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.
Indiana Legislative Changes. There were numerous legislative changes enacted in Indiana this year to be effective beginning July 1, 2019. Many of the changes will be of interest more to attorneys than to laypeople. Some of the changes are fairly technical. However, one change that many people may find of interest is the clarification added about the establishment of a “quiet” trust. A “quiet” trust is a trust which is to a significant degree unknown to the beneficiary. Indiana law could have previously been read to authorize the establishment of a “quiet” trust, and to allow or require the trustee to conceal information from beneficiaries, but the lack of statutory guidance in this area was very problematic. It is now clear that a settlor may restrict disclosure to certain beneficiaries and may “expand, restrict, eliminate, or otherwise modify the right of the beneficiary to be informed…for a period of time…”. There are certain instances when it might make sense to establish a “quiet” trust. In most instances, however, particularly in the case of an adult beneficiary who has not been adjudicated to be incapacitated, it is quite probable that the beneficiary may know or learn of the establishment of the trust for his benefit, in which event the beneficiary has a right to demand information. Consequently, in my opinion, the use of a “quiet” trust will be quite limited, and such trusts must be written very carefully in order to avoid litigation should a beneficiary ascertain that he has an interest in a trust and then seek to obtain information that the settlor wants to avoid providing.
Nonjudicial Settlement Agreements. Another statutory change in Indiana that became effective on July 1, 2019 is the ability to modify an “irrevocable” trust or to settle a trust dispute by means of a “nonjudicial settlement agreement” (“NJSA”). This change offers an alternative to a court-approved compromise settlement agreement and allows interested persons to enter into binding, written, out-of-court agreements or NJSAs to resolve disputes about the interpretation, administration, or modification of trusts, and similar matters. It should be noted that this process cannot be used to reach a result that a court could not order by exercising its powers under the trust code. In other words, people cannot do by mutual agreement what the court could not order by following a court-approved compromise procedure.
Indiana Legacy Trusts. Another recent statutory change is the ability to establish a “legacy trust,” i.e., an Indiana domestic asset protection trust. It amends the Indiana Trust Code, which currently prohibits “self-settled spend-thrift trusts.” Indiana has become the 18th state to enact a “domestic asset protection trust” (“DAPT”) statute. In my opinion, an Indiana legacy trust will be used by relatively few people, which will usually be those in what are deemed to be high risk professions or occupations and who have significant wealth. A legacy trust cannot be used to avoid an existing debt or liability, but if set up properly, it can protect the trust assets from future creditor claims, even though the settlor of the trust remains a trust beneficiary and can receive distributions from the trust. A settlor who is married must make the asset transfers to the legacy trust at least 30 days before the wedding, or within 30 days before the wedding but give the other party at least three days’ advance written notice before making the asset transfers to the legacy trust. There are specific requirements involved to include creditors who were notified of the existence of an asset in a financial statement or loan application and who may have made a loan based on the existence of those disclosed assets.
Uniform Directed Trust Act (“UDTA”). Another statutory change we will address, also effective July 1, 2019, is the enactment of Indiana’s version of the UDTA. This new legislation will apply to existing trusts to the extent that directions are made to trustees on or after July 1, 2019. Trusts are frequently established with a “trust protector,” i.e., someone or a group of individuals or a committee to oversee what the trustee does to assure trustee compliance, that the beneficiary’s needs are being met, etc. Many persons can be given the ability to direct the trustee’s actions, and that person might be called a “trust supervisor, investment advisor, investment director,” etc. The UDTA uses one label, “trust director,” to refer to all such persons who hold “powers of direction.” A “trust director” can be very useful to assure that the settlor’s wishes are given effect. It is now clear that a “trust director” has a fiduciary duty, and is subject to a standard which, if violated, could give rise to personal liability. However, the standard is a relatively low one of “willful misconduct,” which means, essentially, intentional wrongdoing and not mere negligence, or even gross negligence or recklessness. Wrongdoing would suggest malicious conduct or conduct designed to defraud or seek an unconscionable advantage. The terms of a trust may define and impose additional duties, and/or a more stringent fiduciary standard, but the minimal “willfulness misconduct” standard cannot be eliminated or further weakened.
Supported Decision-Making (“SDM”). The last statutory change we will address, but only briefly, arose under SEA 380, also effective July 1, 2019. It requires that as an element of a guardianship proceeding, the petitioner must include a statement describing “the petitioner’s efforts to use less restrictive alternatives before seeking guardianship,” including a description of the less restrictive alternatives that were considered and ruled out, and why they will not work. Also, in any annual or biennial accounting and reporting, the guardian’s description of the protected person’s current condition and circumstances must include both a specific showing of whether a guardianship is still necessary and appropriate, and whether any less restrictive alternatives have been considered or implemented. The concept of “supported decision-making” assumes that an adult may need help or guidance in certain areas or when making certain decisions, but that the person should retain such decision-making ability as circumstances permit. The SDM statute contemplates that a “supported decision-making agreement” might be implemented, pursuant to which the “supporter” would be given authority to undertake certain acts and to provide guidance to the person supported. In my opinion, it interjects uncertainty in an area of the law which is already difficult and complex since the guardianship process is presently a relatively formalistic and complex one designed to protect the autonomy of individuals for whom a guardianship is being sought.
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.