principal have the same effect and inure to the benefit of and bind the principal and his successors in interest as if the principal were competent and not disabled. Unless the power of attorney states a time of termination, it is valid notwithstanding the lapse of time since its execution.
As noted in Section 5604, a principal may provide in the power of attorney that the power shall become effective only upon the occurrence of the disability or incapacity of the principal. That type of contingent POA is typically referred to as “springing.”
Both Pennsylvania law and the Uniform Act[2] now provide that a power of attorney is presumed to be durable unless the document states otherwise. No special language is required. Nevertheless, it is wise to include a specific statement to that that the agent’s authority survives the principal’s incapacity. Although all states now allow durable powers of attorney, some require such specific wording in the document.  
Here are links to additional information on powers of attorney: