Serving Indiana Since 1975

September 2022 Newsletter

| Sep 18, 2022 | 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


Bequests And Beneficiaries – Continued. The last few issues of this newsletter have

addressed a few of the issues impacting bequests and beneficiaries in the context of wills and

trusts. A major mistake will result if the wrong selection is made for the personal representative

of an estate or the trustee of a trust. Indiana and most states have adopted by statute a

specification of the duties of a personal representative and a trustee. In the case of a personal

representative of an estate, the personal representative generally must collect and protect assets,

taking the same into possession, pay debts and expenses, account for all transactions, and

distribute the assets to the appropriate people. It is very important to make the correct choice

when designating a personal representative or a trustee. A designated representative should

communicate well, follow instructions, not procrastinate, be absolutely trustworthy, not be

susceptible to bad or inappropriate influences, not be arrogant, not be disorganized, and must

have good common sense. Preferably someone will be selected who does not have a conflict of

interest with the beneficiaries of the estate or trust. Consequently, it might not be a good idea to

designate certain family members or business partners. A professional personal representative

or trustee might be best, but there may be additional costs involved, although in most instances

any designated personal representative or trustee is entitled to a fee. The personal representative

or trustee must be absolutely impartial. It is very important for the personal representative or

trustee not to engage in misconduct or take any kind of personal advantage. These comments

conclude our ongoing discussion of particular issues regarding bequests and beneficiaries in the

case of wills and trusts.

More Common Asset Protection Planning Errors. In addition to the previous issues of

this newsletter which have addressed certain common asset protection planning errors, another

common mistake is for a non-specialist attorney to prepare and then implement the wrong kind

of trust. I have seen even experienced practitioners make this error. For Medicaid purposes, a

trust is considered to be “revocable” if there are any circumstances under which it can be revoked,

even if it is labeled as being irrevocable. The principal of a revocable trust is always an available

resource. Payments from a revocable trust to a third party which are not for the benefit of the

individual who created the trust will be treated as a transfer and are penalizable. Payments from

a revocable trust to or for the benefit of the individual who set it up are counted as income to the

individual. Indiana looks through a revocable trust so that real estate is still treated as real estate,

and the rules on real estate are applied to that property. In the case of an “irrevocable” trust, if

there are any circumstances when payments from the trust could be made to or for the benefit

of the creator of the trust, the payment from the principal from which, or the income on the

principal from which, payment to the individual could be made shall be treated as resources

available to the individual. However, in the case of an “income-only” trust, when the individual

cannot benefit from the principal, but will receive the income, and no portion of the trust principal

can be distributed, the principal will not be treated as a resource to the individual. Therefore no

part of an “income-only” trust should be counted as a resource, but instead the trust principal will

be treated as having been transferred when the trust was established. If an individual wants to

transfer assets to protect those assets, and also be a beneficiary of the trust, the transfer should

be to an irrevocable “income-only” type of trust. The transfer will be subject to a penalty, however.

If an individual wants to provide assets for the benefit of a spouse without affecting the spouse’s

eligibility for Medicaid, then the trust must be a testamentary special needs trust unless the

transfer is to a special type of exempt pay-back trust providing that any remaining assets will be

paid back to the State of Indiana in reimbursement of Medicaid benefits. We will discuss trusts

in the context of Medicaid further in the next issue of this newsletter.

Uniform Trusts Decanting Act. House Enrolled Act (HEA) 1205 repealed Indiana’s

existing trust decanting statute and enacted Indiana’s version of the Uniform Trust Decanting Act

(UTDA), which has now been enacted by 12 other states. Indiana’s UTDA became effective

July 1, 2022. “Decanting” is the process by which a trust can be amended or rewritten to change

the structure and terms of a trust in particular circumstances. The new decanting statute limits

changes a trustee can make through decanting if the trustee does not have “expanded distributive

discretion” under the first (i.e., the existing) trust terms. Indiana’s new UTDA allows the trustee

to distribute trust property from an existing trust to one or more second trusts, and also allows the

trustee to modify the terms of the first (i.e, the existing) trust without distributing any assets to an

actual second trust. If an existing trust gives a discretionary power of distribution that is not limited

by an ascertainable standard or a reasonably definite standard (such as the typical “health,

education, maintenance and support” criteria), then the trustee can make changes in the second

trust that will alter the distributions between the beneficiaries. However, the power must be

exercised in a manner consistent with the first trust’s purposes. If the trustee’s discretionary power

of distribution is limited, then the trustee can decant, but the second trust must grant each

beneficiary of the first trust a beneficial interest in the new trust that is substantially similar to the

beneficial interest of the beneficiary in the first trust. Essentially, the trustee will be limited to

certain administrative changes in the trust. However, one change that can be made is to convert

the beneficiary’s interest, if the beneficiary is disabled, to a special needs trust that can be

protected for Medicaid qualification purposes. Indiana’s new UTDA includes a number of special

provisions regarding charitable interests. Decanting a trust can be very useful. Trusts often last

many years and circumstances change. It is not otherwise possible in many instances to amend

or reform a trust, and decanting may be the only modification method that does not require the

consent of the beneficiaries or court approval.

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.

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