NOVEMBER 2024
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.
Appointment Of Felon As Personal Representative Of Estate. A new law in Indiana will give the probate court discretionary authority to waive the disqualification that results from any felony conviction which under previous law would absolutely bar the person from being appointed as a personal representative. The new law will allow the probate court to exercise discretion based on the facts and circumstances, including the age and the nature of the conviction. Another change will apply when a married individual (the testator of the will or the settlor of the trust) signs a valid will or revocable trust, and then has his or her marriage dissolved, and then remarries the former spouse and dies without amending, revoking, or replacing the pre-divorce will or trust. Under prior law, the divorce would revoke any of the provisions in favor of the former spouse. Indiana law now provides that if the divorced testator or settlor remarries the former spouse and dies with the pre-divorce will or revocable trust still in place, the will provisions or the trust provisions in favor of the remarried spouse are reinstated. This is consistent with Indiana’s Transfer on Death Property Act which provides that if dissolution of the owner’s marriage is the only cause of revocation of the TOD beneficiary designation, then the remarriage of the owner to that former spouse will revive the pre-divorce beneficiary designation.
Trust Distribution Criteria. When drafting trusts, it is a good idea to provide considerable detail to address a plethora of issues that can arise when trust distributions will be made to beneficiaries over a lengthy period of time. If multiple beneficiaries are to be included, and if the desire is to maintain harmony among them, then it might be important to try to equalize the distributions or at the very least to equalize the considerations that are to be taken into account when distributions are to be made. In other words, it might not be appropriate for one beneficiary to be treated differently than another. It may be a good idea to take into account the beneficiary’s access to other resources, as it may not make sense to waste trust distributions on a beneficiary if he or she has other sources of funds. It might be appropriate to allow funds to be given by the trust, or loaned to a beneficiary, in order to start a business or purchase a residence. Often times criteria such as health, education, maintenance, and support are used, but it may be a good idea to further define those criteria so that there will be fewer questions about what is intended. If distributions are going to be made to provide for education, it may be a good idea to expand on the definition of education so that it is clear whether or not private schooling will be included, and whether vocational training will be covered, as well as graduate and post-graduate education. If health or medical care will be among the criteria used, presumably mental disorders should be included as well as drug or alcohol rehabilitation. It might be appropriate to address whether or not cosmetic procedures will be allowed. Should a beneficiary be given benefits in order to maintain a certain standard of living? These and other factors might be taken into account in order to put more “meat on the bones” for the purpose of facilitating the trustee’s decision making.
Making A Formula IRA Beneficiary Designation. Suppose an IRA holder wants to designate a beneficiary of an IRA by using a formula, such as a percentage tied to the value of the IRA-holders estate. An IRA provider will most likely not accept such a formula provision as it does not have the information needed to apply the formula. One way of possibly overcoming this problem would be to specify in the detailed IRA beneficiary designation form that the IRA owner’s executor or some other fiduciary, such as a trustee, will provide the formula amount to the IRA provider, and that the IRA provider has no duty to verify that the determination is correct. The beneficiary designation would allow the IRA provider to rely on representations made by the participant’s executor or trustee.
Nursing Home Discharge. Although this issue has been addressed before, it bears repeating that a nursing home cannot discharge a resident for non-payment while a Medicaid application is pending. A “self-pay” resident can be discharged for the failure to pay, but a person who has submitted an application for Medicaid may not be discharged pending the Medicaid application processing. Federal nursing home regulations also prohibit a discharge while an appeal is pending on a Medicaid denial.
Annual Gift Tax Exclusion. Currently, the annual $18,000 per donee gift tax exclusion allows gifts to be made on an annual basis to any number of donees without filing a gift tax return as long as the amount or value of the gift does not exceed $18,000 in a given calendar year. Gifts in excess of the annual gift tax exclusion require the filing of a gift tax return, but there will still be no gift tax due until the total cumulative amount of all of those gifts exceed the current exemption equivalent amount (which is currently $13.61 million for an individual or double that amount for a married couple). Obviously, then, substantial gifts can be made before any gift tax will be due. The gift tax is paid by the donor of the gift, not the donee. Gifts can be received by donees free of income tax. Many people are under the impression that if a gift is made in excess of the annual donee exclusion amount that the excess will be subject to income tax. There is no income tax on gifts. Married couples can make total gifts of $18,000 each to a particular donee, and then make a combined gift of $27.22 million to the same donee, and still not pay any gift tax. However, any future gifts would be subject to tax to the extent that the gift exceeds the annual donee exclusion, and at death, there would be no part of the exemption equivalent amount left to be used against taxes at death, and as a result federal estate tax would be due.
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.