CURRENT ISSUES IN THE AREAS OF ESTATE, TAX AND PERSONAL AND BUSINESS PLANNING
by Randall Craig-Attorney for Estate 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.
Indiana Statutory Changes. There were several Elder Law Developments that I presented at the 38th Annual Judge Robert H. Staton Indiana Law Update in Indianapolis on September 21, 2016, including proposed changes to the VA pension rules, developments concerning ABLE accounts (“Achieving a Better Life Experience†accounts established under the ABLE Act which originally took effect at the beginning of 2015), and several judicial decisions pertaining to Elder Law issues.
There were several interesting statutory developments during 2016 as well. Senate Enrolled Act (“SEAâ€) No. 221 enacted a new chapter called “Senior Savings Protection†to address the issue of “financial exploitation†which is defined as the wrongful or unauthorized taking, withholding, appropriation, or use of money, real property, or personal property of a financially endangered adult. A “financially endangered adult†is an individual who is at least 65 years of age, or at least 18 years of age and incapable by reason of mental or physical disability of managing or directing the management of the individual’s property. Among other goals, an employee of a securities broker- dealer is required to notify the securities commissioner and report to appropriate entities his or her belief that financial exploitation has been attempted or is being attempted, and such an individual may also notify members of the immediate family of the financially endangered adult as well as his or her legal guardian, the trustee, an agent under a power of attorney, and certain other persons. The employee may also refuse a request for disbursement of funds from an account owned by a financially endangered adult, but the refusal expires after fifteen days unless the Indiana Securities Commissioner extends the refusal for an additional fifteen days.
SEA No. 371 made several changes to the priority of certain relationships. It now allows a stepchild (or a majority of the surviving stepchildren) to be included after the other designated people having priority to address issues relating to internment, entombment, disposition of the body, arrangements for funeral services, ceremonial arrangements after a person’s death, etc. However, the stepchildren are listed in the last order of priority after a long list of people which includes an individual granted the authority in a funeral planning declaration, an individual granted authority in a power of attorney or health care power of attorney, the spouse of the decedent, the decedent’s surviving adult children, etc.
SEA No. 371 also adds a “standby guardian†as the second person in the order of priority to be entitled to consideration for the appointment of a guardian, the first order of priority being theperson designated to be the guardian in a power of attorney. There is a statutory list of people who are prioritized for the appointment of a guardian, but ultimately the court shall select the person it considers best qualified and may pass over a person having priority and appoint a person having a lower priority or no priority at all.
Finally, SEA No. 371 also amends Indiana’s disclaimer statute to provide that if a beneficiary of a transfer-on-death transfer disclaims an interest in property, the disclaimant’s interest passes as follows: (i) in the case of an individual, as if the disclaimant had died immediately before the death of the owner; and (ii) in the case of a disclaimant who is not an individual, as if the disclaimant did not exist before the death of the owner.
Business Succession (Cont’d). Continuing our discussion of business succession issues, it should be noted that in many instances appraisals or business valuations will be required. This will occur in particular when a gift or sale is contemplated of a closely held business interest or when there is a death of an owner of a closely held business interest. Although in most instances people will think in terms of a low valuation, it is very important that the valuation be a reasonable valuation that can be supported by the facts and circumstances and which will withstand legal scrutiny. The appraiser will take many factors into account in determining the value of a business, discussion of which would be far beyond the scope of this commentary. In many instances a discount may be available to reduce the value of the interest being transferred due to such factors as lack of control and lack of marketability. This can allow business interests to pass in such a way as to give rise to a better tax result for federal estate tax and gift tax planning purposes. While the tendency of the owner of the business interest or the surviving family might be to maximize such discounts, the position of the IRS is obviously to minimize the discounts. A qualified business appraiser will understand and properly evaluate the applicable facts and circumstances to arrive at a reasonable and a justifiable value after taking into account the appropriate level of discounts. It is very important in this area of business succession planning to select the right appraiser. Not every business appraiser will have credentials which are appropriate to value every type of business.
Separate Accounts for Several IRA Beneficiaries. In general, if there are several beneficiaries of an IRA, it will be advantageous to divide the IRA into separate accounts after the IRA holder’s death so that each individual beneficiary will have a separate account. If done, this must be accomplished before December 31 of the year after the death of the IRA participant. Once separated, each IRA beneficiary can use his or her individual life expectancy in determining the amount of the annual minimum required distribution. Of course, each beneficiary may take as much as he or she wants from his or her inherited account, but the goal generally is to “stretch out†the deferral as long as possible. Unless the IRA is divided, all of the beneficiaries would be required to use the life expectancy of the oldest beneficiary. When divided, of course, the division should be proportional as to value based on the percentage or fractional share of each beneficiary. If they are equal beneficiaries, then the separate accounts should be of equal value when they are divided. By having a separate account, each inherited IRA beneficiary may be able to name his or her own successor beneficiary, which is a concept that we will address in the next newsletter.
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.
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.
Indiana Statutory Changes. There were several Elder Law Developments that I presented at the 38th Annual Judge Robert H. Staton Indiana Law Update in Indianapolis on September 21, 2016, including proposed changes to the VA pension rules, developments concerning ABLE accounts (“Achieving a Better Life Experience†accounts established under the ABLE Act which originally took effect at the beginning of 2015), and several judicial decisions pertaining to Elder Law issues.
There were several interesting statutory developments during 2016 as well. Senate Enrolled Act (“SEAâ€) No. 221 enacted a new chapter called “Senior Savings Protection†to address the issue of “financial exploitation†which is defined as the wrongful or unauthorized taking, withholding, appropriation, or use of money, real property, or personal property of a financially endangered adult. A “financially endangered adult†is an individual who is at least 65 years of age, or at least 18 years of age and incapable by reason of mental or physical disability of managing or directing the management of the individual’s property. Among other goals, an employee of a securities broker- dealer is required to notify the securities commissioner and report to appropriate entities his or her belief that financial exploitation has been attempted or is being attempted, and such an individual may also notify members of the immediate family of the financially endangered adult as well as his or her legal guardian, the trustee, an agent under a power of attorney, and certain other persons. The employee may also refuse a request for disbursement of funds from an account owned by a financially endangered adult, but the refusal expires after fifteen days unless the Indiana Securities Commissioner extends the refusal for an additional fifteen days.
SEA No. 371 made several changes to the priority of certain relationships. It now allows a stepchild (or a majority of the surviving stepchildren) to be included after the other designated people having priority to address issues relating to internment, entombment, disposition of the body, arrangements for funeral services, ceremonial arrangements after a person’s death, etc. However, the stepchildren are listed in the last order of priority after a long list of people which includes an individual granted the authority in a funeral planning declaration, an individual granted authority in a power of attorney or health care power of attorney, the spouse of the decedent, the decedent’s surviving adult children, etc.
SEA No. 371 also adds a “standby guardian†as the second person in the order of priority to be entitled to consideration for the appointment of a guardian, the first order of priority being the
(Continued on Reverse Side)
person designated to be the guardian in a power of attorney. There is a statutory list of people who are prioritized for the appointment of a guardian, but ultimately the court shall select the person it considers best qualified and may pass over a person having priority and appoint a person having a lower priority or no priority at all.
Finally, SEA No. 371 also amends Indiana’s disclaimer statute to provide that if a beneficiary of a transfer-on-death transfer disclaims an interest in property, the disclaimant’s interest passes as follows: (i) in the case of an individual, as if the disclaimant had died immediately before the death of the owner; and (ii) in the case of a disclaimant who is not an individual, as if the disclaimant did not exist before the death of the owner.
Business Succession (Cont’d). Continuing our discussion of business succession issues, it should be noted that in many instances appraisals or business valuations will be required. This will occur in particular when a gift or sale is contemplated of a closely held business interest or when there is a death of an owner of a closely held business interest. Although in most instances people will think in terms of a low valuation, it is very important that the valuation be a reasonable valuation that can be supported by the facts and circumstances and which will withstand legal scrutiny. The appraiser will take many factors into account in determining the value of a business, discussion of which would be far beyond the scope of this commentary. In many instances a discount may be available to reduce the value of the interest being transferred due to such factors as lack of control and lack of marketability. This can allow business interests to pass in such a way as to give rise to a better tax result for federal estate tax and gift tax planning purposes. While the tendency of the owner of the business interest or the surviving family might be to maximize such discounts, the position of the IRS is obviously to minimize the discounts. A qualified business appraiser will understand and properly evaluate the applicable facts and circumstances to arrive at a reasonable and a justifiable value after taking into account the appropriate level of discounts. It is very important in this area of business succession planning to select the right appraiser. Not every business appraiser will have credentials which are appropriate to value every type of business.
Separate Accounts for Several IRA Beneficiaries. In general, if there are several beneficiaries of an IRA, it will be advantageous to divide the IRA into separate accounts after the IRA holder’s death so that each individual beneficiary will have a separate account. If done, this must be accomplished before December 31 of the year after the death of the IRA participant. Once separated, each IRA beneficiary can use his or her individual life expectancy in determining the amount of the annual minimum required distribution. Of course, each beneficiary may take as much as he or she wants from his or her inherited account, but the goal generally is to “stretch out†the deferral as long as possible. Unless the IRA is divided, all of the beneficiaries would be required to use the life expectancy of the oldest beneficiary. When divided, of course, the division should be proportional as to value based on the percentage or fractional share of each beneficiary. If they are equal beneficiaries, then the separate accounts should be of equal value when they are divided. By having a separate account, each inherited IRA beneficiary may be able to name his or her own successor beneficiary, which is a concept that we will address in the next newsletter.
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.
