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Legislative Updates

Indiana

Trusts; Wills

PL 6-2010, SEA 65. Effective Date: July 1, 2010. Affects many portions of probate, guardianship, and trust statutes.

This Act adds sections to and amends many portions of the Indiana Code concerning probate, including some typographic and minor edits of a housekeeping nature that are not specifically discussed herein. First, the Act prescribes the contents of an affidavit to exempt a small estate from inheritance taxes. The affidavit must contain: (1) decedent's name and date of death; (2) the "name of each known transferee and the transferee's relationship to the decedent"; (3) the total value of property transferred to each transferee; and (4) a statement that the value of property transferred is smaller than the allowed exemption.

The Act also states that, for decedents who die in 2009, wills and trusts that contain formulas based on an anticipated estate tax or generation-skipping transfer tax scheme shall be read based on the tax scheme in place on December 31, 2009. If an estate tax takes effect at some point in 2010, those will or trust provisions will be read based on the tax scheme as of the first day it is effective. If a will is affected by this provision, the personal representative or trustee may initiate a proceeding within 9 months of the testator's or settlor's death to determine the testator's or settlor's actual intent.

The Act amends IC 29-1-7-4.5 to state that certain documents filed by a personal representative with a court must contain a statement that the personal representative served the document on "each person whose written consent or waiver of notice of proceedings is presented to the court in support of the petition or other document." This requirement applies to documents that are filed along with a written consent to the document or a written waiver of notice.

The Act amends IC 29-1-10-6.5 to refer to uniformly refer to "interested persons" instead of heirs, legatees, and other like terms.

The Act adds IC 29-3-9-4.5, allowing guardians to take various actions, such as making gifts, amending trusts and exercising a power of appointment, if the protected person lacks testamentary capacity. The court must approve these actions, taking into consideration the protected person's wishes and a list of other factors. At the guardian's expense, he or she may request documents from the protected person that affect estate planning.

The Act adds IC 30-4-2.1-14 regarding discretionary interests. Discretionary interests are not property interests and are not enforceable. Creditors cannot foreclose on these interests nor can they require distributions from a trustee. Trustees' discretionary distributions are only reviewable by a court if they are made dishonestly or with an improper motive. If a trust grants the trustee discretion described as "sole, absolute, uncontrolled, or unfettered" then the trustee need not Act reasonably. A trustee who is free to make unequal and discretionary distributions may distribute the entire trust property to only one beneficiary and exclude the others. Regardless of whether a beneficiary of a discretionary interest has creditors, a trustee may use up the income and principal to pay the beneficiary's expenses.

Also regarding trusts, the Act adds IC 30-4-2.1-15, which enumerates eleven factors that are not to be considered as dominion or control of a trust if a settlor or beneficiary is accused of exercising such control. Per another new section at IC 30-4-2.1-16, these factors also may not be considered when determining if a settlor controls the trust or is the alter ego of a trustee of an irrevocable trust. To demonstrate that a settlor is the alter ego of the trustee, a challenger must show clear and convincing evidence absent these factors, and also absent evidence that: (1) a settlor asked the trustee to make distributions to a beneficiary, or asked the trustee to hold, purchase, or sell any trust property; or (2) that the settlor signed checks or otherwise executed documents or made disbursements if the settlor is not a trustee.

Another new section at IC 30-4-2.1-17 prohibits creditors from reaching a beneficiary's power to remove or replace a trustee. In stating these powers are personal to a beneficiary, it also restricts courts from ordering a beneficiary to exercise such a power. By the same token, neither creditors nor courts can reach the interest of a beneficiary who is also a trustee or co-trustee.

Further concerning trusts, a new section at IC 30-4-3-35 addresses "joint matrimonial trusts." This allows a husband and wife to create a joint matrimonial trust or two separate matrimonial trusts that will contain real property designated as "matrimonial property." The couple may designate the property as "matrimonial" either in the trust documents or a separate document recorded in the county where the property is located. The Act provides for when guardians and attorneys in fact can make elections.

Generally, where the settlor of a separate matrimonial trust leaves an interest to the surviving spouse, such as income or a life estate, the matrimonial trust continues until the beneficiary spouse disclaims the property or ceases to receive payments (such as resulting from the beneficiary's death). Joint matrimonial trusts cease to be matrimonial upon the death of one of the settlors. Alternatively, the couple can revoke the trust together via writing.

New provisions at IC 30-4-3-36 allow a trustee with "absolute" power to invade the principal of one trust to distribute principal to another trustee of a second trust if the beneficiaries of both trusts are the same. This distribution is not allowed if transferring the principal to the second trust reduces the beneficiaries' income or if the transfer negates marital or charitable tax deductions that would have been available under the first trust. The trustee's absolute power must be in writing, signed by the trustee, and in the documents of the first trust. The trustee must notify qualified beneficiaries sixty days prior to the exercise of this power.

When a beneficiary of a trust cannot be located after a reasonable search, a new provision at IC 30-4-3-37 allows the court to order the trustee to sell the trust property and furnish the proceeds to the clerk of the court. The clerk will then hold the proceeds for distribution to whoever is determined to be the rightful possessor. After filing a receipt with the court showing the payment of the proceeds to the clerk, the trustee(s) are discharged of their duties.

The provisions at IC 32-17-13-8 are amended to provide alternate time frames for starting a proceeding. Previously, creditor claims of liability for nonprobate transferees under this section could commence within sixty days after final allowance on the claim. Now, alternatively, the proceedings may commence 90 days "after demand is made under section 7 of this chapter if the personal representative declines or fails to commence a proceeding after receiving the demand."

Also, IC 32-17-14-25 was amended from its previous form, which stated that laws protecting spouses and children from disinheritance in wills did not affect transfer on death provisions. That language is struck out. Now, the section reads: "An election under IC 29-1-3-1 does not apply to a valid transfer on death transfer. In accordance with IC 32-17-13, a transfer on death transfer may be subject to the payment of the surviving spouse and family allowances under IC 29-1-4-1."

The Act amends IC 32-17.5-1-1 to apply to disclaimers created after June 30, 2003. Later, at IC 32-17.5-4-1, a new subsection states that if a disclaimed interest would have passed to the disclaimer's estate if the disclaimer had died before distribution, then the interest passes by representation to the disclaimant's descendants surviving at the time of the distribution, or, if no such individuals are alive, the interest passes to the residue of the estate governed by the instrument from which the disclaimed interest came.

Finally, the Act amends IC 32-17.5-5-1, regarding disclaimer of interests in jointly held property. The amended section provides a three step formula to determine the maximum amount a holder may disclaim if the deceased holder had been able to unilaterally regain part of the property before his or her death.

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[Last update: 8-25-10]