Serving Indiana Since 1975

September 2020 Newsletter

| Sep 18, 2020 | Firm News



     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.

Indiana Best Lawyers Announcement. I am proud to announce that I have again been selected for inclusion in the coming edition of The Best Lawyers of America for 2021 in the area of Trust and Estates, and was selected again for inclusion in the Martindale Hubbell Bar Register of Preeminent Lawyers. I am also gratified to have been selected as an Indiana Super Lawyer for the years 2007-2015, and again in 2019-2020. I was designated as the 2017 Lawyer of the Year in the area of Trusts and Estates by Best Lawyers.

Planning For Retirement Benefits. Previous issues of this newsletter have addressed various aspects of planning with retirement benefits. Retirement benefits represent an area that is frequently overlooked when people engage in planning with wills and trusts. Many people mistakenly believe that the provisions they include in a will or trust will control the disposition of a retirement plan, which is absolutely incorrect; retirement plan benefits are controlled by beneficiary designations, and we have emphasized numerous times in previous issues of this newsletter that it is extremely important to coordinate the distribution of retirement benefits to be consistent with the dispositive provisions of a person’s will or trust. As noted in a previous issue of this newsletter, the SECURE Act has eliminated the “stretch” opportunity of retirement benefits for most beneficiaries. While a spouse or disabled individual, and even a qualified special needs trust, can receive benefits over a beneficiary’s lifetime, for most beneficiaries the pay-out period is capped at ten years. If a trust is being used in connection with the client’s estate plan, it may, or may not, be appropriate for the retirement benefits to be paid into the trust, whether under the will (a testamentary trust) or to a trust established during life (which would receive the proceeds after death), as there could be adverse income tax consequences of retirement benefits being distributed into a trust. It is not at all unusual today to see beneficiaries with a substantial part, perhaps even the bulk, of their wealth contained inside a retirement plan. Consequently it is extremely important that retirement benefits be taken into account in connection with the implementation of an appropriate estate or asset protection plan.

Refusal To Honor A Power Of Attorney. A power of attorney might be rejected by a third party, such as a bank or insurance company, for any number of reasons. Powers of attorney are revocable, which may be one concern, and the third party may also want additional proof that the principal (i.e., the person signing the power of attorney) is incapacitated. Some financial institutions insist that a particular form be used. Third parties may have a concern, often exaggerated, that they might have some liability for recognizing a power of attorney. Most state laws, including Indiana’s, provide protection for third parties to accept a power of attorney and to act in accordance with the directions contained in a power of attorney. In fact, Indiana will penalize a third party who refuses to recognize a power of attorney by awarding treble damages, legal fees, and costs if it is necessary to bring an action to force a third party to act. In most instances, of course, resort is not made to litigation, but rather, an effort is made to satisfy the third party by providing information that will encourage it to accept the power of attorney. The Indiana Power of Attorney Act includes a specific statute that says that if a third party is provided with a certified copy of a power of attorney, i.e., one that is signed by the attorney-in-fact (the agent) that attests to the fact that the attached copy of the power of attorney is the same as the original, that the power of attorney has not been amended or revoked, and that the named attorney-in-fact is authorized to act, the third party is required to accept the power of attorney and will face liability to the same extent that it would for refusing to act in behalf of the principal. In almost all instances, when we provide a third party with a copy of Indiana’s applicable statutes and with a certified copy of the power of attorney, we are able to convince the third party to accept the power of attorney and perform the act or transaction requested. Of course, the power of attorney itself must authorize the particular transaction that is contemplated.

Special Needs Trusts. A special needs trust (“SNT”) is a type of arrangement by which a trustee will hold assets for an individual who is now or may in the future be receiving needs-based government benefits. The goal is to prevent the assets from interfering with or affecting those benefits. A first party SNT is one that is created by the person who is actually receiving the means-tested benefits. The use of this type of arrangement is very limited. Third party SNTs are those established with resources that do not belong to the beneficiary. There is much more flexibility available in respect of a third party SNT. Funds used to create SNTs come from various sources, and special issues may arise regarding the use of particular types of funds. The use of retirement funds is always sensitive because of the taxability of those assets when received. It is very helpful if the trustee of the SNT is familiar with the requirements and limitations of the applicable government programs in order to avoid making decisions that could adversely impact the beneficiary. It is sometimes appropriate to modify SNTs in order to make them work more effectively, and there are instances where SNTs should or must be terminated. Every SNT should be written to meet the needs of the particular beneficiary and to anticipate the possibility of changes in circumstances. The Medicare and Medicaid programs are “secondary payers” in that the funds from these programs are not supposed to be used until other “primary sources” have been exhausted. Since medical benefits might be provided by the Medicare or Medicaid programs, which may advance funds before primary payer obligations have been established, such as before liability has been determined in a tort case when the person causing the incurrence of those expenses has been sued, it may be necessary to reimburse the Medicare and Medicaid programs from those later payments from “primary sources” that have later been received. Consequently, special consideration must be given to the possible claim on the part of Medicare or Medicaid for reimbursement due to a tort claim payment. Other arrangements are sometimes set up or utilized which are not SNTs. For example, an “asset protection trust” might be set up, such as the irrevocable income-only trust that I use quite frequently, which is a way of protecting assets and later being able to qualify for Medicaid. Such trusts are not SNTs and the funds would not be used directly from the trust to provide health-related benefits. Similarly, an “ABLE Account” arising under the Achieving A Better Life Experience Act of 2015 are special accounts that can be set up to provide for the special needs of a beneficiary, but they do not involve a trust. Previous issues of this newsletter have provided information regarding ABLE Accounts as well as asset protection trusts. Readers are encouraged to refer to my website for additional information regarding SNTs, asset protection arrangements such as an irrevocable income-only trust, and ABLE Accounts.

Additional Information. Future issues of this Newsletter will address other issues of current interest. Please contact my office with any questions that you might have.