The information that follows summarizes some of the current issues in the areas of estate, tax and personal and business planning which may be of interest to you. Although this information is accurate and authoritative, it is general in nature and not intended to constitute specific professional advice. For professional advice or more specific information, please contact my office.

Transfer-On-Death and Pay-On-Death Issues. Previous articles have addressed the Indiana Transfer-On-Death Property Act and the broader flexibility which is now available for TOD transfers. In Indiana, there is no difference between POD and TOD arrangements, although typically financial institutions will still refer to POD arrangements rather that TOD arrangements, and will allow less flexibility in regard to the post-death designations than most investment companies and brokerage firms will allow in conjunction with TOD transfers. As previously noted, TOD arrangements should be implemented carefully. While they can be a substitute for a will, they must be used in tandem with a last will and testament and after consideration has been given to the consequences of the contemplated TOD transfers. When the TOD Act was originally adopted, there was no provision included referencing the spousal/dependency allowance under Indiana law for a spouse or appropriate dependants to make a claim for the $25,000 statutory allowance set out in I.C. 29-4-1-1. In Indiana, a surviving spouse has the right to elect to take against the will and to received a forced share of the decedent’s estate (i.e., a predeceasing spouse cannot completely disinherit a surviving spouse). The TOD Act originally did not allow this election to be made against TOD transfers. When the TOD Act was amended recently, it was amended to allow a spouse or appropriate dependants to claim the $25,000 dependancy allowance, but the amendment took no position on whether the spouse can elect to take against the TOD transfers. Consequently, it will now be up to the courts in Indiana and Indiana case law to determine whether or not a surviving spouse can elect to take a forced share of the TOD transfers in the same way that the spouse could claim a forced share against a predeceasing spouse’s probate estate even if the decedent’s will provided to the contrary.

What Is Legal Capacity? People in casual conversation referencing certain legal matters will occasionally make comments about a person’s "capacity" or "competency" to undertake certain acts. Frequently, comments are made about a person being "incompetent" for certain purposes. In Indiana, "competency" is an historical concept which is now rarely used, and we generally think in terms of "legal capacity" to perform certain acts. Legal capacity will vary depending on the transaction. For example, "testamentary capacity," i.e., the capacity to execute a last will and testament, generally requires that the individual has sufficient mind to know and understand the business in which he is engaged, and to know and understand the extent of his estate, the persons who would naturally be the objects of his bounty, and the individual must be able to keep these concepts in mind long enough to form a rational judgment in relation to them. Testamentary capacity is completely different and distinct from the capacity to enter into a contract or to transfer property. In general, the same level of capacity would be required to execute a contract or transfer property, and that level of capacity would require more in the case of a complex arrangement than in a relatively simple one. Stated differently, a person could have capacity to execute a last will and testament, but might not have capacity to transfer property or execute contracts, depending on the transaction. In Indiana, it is "contractual capacity" that governs the ability to sign powers of attorney and health care advance directives or to execute a trust.

Tax Smart Giving. Previous articles have addressed numerous concepts relating to charitable giving. Readers are encouraged to access our website and to review our prior commentaries as a means of enhancing and refreshing their knowledge and recollection of issues relating to charitable gifts. In these difficult economic times, charities have been challenged in their development efforts, and people tend to forget how important it is to churches and other charities to receive donations from contributors in order to fulfil their nonprofit missions. Charitable giving generates positive financial results for the charity and allows charitable organizations to do what they do for the benefit of our society and mankind in general. Charitable giving will not only save income taxes, and possibly estate and inheritance taxes as well, but it is as good for the giver as it is for the recipient. As the Bible says, God loves a cheerful giver, and it truly is more blessed to give than to receive.

Since your earnings and your wealth should be yours to keep, during your lifetime you should have the ability to control your private capital and to reduce the portion that goes to taxes while increasing the amount that is dedicated to charitable purposes. Although most people do want the bulk of their wealth to pass on to their children in the event of death, in many instances charities should be considered as well, and often almost as much money can be left for the children, after taxes, with properly structured charitable arrangements, than if a charitable gift had not been given at all. It is possible to cleanse out potential capital gain taxes through charitable giving, and through certain charitable trust arrangements, to obtain both a charitable income tax deduction while you are living and an estate tax deduction at death, while retaining a stream of income during your lifetime. In the case of large tax-deferred retirement assets, such as an IRA or a 401(k), significant income taxes can be avoided if a portion of those dollars are paid to non-taxable charities rather than to family members who will be subject to estate, inheritance and income taxes on the receipt of those funds. In summary, all people are encouraged to consider the importance of charitable giving as a part of their lifetime financial planning, and also for estate and asset protection planning purposes when people are concerned about death and asset preservation.

Risks Of Not Planning. People should not, under any circumstances, undertake estate or asset preservation planning without getting proper legal and tax advice and perhaps financial guidance as well. It is interesting that in our commercial world people are cautioned against taking even an aspirin without talking to their physician, and yet expensive financial products like annuities and reverse mortgage arrangements are aggressively hawked on national television without even the suggestion that legal counsel should be sought. It is interesting that people want to "avoid probate" even though the vast majority of people who die will either pay no legal costs in the settlement of their affairs, or perhaps not more than a few thousand dollars, when even the poorest person who dies will routinely spend $8,000 or more on his or her funeral. The average person will spend more money on health care in one year than they will spend on legal costs in an entire lifetime. Further, health care comprises almost one-fifth of our entire economy, while the costs of our legal system consume approximately one percent of GDP. Most of our concerns and certainly the political wranglings of our candidates are significantly misplaced.

It is common for people to write their own wills, or even their own trusts, and not realize that their wills do not control non-probate property which often will comprise the bulk of their assets when they die. Trusts are absolutely useless unless properly funded. In my practice, it is rare when we establish a trust and end up with probate assets which have not been transferred, because we strive very hard to be sure that all assets are in fact included and all beneficiary arrangements properly coordinated. Most of the time when I deal with clients who have had "packages" sold to them by financial companies with minimal involvement on the part of legal counsel, they have ended up paying good money for arrangements that do not work properly because people did not have the wisdom to seek out proper legal guidance. People should remember that most financial packages are commission-driven, and many financial products are sold because of the commissions generated from those products. Please remember that legal documents which are not written properly and coordinated effectively with the ownership of your assets will not pass your assets in the desired manner. Not only can the result be the unnecessary probate of an estate, but significant tax liabilities can be incurred as well, and litigation can result because a person’s clear intentions are not being met in regard to the disposition of their property relative to the statements contained in their documents. In the end, a legal mess is created, and legal fees are significantly more than they would have been. The desire to save money may be frustrated and the costs of estate and trust settlement can end up significantly higher.