Basic Considerations for an Estate Plan

Introduction

Estate planning helps ensure assets pass according to your own wishes and can override in most cases the provisions of state law.  It may provide you with the opportunity to request desired guardians for minor children, instead of leaving the appointment solely to the probate court.  It allows you to give appropriate authorization to selected individuals to make certain decisions and perform various matters on your behalf.  By assessing your situation and circumstances and executing an estate plan that appropriately addresses them while also aligning with your wishes, unintended consequences can be minimized.

Titling of Property

Understanding how property is titled or if it is subject to a beneficiary designation form is crucial in understanding how property will pass upon death.  Below are the three general categories to consider and review when developing an estate plan.

  • Individual Property.  Individual property is titled in your name alone.  Generally, individual property passes at death through a probate estate and is either directed by your last will or by a state’s intestate succession statute if there is no last will.
  • Joint Property.  Joint property is titled in more than one name.  Joint property may be held as joint tenants with rights of survivorship, tenants by the entirety (for married owners only), or tenants in common.  Generally, joint property owned by married individuals is deemed to have rights of survivorship if not specifically titled as tenants in common.  Joint property held with rights of survivorship or by the entirety passes automatically at death to the surviving joint owner and is not governed or directed by your last will.  Property owned as tenants in common allows each owner to pass his or her interest in the asset according to his or her estate plan.
  • Beneficiary Designation Property.  Although owned individually, certain assets pass outside the probate process and are governed by the terms of an account agreement or other contract.  For example, retirement plans and life insurance policies are the two most common assets that provide for the transfer of benefits and proceeds under a beneficiary designation form.  It is crucial to properly and completely fill out beneficiary designation forms.  Keeping these forms updated and aligned with your current family situation and estate plan is important to avoid distribution to unintended beneficiaries in the future.  It is recommended to name a primary beneficiary and at least one contingent beneficiary.

Last Will

For the following reasons, it can be important to have a last will:

  • If you are married, a last will may be needed to transfer all of your property to your surviving spouse.  If you die without a last will leaving a spouse and one or more descendants (i.e., children, grandchildren, great grandchildren, etc.), under Indiana law only one-half of your probate property will go to your surviving spouse and the balance will go to your descendants.
  • If a distribution may be made to minor children or disabled persons, a last will may be important to enable property to be properly held for minor children or disabled persons.  A guardianship over assets may be avoided.  In the case of a disabled person who receives assistance through government entitlement programs like Medicaid, distributions may be made to a “special needs trust” so that the distributions do not make the disabled person ineligible to participate in those programs.  This type of trust is beyond the scope of the services provided by the Indiana University End-of-Life Planning Program.
  • Under the terms of a last will, you may authorize unsupervised administration of your estate without the need to obtain the consent of all of the beneficiaries.  Unsupervised administration can be advantageous so that property can be administered without court approvals or court accountings, and in the right circumstances can save time and legal fees.
  • By utilizing a last will, you can provide for the distribution of cash or other items of property to favorite charities or provide for the contingent distribution of all or a portion of your estate to one or more charities or specific relatives in the event no immediate family survives.
  • You can, under the terms of a last will, specifically name the individual or individuals who are to serve as the guardian for your minor children.  The Court will generally follow a written guardian designation contained within a last will.

Planning for Incapacity

As medical science has progressed, it has become more likely that one will become incapacitated for some period of time than it is that one will immediately die from a severe illness or injury.  There are several tools available under Indiana law that can be used to plan for incapacity, including the following:

  • Durable Powers of Attorney

    • The Indiana Power of Attorney Act codified and clarified Indiana law with respect to powers of attorney.  There are two types of durable powers of attorney available under Indiana law: (1) durable, and (2) springing.  A durable power of attorney is effective upon execution and continues notwithstanding a subsequent incapacity or disability.  A springing durable power of attorney doesn’t become effective until one becomes incapacitated or disabled.  Also, you may, in the durable power of attorney, nominate a person to serve as your guardian in the event guardianship proceedings are later instituted.  The court must follow the nomination in making its appointment unless good cause is shown for not doing so or unless the nominee is disqualified.
    • Under the Act, the power of attorney must be in writing, name the attorney-in-fact, specify the powers that are being given, and be signed and notarized.  The Act allows more than one attorney-in-fact to be named.  Unless otherwise stated, when two attorneys-in-fact are named either may act independently and one may continue to act after the other ceases to serve.
    • A power of attorney may include many different types of powers.  The powers may be incorporated by reference from the statute either by reference to the descriptive language set forth in the statute or by citation to the specific sections.  The statute allows incorporation of powers with respect to:
            • real property transaction
            • tangible personal property transactions
            • securities and other bond, share, and commodity transactions
            • individual retirement accounts and other retirement plans
            • banking transactions
            • business operating transactions
            • insurance transactions
            • transfer on death and payable on death transfers
            • beneficiary transactions
            • gift transactions
            • fiduciary transactions
            • claims and litigation
            • family maintenance
            • benefits from military service
            • tax returns, records, reports, and statements
            • estate transactions
            • health care records
            • digital devices and assets
            • powers to delegate authority granted
            • general authority with respect to all other matters

The incorporation of all of these powers might result in the granting of far greater power than may be desired.  It is important to discuss with an attorney what your needs are and what powers should be incorporated to get the desired result.  The Indiana University End-of-Life Planning Program only includes the preparation of a General Durable Power of Attorney.

  • Living Will Declaration
    • A “living will” is a written document that puts into words your wishes in the event you become terminally ill and unable to communicate.  For example, the document could be used to tell a physician, family members, and a health care representative, among others, that life-prolonging treatments should not be used and to allow the individual to die naturally.  The Indiana Living Will Act defines a life prolonging procedure as “any medical procedure, treatment, or intervention that uses mechanical or other artificial means to sustain, restore, or supplant a vital function and serves to prolong the dying process."
    • You are required to notify your attending physician of the existence of the declaration, and the physician must make the declaration a part of your medical record.  The declarations will not be followed unless you have become incompetent and have not revoked the declaration, and the attending physician has certified that you have a terminal condition from which you will die whether or not the life prolonging procedures are used.  The living will declaration has no effect during one’s pregnancy.  A death caused by withholding or withdrawing life prolonging procedures pursuant to the directions contained in a living will does not constitute suicide for insurance or other legal purposes.  A living will may be revoked at any time by a signed, dated writing; by physically destroying the declaration; or by an oral expression of intent to revoke.  The revocation is effective when communicated to your attending physician.
  • Appointment of Health Care Representative
    • Choosing a health care representative is part of the Indiana Health Care Consent Act.  It enables a competent adult and certain emancipated minors to appoint a health care representative to act on his or her behalf in matters affecting health care, including consenting to health care procedures in the event of incompetency or incapacity and receiving health care information.  The authorization must be in writing, signed, and notarized.  The appointment is not effective until you become incapable of consenting to health care.  The appointment may be revoked at any time by notifying your representative or the health care provider, either verbally or in writing.
    • Your representative may agree to or refuse medical care and treatments when you are unable to do so.  The representative will make these choices based on your advance directive.  If desired, in certain cases and in consultation with a physician, the representative may decide if food, water, or respiration should be given artificially as part of the medical treatment.  These are serious decisions that the representative must make in good faith and in the best interest of the person who appointed the representative.

Death Taxes

Indiana no longer imposes a state-level inheritance tax on decedents.  It was repealed for individuals dying after December 31, 2012. 

The federal government imposes a gift tax and an estate tax, each at a rate of 40%.  There is a unified (gift and estate) exemption amount of $5,450,000 for 2016 that allows each individual to transfer property up to that amount during his or her lifetime and/or upon his or her death without having to pay gift or estate tax.  An individual may make a gift of up to $14,000 in value to any person(s) each year without using any of his or her unified exemption amount.  Federal tax law also allows a decedent to transfer his or her unused exemption amount at death to a surviving spouse for that surviving spouse’s own use.  Essentially, as of 2016, a married couple who has made no prior taxable gifts could both die with combined total assets between the two of them valued at $10,900,000 and not owe any estate or inheritance related taxes.

Additional Considerations

Below are various tools, circumstances, and situations that, if present or of interest, warrant additional consideration for an individual’s estate plan and may require advice outside of the scope of the Indiana University End-of-Life Planning Program.  These additional considerations are not intended to be an exhaustive list but generally include the following:

      • Use of trusts
      • Second marriage and blended families
      • Conflicts of interest (for example, spouses do not agree on the direction of a plan)
      • Disability or other special needs of a family member
      • Ownership of business interests
      • Ownership of unique assets
      • Family tension
      • Federal and State taxes (as applicable)
      • Community property
      • Real estate located in another state

Preparation for the Estate Planning Conference

In preparation for the initial meeting to discuss your estate planning matters, you should compile specific information and make certain decisions, as outlined below.  The Confidential Estate Planning Worksheet will assist you in completing some of those tasks.

  • Required Information

In general, you should be prepared to supply the following personal data:

    • Your name, home address and telephone number, business address and telephone number, position held, approximate annual income, birthdate, and social security number.
    • Your spouse’s name, business address and telephone number, position held, approximate annual income, birthdate, and social security number.
    • Your children’s names, addresses and birthdates.
    • The location and contents of any safe deposit boxes you or your spouse may have.
    • Copies of existing wills, trusts, powers of attorney, pre-nuptial or post-nuptial agreements, divorce or separation agreements or decrees, summaries of employment benefits, and insurance policies.
    • Listing of assets and indication as to ownership of those assets (i.e., jointly-owned, individually owned by husband, or individually owned by wife), including:
      • bank accounts, certificates of deposit, credit union accounts, cash (indicating approximate amount, location, and type of account);
      • bonds, stocks or other securities, specifically noting any ownership in closely-held businesses;
      • real estate (indicating location, approximate mortgage amount, and approximate market value);
      • insurance (indicating company, face amount, approximate amount of any outstanding policy loans, name of insured, name of owner, named beneficiaries);
      • tangible personal property, such as household goods, jewelry, furs, artwork, antiques, or automobiles (indicating whether any of those items are to be disposed of in a particular manner or to particular persons); and
      • any other property interests, such as sole proprietorships, partnerships, death benefits, retirement benefits, trust benefits, annuities, etc.
  • Required Decisions

You should be prepared to supply answers to the following questions:

      • Who is your choice for the person or entity to administer your estate?  Who is your alternate choice?
      • Who is your choice for the person or entity to serve as trustee of any trust established as part of your estate plan?  Who is your alternate choice?
      • Who is your choice of a guardian to have custody of any of your minor children should something happen to you and your spouse?  Who is your alternate choice?
      • How do you want your personal effects and household goods distributed after your death?  If the property is to go to your spouse, what should be done in the event your spouse does not survive you?  Are particular items to go to particular persons?
      • How do you want the balance of your property (stocks, bonds, bank accounts, real estate, etc.) distributed after your death?  If the property is to go to your spouse, should the distribution be outright or in trust?  How should the property be distributed after your spouse’s death or if your spouse does not survive you?
      • Is any of your property to be held for minor children or grandchildren after the deaths of you and your spouse?
      • How do you want your property to be distributed if all of your primary beneficiaries die before you?
      • Are there any charitable bequests that you want to make, either at your death or following the deaths of both you and your spouse?  If so, what charities are to be named and what dollar amount or percentage of your estate is to be distributed to each named charity?
  • Documents to Bring to Conference
      • Existing last wills or trust instruments
      • Divorce or separation agreements
      • Powers of attorney
      • Summary of retirement plan benefits
      • Pre- or post-nuptial agreements
      • Life insurance details