Legal Question in Wills and Trusts in Indiana

Re: Grandmother has money

Transfers of any kind of property to you while you serve as the agent under your grandmother's power of attorney could be challenged after her death by any other heirs at law. Such transfers are presumed to be fraudulent, and you would have the burden to prove that your grandmother clearly wanted you to have the property. If she insists on doing something like that, then see if she wouldn't permit a disinterested person to record a video of her, describing what she is doing and why she is doing it. If you are the only surviving grandchild, and there are no other children, grandchildren or great-grandhcildren, then no problem. Her estate's federal estate tax obligation will be zero, if she dies before 2010. If she dies in 2003, the federal exemption is $2,000,000, and that amount increases until the year 2010. (After 2010, the federal estate system reverts to the way it was in 2000, which means tax liability for assets above $600,000.)The Indiana Inheritance Tax for gifts to you could be significant: as grandchild, you get a hundred thousand dollar exemption and a lower tax rate, but your inheritance tax would still be about $14,000, assuming $500,000 of assets. An intervivos revocable trust ("living trust") could be helpful to somewhat reduce probate expenses, but does not affect estate and inheritance tax liability. If you really are the sole surviving heir, then your grandmother's idea of giving you money gifts is as good a way as any to reduce inheritance tax liability. Just be aware that the Indiana Inheritance Tax applies to gifts "in contempation of death" but not to birthday, Christmas or other holiday gifts. But if there are other eligible heirs, even remote ones, then any payment or gift to you could be challenged. There are many permutations involved in your concerns, so you and your grandmother should consider a consultation with a real lawyer (as opposed to a cyberlawyer). Call your county bar association for a referral to someone with experience in probate and estate planning. Good luck to you and your grandmother.

Re: Grandmother has money

For state inheritance tax purposes at Granny's death, you will inherit the first $100,000 tax free. She can gift to you between $10,000 and $12,000 annually without having to file a federal gift tax return. She (not you) needs to consult an attorney about the most tax effective way to avoid the Indiana inheritance tax upon her death, although it seems a little late for effective planning. Even if her assets are put in a living trust so that you avoid probate, you do not avoid the imposition of the inheritance tax. Since her estate does not appear to be large enough to bear estate tax (the federal tax upon death), she could effectively gift much of her property to you or younger family members (your children for example) and file the returns. Until she gifts the essential equivalent of the federal credit (equivalent to at least $750,000 or more), then she pays no tax, she merely reports the gifts to the government. Any real estate you receive as a gift has a basis equal to the donor's basis for purposes of determining gain or loss on sale; however, inherited real estate has a basis of the value at the time of death for the same purpose. Your granny needs expert advise to choose wisely. I am sure if she does not feel comfortable in going to a lawyer's office, one would be happy to come to her to discuss the matter.

Re: Grandmother has money

You have several issues here. Although your mother has a nice size estate, it is still sufficiently small to escape federal estate taxes. If she is a resident of Indiana and leaves it all to you, then there is a $100,000 exemption, which would leave $400,000 that would be taxable. The state tax on that is $14,250.

Your grandmother can gift you $11,000 a year without eating into her estate exemption, but since her total estate is less than the current gift exemption of $1,000,000 she could leave you all of it right now without having to pay any gift taxes. Also, the State of Indiana has no gift tax, so any gifts would not be taxable, unless they are made in contemplation of her death (that is she got rid of them knowing she was going to die to escape state inheritance taxes).

My main concern is not so much with the saving of inheritance taxes, which I think would be fairly low, but with nursing home and medicaid issues. If your grandmother has just had her leg amputated and is in deteriorating health, she may need to go into assisted living in the near future. Giving away her assets has implicatins on nursing home care and qualifying for medicaid down the road if she needs it.

As regards putting her assets in a living trust, that will not save any inheritance taxes nor will the assets be shielded from medicaid.

What you really need to do is take your grandmother to an elder law attorney and he/she can advise her on the best route to go.