Frequently Asked Questions about Estate Planning

Probate is the court and process that looks after people who cannot make their own personal, health care and financial decisions. These people fall into three general categories: Minor Children (under age 18 in most states); Incapacitated Adults; and People who have died without legal arrangements to avoid probate. Probate proceedings can be expensive and time-consuming. Additionally, the court proceeding and associated documents are all a matter of public record. Many people choose to avoid probate in order to save money, spare their heirs a legal hassle, and keep their personal affairs private.

This is the most common form of asset ownership between spouses. Joint tenancy (or TBE) has the advantage of avoiding probate at the death of the first spouse. However, the surviving spouse should not add the names of other relatives to their assets. Doing so may subject their assets to loss through the debts, bankruptcies, divorces and/or lawsuits of any additional joint tenants. Joint tenancy planning also may result in unnecessary death taxes on the estate of a married couple.

The document a person signs to provide for the orderly disposition of assets after death. Wills do not avoid probate. Wills have no legal authority until the willmaker dies and the original will is delivered to the Probate Court. Still, everyone with minor children needs a will. It is the only way to appoint the new “parent” of an orphaned child. Special testamentary trust provisions in a will can provide for the management and distribution of assets for your heirs. Additionally, assets can be arranged and coordinated with provisions of the testamentary trusts to avoid death taxes.

Sometimes called an Advance Medical Directive, a living will allows you to state your wishes in advance regarding what types of medical life support measures you prefer to have, or have withheld/withdrawn if you are in a terminal condition (without reasonable hope of recovery) and cannot express your wishes yourself. Oftentimes a living will is executed along with a Durable Power of Attorney for Health care, which gives someone legal authority to make your health care decisions when you are unable to do so yourself.

If you die without even a Will (intestate), the legislature of your state has already determined who will inherit your assets and when they will inherit them. You may not agree with their plan, but roughly 70 percent of Americans currently use it.

You may avoid probate on the transfer of some assets at your death through the use of beneficiary designations. Laws regarding what assets may be transferred without probate (non-probate transfer laws) vary from state to state. Some common examples include life insurance death benefits and bank accounts.

These allow you to appoint someone you know and trust to make your personal health care and financial decisions even when you cannot. If you are incapacitated without these legal documents, then you and your family will be involved in a probate proceeding known as a guardianship and conservatorship. This is the court proceeding where a judge determines who should make these decisions for you under the ongoing supervision of the court.

This is an agreement with three parties: the Trust-makers, the Trustees (or Trust Managers), and the Trust Beneficiaries. For example, a husband and wife may name themselves all three parties to create their trust, manage all the assets transferred to the trust, and have full use and enjoyment of all the trust assets as beneficiaries. Further “back-up” managers can step in under the terms of the trust to manage the assets should the couple become incapacitated or die. Special provisions in the trust also control the management and distribution of assets to heirs in the event of the trustmaker’s death. With proper planning, the couple also can avoid or eliminate death taxes on their estate. The Revocable Living Trust may allow them to accomplish all this outside of any court proceeding.

Whether you are young or old, rich or poor, married or single, if you own titled assets such as a house and want your loved ones to avoid court interference at your death or incapacity, consider a revocable living trust. A trust allows you to bring all of your assets together under one plan.

I. What is a prenuptial agreement?

A prenuptial agreement (sometimes called an ante-nuptial agreement) is an agreement made between a future married couple. Barron’s Law Dictionary (6th Edition) defines a prenuptial agreement as follows:

“An agreement entered into by two people who intend to marry each other which sets forth the rights of each person in the property of the other in the event of divorce or death. Generally, the entering into marriage constitutes sufficient consideration to make a prenuptial agreement enforceable.”

A prenuptial agreement can address several issues related to property. For instance, a prenuptial agreement can determine whether the surviving spouse will invoke his/right to the spousal share of the deceased spouse’s estate. In addition, couples may agree whether they will waive spousal rights in a qualified retirement plan. The contents of the prenuptial agreement will be different for every couple.

II. What are some instances in which individuals should enter into a prenuptial agreement?

1. Second Marriage: If the upcoming marriage will be a second marriage, then it may be a wise idea to consider a prenuptial agreement. The first marriage might have created property and family issues that need to be addressed by the couple prior to marriage. For example, the future husband may have children by his first marriage. By marrying his second wife, the husband may be concerned that his first wife’s children receive particular property when the husband passes away, rather than the second wife, notwithstanding his love and affection for the second wife.

2. Inheritance: If a future spouse believes that he/she will receive an inheritance during the course of the marriage (whether it is a first marriage or a second marriage), the couple should consider a prenuptial agreement. The default rule in Indiana is that all property acquired during the marriage is marital property. In the event of divorce, the presumption is that a 50/50 split of the marital property is a just and fair division. That would include inheritance. To overcome this presumption, it may be prudent to enter into a prenuptial agreement.

3. Business: If a future business owner will soon be married, a prenuptial agreement should be considered for the same reasons as listed in paragraph 2, above. That is, any ownership of a business that commences after marriage would become marital property, and therefore, it would be subject to division in a divorce. The founder of Amazon, Jeff Bezos, and his wife, MacKenzie Bezos, dealt with this issue in their divorce in 2019. MacKenzie Bezos received $36 billion in the divorce settlement. Food for thought: if you are planning to become the richest person in the world as is Jeff Bezos, and you want to get married, it’s probably sound advice to get a prenuptial agreement.

This question is very client specific.

Sometimes clients desire that stepchildren be treated no differently than the client’s biological children. Other clients sometimes want only their children to receive their property. Thus, to answer this question it is necessary for the estate planning attorney to understand the family dynamics. Further, it is important for the client to understand the legal presumptions regarding stepchildren. While this blog post cannot address particular family dynamics, it can address the treatment of second marriages and stepchildren according to Indiana law.

Indiana Code § 29-1-2-1 provides the distribution of one’s estate if a person dies without a will.

This statute informs us that when the decedent (1) is survived by a spouse of a second or subsequent marriage, (2) has children from a previous marriage, and (3) has no children from the current marriage, then the surviving spouse is entitled to 25% of the decedent’s estate. The decedent’s children, then, are entitled to the remaining 75% of the decedent’s estate.

When the decedent (1) is survived by a spouse of a second or subsequent marriage and (2) is also survived by at least one child, then the surviving spouse is entitled to 50% of the decedent’s estate. The decedent’s child(ren), then, are entitled to the remaining 50% of the decedent’s estate.

There is no provision in the Indiana Code that would entitle stepchildren to the proceeds of any decedent’s estate if the decedent died without a will.

The rules briefly described above provide the basis for estate planning decisions. In many situations, clients do not prefer that the surviving spouse receive merely 25% or 50% of the decedent’s estate. Often clients wish for the surviving spouse to receive all of the decedent’s estate, or clients wish to leave an inheritance to stepchildren and children equally. The family dynamics will determine the direction of the estate planning.

The main takeaway for the above rules is this: If the client does not desire the default results, then the client needs a will to CHANGE THE DEFAULT RULES.

This question is the main reason why young married couples enter the office of an estate planning attorney. The greatest concern for these clients is often not related to the efficient distribution of their wealth to the next generation. Rather, the greatest concern for young married couples is often the question of whom will care for their children if something traumatic should prevent both parents from caring for them. In fact, when a married couple has their first child, such is the opportune time to their first will.

It is critical that parents of minor children name an individual to serve as Guardian of their children in their last will and testaments. When both parents have deceased or are unable to care for their children, a probate court will look to the parents’ last will and testament in deciding whom shall serve as Guardian. Without the parents’ input through their last will and testament, the probate court may only have the opinion of self-interested family and friends to consider the question. Obviously, the most important opinion is that of the parents. Clients with young children do not want to leave the question up to anybody else than themselves.

A Last Will and Testament that was signed many years ago should be reviewed with an estate planning attorney. The estate planning attorney may not recommend any changes to the Last Will and Testament. But given the length of time since the will was signed, an individual’s estate planning needs might be significantly different.

First, several life events may have occurred since the will was first signed. Perhaps the individual’s spouse has passed away. Perhaps a family member or friend was nominated in the will to be guardian of the individual’s children if the parents passed away, and the children are now grown. Perhaps there are grandchildren in the picture now. Any of these events, among others, may color whether a new will should be drafted.

Second, an individual’s original estate planning purposes may be different today than many years ago. For instance, many estate planning attorneys in years past drafted estate plans in order for their clients to maximize estate tax savings. At one point in time, the estate tax kicked in when the estate had $600,000 in it. Obviously, that’s a large amount of property. But today the estate tax does not kick in until $11 million for a single individual. If you are a married, the estate tax does not come into play until the couple has a combined $22 million. Now estate planning attorneys often do not have to use complex estate planning mechanisms to save the client from the estate tax. Thus, many clients’ estate plans may be simplified for ease of administration after client has passed away.

As another example, the client may now be interested in planning for long term care. If the client previously signed their will or trust when they were young parents, and now they are near or past retirement, a basic estate plan may not fit their purposes. Instead, the client may wish to create a trust to expedite Medicaid eligibility.

Third, the client may have acquired property since the last time he/she executed the estate plan. Perhaps the client inherited real estate outside of Indiana. Or perhaps the client now owns a testamentary power of appointment that is to be exercised by will.

The best rule of thumb is probably to have your estate plan reviewed at least every five years to determine whether it needs to be updated. Or, whenever a significant life event has occurred, such as the death of a spouse or other loved one named in the estate plan, the estate plan should be reviewed.