June, 2005


Lessons from the Terry Schiavo Case


The nation watched as the tragic case of Terry Schiavo unfolded in about two weeks of non-stop television coverage.  Great debate ensued about the propriety of the local court’s decisions and the involvement of the state and federal appellate courts and ultimately the Congress.  But those decisions are not the lessons to be discussed here.  No, the lessons are even simpler but have serious implications. 


The primary fact from which we can draw our lessons is this:  Terry Schiavo had never signed a document that expressed her end-of-life wishes because she had no reason to believe she was ever going to be in a vegetative state.  Even at her young age, if Terry had done just a little planning, her family would not have become engaged in a 15-year battle over her life or death. 


So what lessons can we learn from this all-too-real and tragic story that gripped the nation? 


First, without a written expression of your wishes regarding end-of-life decisions, your life rests in the hands of the courts.  Do you want the ultimate decision about your life or death to be made by a judge who does not know you and what you wanted? 


Second, your life and death decisions should only be entrusted to those who are closest to you and whom you completely trust to carry out your wishes.  They may have to make difficult decisions.  They will have to deal with the tremendous emotions that are likely to surround their decisions and actions on your behalf.  So pick wisely those you will entrust with your life. 


Third, just any written document will not suffice.  It must conform to the laws of the state in which the person resides when the document is crafted and signed.  In Texas the Advance Directives Act of 1999 sets out the laws that govern such documents, collectively called Advance Directives – Medical Powers of Attorneys, Directives to Physicians and Do-Not-Resuscitate Orders.  But merely filling in the blanks on statutory forms is not real planning.  Only wise counsel and professional assistance will fully inform you about your legal options and enable you make the critical decisions that will be appropriate when medical emergencies arise and will be followed to carry out your wishes. 


Fourth, your documents must be readily available in medical emergencies or they will have little or no effect.  Family members must know where your Advance Directives are located and what to do with them in emergencies.  In the alternative, having these documents registered with DocuBank makes them readily available to emergency medical personnel.  See http://www.docubank.com


I trust you will learn these important lessons from Terry Schiavo’s tragedy before it is too late for you and your family.  Remember, you are never too young to plan ahead to benefit your loved ones. 


Annuities – More Reasons to Beware.


In the last newsletter I reminded you of the old Latin term - “Caveat Emptor” - Buyer Beware!  It is still applicable today and should be heeded by seniors and their families who are considering the purchase of any annuity.  Careful due diligence must be applied to any investment but even more so with annuities.  In this newsletter I want to present further reasons to beware of the siren song of the annuity salesman who thinks annuities are the be-all-end-all of investments. 



My friend Robert B. Fleming of Fleming and Curti, PLC in Tucson Arizona has given me permission to reproduce the following newsletter he posted in February on his excellent website www.elder-law.com I commend his thoughts for your serious consideration.  The posting of this newsletter on www.ensignlaw.com will contain the active links to the articles referenced below.


Annuities May Not Be Your Best Investment Alternative


“By all rights, variable annuities should be dead by now” writes Liz Pulliam Weston, personal finance columnist for MSN Money and author of the syndicated column “Money Talk.”  Strong words about an extremely popular and enduring investment alternative.  In fact, Ms. Weston notes, annuities are selling better now than ever before — despite the fact that tax treatment is unfavorable and returns unimpressive. (Read Ms. Weston’s entire article on MSN Money’s website).


Fee-only financial adviser Frank Armstrong, whose company is headquartered in Miami, Florida, says it even more plainly, and expands the condemnation to all types of annuities.  Mr. Armstrong insists that “most [annuity purchasers] probably made a bad decision.”  (More on the subject from Mr. Armstrong at Understanding Annuities).


What’s so wrong with annuities that these advisers get so exercised?  There are several concerns:


  --  Surrender charges.  Most annuities “cost” nothing at the investment end, but typically have a “back end load” of as much as 10%.  These costs are usually fully disclosed, but not emphasized, and they mean that the annuity is not a suitable choice for anyone who might need their investment liquidated in the next few years.  That includes the elderly, who just might need access to their money for expensive care before the back end load period ends.


  --  Tax treatment.  Although the annuity might provide tax deferral, the income it ultimately yields will probably be regular income.  A mutual fund with the same yield will be taxed at a much lower rate, because its income will mostly be capital gains.  If you die owning the mutual fund, your heirs may avoid capital gains taxes altogether — but not the annuity’s income taxes.  This is particularly ironic since the main selling point for annuities is often an allegedly favorable tax treatment.


  --  Death benefits.  Again, what is billed as a benefit is probably a disadvantage in most cases.  Life insurance is not free, and so the benefit costs something.  But if you hold the annuity for ten years it is unlikely to lose value — and that is what the death benefit protects against.  The result: expensive protection against a small risk. 


If annuities are such poor investments, why are they so popular?  Most critics, including Ms. Weston and Mr. Armstrong, point to one of the most common characteristics of annuities:  they pay uncommonly high commissions to salespersons.  How much of a commission?  From 2% of the original sales price to a common rate of 4%, with some commissions as high as 5 or 5.5% — and as much as 14% reported in a few cases.  That is why, as one analyst has it, “annuity sales have skyrocketed.”  That high commission rate is also why annuities have a back end load — the insurance company needs several years to recover the cost of getting someone to sell you your annuity in the first place.

February 21, 2005  Volume 12, Number 34 - http://www.elder-law.com/2005/Issue1234.html


Mr. Fleming has been a leader in Elder Law for many years and is well respected in the National Academy of Elder Law Attorneys.  I’ve met and talked with him several times at NAELA meetings.  His comments are worthy of careful consideration as he has seen firsthand the effects that poor investments have had on his elderly clients and knows the complications bad annuities can cause in planning for qualification for government benefits. 


One more thought.  Not all annuities are created equally.  Some are better designed than others to meet the needs of investors.  Some have provisions for early termination and distribution if one enters a nursing home and might qualify for Medicaid.  Nevertheless, any investment in any annuity should be carefully considered in light of the above article and whether the owner may expect to need governmental benefits like Medicaid in the foreseeable future. 


“Medicaid Annuities” Could Be Eliminated by HHSC Rule Interpretation


Under the new annuity rule adopted by the Texas Health and Human Services Commission (HHSC) in September, irrevocable annuities will be countable resources unless the annuity satisfies five criteria.  These are severe and include a payback to the State of Texas for medical assistance payments made on behalf of the decedent.  Nevertheless, because HHSC has ruled that income from non-countable resources must be considered before the protected resource amount can be expanded, more such “Medicaid Annuities” will be probably be purchased in an attempt to qualify for Medicaid. 


However, HHSC is now considering imposing an additional criterion - a “reasonable rate of return” for these “Medicaid Annuities.”  Achieving this “reasonable rate of return” will likely be difficult in most cases.  So the purchase of such a “Medicaid Annuity” could increase the problems applicants for Medicaid encounter in the process. 


HHSC Expected to Change Gifting Rules and Increase Penalty Divisor


Elder Law attorneys across Texas are anticipating changes in the rules for gifting to be issued by HHSC this fall, perhaps around October 1st.  At that time the penalty divisor that is currently $2,908 is expected to be raised to about $3,600 to more closely conform to the actual monthly cost of nursing home care averaged across the state.  Furthermore, HHSC will not allow gifting if the power of attorney of the Medicaid applicant did not expressly contain legal authority for the agent to make gifts.  Any gifts by the agent will be treated as countable resources held in constructive trust for the applicant.  This will result in the applicant being ineligible for Medicaid.  In the next newsletter we will bring you up to date on developments as HHSC issues its rules and interpretations. 

So if monthly gifts are being made by an agent on behalf of a prospective Medicaid applicant, the gifting plan and the power of attorney of the applicant should be reviewed promptly.


Continuing Education and Speaking


In the last few months Joy, Trina and I have had the privilege and blessing of attending a series of educational seminars offer by the Alzheimer’s Association Star Chapter hosted by the Executive Director, Roy Puente.  Presented by physicians, nurses and social workers who are experienced in Alzheimer’s and related problems, we have learned so much about this dread disease.  Held at lunch and supper once each month with delicious catered meals, these seminars have taught us so much about the problems that both the patients and their families encounter every day.  They have also enabled us to better understand those facing the difficulties of Alzheimer’s and to provide assistance and legal services to patients and their loved ones.  If you are dealing in some way with Alzheimer’s, please call Roy Puente at (806) 372-8693 and ask about attending these educational seminars.


Two days in May were spent in the Amarillo Area Estate Planning Council 14th Annual Institute learning from leaders in estate planning from across the state.  One day was taught by the highly respected Professor Stanley M. Johannson from the University of Texas.  They all challenged my thinking and enhanced my ability to serve the needs of our Estate Planning and Elder Law clients. 


The Canyon Rotary Club afforded me the opportunity to speak in March on the Top Ten Estate Planning Mistakes.  At the Jan Werner Adult Day Care Center I discussed Advanced Directives for medical emergencies along with Dr. Joan Rikker, MD.  In May, Paul Scanlin of Waddell & Reed introduced me to his AMBUCS Club with an unparalleled and moving introduction about his family’s experiences with his father’s battle with Alzheimer’s.  It laid an outstanding foundation for the presentation about Elder Law, Advance Directives and the Terry Schiavo case. 


Soon after the culmination of the Schiavo case, the Managing Editor of the Canyon News, Greg Jaklewicz, interviewed me at length about the need for proper planning with Advance Directives.  He wrote an excellent article about how families can avoid a similar tragic situation. 


If you are a member of a group that would be interested in a presentation on any topic regarding Estate Planning or Elder Law, please call or ask your Program Chairman to call me. 


We have recently expanded our Internet presence on http://www.elderlawanswers.com because if provides much information that is valuable to seniors and their families and advisors and special resources for Elder Law attorneys.  To see our web page, just enter ensign in the search box and click Site Search. 


Whenever we may be of service with any Elder Law or Estate Planning matter pertaining to you, your family, your friends or clients, please don’t hesitate to call for an appointment to discuss it.  We sincerely appreciate your referrals and will do our best to serve well all whom you refer.


With Summer upon us, we hope the storms that cross the Panhandle will bring refreshing rain and gentle breezes to cool us all.  We also hope this season will be filled with many family activities and the enjoyment of children to refresh your life and your perspective on all that is precious to you.