AUGUST 2021
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.
Overlooking Competing State Laws. When a person executes a last will and testament, in general, the law of the decedent’s domicile will apply to issues involving the decedent’s estate. If the decedent owns property in another state, however, then the law of that state will apply to property located in that state. For example, if a person is a resident (i.e., legally “domiciled”) in the State of Indiana, and dies in Indiana, Indiana law will control issues related to the estate and real estate and personal property in the State of Indiana. However, if the decedent also owns property in Florida, then the law of the State of Florida will apply in regard to issues relating to the Florida property. It is very important to take into account the possibility that other state laws may apply when a person owns property in multiple states. One way of simplifying the process is to implement a trust in the state of the person’s domicile, and then to transfer the property in the other state to that trust. Transfer-on-death deeds can likewise be used as a probate avoidance vehicle in another state as long as that state recognizes transfer-on-death deeds (or a similar form of conveyance). It should be noted, however, that if a person is domiciled in Indiana, and owns bank accounts or investments in another state, such “intangible” property is deemed to be situated in the state of the decedent’s domicile and will be controlled by the laws of the State of Indiana in regard to estate administration, trust administration, and similar matters. However, if there are particular laws in the other state that pertain to particular types of accounts, then that state’s laws will most likely be applied in respect of such matters.
Beneficiary Designations. Many previous issues of this newsletter have addressed the various issues that can arise in regard to beneficiary designations. As has been noted in the past, beneficiary designations are frequently prepared improperly and often beneficiary designations for life insurance policies or retirement accounts are not implemented to be consistent with the person’s last will and testament. It is very important in conjunction with the planning process to verify the beneficiary designations that exist. This applies to IRAs, life insurance, annuities, and pay-on-death (POD) and transfer-on-death (TOD) designations on bank accounts and investment accounts. A person’s last will and testament controls only assets titled in the individual’s sole name at the time of his or her death. Likewise, a trust will only control assets which are titled in the name of the trust or which will pass into the trust at the time of a person’s death. If a trust or will provides for a certain disposition of assets, but the beneficiary designation is not consistent with that disposition, then the estate planning goals and objectives will not come to fruition. It is also important to note that when a beneficiary designation is completed, there should be a contingent beneficiary designated as well. In the same way that a trust or a will provides for alternative beneficiaries, likewise when there is a primary beneficiary, there should also be secondary or contingent beneficiaries. It is a good idea to consider the possibility that a recipient of benefits could be incapacitated or a minor. If a disposition is made to a trust, then the trust can last beyond the age of majority (which is age 18 in Indiana) until a much later age. It is also possible to designate a beneficiary to be a custodian under the Indiana Uniform Transfers to Minors Act, in which event, even though the age of majority is 18, the custodian can control the assets until the age of 21. When making beneficiary designations, it is generally not a good idea to designate the estate as a beneficiary. Doing so will necessitate probate and can give rise to additional costs and complications. It is also never a good idea to designate one child, with the understanding that the beneficiary child will receive the assets and divide them with other beneficiaries – that type of planning is likely to lead to disaster. People should plan for the possibility that the beneficiary could be irresponsible or incapacitated, or may have special needs and be eligible for public benefits. All of these issues, and others, must be taken into account.
Beneficiaries Over Age 65. Individuals who are above the age of 65 have limited options available to them if they receive an inheritance or unanticipated assets. If the goal is to protect their public benefits and an unanticipated influx of assets occurs, planning ahead can be helpful, but there are some things that can be done even if the assets are to be received and it is too late to establish a more detailed plan to anticipate the receipt of such assets. It is obviously possible to “spend down” assets, but often needless expenses are incurred as a means of getting rid of excess money. If a person is under age 65, there is a particular kind of a special needs trust that a beneficiary who receives extra funds can establish for himself or herself without adversely affecting eligibility for public benefits. However, if a person is over age 65 and that trust cannot be established, it is still possible to establish a “pooled trust” sub-account in conjunction with an appropriate pooled trust arrangement, such as the SWIRCA & More Pooled Trust. Currently the State of Indiana does not impose an age restriction to a pooled trust. There are other pooled trust arrangements that can be established, but I prefer to utilize the SWIRCA & More Pooled Trust which I wrote and helped to create. It is established with Old National Wealth Management as the Trustee. Although there is a $10,000 minimum to establish a SWIRCA & More Pooled Trust sub-account, the balance is not required to be maintained at the $10,000 level. Another plan would be for the person who may be providing funds to the beneficiary through his or her will, trust, or other estate planning arrangement to provide that the funds will be paid into a special needs trust that will be established by the benefactor rather than by the person over age 65 who actually receives the funds. There is a great deal more planning flexibility available for such a third-party type of trust. There are other possible planning arrangements as well for an individual who has a loved one who he or she wants to benefit, but is concerned that the beneficiary may be eligible for public benefits and the receipt of funds could adversely affect those benefits. There are several planning alternatives available to provide benefits to such beneficiary without adversely affecting that beneficiary’s public benefits.
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.