By Shawn Scott, Hall Scott PC
No matter the asset level and family situation, each individual’s estate has nuances that must be appropriately and thoroughly addressed during the estate planning process. There are several documents that comprise the foundation of a comprehensive estate plan including asset transfer documents, such as wills, trusts and beneficiary designation documents and disability documents, such as powers of attorney and advance directives. Additional documents are added as complexities arise including the necessity for estate and income tax planning, planning for spendthrift beneficiaries and individuals with special needs, blended families and more.
A will is the document that directs how the testator’s assets are to be distributed at his/her death by the personal representative. A personal representative, also sometimes referred to as an executor or administrator, is the individual responsible for administering an estate pursuant to the terms of the decedent’s will or laws of intestacy. A will controls assets that are in the decedent’s individual name at his/her death. In Indiana, if an individual has more than $50,000 in his/her individual name, formal probate administration is required.
A will should include several components including naming a personal representative and designating a preferred guardian for minor or disabled adult children, if applicable. A will should also direct the transfer of all the decedent’s assets to beneficiaries.
It is important to name one or more successors to the named personal representative so that a succession is established should the named personal representative not be available to act. Co-personal representatives may also be named. The will should also state whether the testator wishes for the personal representative to act with or without court supervision and whether a bond for the personal representative should be required. Most wills are drafted to authorize unsupervised administration of an estate because it can be more cost-effective for the estate by allowing the personal representative to take certain actions including the sale and distribution of assets without a hearing on the same. Many wills are also drafted to not require the personal representative to post a bond. Some Indiana counties (including Marion), require a minimum bond by local rule even when bond is waived by the testator in the will. Language in the will indicating that the decedent desires that their personal representative serve without bond can often result in the judge ordering a minimum bond and not a bond to cover the entire amount of the probate assets, which can be costly to the estate.
There are specific statutory requirements for the execution of wills that must be followed. These requirements can be found in Indiana Code § 29-1-5 et seq. Generally, all wills must be made by an individual over the age of 18 and be in writing with some limited exceptions that are discussed further in the statute. The will must be signed by the testator in the presence of at least two or more witnesses and the testator shall signify to the witnesses that the document is his/her will and sign the will, acknowledge his/her signature already made, or at his/her direction, someone else may sign his/her name. The witnesses must sign in the presence of the testator and each other. Wills should also have a self-proving clause attached to avoid the necessity of obtaining affidavits or testimony from witnesses at the time the will is admitted to probate.
In addition to a will, there are several reasons an individual may wish to include a trust in his/her estate plan. Some of those reasons include holding assets in trust for beneficiaries who cannot take possession without a guardianship including minors and disabled persons, holding assets in trust for beneficiaries who should not take possession including young adults without financial sophistication, spendthrifts and individuals with creditor issues and probate avoidance. Trusts are also created for many more complex family and tax planning purposes that are outside the scope of this article.
A trust can be created within the terms of a will or separately as a standalone document. A testamentary trust is a trust created by will. A testamentary trust is not created until the death of the testator, probate of the will and subsequent funding of the trust. A revocable trust is created by a settlor (person creating a trust) during their lifetime and the terms of the trust are amendable and revocable by the settlor at any time prior to their incapacity or death.
The settlor of the trust names a trustee to carry out the terms of the trust and directs the transfer of all the trust’s assets to its beneficiaries in accordance with its terms. Often the purpose of a trust is to hold monies for one or more beneficiaries for a period of time because the settlor did not wish for the beneficiary to receive assets immediately at his/her death. The criteria for distribution of assets to the beneficiaries must be included in the trust including when and how assets are to be distributed.
There are no specific statutory requirements for the execution of a trust other than the requirement that it be in writing and signed by the settlor or his/her authorized agent. See Indiana Code § 30-4-2 et seq.
A well-thought out and precisely drafted estate plan is useless if the decedent’s assets are not coordinated with the plan. All property an individual owns jointly will automatically become the property of the surviving joint owner(s) and therefore will not be distributed pursuant to the terms of a will or trust. Similarly, assets with a payable on death or transfer on death designation will automatically be distributed to the beneficiary and therefore will not be distributed pursuant to the terms of a will or trust (unless the estate or trust is the named beneficiary).
Many types of assets can be transferred to a beneficiary by designation form beyond those typically considered as beneficiary designated assets such as life insurance and retirement plans. Indiana’s Transfer on Death Property Act, which can be found at Indiana Code § 32-17-14, allows for the transfer to beneficiaries of interests in contract rights, securities, tangible personal property, real estate (by a Transfer on Death Deed) and more.
Disability documents are also a critical component of an estate plan. The primary purpose of disability documents, including powers of attorney and advance directives, is to authorize and empower designated individuals to act on an individual’s behalf if they require assistance handling their personal and financial affairs or need medical care.
A general durable power of attorney appoints an individual, the attorney in fact, to act as an agent of the principal, the person creating the power of attorney. The agent can then act on behalf of the principal with regard to their real and personal property.
Indiana has statutes that allow for the appointment of a Health Care Power of Attorney under Indiana Code § 30-5-5-16 and 17 and for the appointment of a Health Care Representative under Indiana Code § 16-36-1-1. Often the appointment of both Health Care Power of Attorney and Health Care Representative are done in one document because the roles are similar, will often be the same person and have overlapping provisions.
The Health Insurance Portability and Accountability Act Appointment of Personal Representatives is written authorization that will enable designated individuals to have access to medical information and the right to distribute the same.
Finally, a living will declaration is a statement regarding whether an individual wants extraordinary measures used to sustain them artificially in the event they are suffering from an imminent, terminal condition.
While the documents described herein are the foundation of most estate plans, it is important to consider each individual’s needs specifically during the estate planning process as there is no “one size fits all” plan. A well-drafted and carefully considered plan can allow for the smooth transition of assets from one generation to the next, minimize tax consequences, provide privacy, expedite administration matters and reduce administration expenses.