There is an answer to this problem. We recommend that young adults execute general durable powers of attorney, advanced medical directives and HIPAA releases, so that their parents have the power to act as surrogate decision makers while their children are off at college.
The power of attorney would allow a parent, acting as an agent, to assist his/her child with bill-paying to make sure that tuition is paid or that scholarship forms are appropriately filled out. It would allow the parent, as agent, to access the child’s bank and credit card accounts to help him/ her better manage money. Being an adult does not automatically confer wisdom about handling money and maintaining a budget. Being an involved parent, on the other hand, does allow you to guide and instruct your child and, if necessary, to jump in before a little problem becomes a huge problem. If you do not have access to your child’s accounts and financial information, you may not be able to assist your child when they hit that first, inevitable, bump in the financial road. Imagine your frustration at calling the bursar’s office to check on their receipt of an important check only to be told that they cannot tell you anything and you have to round-up your child to get the information or worse, get the child to appear at the bursar’s office to ask the question himself. Even the most responsible ones will be hard to find as they experience the freedom of college living.
An advance medical directive and accompanying HIPAA release is an important part of the equation as well. While many think of an advance directive as being limited to end-of-life decisions, this is only one part of a well-drafted advance directive. In the case of young adults, it serves a vital function of appointing an agent to make health care decisions for them if they cannot do so themselves. The HIPAA release authorizes a doctor to communicate with a parent about the child’s medical condition so that, even if the child is not wholly unable to make a decision, it allows a faraway parent the ability to participate with the doctor and the child in making important decisions. If the child cannot make his/her own decisions, either because the child has been seriously injured in an accident or has psychiatric or dependency issues, most parents and children would want the parents to be informed of the situation and to be involved in the decision-making process. Nothing could be scarier than calling a hospital only to be told that privacy laws prevent the doctor from speaking to you about your child.
By executing these documents on attaining the age of eighteen, young adults and their parents can feel secure in the knowledge that the safety net on which they have all relied since birth will remain in place until such time as the children are really ready to be totally on their own. The vast majority of children will likely leave these documents in place until they are ready to do some estate planning on their own. And that is not a bad thing. Come see the attorneys at the Hook Law Center – we can help you with all life’s transitions from the birth of a new baby to the baby leaving the nest, from marriage to divorce, from planning for retirement and long-term care to the death of a loved one. We’ve got you covered.
Ask Kit Kat – Westminster Dog Show
Hook Law Center: Kit Kat, what was new at the Westminster Dog Kennel Club Show that was held on February 13-14, 2017?
Kit Kat: Well, a couple of things were new this year. In my opinion, the biggest news was that cats were included for the first time this year. The cats weren’t actually in the show, but they were part of a ‘Meet the Breeds’ event which took place on February 11, 2017 before the actual dog show. At this event, dogs and cats were featured in booths in which the owner could have them displayed with information about the animal—where they originated from, etc. Booths could be decorated any way the owner chose. It made for an interesting event with both cats and dogs dressed up in all their finery!
Also, new to the Westminster Dog Show were 3 new breeds. This helped expand the number of participants to nearly 3,000 dogs. Wow! Can you imagine that many dogs in one place? Anyway, the 3 new breeds were: the American Hairless Rerrier, the Pumi, and the Sloughi. Can’t tell you much about 2 of the breeds, but the Pumi looks to me like a miniature poodle with a squarer face. Actually, Wikipedia defines it as a herding terrier from Hungary of small/medium size. It definitely is a good-looking dog, who I am sure will increase in popularity due to its compactness and personality.
So, kudos to the Westminster Dog Kennel Club! They are showing an inclusiveness which animal lovers can’t help but enjoy! (http://www.usatoday.com/story/news/nation-now/2017/02/01/ westminster-dog-show-going-cats/97329506/)
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Hook Law Center encourages you to share this newsletter with anyone who is interested in issues pertaining to the elderly, the disabled and their advocates. The information in this newsletter may be copied and distributed, without charge and without permission, but with appropriate citation to Hook Law Center, P.C. If you are interested in a free subscription to the Hook Law Center News, then please telephone us at 757-399-7506, e-mail us at mail@hooklawcenter.com or fax us at 757-397-1267.The post Issues to Consider when Your Child Goes off to College first appeared on SEONewsWire.net.]]>
By Thomas D. Begley, Jr.
WHAT IS A QUALIFIED SETTLEMENT FUND?
468B of the Internal Revenue Code[1] authorizes the establishment of Designated Settlement Funds or Qualified Settlement Funds. These funds are usually collectively referred to as Qualified Settlement Funds (QSFs). These funds are also sometimes called 468B Trusts. The purpose of these funds is to permit a defendant in certain types of litigation to deposit funds into a trust and to receive a full and complete release of liability. The defendant is entitled to a current income tax deduction for the amount paid into the fund at the time the funds are deposited into the trust. This is an exception to the general rule under which the tax deduction is not permitted until the funds are actually disbursed to the plaintiff, which is normally the time in which the plaintiff has received the “economic benefit” of the settlement.
QSFs arose out of class action lawsuits. They can be very useful in personal injury actions and other types of cases where there are multiple plaintiffs. The QSF is usually established prior to trial. The parties agree on a global settlement. The defendant pays that amount into the QSF and the plaintiffs can then take their time in allocating the settlement among themselves and in dealing with various liens, such as Medicaid, Medicare, ERISA, and other liens. The QSF could also be established after a jury award, as long as there is an appeal pending.
A QSF need not be a trust. It may be a fund, account, or trust under state law, or its assets must be otherwise segregated from the transferor’s (or related person’s) other assets.[2] Good practice dictates a written trust agreement. An attorney’s trust account could theoretically serve as a QSF.[3] The problem is that State IOLTA (Interest on Lawyer Trust Accounts) Rules require that income from the attorneys’ trust accounts be paid not to the clients but to State IOLTA funds.
When a QSF is being used for asbestos cases, special rules apply.[4]
ADVANTAGES
There are advantages to both the plaintiff and the defendant in utilizing a 468(b) trust.
Advantages to the Defendant. Advantages to the defendant utilizing a QSF include the following:
- Defendant Removed from Litigation. Defendants want to be out of the case. By using a QSF a defendant can pay and go. The defendant pays the funds into the QSF and the plaintiffs later deal with liens, allocate the settlement between themselves, determine how much should be lump sum and how much to structure, determine whether any Special Needs Trusts are required, and wait while a guardian is appointed for an incapacitated plaintiff, if required.
- Deduction to Defendant. Defendants and their insurers are able to obtain immediate tax deductions, rather than waiting for “economic performance” to occur.
Advantages to the Plaintiff. Advantages to the plaintiff utilizing a QSF include the following:
- Defendant Removed from Allocation of Settlement. Where QSF trusts are used, the defendant leaves to the plaintiff the issue of allocating the settlement among injured parties. This often gives the plaintiff greater flexibility in shaping the settlement. There are often advantages to allocating portions of the settlement to family members other than the injured plaintiff.
- Plaintiff’s Attorneys’ Fees and Costs. When a QSF trust is used, the plaintiff’s counsel can be paid fees immediately from the QSF and litigation expenses can also be paid.
- Income to Plaintiff. The plaintiff will immediately begin to receive income from the settlement held by the QSF trust. Without the trust, the defendant would be holding the money and the plaintiff would not be receiving the benefit of the income.
- Negotiations. Time is no longer a factor in negotiations with Medicare, Medicaid, ERISA, and third-party insurers. Additional time is available to negotiate and satisfy those liens.
- Forms of Distributions. Establishment of a QSF trust gives the plaintiff time to determine how much of the settlement to take as a lump sum and how much, if any, to structure.
- Conflict Resolution Among Related Plaintiffs. A QSF trust gives the plaintiff’s attorney, who may be representing more than one family member, time to resolve conflicts between them. One parent may have abandoned the injured child, for example. The other parent may be the custodial parent providing almost total care. How much does each parent receive?
- Removes Defense Structured Settlement Broker from the Case. The relationship between plaintiff’s structure brokers and defense brokers can be rancorous. If the QSF purchases the structure, the defense broker is effectively removed from consideration.
- Eliminates the Risk of Insolvency. If plaintiffs believe that the defendant or the defendant’s insurer is financially unstable, the QSF can be used as a vehicle into which funds can be immediately transferred.
- International Litigation. QSFs can be used to collect settlements from defendants that are located outside the country and can be used by foreign plaintiffs to collect from defendants located in the country.
- In cases involving a large number of claimants, an administrator of a QSF can obtain a Qualified Protective Order (QPO) that complies with the requirements of HIPAA and allows for limited use of Protected Health Information (PHI). This avoids the necessity of obtaining specific HIPAA releases from each settling claimant. Those releases would otherwise be necessary to negotiate subrogation claims in personal injury cases. A QSF administrator often retains the services of an outside vendor for lien resolution. The vendor may be required to disclose PHI to a number of different parties in order to secure release or payment requirements to settle the claims. The QPO is a good solution. A QPO is defined as an order of the court or of an administrative tribunal or a stipulation by the parties to the litigation or administrative proceeding that prohibits the parties from using or disclosing the PHI for any purpose other than the litigation or proceeding for which the information was requested.[5] The regulation further requires the return to the covered entity or destruction of the PHI at the end of the litigation or proceeding.
- Assists Structuring Attorneys’ Fees. Once settlement proceeds are deposited in an attorney trust account, it is too late for the lawyer to structure his fee. By making the deposit into a QSF, plaintiff’s counsel has time to consider payment options including whether or not to structure his fee.
- Multiple Defendants. A QSF can also be useful in cases involving multiple defendants or where all disputes with a single defendant cannot be resolved at one time. All monies can be held in a QSF until all defendants settle.
DISADVANTAGES
A disadvantage of establishing a QSF is the cost. There are fees for the drafting of the trust document including all of the ancillary services, such as obtaining information and explaining the document to all of the parties, filing fees, administration and trustee fees, and, possibly, CPA fees for preparing tax returns. A QSF may not be warranted in smaller cases.
TYPES OF CLAIMS
Which claims are permitted and which are not are considered in the following sections.
Permitted Claims. A QSF can be used in claims involving:
- Tort,[6]
- The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),[7]
- Breach or contract,[8] or
- Violation of law.[9]
In a Private Letter Ruling,[10] the I.R.S. approved the use of a QSF in connection with a bankruptcy case. In that case, the trust was approved by a confirmation order issued by the U.S. Bankruptcy Court, which had continuing jurisdiction over the trust. The trust was established under the laws of the state to resolve employees’ wrongful discharge claims filed under potential theories of tort, breach of contract, or a violation of law. Further, the discharged employees are not general trade creditors of the debtor, nor do their claims belong to any other class excluded by the regulation. Accordingly, the trust is a QSF. The I.R.S. ruled that the debtor is the transferor.
Prohibited Claims. QSFs may not be used in cases:
- Arising from worker’s compensation or self-insured health plan,[11]
- Involving liabilities to refund the purchase price of or repair or replace products sold in the ordinary course of the transferor’s business,[12] or
- Involving the obligation of the transferor to make payments to its general trade creditors[13] and debt holders relating to a bankruptcy case or workout.
INCOME TAX CONSIDERATIONS
There are several income tax issues that must be considered in connection with QSFs.
Economic Performance. Economic performance shall be deemed to occur as qualified payments are made by the taxpayer, usually the defendant’s insurer, to a Designated Settlement Fund (QSF).[14] This means that the defendant receives an immediate tax deduction upon depositing the funds in the QSF.
Constructive Receipt. Deposit of the funds in the QSF is not constructive receipt. Because the taxpayer’s receipt of income is subject to substantial limitations, constructive receipt is avoided.[15]
Taxation of Qualified Settlement Funds. Income earned by the QSF is taxed at a rate equal to the maximum rate in effect for such taxable year for trusts.[16] For 2016, the QSF rate is 39.6 percent.[17] All income is taxed at the same rate, there are no lower brackets. The tax is based not on gross income, but on modified taxable income.
The 3.8 percent Medicare tax on unearned income also applies.[18] The tax is the lesser of the undistributed net investment income for such taxable year, or the excess (if any) of:[19]
- The adjusted gross income for such taxable year over.
- The dollar amount of which the highest tax bracket begins for such taxable year.
Because QSFs are separate tax entities and pay tax on any interest and dividend income, the after-tax income then becomes part of the settlement fund and distributions to the claimants can be made with after-tax dollars.
Attorneys’ Fees.
- Plaintiff’s Attorney’s Fees. In most instances, the transferor will transfer to the QSF the entire settlement amount, including that portion that is payable to the personal injury attorney or attorneys for attorneys’ fees under the engagement letters signed between the plaintiffs and plaintiffs’ attorney. In rare instances, the transferor will pay the plaintiff’s attorneys’ fees directly and only transfer to the QSF the net amount due to the plaintiff. When attorneys’ fees are paid to the QSF, they do not represent gross income to the QSF, and when they are paid by the QSF they do not represent a tax deduction to the QSF. The QSF administrator/trustee must determine whether disbursements are subject to withholding requirements and whether disbursements of attorneys’ fees to class counsel in the underlying litigation are reportable.[20]
- QSF Attorneys’ Fees. Normally, a QSF will engage a law firm to perform legal services on behalf of the QSF. Such legal expenses are necessary to administer the QSF and to process claims and are deductible by the QSF as ordinary business expenses.[21] Whether or not the legal fee is immediately deductible or must be capitalized is determined by the origin of the claim.
THE 468B TRUSTEE/TRUST ADMINISTRATOR
The Regulations require that a QSF have an “Administrator.”[22] Unless the QSF is a trust, it is not required to have a trustee. If the QSF is a trust, the same person can serve as both Trustee and Administrator or there can be a separate trustee and a separate Administrator. Generally, the Trustee/Administrator is selected by the plaintiff’s attorney. If there is a separate Trustee and Administrator, the duties of each must be clearly defined in the trust document.
In some instances, a court will require an individual trustee to be bonded, which may be difficult or even impossible. A solution is to appoint the individual as Trust Administrator and appoint a Corporate Trustee. The trust document can give the Administrator the duty to make disbursements subject to court order. The Corporate Trustee would take the QSF deposit, subject to the court order, preventing any release of the funds without prior court approval. A similar result might be achieved by having an individual serve as Trustee/Administrator subject to a “safekeeping agreement” with a cooperating bank. The bank would accept the QSF deposits under court order preventing funds from being released without prior court approval.
DISTRIBUTIONS
The Trustee/Administrator is responsible for making distributions from the QSF to claimants, claimants’ attorneys, State Medicaid Agencies to satisfy liens, CMS to satisfy Medicare liens, ERISA Plans to satisfy ERISA liens, and any other lien holders that require satisfaction from the settlement fund.
STRUCTURED SETTLEMENTS
The Trustee/Administrator will be responsible for arranging structured settlements, including making a § 130 Qualified Assignment to a third-party assignee who will make the periodic payments.
[1] I.R.C. § 468B.
[2] Treas. Reg. § 1.468B-1(c)(3).
[3] P.L.R. 200216013 (Jan. 16, 2002).
[4] I.R.S. § 524b.
[5] 45 C.F.R. § 164.512(e)(1)(i).
[6] Treas. Reg. § 1.468B-1(c)(2)(ii).
[7] Treas. Reg. § 1.468B-1(c)(2)(i); 42 U.S.C. § 103.
[8] Treas. Reg. § 1.468B-1(c)(2)(ii).
[9] Treas. Reg. § 1.468B-1(c)(2)(ii).
[10] Priv. Ltr. Rul. 14-90-64-(2005).
[11] Treas. Reg. § 1.468B(1)(g)(3)(1).
[12] Treas. Reg. § 1.468B(1)(g)(3)(2).
[13] Treas. Reg. § 1.468B(1)(g)(3)(3).
[14] I.R.C. § 468B(a).
[15] Treas. Reg. § 1.451-2.
[16] I.R.C. § 468B(b)(1) and I.R.C. § 1(e).
[17] I.R.C. § 411(b).
[18] I.R.C. § 1411(a)(2).
[19] I.R.C. § 1411(a)(2).
[20] I.R.C. § 6041.
[21] Treas. Reg. § 1.468B-2(b)(2).
[22] Treas. Reg. § 1.468B-2(k)(3).
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By This September, many parents have dropped their children off for the first time at college and are adjusting to a new type of parenting and advocacy. For all parents, particularly parents of students with disabilities, the transition brings great pride, but also a significant amount of concern and worry. By taking careful steps, you can ensure that you remain an effective advocate in your new capacity.
The transition from youth to adulthood brings important legal changes that all parents must know how to navigate when continuing to advocate for your child. When your child turns 18, absent a guardianship, he or she becomes an adult and important rights transfer. Most states, including New York, set the age of majority at 18. This transfer has significant legal consequences. Absent a guardianship, which is generally not appropriate for a student attending college, an adult who is not incapacitated has the right to make educational, medical and most other decisions for himself. So, for example, if your child decides not to seek accommodations for his or her disability, you must respect this right.
This does not mean you have no role in your child’s education, but your child is driving all decisions and you must know what to expect. Once the student is 18 parents are no longer automatically part of the process or are even apprised of progress, unless the student chooses to include them.
As you move forward for the next year, you must keep in mind these important legal changes, particularly if your child has a disability.
Five Tips for Transitioning to the Advocate of a Young Adult
- Assist Your Child in Advocating, but Do Not Act as the Primary Advocate.
Remember, you are no longer your child’s primary advocate. The advocacy role must change to your child. Thus, ensure that your student has all the information he or she needs to access needed accommodations or care. Make sure your student registers with the Office of Disabilities on campus.However, if your student chooses to not disclose a disability or seek accommodations, this represents his or her decision and you can no longer require him or her receive accommodations or services. You should not call professors to ask for extra help for your child you cannot require your child to be hospitalized, even in a crisis, unless he or she is a danger to himself/herself or others. Parents act as supporters but are no longer the primary decision makers for your child.
- Understand Different Legal Obligations of College.
You must understand the different legal rights of individuals after leaving public school, as an important first step. As most are aware, if your child has graduated or aged out of special education services, Section 504 of the Rehabilitation Act and the Americans with Disabilities Act only protect students from discrimination, but do not require affirmative services. If your child received special education services under the Individuals with Disabilities Education Act (IDEA), these services only extend through the school year in which the child turns 21 or graduates – whichever comes sooner (although you do still retain parental rights to advocate for past services with your school district).
Significantly, after high school, colleges are no longer required to provide a FAPE. The post secondary school is only required to provide appropriate academic adjustments as necessary to ensure that it does not discriminate on the basis of disability. The appropriate academic adjustments must be determined based on the student’s disability and individual needs. Academic adjustments may include auxiliary aids and services, as well as modifications to academic requirements as necessary to ensure equal educational opportunity. In addition, the college does not have to make adjustments that would fundamentally alter the nature of a service, program, or activity, or that would result in an undue financial or administrative burden. A college does not have to provide personal attendants, individually prescribed devices, readers for personal use or study, or other devices or services of a personal nature, such as tutoring and typing.
- Ensure that Your Child Signs FERPA and HIPAA Authorizations.
The Family Educational Rights and Privacy Act of 1974 (FERPA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) protect privacy and require access to records. These rights of access and privacy transfer to your student at 18 years of age. FERPA rights transfer and a college will not send you records upon your request or speak to you unless your child has signed consent or another exception applies. For example, if you can show the student is financially dependent with a tax return, the college has the obligation to share information with you. Even with the consent, you will not automatically receive grades and records; you must request such records. HIPAA rights transfer, and student consent will be required if the parties are seeking medical records from a physician or therapist.
Ensure that your child has signed FERPA and HIPAA waivers so you may obtain records and speak to school or hospital staff. Make sure that you are familiar with the school’s policy.
- Have Power of Attorney and Health Care Proxy Signed.
A Power of Attorney gives you the right to act on your child’s behalf in case your child becomes incapacitated. This form represents an important tool to have when your child is in college and, in particular, if your child is living away from home. In addition, it is best to have a Health Care Proxy and Advanced Directives signed as soon as possible, so that you can step in and make important medical or legal decisions, if your child becomes incapacitated at college. Any adult must prepare for the unexpected. You can talk to an experienced attorney about having your child sign a Power of Attorney, Health Care Proxy and Advanced Directives.
- Remain an Involved Parent.
The transition to the parent of an adult does not mean that you cannot remain involved in your child’s life. Particularly if you are financially responsible, you have the right as a parent to set expectations and rules for how your child communicates and performs. Parent weekends represent an important way to connect and you can join a parent networking group. While it is unreasonable to expect direct communications with your child’s teachers, once you have the FERPA form signed, you may contact a dean about any concerns and ask for an appropriate amount of support or monitoring.
Learn more about our special needs planning and special education advocacy services at www.littmankrooks.com or www.specialneedsnewyork.com.
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For 30 years, we have been advising our clients to have their children sign some vital documents when they become 18 years of age.
The fact is that anything can happen to anybody at any time. By no means are 18 year-olds an exception to the rule. Some would say that their behavior proves the rule every day!
Parents who have been consistently in the loop for their child’s medical care don’t always realize that once a child becomes 18, they may suddenly be considered no more than strangers to medical professionals involved in that now-adult child’s emergency care. They need to consider the possible implications of that milestone birthday.
Parents can find it particularly stressful when a college student child is, for example, in an accident. Health care providers may cite HIPAA (federal legislation protecting privacy) as a reason not to allow parents access to information about an ill or unconscious child. In fact, sometimes parents aren’t even informed that the child is hurt or ill because the child is legally an adult. Parents and their young-adult children need to think about the unthinkable in advance. Three forms—HIPAA authorization, Advance Health Care Directive, and a Durable Power of Attorney—will help facilitate the involvement of a parent or other trusted adult in a medical emergency.
A Durable Power of Attorney enables someone to act on behalf of the person signing the document if he becomes incapacitated. It enables a parent or other designated agent to take care of business on the student’s behalf. If the student were to become incapacitated or if the student were studying abroad, the person named as agent in a Durable Power of Attorney would be able, for example, to sign tax returns, access bank accounts, and pay bills.
The Advance Directive gives authority to a chosen agent to communicate with doctors and other medical professionals and to make health care decisions when necessary.
A signed HIPAA Authorization will make it crystal clear that a parent (or other trusted person) can be kept in the information loop. It is like a permission slip. It permits health-care providers to disclose the child’s health information to anyone specified. A stand-alone HIPAA authorization (not incorporated into another legal document) does not have to be notarized or witnessed. This document alone, signed in advance by your child, will suffice to allow you to get information from the doctors and nurses at a far-away hospital. Young people who want parents to be involved in a medical emergency, but don’t want sensitive information disclosed, should not be deterred because the HIPAA authorization does not have to be all-encompassing They can specify not to disclose information about sex, drugs, mental health, or other details they want kept private.
We hope that you will take this very seriously and allow us to take these protective steps on behalf of your children.
To do so, we will have to communicate with your children. We will need to know whom they want to be named in these documents. Who knows, it may be you.
Once the forms are completed, scan and save them so that they are readily available on a smart phone or home computer.
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