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.
Legislative Developments. The Indiana legislature recently enacted Senate Bill No. 36 which addresses a number of issues relating to probate, trusts and transfer-on-death matters. There are only a few changes that might be of interest to our readers. Although the legislation makes several changes relating to the administration of estates, perhaps the only change that would be of interest to our readers is one that provides for an enforcement action against a person who does not comply with a fiduciary’s demand or instruction. If a person fails to comply with a personal representative’s written demand or instruction that is consistent with Indiana law, the personal representative may bring an enforcement action to compel compliance and the court may award attorney’s fees and costs. Another change provides that unless a trust provides otherwise, a trustee has a duty to keep current income beneficiaries, and in the case of a trust that has become irrevocable, contingent income beneficiaries, reasonably informed by providing access to trust accounting and financial records upon written request. Further, when a trust becomes irrevocable, then unless the trust provides otherwise, the trustee has a duty to provide income beneficiaries and remainder beneficiaries with a copy of the trust instrument upon written request. There were also changes affecting powers of attorney. One change provides that a child of the principal (i.e., the person who signs and grants the power of attorney authority) who requests an accounting from the attorney-in-fact (i.e., the agent named in the power of attorney) is entitled to delivery of a requested accounting within 60 days (although the 60 day delivery deadline only applies to a written request submitted to the attorney-in-fact not later than nine months after the date of the principal’s death). A change in Indiana’s transfer-on-death law states that when a transfer-on-death affidavit is filed in order to document the transfer of ownership pursuant to a transfer-on-death deed, the affidavit does not need to include a copy of the owner’s death certificate.
When Is A Guardianship Necessary? A guardianship is usually needed when a person is incapable of making his or her own personal and financial decisions, including health care decisions, and has not designated an attorney-in-fact under a power of attorney or a health care representative under a power of attorney for health care or appointment of health care representative instrument. There are instances when a guardianship might be needed even when a power of attorney or health care appointment exists, but in most instances a guardianship can be avoided when there is a person available and willing to act under a power of attorney or health care representative designation. A guardian is a person or entity appointed by the court, and a “guardian” has the same meaning as a conservator. “Incapacity” includes the inability to manage property or to provide self-care, or both. This could stem from infirmity, mental illness, alcoholism or other causes. A person for whom a guardian is appointed is referred to as a “protected” person. In Indiana, the court will always look to the least restrictive alternative available in order to protect the protected person. In other words, a court could create a “limited” guardianship if it is appropriate to do so as a means to encourage self-improvement and to maintain a degree of autonomy. A guardian might be needed for personal reasons, perhaps because there is no health care representative named and no other family member able or willing to act, while a guardianship might not be needed for financial purposes because a power of attorney exists. Consequently, a guardian might be appointed for the person, or for the estate, or both. There are special emergency procedures for appointing a guardian more quickly, although there are due process requirements in order to do so. A guardianship in such an emergency would be temporary, and whether or not it should be continued or a permanent guardianship established would be determined by a hearing within a period of 60 days after the appointment.
Limited Liability Entities. What is the best choice of entity for asset protection purposes? The choices include a corporation, a limited liability company (LLC), or a limited partnership. A limited liability company will generally be the best choice because of its flexibility. However, limited liability companies are relatively new, and there is not a great deal of judicial precedent addressing LLC liability issues. A corporation might provide the most certainty in the area of asset protection, but the operation and maintenance of a corporation involves more complexity, and quite frankly, many people simply do not comply with the requisite legal formalities (minutes of directors and shareholders meetings, documentation for substantial transactions such as corporate financing, implementation of employment agreements and management contracts in certain circumstances, etc.). The tax attributes associated with an LLC will generally be more favorable. Because an LLC is treated as a partnership for tax purposes, it provides more flexibility for the admission of members, separating ownership from control, and similar matters. An LLC will generally be simple to operate, but it does have formalistic requirements, and many people simply do not comply with those requirements. When the issue is protecting assets and insulating members or investors from liability, it is very important to comply with all legal requirements. Further, the issue of liability exposure is vastly overblown and generally not well understood. In my almost 40 years of legal practice, I have never had a single client lose even a significant part of his or her net worth due to general liability claims. Protection from financial risks that might result in bankruptcy due to borrowing money can generally not be avoided since most business loans will require a personal guarantee irrespective of the type of entity. Further, no limited liability entity will protect you from liability for your own acts, although it will provide a degree of protection from the acts of others. For example, if you injure someone while on company business, you will be liable for that. If your employee injures someone while engaged within the scope of his or her employment, you may not be personally liable, although your entity may be. It is against those vicarious claims that LLCs can provide the best protection, but 99.99 percent of the time, those risks are adequately covered by insurance. In summary, there are many legitimate reasons for utilizing an entity to limit liability. In most instances an LLC would be preferred, but even then, legal formalities must be complied with. Further, people should always maintain adequate insurance and should not be overly concerned about exposure to liability, much of which may be avoided by reasonable conduct and adequate insurance.