The Indiana Court of Appeals recently decided the case of In re Matter of the Revocable Trust Agreement Created by the Settlor, Anil Kumar Sarkar. The case involved a husband, Anil, and wife, Dipa, both medical doctors and immigrants from India. Anil was a widower with two children from a prior marriage, including a daughter Mili. Anil and Dipa had one child together, Rumu.
Both Anil and Dipa were successful in their profession, each becoming the director of a hospital laboratory. Throughout their marriage, they kept their bank accounts, pension plan accounts, and investment accounts separate from the other’s. Anil financially supported his two children from his previous marriage, and Dipa provided for Rumu’s expenses and education.
In 1992, after they both retired, Dipa engaged an attorney to create a revocable trust. A year later, and at his wife’s insistence, Anil created a revocable trust as well. The two trusts — drafted by the same attorney — were identical in nearly all respects. Each was the primary beneficiary of his or her own trust during their lifetime. And each trust provided that, upon the settlor’s death, the trustee was to distribute to the surviving spouse only the minimum amount necessary to reduce the federal estate tax payable as a result of the settlor’s death. Rumu was the sole primary beneficiary of the residue of Dipa’s trust, and Mili was the residuary beneficiary under Anil’s trust.
Both Dipa and Anil transferred their respective investment accounts to their respective trusts. They used the same financial planner, who communicated with them in shared correspondence that outlined each’s personal assets.
In 1996, their shared attorney wrote a letter addressed to both Dipa and Anil, confirming a recent conversation. In particular, the attorney confirmed that despite the tax benefits of doing so, each had elected to name someone other than their spouse as the designated beneficiary of each’s IRA account. The attorney also included a summary of the surviving spouse’s statutory right to elect to take against a deceased spouse’s will, which he stated under then-existing Indiana law “does not extend to trust assets.” “It is therefore possible,” he wrote, “that the second spouse to die could make a claim against the first to die’s IRA proceeds or possibly the trust.” Nonetheless, both Dipa and Anil declined to execute an agreement to waive their spousal right to an elective share. In 2000 and again in 2003, Dipa signed consent forms permitting persons other than herself to be designated as beneficiaries of Anil’s IRA.
For years, Dipa and Anil continued to use the same attorney to update their estate planning documents. That ended when Dipa expressed to their attorney that she did not want Anil to be privy to her estate planning. In light of the potential conflict of interest, the attorney ended his representation of both Anil and Dipa. Afterwards, they engaged separate counsel but still maintained the same financial planner.
Anil amended his trust instrument seven times. From the original trust through the fourth amendment, he made no provision for distribution of trust assets to Dipa, stating, “because my spouse, [Dipa], has more assets than I have and will not need my money or property to support herself, I choose to leave her nothing.” But from the fifth amendment through the final amendment, he provided for Dipa to receive $50,000. In 2014, thirteen months before he passed away, Anil executed a simple pour-over will that transferred any remaining probate assets to his trust. He nominated Rumu as his personal representative and made no provision in his will for Dipa, except for tangible personal property. Shortly before his death, Anil diverted his social security payments from his checking account into his trust.
Anil died in February of 2015, and Rumu petitioned to probate his will. The will was admitted to probate, and Rumu was appointed as personal representative. Dipa then filed a petition to docket Anil’s trust. Her petition challenged the validity of the trust and the propriety of Anil’s decision to divert the majority of his assets to the trust in an attempt to disinherit her. She subsequently filed an election to take against the will and sought to include the trust assets as part of his probate estate, so that they would pass to her as part of her spousal election.
After a four-day bench trial, the court entered judgment in favor of Mili as trustee, finding that there was “no evidence that Anil’s intent in creating the trust was to frustrate Dipa’s right to a statutory elective share.” Dipa appealed the trial court’s judgment.
Indiana Court of Appeals’ Analysis
In its analysis, the Court of Appeals explained that under Indiana law, the surviving spouse of an individual who dies testate may elect to take against the will if the surviving spouse is not satisfied with the provision made for her in the will. In determining the estate of the deceased spouse for the purpose of computing the amount due to the spouse electing to take against the will, the court is to consider only such property as would have passed under the laws of descent and distribution. In other words, assets in trust or for which there is a beneficiary designation (like an IRA account) are not included as part of the probate estate. The Court of Appeals then recognized a recent trend to include non-probate property as part of the estate subject to an elective share claim. Distilling the last 40 years of case law on this topic, the Court of Appeals arrived at the following test: Anil’s trust instrument is void if it was created (1) in contemplation of his death, and (2) with the purpose of defeating Dipa’s statutory share. The Court of Appeals then applied the test to the facts of the case.
Though the law typically requires that the court only look at the restated trust instrument and “forget all prior documents,” the Court of Appeals noted that all circumstances, including prior versions of Anil’s trust, should be considered in its analysis. The Court of Appeals then easily found that — though his trust was restated shortly before his death — it was not created in contemplation of his death. In particular, the Court of Appeals found that Anil first created his trust in 1993, he retained all trust property under his control with no restrictions on the transferability of the property, and, though he had extensive cardiac health concerns, there was no evidence that any subsequent amendment to the trust was effectuated in expectation of his death.
The Court of Appeals then turned to whether the record supported the trial court’s finding that Anil did not intend to disinherit Dipa. The record revealed that the original trust and first four amendments expressly disinherited Dipa. In addition, their former shared attorney testified extensively that Anil and Dipa’s estate planning goal was to leave their significant assets to their non-spousal beneficiaries. Nonetheless, the Court of Appeals determined that the record supports the trial court’s conclusion that Anil did not intend to disinherit Dipa. Specifically, the fifth through seventh (and final) trust amendment provided $50,000 to Dipa. In addition, throughout their entire marriage, they maintained separate assets, but Anil was transparent about his estate planning. Thus, there was no secrecy that would evidence an intention to disinherit, as in prior cases. Accordingly, the Court of Appeals affirmed the trial court’s judgment for Mili and against Dipa.
This unanimous published opinion refined the test for determining when a non-probate transfer is subject to a spouse’s elective share claim. But application of the test is highly fact sensitive and unpredictable, so conservative estate planning in these circumstances would still include the use of a waiver of spousal election. Estate planning law is ever evolving, so questions on this topic should be directed to legal counsel.