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Beneficiary Designations And Probate Avoidance

Posted on February 11, 2015 at 8:50 PM

Creating and fully funding a living trust during a person’s lifetime is one way to avoid “probate” (see the “Glossary” tab at the top of this page). As they say in the Geico commercial----“everybody knows that.” But did you know that there are other methods of avoiding probate? Non probate property includes property that passes by beneficiary designations other than those in a will, such as life insurance, retirement accounts, investment accounts, annuities, real estate, and other property too. Most beneficiary designations are done as part of contractual relationships with insurance companies, banks, or investment companies (like Charles Schwab or Fidelity). Beneficiary designations also include “pay on death” (“POD”, “transfer on death” (“TOD” on various types of property, including accounts, real estate, and vehicles.


In addition, although they do not involve “beneficiary designations” in the same sense as beneficiary designations on life insurance, various types of accounts, or annuities, the creation of interests in real estate with another person or persons may also result in non probate transfers. For example, real estate in the names of a married couple creates a “tenancy by the entirety” by which the surviving spouse becomes the sole owner of the real estate upon the death of the deceased spouse regardless of whether there is a will or what the will provides. Real estate may also be titled in the names of two or more persons as “joint tenants with right of survivorship.” In the event of one joint owner, the surviving joint owner(s) becomes the owner(s) of the property.


There are potential pitfalls and dangers connected with using non probate beneficiary designations or pay on death or transfer on death designations. One is that they operate apart from, and even perhaps contrary to, provisions in a will or trust. This means that a beneficiary or pay on death or transfer on death designation, once made, can only be changed or revoked by a later designation that is delivered to the insurance company, bank, or investment company, and NOT by a will or trust. Another pitfall that occasionally occurs is that divorce does not automatically affect an existing beneficiary designation, and therefore the failure to delete the former spouse as a beneficiary and to name new beneficiaries will result in the insurance policy or account having to be paid to the former spouse.

Furthermore, owners of the above described types of property will often neglect to name contingent beneficiaries who would be entitled to receive all or part of the property subject to the beneficiary designations if one or more primary beneficiaries do not survive the owner. Finally, it is important to periodically review one’s beneficiary designations to make sure that they reflect the owner’s current wishes and changes in the owner’s family situation as time goes on. Many of us have a tendency to forget about our beneficiary designations for years after executing them. When was the last time you reviewed your beneficiary designations and other forms of non probate property ownership?

A Few Good Reasons For Using Trusts

Posted on June 25, 2014 at 9:30 AM

Trusts have been an important tool in estate planners' toolbox for a long time.  And they have gotten the attention of the general public in recent decades for their ability to avoid probate (although creating a trust is not the only way to avoid probate, and avoiding "probate" in Indiana is not the big deal it might be in other states due to the availability in Indiana of unsupervised administration).  So, sure---trusts can avoid probate, but there are many other good reasons to consider creating a trust, either under a will (a "testamentary trust") or during lifetime (generally a revocable living trust).

Those reasons include:

1.  Management of property for the surviving spouse or child (especially a minor child or child who has special needs or may not be competent to manage property on his or her own).  This is particularly important if sizable amounts are involved (of course, what is "sizable" is relative from person to person).  The Trustee who might provide such management could be either a trusted and competent relative or a financial institution that provides professional investment and trust administration services.  A trust can continue for the life of a beneficiary or until the beneficiary reaches a certain age.  The person creating a trust can tailor the terms of the trust to do almost anything he or she might want to do.  The Trustee can be given discretion to pay money for the beneficiary's support, education, health, or other purposes, or the Trustee can be directed to make annual distributions in a designated amount or percentage of assets or lump sum distributions at particular ages or life events prior to the age established for final distribution.

2.  Concerns about the remarriage of the surviving spouse and providing for one's own children.  In the typical marriage, each spouse will leave everything outright to the surviving spouse.  In that situation, what is left to the surviving spouse immediately becomes his or her own property and can be left to a new spouse, and completely leaving out the children of the first, deceased, spouse.  Leaving all or part of one's estate in trust for the surviving spouse, with provisions for payments of income and principal to the surviving spouse, with the remainder to one's surviving children, can address that concern.

3.  Provide protection to beneficiaries from creditors.  Property left to a beneficiary outright can become immediately available to claims of creditors or judgments.  Property in a trust created by one person for the benefit of another person is generally not subject to claims of creditors or judgments unless and until property is distributed to the beneficiary.

4.  Eliminating or reducing federal estate taxes on taxable estates over $5,340,000 in 2014 (Don't forget that life insurance, retirement accounts, and property in trusts or other "non probate" assets are all counted).  For married couples whose combined property exceeds $5,340,000, the key is for each spouse to have enough assets in his or her individual name and to set up either a testamentary trust or a living trust to hold some portion (or all) of the assets that are to pass for the benefit of the surviving spouse.

Planning For Nursing Home Or In-Home Care Costs

Posted on June 1, 2014 at 9:35 PM

There are a number of methods of providing for in-home care or nursing home care for persons who cannot be properly cared for in their homes, including:

  • Payment by you or your family members from personal income or assets;
  • Medicaid assistance for people with low income and limited assets;
  • VA nursing home care for honorably discharged veterans;
  • Accelerated benefits from your life insurance policy or loans against cash value of policies;
  • Income or principal payments from an annuity or trust fund;
  • Payments from a reverse mortgage from the equity in your home;
  • Long term care insurance coverage.

Not every method may be available to everyone, and some methods may be more or less attractive than others.  Many seniors want to preserve assets in order to pass them on to their spouse and children.  With nursing home care currently costing $60,000.00 or more per year, an extended nursing home stay could substantially diminish or deplete your assets.  If you do not qualify for Medicaid assistance or VA nursing home care, and you want to address the risk of incurring substantial nursing home costs that might result from extended nursing home care, long term care insurance may be an option you may want to consider.  I will discuss common questions and issues concerning long term care insurance and other methods of paying for long term care in future posts.

Minimizing Delays In Distributing Assets Following Death

Posted on May 22, 2014 at 12:55 AM

Most people put minimizing delays in distributing assets following death as a fairly high priority goal. The question is: what are some practical and cost effective ways of achieving that goal? Titling accounts and other property in joint ownership with right of survivorship is a well known and effective method of passing property upon death. Another well publicized method is the creation of a revocable living trust—provided that most or all of one’s property is titled in the name of the trust prior to death. Another method for reducing delays is through unsupervised administration of an estate, which is readily available simply by including in a will an authorization or direction that one’s estate be administered without court supervision. The use of joint ownership with right of survivorship, trusts, and unsupervised administration of an estate all can permit substantial, or even full, distribution of a decedent’s property within a short time after a decedent’s death. But claims (by non-attorneys, and some attorneys too, primarily with respect to trusts) of complete distributions within days or weeks after death, while possible in some cases, do not reflect reality in most cases. The truth is that most “delays” in distributing a decedent’s property after death are due to the need to deal with actual and potential creditors or the need to sell real estate or other assets owned by the decedent. Creditors (who are sometimes not fully known or anticipated) have up to 9 months after a decedent’s death to file a claim. While partial, and even substantial or complete distributions can be made before the expiration of that 9 month period, the personal representative or trustee who makes such distributions risks personal liability to creditors for the amount of unpaid claims, and beneficiaries who receive such early distributions need to understand that they may be required to return all or part of amounts they receive in order to pay debts, claims, and taxes.  Even when an estate is administered, either with court supervision or without court supervision, most “excessive” delays are due to dealing with problems with creditors, taxing authorities, finding a buyer for real estate at the desired price, or in some cases, lack of diligence on the part of the personal representative (also called the “executor”). Because many of the same issues that can cause delays in an estate (including those described above) may also be faced by a trust, the mere existence of a trust does not necessarily mean that distributions can be completed any faster than they would be in an estate. The key, in most cases, is appointing a personal representative or trustee who will act with prudence and diligence in seeing that creditors and taxes are paid, and that real estate that has to be sold is put on the market as soon as possible, at a realistic price.

Indiana Inheritance Tax Repealed

Posted on May 21, 2014 at 4:10 PM

Indiana’s inheritance tax was repealed for individuals dying after Dec. 31, 2012. No inheritance tax returns (Form IH-6 for Indiana residents and Form IH-12 for nonresidents) have to be prepared or filed. No tax has to be paid. In addition, no Consents to Transfer (Form IH-14) personal property or Notice of Intended Transfer of Checking Account (Form IH-19) are required for those dying after Dec. 31, 2012.

Effect Of Divorce On Rights Of Divorced Spouse Upon Death Of Former Spouse

Posted on May 18, 2014 at 12:40 AM

Under Indiana law, divorce (or annulment of a marriage) has the effect of revoking all provisions in a will in favor of the divorced spouse.  Divorce or annulment has the same effect for dispositions of property under a revocable living trust in favor of the divorced spouse, by treating the divorced spouse as having died before the spouse who created the revocable trust.  However, a mere legal separation does not affect the rights of a spouse under a will or a trust.  In addition,  divorce does not affect the rights of a spouse under a trust that is irrevocable (most commonly an irrevocable life insurance trust) on the date of a divorce or annulment.  Although in some states divorce will terminate a spouse’s right as a designated beneficiary in a policy on the other spouse’s life, unless the owner of the policy owner executes and files a change in beneficiary designation with the insurance company, a divorced spouse is not barred from receiving insurance proceeds under a policy on the life of the former spouse.  This happens from time to time due to a divorced spouse’s overlooking beneficiary designations on life insurance policies.  It is important to understand that a will or a trust has no effect on beneficiary designations under insurance policies, bank accounts, brokerage accounts, retirement accounts, or any other property by which the owner may designate a beneficiary by contract.  Therefore, in the event of a divorce it is crucial to review and change all beneficiary designations for every type of property owned by a divorced spouse, rather than simply relying on the belief that either the divorce decree or various laws will automatically terminate the rights of the former spouse to claim and receive property or benefits under beneficiary designations that name the former spouse.  More generally, a person should periodically review all beneficiary designations regardless of marital status to make sure that they reflect the owner’s current wishes.

Personal Care Contracts And Medicaid

Posted on May 13, 2014 at 12:25 AM

Many children provide full or part-time care for their elderly parents—sometimes for years—so that the parents can remain in their home as long as possible. But at some point a child or other caregiver may no longer be able to provide the level of care that is needed, and nursing home care may become necessary. The average cost of nursing home care in Indiana in 2014 is $5,500.00 per month. How will a parent pay for nursing home care? Medicare does not cover on-going nursing home care, and Medicaid will pay nursing home costs only after the parent meets financial (and other) eligibility conditions. For an unmarried parent, those financial eligibility conditions in effect in 2014 require that the parent have countable resources totaling not more than $2,000.00. Even though a child may have provided care worth tens of thousands of dollars, in the absence of a personal care contract any money paid to a child in order to reduce countable resources below $2,000.00 will be considered a “gift”—an uncompensated transfer that will render the parent ineligible for Medicaid assistance for a period of time.

A personal care contract can provide many benefits, including fairly compensating a family member for valuable care and be part of legitimate long term care planning by helping to spend down resources so that the parent might more easily qualify for Medicaid assistance with nursing home costs. For a personal care contract to be respected for Medicaid purposes, a written contract spelling out the caregiver’s duties and compensation terms should be put in place before services are rendered. Payment may be made by an up-front payment or in installments, but it is essential that compensation not exceed what a parent would have to pay to a non-family caregiver. The key is to create a written contract which provides fair and reasonable compensation to the caregiver, and not an uncompensated transfer. Therefore, in order for the contract not to be treated as a transfer of assets for less than fair market value, the contract should provide for the return of any prepaid monies if the caregiver becomes unable to fulfill the caregiver’s duties under the contract, or if the parent should die before the parent’s life expectancy. This post is just a brief overview of personal care contracts as a part of long term care and Medicaid planning. Because the laws concerning Medicaid are complex and always changing, consult with an attorney who is familiar with Medicaid planning before executing a personal care contract.

Joint Accounts: Pros, Cons, And Alternatives

Posted on May 9, 2014 at 8:25 AM

Many people add a child as a co-owner on bank and brokerage accounts. It is a convenient way of managing accounts, paying bills, and passing accounts to the co-owner on death outside of an estate. However, there are risks and drawbacks to joint ownership. First, a joint owner has the right to write checks and to make withdrawals. In most cases this will not be a major problem, since the person who added the co-owner probably trusts the co-owner not to make unauthorized withdrawals. But trust is sometimes betrayed, either because of dire economic circumstances or through conscious disregard for the property of the original owner.

Second, even when the trustworthiness of the co-owner is beyond question, property in a joint account is vulnerable to claims against the co-owner that might arise because of a car accident, a divorce, or a personal or business debt. Finally, if the account is set up with the co-owner as a joint tenant with right of survivorship, upon the death of the original owner, the jointly-owned account legally becomes the sole property of the co-owner. In many cases that is the intended result, but in some cases the original owner intended and anticipated that the co-owner would divide the joint account with other intended, but unnamed, beneficiaries---such as the original owner's other children. However, the surviving co-owner legally owns the account and might refuse or “forget” to divide the account as the original owner intended. And even if the co-owner has every intention of dividing the account as the original owner intended, if the surviving co-owner should die, become incapacitated, or be sued by an injured party or a creditor shortly after the original owner passes away, the assets in the joint account might ultimately be distributed as part of the survivor’s estate, or be tied up by and paid to creditors of the surviving co-owner.

Despite the risks, a joint account may be appropriate in many situations. But there are alternatives to joint accounts that provide many of the benefits of joint accounts, while eliminating or minimizing certain risks of joint accounts. Such alternatives include the creation of a living trust, a power of attorney, or the use of “authorized signatories” on checking accounts (check writing privileges, without ownership), and “transfer on death” (TOD) or “pay on death” (POD) designations. Before adding a child as a co-owner to an account or other asset, it is important to consider the risks of a joint account and other options that might better accomplish your lifetime and testamentary objectives.

Are Living Trusts The Right Tool For Everyone?

Posted on May 8, 2014 at 12:45 AM
A great deal of interest has been focused in recent years on revocable living trusts as the solution to all estate planning goals. Numerous books (including do-it-yourself form books) geared to the general public have been written on living trusts–especially in relation to avoiding probate. Ads in newspapers and magazines seek to attract potential clients to free seminars about living trusts that are put on by attorneys as well as non-attorneys. Living trusts are often promoted with extravagant claims about the benefits of living trusts and the horrors of probate. Many living trust promoters have a vested financial interest in selling their “product” (often at a cost of thousands of dollars), while most attorneys are portrayed or viewed as having a vested interest in preserving a system of wills and “costly and time-consuming” court administered probate proceedings so as to maximize their fees. How can a person who is not a lawyer and has no experience with wills, probate, and living trusts sort out fact from fiction and make an informed choice about whether the use of trusts is right for him or her in his or her own specific circumstances?

Are living trusts a useful tool? Yes. But so are riding mowers. Just as a riding mower is the right tool for keeping many lawns in good shape, a living trust may be the tool that is appropriate, or even necessary, to satisfy your needs and desires in your particular situation. On the other hand, a living trust may be clearly inappropriate or unnecessary in your particular situation. Or, you may be (as many persons are) in a gray area, where the advantages and disadvantages of a living trust seem to be almost equal. If you determine that a living trust may be beneficial to you, but the advantages do not clearly outweigh the disadvantages, the decision to use a living trust or to simply use a will (possibly one that includes trust provisions), is a matter of personal preference on your part. I view my job as not to steer persons toward or away from using one estate planning tool as opposed to any other tool, but to help individuals develop an estate plan that meets their needs in a way that is likely to minimize the total expense, effort, and time involved in both creating plans, and ultimately carrying them out in an efficient and cost effective manner.

Wall Street Journal Advises Four Documents Everyone Should Have

Posted on April 27, 2014 at 10:15 AM

The Wall Street Journal recently ran an article on Four Estate Planning Documents Everyone Should Have.  What are they?  A will, a durable power of attorney, a medical power of attorney (called an "Appointment of Health Care Representative" in Indiana), and a living will.  Read the entire article here:

Is Creating A Living Trust The Only Way To Avoid Probate?

Posted on April 25, 2014 at 3:20 PM

As discussed in an earlier post (“What Is Probate”, April 13, 2014), a will has to be “probated” in order to have legal force and effect.  But  that aspect of “probate” is not onerous or costly.  It is “probate” in the second meaning of that term–i.e, court supervision of the administration of an estate–that most people want to avoid.  Besides creating a living trust to avoid “probate” (a court supervised estate administration), a formal, court supervised estate administration can also be avoided:

•    By placing ownership of all property in joint ownership with right of survivorship or “tenancy by the entirety” (joint ownership with one’s spouse) or by creating “pay on death” or “transfer on death” accounts.  These are very common and effective methods of transferring property to a surviving spouse, children, or other intended beneficiaries without opening an estate.

•    By taking advantage of “unsupervised administration” provisions under Indiana law which allow a personal representative (formerly called an “executor”) to administer an estate without court supervision—which is practically identical to the way a successor trustee normally administers a living trust following the death of the grantor.

•    By designating beneficiaries on life insurance policies, annuities, IRA’s, 401(k)’s, and other accounts which can pass by beneficiary designation on death outside of a will or trust.

•    If the value of the individual’s “probate estate” at death is less than $50,000.00, property (including real estate) can be transferred by affidavit, and it may not be necessary to open an estate at all.

There are many tools in an estate planner’s “toolbox”.  Consult with an estate planning attorney to consider the options available and to choose the tools that are right for you.

What Is A Power Of Attorney?

Posted on April 22, 2014 at 3:25 PM

A power of attorney is a document in which one person (the “principal”) appoints an agent to act on the principal’s behalf.  The agent appointed in the power of attorney is called the “attorney-in-fact”, although many persons refer to the person who is appointed as the “power of attorney”.   In the absence of a power of attorney executed while a person is competent, it may be necessary to petition the court to appoint a guardian or conservator to deal with the incapacitated person’s assets.  This is true even between husbands and wives, particularly in cases where each spouse owns bank accounts, securities, or real estate in his or her name or where they jointly own real estate that may need to be sold or refinanced.  Thus, without a written power of attorney, even a spouse or adult child would not have legal authority to deal with the property or handle the affairs of another person.  With an existing executed durable power of attorney, a person is able to choose for himself in advance who will handle his property and affairs, without the cost, inconvenience, and publicity of a court supervised guardianship.

A durable power of attorney is relatively simple and inexpensive.  It is an extremely flexible instrument: it can be made as broad or as limited as the principal wishes.  It can be drafted either to be effective immediately upon signing or to be effective only upon the principal’s incapacity (a “springing” power of attorney).  A springing power of attorney does not go into effect if the principal never becomes incapacitated.  However, if the principal does become incapacitated (this is usually to be determined by the written evaluation of one or more doctors), there is then a preplanned, legal method to handle the principal’s affairs, without court review or approval and without public notice or exposure.

A principal can always revoke a power of attorney as long as he or she is competent.  Under current Indiana law, a power of attorney can be revoked only by a written instrument signed by the principal.  Apart from revocation, a durable power of attorney will terminate upon the death of the principal or on a termination date specified in the power of attorney.

Protecting Medicaid Eligibility For A Disabled Relative By Creating A Special Needs Trust

Posted on April 19, 2014 at 4:20 PM

Spouses or parents typically create estate plans that leave property to the surviving spouse or a surviving child with no strings attached.  That is reasonable and works fine in most cases.  However, doing so when a spouse or child is disabled or in a nursing home, or when it is probable that a spouse or child will require nursing home care, could render the spouse or child ineligible for Medicaid assistance to cover the substantial cost of nursing home care.  In such a situation, a solution is to create a will that contains a “special needs trust” (sometimes also called a "supplemental needs trust") for the spouse or other relative in need of nursing home care, rather than the usual plan of leaving property outright to that spouse or other relative.  The special needs trust, if done properly, would be a “discretionary” trust which authorizes the trustee (which could be a family member) to pay or apply trust funds to care for the person needing nursing home care, but if such person is eligible for Medicaid assistance, to do so in a way that may only supplement, not replace, Medicaid assistance.  Under current Medicaid rules, a special needs trust for a spouse may not be contained in a living trust, but must be contained in a will.  By creating a special needs trust in the situation described above, property in the special needs trust can provide funds to supplement the very small monthly cash allowance that Medicaid permits to nursing home residents, but such property will not be counted as a resource that would make the surviving spouse or other relative ineligible for Medicaid assistance, as it probably would if it were given outright to the surviving spouse or other relative under a will or trust.

Making Gifts Or Bequests To Minors Via Indiana's Uniform Transfers To Minors Act

Posted on April 17, 2014 at 9:30 AM

A person can make a lifetime gift of property to a minor, or make a bequest to a minor under a will or trust upon death, by means of a custodial account under Indiana’s Uniform Transfers To Minors Act (“UTMA”).  A custodial account is similar to a trust. Both place property under the control of a person who does not own the account (a “custodian”, in the case of a custodial account, and a “trustee”, in the case of a trust), who manages the property for the benefit of a beneficiary. In the case of a custodial account, the custodian manages the property for the benefit of the minor.

Although a custodial account is similar to a trust, because it is created and governed by state statutes, and not by an instrument created by the donor, it differs from a traditional trust in several respects.  Generally speaking, trusts are more detailed and flexible than a custodial account, and are better suited to transfers involving larger values.  Custodial accounts are designed primarily for administering transfers of smaller amounts until the minor reaches the age of 21 without the expense of creating a written trust.  Of course, what constitutes “larger” or “smaller” amounts is in the eye of the beholder, and will vary from person to person.

Practically any type of property (including stocks, bonds, and interests in real estate) may be transferred to a custodial account under UTMA. A transfer to a minor under UTMA requires the appointment and  involvement of a custodian—an adult who will manage the property until the child reaches the age of 21, at which time the custodian must deliver the property to the beneficiary.  The person transferring property to the child can act as custodian or name another adult to serve as custodian. Subject to the terms of UTMA, the custodian manages the property, and may pay or apply custodial property for the benefit of the minor beneficiary.

All transfers to a custodial account are irrevocable.  A gift is legally complete when the property is transferred to a custodial account, not when the account terminates.  The minor owns the property as soon as it is transferred to the account, even though the minor will not have control of the property until the minor turns 21. Thus, a donor can’t change his or her mind and take the property back.  On the other hand, all income earned by the custodial property is taxed to the beneficiary, and not to the donor.

This post is brief overview of some of the features of custodial accounts.  Consult with an experienced estate planning attorney to determine whether an UTMA account is the right vehicle for making a gift or bequest to a minor in your case.

What Is Non Probate Property?

Posted on April 16, 2014 at 8:35 AM

“Probate property” is any type of property that is in the sole name of an individual and which, upon the death of the individual, will pass under a will or under the law of intestate succession if the individual dies without a will.  Conversely, “non probate property” is property which will not pass under a will or under the law of intestate succession.  Non probate property (with a few exceptions) is not subject to “probate” (administration of an estate through a court—see my earlier post “What Is Probate?”). Common types of non probate property include real estate held by spouses in both of their names (“tenants by the entirety”), property held with another person as joint tenants with right of survivorship, “pay on death” or “transfer on death” property, life insurance, IRA’s, 401K’s, annuities, and other property payable to a named beneficiary under a contract, and property held in trust which names beneficiaries to whom trust property is to be distributed following the death of the person who created the trust.