CURRENT ISSUES IN THE AREAS OF ESTATE, TAX
AND PERSONAL AND BUSINESS 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.
SWIRCA & More 2016 Online Auction & Tailgate Party. This wonderful annual auction event will be held on Saturday, February 27, 2016. For those readers who are unable to attend, please consider making a donation to this outstanding organization which provides essential help to people of all ages. Southwestern Indiana Regional Council on Aging (“SWIRCA & More”) provides assistance to children as well as disabled adults and the elderly. Its principal goal is to enhance opportunities for independent living. SWIRCA & More provides a myriad of services which include serving more than 200,000 meals each year in its six-county service area covering Gibson, Perry, Posey, Spencer, Vanderburgh and Warrick counties, screening persons who may require admission to a nursing home to be sure that the need for long-term care exists and that people are not simply being “warehoused” when other arrangements or facilities would be more appropriate, and helping the disabled to circumnavigate the complex processes of the Medicare and Medicaid programs. SWIRCA & More also helps retirees and disabled individuals make choices pertaining to their insurance, including Medicare supplemental coverages and Part D prescription coverage. This is a very short list of only a few of the many services provided by SWIRCA & More. There is virtually no one who will not be impacted by SWIRCA & More at some point in his or her life, and when one considers the aging nature of our population, it is likely that our families will benefit from the efforts of SWIRCA & More staff at several different times during our lives. Please consider this wonderful organization when making decisions about the charities ethat you intend to support. A donation request letter, including additional information, is enclosed with this newsletter. Tax deductible donations may be made payable to SWIRCA & More and sent to Post Office Box 3938, Evansville, Indiana 47737-3938. Please consult the website of SWIRCA & More www.swirca.org and review the enclosed information accompanying this newsletter.
Importance Of Marital Agreements. The use of prenuptial and postnuptial agreements can be extremely important in the context of asset protection and estate and lifetime planning. Many people erroneously believe that the sole or principal purpose of a prenuptial agreement is to predetermine what will happen in the event of a dissolution of marriage. In fact, important aspects of prenuptial and postnuptial agreements include protecting a spouse’s children in the case of a second marriage and setting the stage for protecting the assets of one spouse in the event that the other spouse requires long term care. During the process of prenuptial agreement planning, the couple will often come to realize that their assets are exposed if one spouse-to-be later requires long term care. While the Medicaid rules disregard the existence of a marital agreement, nevertheless a marital agreement can bring about the process of planning for the possibility of requiring long term care and considering various planning arrangements, whether through the utilization of a particular kind of a trust arrangement, or possibly even the purchase of long term care insurance for one or both of the spouses. In my practice, marital agreements are more important for their planning uses and implications than in the context of divorce, particularly since I do not practice in the area of marital dissolutions. In the absence of a prenuptial or postnuptial agreement, when the first spouse dies, the surviving spouse is entitled to a share of the deceased spouse’s estate, sometimes called the “forced share” or an “elective share.” If that marital right is waived, as it will be in most cases, other arrangements can still be put in place to protect the surviving spouse, if desired. Then, should the surviving spouse who may be in a long term care facility not elect the forced share, because he or she has no right to do so, the Medicaid eligibility of the surviving spouse can be protected, or established if not eligible, while avoiding a period of Medicaid ineligibility or the possible dissipation of the predeceasing spouse’s estate. Marital agreements can also be very effective tools for asset protection by defining the specific assets that belong to one or the other spouse, and determining what will happen in the event of transfers between spouses. In a second marriage situation, especially when there are children, and whether or not both spouses are older or one of the spouses is infirm, marital agreement planning is an extremely important aspect of the estate and lifetime planning process.
Another Reminder About Beneficiary Designations. In my practice, I am incessantly confronted with estate plans involving either an inter vivos trust (whether in the form of a revocable living trust or an irrevocable trust) or a trust under a last will and testament in regard to which beneficiary designations have been made inappropriately. Numerous previous articles in my newsletters have addressed such issues in various contexts. Although I have never kept a close count, I would wager that in the vast majority of cases, perhaps as many as 75 percent or more, a person’s or a couple’s beneficiary arrangements pertaining to their life insurance, IRAs and other retirement plans do not comport with the estate planning arrangements that they have set up. In many cases, a trust has been established, and the life insurance should have been designated to pass to the trust or to a specific sub-trust, but in fact the life insurance designation does not even contemplate that it would be paid to a trust, resulting in the life insurance proceeds passing to the wrong beneficiaries or outright directly to beneficiaries when a trust for the beneficiaries was intended. Often the payment will be paid through the estate, necessitating probate steps, when the beneficiary designation could have been named directly to the trust. A beneficiary designation can even be made directly to a trust which will come into existence under a last will and testament, without the life insurance proceeds going through the estate, thereby avoiding probate, even though the trust is a testamentary trust. In the case of IRAs and other retirement plans, the qualified dollars often will be designated to be paid directly to the trust, which in most instances is incorrect unless the beneficiary designation form is designed very carefully. Unfortunately, the vast majority of beneficiary designations are not properly implemented. This article will serve as another reminder, which probably cannot be repeated too often, that in conjunction with your estate planning, please be sure that you are getting proper guidance from your financial and legal advisors regarding the proper implementation of beneficiary designations. Many investment advisors, unfortunately, are more focused on the products that they are working with rather than the plan that the benefits will be funded with, and it is incumbent upon you to check with all of your advisors to be sure that all of the tax, legal and financial implications have been considered. There can be significant tax differences when retirement benefits are paid in the wrong way or to the wrong beneficiary.
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.