One of the milestones of adulthood is coming to grips with the thought that we will not always be here.
One of the milestones of adulthood is coming to grips with the thought that we will not always be here. Usually, the next thought is “What will happen to my stuff?”, followed by (hopefully) “I guess I need to do some planning. Do I need a will or a trust?” For tax purposes, 99.9% of the population doesn’t have to think about the potential of creating an undesired beneficiary named the ‘IRS’. Taxes assessed to someone dying with property passing to their beneficiaries has been virtually eliminated. Indiana repealed its inheritance tax effective January 1, 2013, and, in 2020, the federal exemption before any tax is due is in excess of $11 million, and double that for a married couple.
To answer the “will or trust”’ question, first you need to determine what would happen if you die without one. Dying without a will is termed ‘intestate’ and Indiana has written a lengthy statute detailing the lineal descendants and the percentages they would inherit, both for a single person as well as a married individual. If you are married with children, the statute provides that a surviving spouse would receive one-half of your estate, and your children would divide the rest equally among them. If you have no spouse or children, the law then goes on to dividing your assets to surviving parents of the decedent, brothers, sisters and even cousins, attempting to find a beneficiary (besides the State of Indiana).
The problem with this outcome is that it ignores the fact that your kids (or other heirs) might be under the age of 18. In Indiana, a child possessing more than $10,000 in assets needs to have a formal, legal guardianship established over them through the court system to handle their property, even if both parents are alive. This guardianship is a cumbersome, expensive legal procedure, and there are better ways to leave money to your child. If at this point, you’re thinking, “I don’t want the State of Indiana to dispose of my property” or “My child is under the age of 18” then you likely need a Will, in which you decide who receives your property and if there are strings attached, such as assets are to be used only for a child’s education. In the case of your children, you can delay their receipt of an inheritance until an age you choose, such as 25, 30, or even 40!
“Do I need a Trust?” There are several types, but here we will discuss a revocable trust, also called a living trust. Indiana has very good estate administration laws and processes; however, sometimes a revocable trust will serve a person well. For instance, if you have non-Indiana real estate, such as a Florida condo, by having your revocable trust own your condo instead of you, the trust survives your death and continues to own the property, and the trustee distributes it to the person you designate. It saves the time and cost of having an administration in Florida as well as Indiana. If you have a child you wish to disinherit, for any number of reasons, it is harder in Indiana to break a Trust than it is to break a Will. Having all your property pass into your trust, then to your beneficiaries will present a higher mountain for the disinherited child to climb than a Will would. If you have a need for a high level of secrecy about the nature of your assets, a Trust may be for you. Upon your death, a Will becomes public record. Anyone can go to the courthouse and read your Will. A revocable trust is never probated or put on the public record, making the contents secret.
You do need a Last Will and Testament or a Trust if you don’t like how the State of Indiana will dispose of your stuff, if you have a child under 18, if there are people you do not want to inherit any of your property, or if you have non- Indiana real property. And time is not on your side: no one lives forever. It’s best to handle this important matter as soon as you can.