Should You Avoid Probate?

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Many people have heard that they should avoid probate but don’t understand why. What is probate and should you avoid it?  Probate is the proving and acceptance by the Court of the Will. After death, the Will is presented to the Probate Court. Upon approval of the Court, the Will is admitted to probate. Probate also refers to the process by which the decedent’s assets are distributed to the heirs. One advantage to the probate process is that known creditors are sent a timely notice of administration which is also published in the newspaper. If they do not file a claim within three months of the newspaper publication, they cannot later pursue the debt from the heirs.  Another advantage, in some situations, is court oversight of family conflicts and supervision of the Personal Representative. The probate process terminates when the decedent’s assets have been distributed to the heirs or beneficiaries entitled to it, after the payment of taxes, expenses, and claims.

So why might you want to avoid probate?  Since probate estates pass through the court, this makes the Will and other related documents part of the public record.  When you avoid probate, there is no public proceeding and privacy is maintained.  However, when there is no probate estate, creditors are permitted to pursue heirs for nine months after the death versus the three month creditor claim period with a probate estate.  One key thing to keep in mind is that avoiding probate does not mean avoiding taxes.  Taxes are owed in both probate and non-probate estates.

 

Organizing Your Digital Accounts

Digital accounts

Almost everything people do now is online. If you die or become incapacitated, your loved ones will need to access your online digital accounts. If they don’t have access, how will they monitor your automatic payments? Take care of your bank accounts? Or even manage your Facebook page? Indiana’s new laws make it much easier for your attorney-in-fact and/or Executor to access your digital accounts, but this can still be a time-consuming process. In order to help your loved ones and keep the process simple, it would be beneficial to create a list of your user names and passwords for digital accounts.

Do not put this private information in your Will because your Will is made public after you die. You could put the information in a Trust if you have one, but this would not be practical either because you may change, update, add, or delete your digital accounts. The best idea is to create a list with all of your digital accounts and their access information (like user names, passwords, PINs, etc.) It’s important that you keep this list up-to-date with the most current information. Be sure to include information on how to access your computer, Internet provider, email accounts, blogs, websites, photo storage sites, social networking accounts, online subscriptions, online banking, mortgage provider, retirement plans, automatic bill paying, software applications, and cell phones.

To help you organize your information, we’ve created a packet for you to fill in with your information and keep with your legal documents. The packet has space for you to fill in with information about your digital accounts and your tangible accounts. If you keep the packet up-to-date and keep it with your legal documents, then your loved ones will have a much easier time helping you if you become incapacitated or die.

Premarital Agreements

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A Premarital Agreement (also called a Prenup) is a written contract created between two people before they are married. It typically lists each person’s assets and debts and specifies what each person’s property rights will be after marriage. Couples create Premarital Agreements for a number of reasons. Some couples who have children from prior relationships may want a Premarital Agreement to ensure that their children receive a certain amount of property. Other couples may simply want to clarify their financial rights and responsibilities during marriage. Premarital Agreements can prevent potential arguments about how property will be divided in the event of a divorce.  Also, they can protect spouses from each other’s debts.

Premarital Agreements can help, not only in the event of divorce, but also in the event of a spouse’s death. The Agreement stipulates who receives what property when a spouse dies.  This overrides statutory rights of surviving spouses. It can even take priority over a person’s Will, if the Agreement was fairly negotiated between the spouses.  This allows individuals to develop their own estate plans free from the fear that their wishes might be overridden after death.

If a couple does not have a Premarital Agreement, how is their property divided? State law determines who receives what property at divorce or death. This division of property applies to assets acquired during marriage and can apply to property acquired before marriage, such as inheritance accounts. If a couple does not want the state to decide who receives what property, then they should create a Premarital Agreement. At divorce or at death, the Court will carefully examine the Premarital Agreement. If it finds that the Agreement is unfair or fails to meet state requirements, then it will not be considered. It is important, then, to make sure that couples create a legally valid and understandable Premarital Agreement. Do you think you need a Premarital Agreement? Schedule an appointment today and one of our attorneys will be happy to help you.

Credit Shelter and A-B Trusts

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Credit Shelter Trusts and A-B Trusts allow a married couple to minimize estate taxes when passing assets on to heirs. The trusts are structured so that upon the death of the first spouse, the assets specified in the trust (up to a maximum dollar value) are transferred to the trust. A key benefit to this type of trust is that the spouse maintains rights to the trust assets and the income they generate during the remainder of his/her lifetime; however, the assets will not be included in the taxable estate at the second death.  The surviving spouse can even be the Trustee of the trust.

Many Credit Shelter and A-B Trusts were created to avoid estate tax at a time when the federal estate tax exemption was only $600,000. However, the federal estate tax exemption is now $5.45 million in 2016. Many of these trusts that currently exist should now be terminated. If an estate tax liability is no longer an issue, the fact that the Credit Shelter Trust does not get a stepped-up basis at the death of the second spouse, creates an unnecessary capital gains tax liability. Indiana Code section 30-4-7-6 allows individuals to draft a Family Agreement to terminate a Credit Shelter Trust. Contact our office for more information.

2016 Hot Topics for Indiana Lawyers

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This year is the fifth annual Hot Topics for Indiana Lawyers. The event will be held on September 22 and 23 from 8:30 a.m. to 4:00 p.m. at the Grand Wayne Center, 120 W. Jefferson Blvd. The event will count for 12 CLE credits, which includes 1.5 ethics credits.

Our attorneys, Tracy Troyer and Leah Good, will be speaking at the event on Thursday, September 22. The title of their presentation is “Estate Planners: Medicaid Law.” They will speak with the assembly about the 2016 Indiana law changes regarding Medicaid.

For more information on attending, please check out the Allen County Bar Association website.

Medicaid and Medicare: Which Pays for What?

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Medicaid and Medicare are both health care programs that give financial aid to those in need. It’s important to know what each program covers so that you can use the programs to your advantage.

Medicaid

What is it? Medicaid is a federal and state program that aims to provide medical coverage to those in financial need. In Indiana, the Family and Social Services Administration (FSSA) has primary responsibility over this program. Each state has its own qualifications for eligibility, but eligibility usually depends on the person’s income and assets. The program is available to individuals of all ages – including the blind, disabled, elderly, individuals under the age of 19, women who are pregnant, and families with children.

What will it pay for? Medicaid pays for long-term care costs for the elderly, blind, and disabled in a Medicaid-approved facility. This coverage lasts as long as the individual remains eligible. Waiver services are also available for an individual to receive Medicaid benefits while residing in an assisted-living facility or an at-home care program.

Medicare

What is it? Medicare is a federally run health insurance program for the elderly and disabled. It is meant for individuals over the age of 65, or for individuals with certain disabilities under the age of 65.  A person’s eligibility for Medicare does not depend on his/her financial status. In Indiana, an individual can apply for Medicare at the local Social Security office.

What will it pay for? Medicare has four parts to its services. Part A assists with expenses related to hospital stays; and Part B assists medical needs like doctor’s services and out-patient hospital expenses for a monthly premium of $104.90. Medicare Part A will cover up to 100 days of coverage in a nursing facility if the patient was admitted to a hospital for at least three days and entered the nursing facility within 30 days. Although Medicare covers up to 100 days of stay, it does not cover all expenses associated with the stay. Medicare will fully cover the first 20 days of a patient’s stay and partially cover the remaining 80 days. A Medicare recipient can also purchase additional coverage in the forms of Part C, which includes health plans like HMOs and PPOs, and Part D, which includes prescription drug coverage.

Case Study: Dissolution of Marriage – Inheritance Accounts

Dissolution

When a married couple decides to file for the dissolution of their marriage, the assets and property must be divided between the two. In Indiana, the law governs that the trial court will divide the property of the couple in a just and reasonable matter, or follow the premarital agreement if there is one. This property includes assets owned by either spouse before the marriage, acquired by either spouse in his or her own right after the marriage and before the final separation, or acquired by their joint efforts. This “one pot” theory of marital property ensures that all marital assets are subject to the trial court’s power to divide and award. However, the presumption of equal division may be rebutted by a party who presents evidence than an equal division would not be just and reasonable because of the contribution each spouse made to the acquisition of property.

A recent Court case affirmed that a spouse must overcome the presumption of equal division in order to have different distribution. In the case, the husband and wife married in 1978. During the marriage, the wife inherited property and funds after the deaths of her mother and uncle. She deposited the funds from the estates into multiple bank accounts in her name only. The husband had various sources of income, including worker’s compensation funds. In 2013, the husband filed a petition for dissolution of marriage and requested the trial court apply the presumption of equal division of the marital estate. However, the wife requested that the trial court award a 65/35 percent distribution in her favor due to the income disparity.

The trial court decided that a 65/35 percent distribution was not warranted and instead awarded an equal distribution. The issue went on to the Court of Appeals, who reversed and remanded. The Court noted that the wife had presented several specific facts related to the inheritance accounts that supported her claim. A person’s inheritance alone does not necessarily dictate how property should be divided, but the inherited property should be considered with relevant evidence and contextual facts. In this case, the wife kept the inheritance accounts solely in her name and for her use. Her husband was unaware of the specifics of the accounts and did not have access to or use the accounts. Since the wife met her burden of overcoming the presumption of an equal division, the case was remanded to determine the proper division of the marital estate.