McNees Insights Estate Planning News - June 2018

McNees Wallace & Nurick LLC

Guardians and Guardianships

by Julie Cooper

Some statistics to consider – according to recent governmental estimates, 8.5% of people worldwide (617 million) are age 65 or older.  This is projected to jump to nearly 17% of the world’s population by 2050 (1.6 billion).  In the United States, adults age 65 and older are projected to almost double from 50 million today to 83 million by 2050 and over 98 million by 2060.  This category’s share of the population will rise from 15% to nearly 24%.

These increases are due to several factors converging at the same time:  global life expectancy is increasing; the world’s population is generally healthier than in the past; and the baby boom generation (individuals born between mid-1946 and mid-1964) will reach age 65 between 2011 and 2029.  In 2030, it is expected that more than 1 in 5 adults in the United States (20.3%) will be among this older population.

Aside from the obvious consequences of this growth, such as the greater burden that will be placed on the health care and social services sectors, the expectation is that Alzheimer’s and other forms of dementia will grow rapidly as well.  At McNees, we are already seeing a way in which this growth in the population of older adults is affecting the practice of law – a significant increase in queries with regard to the appointment of guardians and guardianships.

Many people have a layman’s understanding of a legal document called a Power of  Attorney (POA).  What is not so commonly understood is that once an adult no longer demonstrates capacity, he or she may not execute a POA.  At that point, in order for someone to assist that adult with either health care or financial decisions without a POA in place, a guardianship petition may have to be filed and a request made to the Court to appoint a guardian.

According to Black’s Law Dictionary, a guardian is a person “lawfully invested with the power, and charged with the duty” of caring for another adult who lacks the capacity to administer his or her own affairs.  The Pennsylvania statute governing these matters, 20 Pa. C.S. § 5501 et seq., defines an incapacitated person as an adult “whose ability to receive and evaluate information effectively and communicate decisions in any way is impaired” and the impairment is so significant that this person is unable to care for his or her basic needs.  While this overview is focused on the older adult population, guardianships are also often considered for younger adults age 18 and over suffering from incapacities whose parents are no longer able to participate in their health care decision making, for example, due to privacy laws.

The impairment leading to the necessity of a guardianship may affect the person’s ability to manage his or her financial affairs, to ensure his or her physical health and safety, or both.  The law allows for the establishment of guardianships, either limited or plenary (complete), of either or both the estate (financial) or person (physical health and safety).

One of the critical considerations when determining the appropriateness of filing a petition for guardianship is what evidence is available to present to the Court to establish or prove the incapacity.  Typically, that evidence is medical testimony from either a physician or licensed psychologist.  An evaluation is usually performed in advance of the hearing and a report produced by the medical professional involved.  This report may even be appended to the petition as a supporting document.

Once the petition for guardianship is prepared and filed, the Court will schedule the date and time for the hearing, and issue what is called a citation. The Petitioner is required to serve the alleged incapacitated person (AIP) with the citation, any separate notices scheduling the hearing, and the petition at least twenty (20) days in advance of the hearing.  This is to provide the AIP with plenty of time to procure counsel.  The AIP is required to attend the hearing unless the Court hears from a physician or licensed psychologist, either through live testimony at the hearing or through a sworn deposition prepared in advance, that the AIP’s physical or mental condition would be harmed by his or her attendance.  If the AIP or his attorney disputes the allegation of incapacity, they may request that the Court order an independent medical evaluation be performed on the AIP.  Should this occur, one issue that needs to be resolved is who bears the expense of the independent evaluation.

At the hearing, the Court will listen to all of the evidence presented to establish the incapacity of the AIP.  If the Court agrees that the person is incapacitated, it will issue a decree to that effect and appoint a guardian of the estate, person, or both.  While it is common for a family member to serve as the Petitioner and request that he or she be appointed guardian, third-party agencies providing guardianship services are also available for a cost.

Once a guardianship is created, the matter is always subject to the scrutiny of the Court.  Immediately upon being appointed guardian, the person serving as such should prepare and file in the respective Orphans’ Court an initial Inventory, followed by a Report of the Person and Report of the Estate, as appropriate.  Those reports are to be filed on an annual basis.  Many counties track these filings and issue Court orders if the reports are not filed.  In addition, there are at least two other transactions that require Court approval:  the sale of an incapacitated person’s real estate, and the expenditure of an incapacitated person’s principal funds, as opposed to the income of the person.

The guardianship appointment allows the person appointed to make many decisions on behalf of the incapacitated person.  Some decisions, such as consenting to the divorce of the incapacitated person, still require leave of Court.  Generally speaking, however, the guardian of the estate is in a position to protect their ward from being financially exploited by others and a guardian of the person has the ability to make important health care decisions for the incapacitated person.

IRS Announces the End of the Offshore Voluntary Disclosure Program

by Andrew Rusniak

On March 13, 2018, the Internal Revenue Service announced that it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (“OVDP”) and will close the program on September 28, 2018. The OVDP is currently offered to taxpayers with undisclosed offshore accounts or assets and is utilized by taxpayers with willfulness issues regarding their failure to disclose such accounts or assets in order to avoid criminal prosecution and to reduce or mitigate the penalties for non-compliance. The IRS has urged any taxpayers who would seek to voluntarily disclose the existence of any previously undisclosed foreign financial assets to participate in the OVDP before the program closes. McNees is encouraging clients who desire to participate in the OVDP to begin the process as quickly as possible, as the information gathering requirements of the OVDP can be lengthy, particularly when requesting information from foreign financial institutions.

By way of background, the Bank Secrecy Act requires United States persons to file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by noting the existence of the account on their income tax return and by filing a FinCEN 114, Report of Foreign Bank and Financial Accounts (“FBAR”).

According to the FBAR instructions, a person must file an FBAR if all of the following elements are met: (i) a “U.S. person,” (ii) had a “financial interest” in, or “signature authority” over, or “other authority” over, (iii) one or more “financial accounts” (iv) located in a “foreign country,” (v) and the aggregated value of such account(s) exceeded $10,000, (vi) at any time during the calendar year. The FBAR instructions indicate that a “U.S. person” means a U.S. citizen regardless of where the citizen lives. Although there are a number of exceptions to the FBAR filing requirement, there is no exception for U.S. citizens living abroad.

For purposes of the FBAR, a direct interest and certain indirect interests qualify as “financial interests” in an account. A person has a direct “financial interest” in an account if such person is owner of record of, or holds legal title to, the account, regardless of whether the person maintains the account for personal benefit or for the benefit of others. Multiple people can have a direct interest in the same account. The definition of “financial account” includes bank accounts, securities accounts, securities derivatives accounts, other financial instruments accounts, savings accounts, demand accounts, time deposit accounts, mutual funds, and any other accounts maintained with either a financial institution or a person engaged in the business of a financial institution.

Taxpayers generally have 3 options when dealing with delinquent FBAR filings: (i) submit the delinquent FBARs; (ii) use the IRS’ Streamlined Filing Compliance Procedures (available only to taxpayers who have not willfully failed to file FBARs); and (iii) participate in the IRS’ Offshore Voluntary Disclosure Program. Each of these options has different considerations, benefits, and detriments, and each taxpayer’s situation should be independently analyzed to determine the best course of action.

According to the IRS, more than 56,000 taxpayers have made disclosures under the OVDP, paying more than $11.1 billion in back taxes, interest, and penalties. The IRS, through its Criminal Investigation Division, conducts the OVDP with the stated purpose of bringing taxpayers that have used undisclosed foreign accounts and assets, including those held through undisclosed foreign entities, to avoid or evade tax into compliance with United States tax and related laws. When a taxpayer participates in the OVDP, the IRS takes timely, accurate and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. The IRS has stated that “[w]hen a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice for any issue relating to tax noncompliance or failure to file Report of Foreign Bank and Financial Accounts (commonly known as an FBAR reported on FinCEN Form 114, previously Form TD F 90-22.1).”

The OVDP is offered to those taxpayers with undisclosed offshore accounts or assets and is utilized by taxpayers with willfulness issues regarding their offshore accounts or assets. While it is expected that the IRS will provide some type of program after September 28, 2018, for these taxpayers, the parameters or timing of such a program are not yet known. Where it is advisable, McNees is encouraging clients who desire to participate in the OVDP to begin the process as quickly as possible before it comes to a close.

Fortunately, for taxpayers who are eligible to participate in the IRS’ Streamlined Filing Compliance Procedures (both domestic and foreign), no changes have been announced by the IRS at this time. However, the IRS has stated that it may end the Streamlined Filing Compliance Procedures at some point.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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