"Estate Planning Law
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What is Estate Planning?
The best and simplest definition I have found on the subject
defines "Estate Planning" as the process where you list your
assets that make up your estate and determine where and how you
want them to go when you die.
Your "estate" is the sum total of what you own when you
die, including all your real estate and personal property. Obviously,
these are over-simplified definitions. However, you need to know that
estate planning is usually more than just writing a will and
providing for your survivors after you are gone.
A sound estate plan also involves taking steps to minimize high
estate taxes and the costs of probate.
The purpose of estate planning is to help you build an
estate as large as possible during your lifetime and upon your
death....to pass as much of it as is possible....to your loved ones.
If you own a significant amount of property, you should probably
have an estate plan. Even relatively small estates can benefit from
wise planning. In my opinion, estate planning is an absolute must for
those people who have estates in excess of $600,000. Without smart
estate planning, a sizeable chunk of the estate could end up in the
hands of the government or someplace else that you dont want it to.
(Currently, the estate tax is 37% tax on the excess of 600K. The
amount of the exclusion will ease up to 1 million by 2006.)
Estate Planning Options
Let’s get right to it and briefly talk about some of the common
estate-planning options that you can use to reduce probate expenses
and delays, as well as help preserve your property. In addition to
making a will, here are some of the things you can do:
You can avoid estate taxes and probate by giving cash gifts during
your lifetime. Each person is allowed to give up to 10,000 per year
Married couples can make a combined gift of $20,000 per year to
anyone they choose without having to pay any gift taxes. For example,
say you have two children who are married. It is possible that you and
your wife can gift up to $80,000 tax free to them per year...if you
count gifts to their spouses!
Joint tenancy with right of survivorship
In Indiana, we have three types of joint ownership that may be
listed on property:
1) Tenancy in Common - Upon the death of 1 co-owner, the other
co-owner owns the percentage that he/she contributed to the account.
2) Tenancy by the Entireties - Upon the death of 1 co-owner, the
surviving spouse is entitled to the house. This is a form of ownership
that can only be between husband and wife. Generally, written conveyances
or devices to two people who are husband and wife will be a tenancy by entirety unless
another form of ownership is otherwise expressed.
3) Joint tenancy with right of survivorship - Upon the death of 1
co-owner, the property will automatically pass to the other co-owner
listed on the account no matter how much either party contributed to
the account. Generally, this form of ownership must be specifically
For example, you and your another person can own your
house as a "joint tenancy with right of survivorship" This
means that when one of you dies, the house will automatically pass to
the other person and will not be subject to probate. This form of
ownership may be used for bank accounts, real estate, stocks and
You can open a bank account "payable on death" to another
For example, the signature card of John’s bank account might read
"John Doe, payable on death to Jane Doe" When John dies,
Jane will become the sole owner of the account, which will not be
treated as part of her estate.
Savings bonds can also be purchased this way. Check with your
banking or financial representative to make sure that these are set up
Family limited partnerships
A family limited partnership consists of several components.
Usually the parent transfers some ownership of the business or asset
through the limited partnership to the children, thereby further
reducing the value of the estate.
However, there are some disadvantages. Because of the limited
partnership entity, the value is reduced because it is much more
difficult to sell a partnership interest.
Overall, in many situations, a Family Limited Partnership is an
excellent way to reduce the size of your estate - approximately 35%
according to a recent IRS study. A good attorney shoulr be able to
help your weigh whether the costs of setting a FLP justifies the
savings in your Federal Estate Taxes.
Because the property is held in a trust created during your
lifetime, the property passes outside your estate to those you have
named, and so is not subject to to probate and administration. We will
talk about this later in detail below.
Life insurance proceeds are paid directly to the beneficiary named
in the policy. Because of this, life insurance proceeds will usually
not go through probate if you have the policy titled correctly.
Generally, life insurance proceeds will not pass according to your
will if the beneficiary is "someone other than your estate."
So be sure to name your spouse or other family member as the
beneficiary on your life insurance policy. Do not name yourself or
your estate or leave it blank. This way, the policy is not considered
part of your estate for probate purposes, although the benefit may
still be subject to state or federal taxes.
Of course, life insurance may raise the value of your estate for
federal estate tax purposes. However, it is possible for you to set up
a life insurance trust, which would keep the value of your life
insurance out of your estate. This is a very specific type of trust in
which you give up all incidents of ownership.
And finally, let me remind you to review the beneficiaries listed
on your accounts regularly and update them when necessary.
Estate Tax Considerations
Estates are subject to both federal and state taxes. Of the two, many
more people are affected by the Indiana Inheritance tax because of
the smaller amounts involved.
The important thing to remember here is that thousands of dollars
in taxes can be avoided legally by proper tax planning, particularly
when both the husband and wife are still living.
Generally, on the federal level, you do not have to pay
estate taxes unless your estate exceeds $600,000. Currently, the
estate tax is 37% tax on the excess of 600K. The good news is that the
amount of the exclusion will ease up to 1 million by the year 2006.
A federal tax return must be filed for every estate that exceeds
$600,000 in value. It usually must be filed within nine months of the
date of death. The amount of the tax is based on the value of the
deceased’s "gross estate", minus certain deductions and
Now, $600,000 may sound like a lot...but if you have a home that is
paid for or possibly pension benefits... cars, a boat or jewelry...you
can see how quickly your assets can add up.
There are several ways to reduce estate taxes, but they usually
require that you give up control of some of your property while
you are still alive. One effective tool that I haven’t discussed yet
is an Irrevocable trust that gives complete control of some or all of
your property to another.
An irrevocable trust is a trust that may not be revoked after it is
created. Obviously, because it can’t be revoked later...great care
should be given before you set up this type of trust.
And remember, all trusts are presumed to be irrevocable unless the
document says otherwise.
The irrevocable trust offers a great tax advantage as the
tax burden is shifted to the beneficiary because no incident of
ownership is retained by you. So this may be perfect if you have
substantial assets and need to care for your loved ones.
A will is a legal document and final testament (statement) that states
how a person’s property is to be distributed after his/her death.
To make a valid will, there are several requirements that must
Generally, one must be of the legal age of 18, of sound mind, and
have a general understanding of the extent of one's property and of
the natural objects of one's bounty such as who one's spouse, children
or grandchildren are. Additionally, the will must be in writing and
signed and witnessed correctly in accordance with the Indiana
A will can be revoked during the person’s lifetime. To be
effective, all changes must be made in strict compliance with the law.
I guess I should also note that it is possible to make a will that can’t
be changed. But I won't go in to that now... Let's first talk about...
When should a will be changed?
As time goes on, a person’s needs and circumstances change. A
will drafted a few years ago may no longer fulfill your current needs.
Generally, you should review your will every few years for possible
changes. If you have any of the following changes, you should consider
either updating or redoing your will.
1. Change in marital status - A divorce may not cut the
ex-spouse out of the will. And the new spouse will be the one to lose
2. Children are born or adopted or a stepchild comes into the
picture. - Stepchildren of a deceased person will have no rights
to inherit under a stepparent’s estate unless that intent is
specifically stated in a will.
3. Value of your property changes - Often earlier gifts were
too much, too little, or there is enough now to give to others as
4. If the intended heirs, executors, guardians or trustees have
5. Change in the estate or inheritance tax laws - Folks,
they change all the time...
6. If the need for a trust for someone no longer exists or now
What is a living trust?
A living trust is a legal document that is created and operates
during your lifetime. It is commonly for the benefit or support of
When you have a living trust, you also have a will, called a
pour-over will, and it pours over any left-over assets that might end
up in probate to the living trust.
A living trust is a powerful instrument. You can give
yourself the power to:
Change the beneficiaries at any time
Reserve income for your lifetime
Revoke or amend the instrument at any time
A living trust that is set up correctly avoids probate.
Probate is the court process that determines who will inherit your
estate if you did not do any planning to avoid probate. Basically, it
changes title from the decedent’s name to that of the heirs or
As you probably know, probate includes costly fees. You can figure
that it will often cost from approximately 2 to 9% of the gross value
of the estate. Unfortunately, this total is not reduced by any
mortgages or debts of the estate.
Additionally, the probate process is often lengthy and often takes
from 7 months to several years to complete, depending on the
complexity of resolving the estate.
Furthermore, another advantage of a living trust is that it is a private
document which is not available to public inspection as is a will.
In Indiana, if you own a home, you may wish to seriously consider a
The need for a will or a living trust...
Countless words have been written about the importance of having a
will. Yet, believe it or not...most Americans die without a will.
(70 percent by one estimate)
Many people never draw up a will because they think it will
be too expensive...or too complicated...or because they just never get
around to it. The truth is...for most people...wills aren’t that
complicated and can be affordable. So there really is no excuse for
not having one.
A will also allows you to choose an executor/personal
representative to oversee your estate and to name a guardian for
your minor or handicapped children.
I am often asked: What happens if you do not have a will or a
trust? Well, the State of Indiana writes your will, if you do not have
a will or living trust. This means that your assets will pass
according to State law and not necessarily according to your wishes.
Here are some general examples of what might happen if you don't
have a will or trust:
Example A. If you have children, your spouse will normally only
receive half of your estate...with your children receiving the other
Example B. If you don’t have any children, your wife will only
receive 3/4 of your estate...and your parents will receive a 1/4 of
Example C. If you are unmarried and you have children...all your
assets will automatically pass to your children at the age of 18...and
their parent will most probably be the manager of these funds.
When you die in Indiana without a will or trust, your wife will
generally only receive your entire estate if there are no children and
no living parents! The lesson is...funny things can happen if you don’t
have a will.
What is an executor/personal representative?
An executor/personal representative is the "person named in
your will" to carry out the provisions of your will.
The executor/personal representative conducts the administration of
your estate and settles your estate as to your gifts at death and
debts you left behind when you die.
What are the duties of an executor/personal representative?
Generally, the executor/personal representative must identify,
locate and assume control over all of your property during the probate
The executor/personal representative must also pay any of your
debts, income taxes, death taxes and expenses of administering the
There are many requirements that the executor/personal
representative must meet in carrying out this process and this job
almost always requires the help of an attorney.
Who you name as your executor/personal representative is an
extremely important choice as the position requires a considerable
amount of time and effort.
Therefore, before naming someone, you should get his/her
permission. You should also name an alternate executor in case your
first choice is unwilling or unable to serve when you die. You can
also appoint a bank or trust company to serve as your
The importance of doing it right...
There are few quick things I want to touch upon here regarding why
it is so important to do a will or trust right and the long-term
consequences of your estate plan on your relationships with the people
you care for the most...
First, death is a natural consequence of life. It is not a matter
of "if" you die...but "when" you die...
It's tough to accept this fact and it's even tougher to say it or
even think about it. However, you owe it to yourself, your family, and
your friends to acknowledge this fact and to plan accordingly.
Secondly, relationships do not end at death! The way that
you direct the distribution of your estate assets upon your death has
a lot to do with...
How your family and friends regard you after your death and how the
members of your family get along with one another in the years
following your death.
This particularly applies to your children who may not get along
very well with one another at the present time...with you alive. When
you die, your children will not have their relationship with you to
draw them together...
Although your will may not have the capacity to bring them
together, if your children are already divided, it is certainly
possible that your will might split them even further apart...unless
you are very careful.
It is very important to remember that the words in or omitted
from your will or trust represent your final statement of your
feelings about your relatives and close friends.
How should you provide for the distribution of your personal items?
Maybe someone can help me with this one...what is it about teasets?
It seems like there are always two kids in the family that want the
tea set... And since there is usually just one teaset, it is quite
possible that they will fight over it...
And fighting over personal belongings always causes hard
feelings. Often, it isn’t one of the children...but a spouse of
one of the children who will intervene and insist upon his or her
spouse getting certain items. This is never good.
I usually advise that no matter whatever you do...do not give
one child the power to divide your personal things among all of them.
Either require all your children to divide the things together or give
the job to someone impartial who all the children can trust.
Family members are often upset when one child gets all the
pictures. I like to remind people that prints can be made of family
pictures...so it is possible that everyone gets that special picture.
Should you make a list of all your precious personal things
and designate who gets them? Or should you let your children or other
friends or relatives decide among themselves? This is a tough question
and one worth exploring.
First of all, it’s difficult to keep an up-to-date list of
everything you’ve got. If you do attempt to do keep a list, make
sure the list is up-to-date...so somebody doesn't point a finger
later...accusing a family member of taking something beforehand.
Secondly, you might be inviting extra estate taxes if you designate
specific items in your will or living trust because of the likelihood
of each item being appraised.
There are many ways of dividing your personal things.
Some people put labels on the back of each item indicating who is
to get what. But labels can change and be moved around...or even fall
off...so I don’t necessarily suggest that.
Some suggest that you just ask each beneficiary what they want.
However, this may be dangerous as often two beneficiaries want the
same item. This also rewards the bold beneficiary and penalizes the
Often I think the best way of doing it is just list each item
and give the lists to the beneficiaries and then... just let them each
choose...in order...until all of the items have been taken. They can
even draw staws as to who goes first...
Should I keep my will/trust in my safe deposit box?
Any safe deposit box in your name at the time of your death,
including any jointly held box, is frozen and cannot be opened
until the county assessor opens the box and lists its contents.
For this reason, I don’t suggest keeping your will in your safe
deposit box. Nor do I recommend that you allow your attorney to keep
the original of your will/trust either. When you die, your attorney
may not be around either...
Make it easy on your loved ones and keep the original will/trust
where you keep all your other important papers.
I usually recommend for you to keep your original will in your
safe at home (with instructions elsewhere on how to open it) and a
copy at your attorney’s office.
Note: Due to a recent change in the law regarding safe
deposit boxes, I will be updating this section soon. Stay tuned!
What happens to your children or disabled family members when you die?
If you are the last surviving parent and you have children or
disabled family members when you die, a guardian will be required
to be appointed.
A guardian is someone who can offer your children the kind of care
and upbringing you yourself would give them.
This requires a petition in probate court and a hearing to
determine if the proposed guardian is qualified.
Unfortunately, this is an expensive and lengthy procedure.
What happens if I become very sick or incapacitated?
If you become incapacitated, your next of kin can step in and
make decisions if their name or names are listed on the assets.
Otherwise, they may need to go through a court procedure called conservatorship
to take care of you or your estate.
The need for a conservatorship can be eliminated with a Durable
Power of Attorney and a Power of Attorney for Health Care. These
documents avoid court procedures and the cost and time involved in a
Other documents called Advance Directives also may help
solve anticipated problems in the future.
But before we talk about the 4 Advance Directives available...
What is a Durable Power of Attorney (DPOA)?
A Durable Power of Attorney is a powerful document where you can
"give someone else the power and authority to make decisions for
you or do certain acts on your behalf" by showing the paper.
The person that you name will be legally able to sell your assets
while you are alive and well or incapacitated.
The durable power of attorney may also include powers to receive
federal checks or even handle bank accts.
The power of attorney can be limited. Many people only want
the power to start after an occurrence of a particular event, such as
your incompetency or severe disability.
And because it is durable, the power will not terminate when you
are incapacitated unless you state otherwise.
Obviously, choosing the right person is very important.
* 1st Advance Directive Option:
What is a Health Care Power of Attorney?
A Durable power of attorney for health care is a written document
that names a certain person to make health care decisions for you.
It has very specific requirements and must include certain
statutory language to be effective.
The person appointed may refuse to exercise the health care powers
granted under the power of attorney and is only liable for failure to
exercise such duties if he acted in bad faith...a pretty hard standard
* 2nd Advance Directive Option:
What is a Living Will?
A Living will is a written document from you that sets forth the
kind and extent of life-prolonging procedures that you would or
would not want to be used if you are terminal and unable to make
your own medical decisions.
It only takes effect if you are terminal and are expected to die
within a short period of time and once you have notified your doctor
of the document.
This document may not be effective if you are in a persistent
In a living will, one cannot request that medication or a certain
medical procedure should be used to alleviate any pain. A doctor must
still specify these type of measures for a patient, despite the fact
that the patient has a living will.
* 3rd Advance Directive Option:
What is a Life-Prolonging Procedures Declaration?
It's pretty much just the opposite of a living will...
Life-Prolonging Procedures Declaration is a written document from
you that allows you to request health care treatments that will help
extend your life when you are faced with a terminal condition and
unable to make your own medical decisions.
While a doctor may refuse to honor a living will under certain
conditions, the doctor may not refuse to carry out your wishes in a
Life-Prolonging Procedures Declaration.
* 4th Advance Directive Option:
What is a Health Care Representative Appointment?
Health Care Representative Appointment is a written document that
authorizes another person to make health care decisions if the
doctor determines that you are unable of making your own health care
It only takes effect if you are terminal and are expected to die
within a short period of time.
This means that this document may not be effective if you are in a
persistent vegetative state.
Get professional help
Proper estate planning requires formal legal documents.
If the documents are not correctly completed, the consequences
could be disastrous for the people who you want to receive your
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