CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS PLANNING
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.
Update On POST Legislation. Our June 2013 newsletter announced the adoption of a POST (Physician Order for Scope of Treatment) law to be effective July 1, 2013. Since that time, the Indiana State Department of Health (ISDH) has published a POST form, which may be reviewed along with other forms at its Advance Directive Resource Center website, www.in.gov/isdh/25880.htm. This website also contains links to other forms, including State Form 55315: Life Prolonging Procedures Declaration, State Form 55316: Living Will Declaration, State Form 49559: Out-of-Hospital Do Not Resuscitate Declaration and Order, and State Form 55317: Physician Order for Scope of Treatment (POST). In addition, it has issued instructions to provide guidance for health professionals. I will be presenting an elder law update on September 27, 2013, at the 35th Annual Judge Robert H. Staton Indiana Law Update which will take place at the Indiana Convention Center in Indianapolis, which will include information concerning the new POST law. Readers should be aware that the POST form does not supplant health care advance directives, and the use of the POST form is voluntary. It will generally be completed by a physician or certain other health care providers and must be signed by the patient and the attending physician. Only a “qualified person” may utilize the POST form, which is defined as a person who has an advanced chronic progressive illness or frailty, or a condition caused by injury, disease or illness, from which, to a reasonable degree of medical certainty, there can be no recovery, and death will occur from the condition within a short period without the provision of life-sustaining procedures. For additional information, readers may consult my website or the ISDH website referenced above.
Planning For Digital Assets. People should be encouraged to give greater consideration to issues involving their digital assets during the course of their estate and lifetime planning. I have been including provisions in my powers of attorney and trusts for approximately one year, and I have recently begun to include provisions in the wills that I write for my clients. It is a good idea in such documents to define the assets which are intended to be included in the definition of digital assets, which would typically not be an exclusive listing. Digital assets would include but not be limited to emails, documents, images, audio, video, and similar digital files, that are stored on disks or digital devices, and would encompass future devices that might be developed in the future. Digital accounts should also be included, which would include but not be limited to email accounts, software licenses, social network accounts, social media accounts, file-sharing accounts, financial management accounts, domain registration accounts, domain name service accounts, web-hosting accounts, tax preparation service accounts, online stores, affiliate programs, etc. As much information as is available concerning the location and identity of such assets and accounts should be maintained and means of obtaining access to that information should be made available in a protective manner to a person’s representatives and decision-makers, i.e., their attorneys-in-fact under a power of attorney, the trustee of a trust, or the personal representative under a last will and testament. In the same way that representatives need to have a way of identifying a person’s assets and income, such representatives also need to be able to identify and access such digital information. Indiana has a statute pertaining to electronically-stored documents of a deceased person, which allows the personal representative of an estate to obtain access to electronically-stored documents and information. However, it does not address access by a trustee or attorneys-in-fact, and it will always be better to include broad definitions and inclusive grants of authority in powers of attorney, trusts, and wills in order to better assure access to such digital information.
Choosing An IRA Beneficiary. When a person is making a decision about the beneficiary to be named of his or her retirement plan, there are certain choices that tend to be more tax-favored than others. Obviously, a young individual (including an appropriate see-through trust for a young individual), or a surviving spouse or a charity, would be favorable choices from a tax perspective. Generally, an older beneficiary, or a trust for the surviving spouse, or the estate of the IRA holder, would not be tax-favored beneficiaries. The younger the beneficiary, the longer the “stretch-out” can occur in regard to the IRA distributions. Obviously, there are potential generation-skipping transfer tax issues when naming a beneficiary who is more than one generation younger than the participant, but in light of the current federal estate tax and generation-skipping transfer tax exclusion amount ($5.25 million currently, but which is indexed annually), such a consideration is not a significant issue for most taxpayers. In general, if a younger beneficiary is named, at the very least a custodian should be designated under a Uniform Transfers to Minors Act (UTMA), or a guardian would be required for a younger beneficiary and the beneficiary would be entitled to full control of the IRA at the age of 18 in the State of Indiana and in most states. Using a custodian under the UTMA may defer the control until the age of 21. When a younger beneficiary is named, a trust should be considered, and the trust must be written in a particular way in order to avoid tax problems in regard to the pay-out of the IRA distributions. Readers should refer to previous issues of this newsletter which have suggested designating a charity as a beneficiary of a retirement plan, because the receipt of the retirement plan distributions will be entirely tax free to the charity. As also noted in previous newsletters, it is generally a mistake for a person in his or her last will and testament to leave a percentage of his or her estate to a charity, such as 10%, and instead, it will almost always be better to earmark a portion of an IRA or other retirement plan which would be approximately equal in value to 10% of the value of the participant’s estate. Doing so will result in more taxable dollars passing to the charity on a tax-free basis, and more non-taxable dollars passing to other beneficiaries.