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.
Indiana Super Lawyers Announcement. I am proud to announce that I have been selected for the eleventh year as an Indiana Super Lawyer for 2022 in the area of Elder Law. This honor is limited to no more than 5% of the attorneys in Indiana. Super Lawyers recognizes attorneys who have distinguished themselves in their legal practice. The selection process is rigorous and results in third-party validation of professional accomplishments. I have also again been selected for inclusion in the Martindale Hubbell Bar Register of Preeminent Lawyers and as one of the Best Lawyers in America for 2022.
More On Bequests and Beneficiaries. This will continue our discussion regarding certain issues pertaining to bequests and beneficiaries as contained in wills and trusts. A problem for those who write their own wills, or who use generic forms, is that they may describe various items specifically but then fail to include a residuary clause, i.e., a provision disposing of the “rest, residue and remainder” of the property and estate. In effect, the person who created the will or trust does not have a will or trust at all in respect of the remaining assets that are not specifically described. This might mean that even though you intended for your assets to pass to the person or beneficiary you named to receive certain specific assets, those assets may not be received from the residue of the estate. This can be very significant depending on how certain assets are owned. Another common question that I get is whether specific mention should be made of an intent to disinherit a particular beneficiary. While in many instances it may not be necessary to mention specifically the fact that a particular person is being disinherited, in most cases it will be a good idea to include at least a statement to the effect that no provision was made for that beneficiary because it was intended for the property and estate to be disposed as set forth in the will or the trust. There does not need to be a reason given or any stated justification for the decision. It is usually a good idea, however, to make it clear that the disinheritance was not due to a mistake or omission.
Common Asset Protection Planning Errors – Continued. As explained in previous issues of this newsletter, there are planning opportunities to protect a residence or other real estate. In most instances this will involve a particular kind of asset protection trust. As people age, and when they may no longer be able to live in the home, they may decide to keep their home, in which event placing it in a particular kind of asset protection trust may be a good idea. However, when the decision is made to sell the home, it will usually be better to sell the home for cash than to sell it on contract or to take a mortgage back. If property is sold on contract, it will be very difficult to protect or save the proceeds from the sale when being paid in installments. A contract sale may be treated as a “countable” asset and the payments may be treated as income, thus making it impossible to protect even a portion of the proceeds as they are paid incrementally. Under the Indiana Administrative Code, specifically 405 IAC 2-3-12, and as required by the federal Deficit Reduction Act of 2005, land contracts or property agreements must meet certain criteria in order not to be treated as a countable asset and for the payments not to be treated as income. The payment term must be actuarially sound, meaning it cannot be set up for a term that exceeds the seller’s life expectancy, and payments must be in equal amounts with no deferral payments. Even if a land contract meets those requirements, the downpayment will be treated as a resource, and the interest portion of the payments will be counted as income, although the principal portion of the payments will not be considered income. However, the amounts paid toward the principal will be considered as a resource as of the first day of the month after payment is received. If the property is sold for cash, it is possible to implement a typical transfer and spend down strategy. In most instances approximately half, and possibly more, of the available proceeds from the sale can be preserved and the property in most instances will be exempt for Medicaid qualification purposes pending the sale of the property. If the property has been transferred to an appropriate asset protection trust, and then sold, even on contract, a sale of the property will have no impact on the trust, although the interest on the contract sale would be deemed to be income and would have to be distributed to the grantor-beneficiary of the trust.
Importance Of Special Needs Trust Planning. Special needs trusts (SNTs) developed significantly after the passage of the Omnibus Budget Reconciliation Act (OBRA ‘93) in 1993. I was writing SNTs many years before that, but there was very little guidance regarding the effacacy and issues affecting different types of SNTs. In the early years, Congress viewed special needs trusts as Medicaid abuse. SNTs were considered “offensive.” Earlier legislation precluded any kind of trust as an asset protection tool. OBRA ‘93 established the presumption that trust funds would be deemed to be available but established certain exceptions to that rule. Previous issues of this newsletter have addressed various aspects of the different kinds of SNTs that can be utilized in appropriate circumstances. Many variables must be considered when selecting a particular type of SNT. The amount of money available to fund the trust is one consideration, but also is the determination of whether there is an individual in the family who has the capability of administering the trust or whether a corporate fiduciary is advisable. The SWIRCA & More Pooled Trust, which I wrote and helped to establish more than 20 years ago, is one type of trust that can be very helpful for elderly and disabled people who have limited funds that they would like to protect. SNTs are also very useful when a parent or grandparent wants to establish a trust fund for a disabled child or grandchild without adversely affecting his or her eligibility for 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.
To download a copy of this newsletter, click here.