Case Study: Contest Sufficiency

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A recent Indiana court case addressed an issue surrounding the grounds to properly contest a Trust. Ms. Seberger executed her Trust in 1992 and amended it several times. She died in 2014. Ms. Schrage, an heir to Ms. Seberger’s estate, requested a complete copy of the Trust from the Trustee. The Trustee responded by serving her with a Notice to Beneficiary and Trust Certification, stating that he was under no obligation to provide her with a complete copy of the trust and providing notice that she had ninety days to contest the validity of the Trust. The Notice also contained a redacted copy of the Third Restatement of the Trust. Within ninety days, Ms. Schrage filed her Verified Complaint Contesting Validity of the Trust. The Trustee filed a motion to dismiss so the trial court held a hearing and entered an order. The order granted the Trustee’s motion to dismiss because Ms. Schrage failed to properly commence the action pursuant to Indiana Trial Rules and failed to name parties upon whom liability may be imposed (i.e. tortfeasors). The trial court also said she failed to properly docket the Trust.

However, the Court of Appeals reversed and remanded. First, the Court of Appeals ruled that the trial court had erred in dismissing Ms. Schrage’s complaint for failing to properly commence the action and name possible liable parties. The appellees did not identify any person that Ms. Schrage failed to notify. They simply suggested that certain alleged tortfeasors were not notified. Ms. Schrage stated in her complaint that the Trustee also served as Ms. Seberger’s attorney and drafted the Trust, creating a presumption that certain amendments and restatements of the Trust were obtained by fraud. The Court of Appeals reversed the trial court’s dismissal and remanded that Ms. Schrage must amend her complaint and plead her allegations with sufficient specificity.

The Court of Appeals next addressed the trial court’s dismissal on the basis that a complaint contesting the validity of a Trust must be filed after the Trust is first docketed. The trial court treated Ms. Schrage’s failure to docket the trust as a matter of jurisdiction rather than a mere procedural defect. Thus, the Court of Appeals ruled that the trial court erred in that determination. It also found that the relevant statute plainly provides that Ms. Schrage was not required to first docket the Trust before bringing a challenge to its validity.

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Case Study: Paternity and Heirship

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A recent Indiana court case addressed the issue of paternity related to heirship. In the case, Kimberly was born to Linda who was unmarried at the time. Kimberly’s birth certificate did not list a father. Linda married Lloyd in 1974, who executed two affidavits: one an Affidavit of Legitimation, in which he attested that he was Kimberly’s natural father, and two an Affidavit Requesting Amendment, in which he requested that his name be placed on Kimberly’s birth certificate as her father. Lloyd and Linda divorced two years later. Linda did not participate in the proceeding other than to sign a document stating that there were no children born of the marriage.

Several years later, Lloyd died intestate (without a Will). Kimberly and Lloyd’s two sisters filed competing petitions for the issuance of letters of administration in Lloyd’s estate. The sisters also filed a petition to determine heirship and a petition for genetic testing. The trial court denied the petition for genetic testing and, after bench trial on heirship, entered judgment in favor of Kimberly as the sole heir of Lloyd’s estate.

The sisters appealed but the Appellate Court upheld the trial court’s decision. First, the Court noted that an order requiring genetic testing is only part of a paternity action. Because the sisters were not seeking to establish paternity, they had no right to petition the trial court to order genetic testing. Rather, the sisters were seeking to contest Kimberly’s claim of heirship. This claim is governed by an Indiana statute that provides for two conditions: 1. the presumed father marries the mother of the child, and 2. the presumed father acknowledges the child to be his own. The burden of proof rests on the child seeking to inherit from the presumed father to prove these conditions. The record was replete with evidence supporting the trial court’s judgment in favor of Kimberly. Lloyd had married Linda, the mother of Kimberly and he had filed two affidavits attesting that he was Kimberly’s natural father. Therefore, the Appellate Court upheld the trial court’s decision to enter judgment in favor of Kimberly.

Case Study: Dissolution of Marriage – Inheritance Accounts

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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.

Case Study: Medicaid Eligibility – Transfer Penalty

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For a Medicaid application, Family and Social Services Administration (FSSA) will look back five years from the Medicaid application date to determine whether any uncompensated or undercompensated “transfer of assets” were made. A transfer of assets includes cash transferred, property transferred, and any total or partial divestiture of control or access of an asset. If a transfer of assets occurred within five years and the transfer was for less than fair market value, a transfer penalty is imposed. Gifts in excess of $1,200 each year made within five years prior to applying for Medicaid will create a transfer penalty. A transfer penalty means that an individual will not receive Medicaid coverage for the penalty period. Planning ahead for Medicaid can help reduce these penalties.

Transferring assets into an Irrevocable Trust is considered a “transfer of the asset” once the asset is titled in the Trust. If the Medicaid recipient applies for Medicaid more than five years after creating certain Irrevocable Trusts and after titling the assets in the Irrevocable Trust, then there is no transfer penalty because the transfer occurred more than five years ago. After five years, the assets titled in the Irrevocable Trust are exempt so there is no transfer penalty imposed. The following case below shows an example where there was no transfer penalty imposed.

In 2000, Ada and Roy Brown transferred their home to a trust and, shortly thereafter, made the trust irrevocable. Ten years later, and two years after Ada moved to a nursing home, the trust sold the home for $75,000. In 2012, Ada applied for Medicaid and submitted documentation that the house sold for $75,000. Indiana Family and Social Services Administration (FSSA) found Ada eligible for Medicaid benefits but imposed a transfer penalty based on the sale of the home. FSSA found the home valued at $91,900. The home value was based on the assessed value for tax purposes. FSSA calculated Ada’s penalty based on the difference between the home value and the sale price. Ada appealed the imposition of the penalty. The trial court affirmed the penalty, but the Court of Appeals reversed the decision. The Court found that the proceeds from the sale of the home were properly placed back in the trust and that the fair market value of the home was $75,000. Therefore, the Court reversed the imposition of the transfer penalty.

There was no transfer penalty imposed in the above case because Ada and Roy Brown created the Irrevocable Trust and funded it in 2000, by titling the house in the Trust. Titling the house in the Trust was a “transfer of the asset.” After five years, the assets in the Trust are exempt assets so no transfer penalty was imposed. Even though the house sold in 2012, the funds from the sale of the house remained in the Irrevocable Trust so they remained exempt because the five years had passed. Check out our website for the Irrevocable Trust FAQ sheet for more information.

Source: Indiana Laws of Aging by Indiana State Bar Association

Case Study: Power of Attorney – When an Accounting is Requested

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Indiana statute requires that the attorney-in-fact must keep complete records of all transactions entered into by the attorney-in-fact on behalf of the principal for six years or until the records are delivered to the successor attorney-in-fact. The attorney-in-fact must present an accounting to the Court if it is ordered. He/she must also render an accounting to the following persons if they request it: the principal, guardian of the principal, child of the principal, personal representative of the principal’s estate (if the principal has died), or an heir or legatee of the principal. A recent Court case has clarified this statute when it comes to a child requesting an accounting.

In the case, Natalie had four sons. Her son, William, was serving as attorney-in-fact for Natalie since 2011. In November 2012, Natalie was diagnosed with early Alzheimer’s type dementia. One of her sons, Jeffrey, requested an accounting of Natalie’s finances from William. William refused to deliver a copy of the accounting to Jeffery. Therefore, Jeffery filed a Mandamus Action to compel the attorney-in-fact to render the accounting. The trial court denied Jeffrey’s Mandamus action. It found that although Jeffrey was the child of the principal and requested an accounting, he did not qualify to receive an accounting because the Power of Attorney was created prior to July 1, 2012. The Court of Appeals reversed and remanded. The Court found that the statute allows a child of the principal to receive an accounting if he/she requests it. It also found that the effective date of the Power of Attorney is not relevant to who may receive an accounting.

In all future situations then, the attorney-in-fact must provide an accounting to the person who requests it (if the person is from the list mentioned in the statute). The date of the Power of Attorney does not affect a person’s request for an accounting. If you are serving as attorney-in-fact for someone, you must keep complete and accurate records of all transactions you take on behalf of the principal.