Kentucky Senate Bill 50 (SB 50) is one of the most sweeping changes to Kentucky trust and estate law in a long time. Now that many provisions of the bill are in effect, it raises immediate questions for some Kentucky families. For questions specific to your exact estate plan, call your attorney and get specific legal advice on how to move forward. Last week I wrote about what SB 50 changed, and this week I am tackling a few of the big questions still out there. As an advisor and not an attorney, this blog is not legal advice. It is meant to help you cut to the chase, understand what changes may be relevant to you, and give you the right questions to ask your attorney when needed.
Key Takeaways
- SB 50’s biggest changes to estate law impact those without a will and blended families, and those affected will want to connect with an estate lawyer. The new law did not materially change estate planning from a tax perspective.
- Those who intend to leave accounts, property, or businesses to someone other than a spouse may need to upgrade to a trust.
- Depending on business structure, SB 50 could impact business owners. Review buy-sell agreements, revocable trusts with business interests inside them, and general succession plans to verify the company goes where you want.
- One of SB 50’s most useful changes may be the new implementation of Transfer-On-Death (TOD) designations for vehicles starting in 2028.
Do I actually need to change anything because of SB 50?
For some people in Kentucky, the new changes will affect their estate plan. But for a large percentage of people, it may not. Many of the changed rules focused on someone dying without a will. If you have a valid will that you and your spouse are satisfied with, especially if it follows a simple ‘100% to my spouse, then 100% to the kids’ structure, then chances are the new rules do not affect it too much.
For those in blended families like second marriages and/or children from prior relationships, it is worth reviewing. An estate planning attorney I spoke with recently summarized the bill as a general move toward protecting the surviving spouse. If you have specific requests in a will or trust that give certain accounts, property, or businesses to anyone other than a spouse, there is a chance the spouse could take some or all those assets anyway.
Does my existing will or trust still work? What about my set beneficiaries?
Ask your attorney for advice specific to your documents and situation. Generally, having a will and/or trust puts you ahead of someone who has neither. This means you have already outlined your estate wishes, and in many situations that may be enough despite all these new changes. The same goes for beneficiary designations. Review all your accounts to ensure you have the right beneficiaries on file. Assuming you do, you may not need to make any changes.
However, if the majority of your estate is intended to go to someone other than your spouse, it may make sense to upgrade to a trust sooner rather than later. SB 50 created an important two-year rule for certain property transferred before death. Generally, qualifying property transferred to another person or trust at least two years before death may fall outside the property used to calculate a surviving spouse’s statutory share. The details will matter greatly in these situations. There are exceptions as well, so this is an area where specific legal advice will matter greatly.
What about my business? Does the new bill affect that?
Business owners could be affected depending on the company’s ownership structure. A business partner passing away without a will could significantly change who inherits their portion of the company. Especially if there are children from prior relationships, it could be the case that your deceased partner’s spouse and children inherit your business. It is worth reviewing any buy-sell agreements, revocable trusts with business interests inside them, and general succession plans to verify the company goes where you want.
This may also mean having a conversation with your other business partners about their own estate plan. Businesses can often be the single largest asset in someone’s estate. If their succession plan or estate plan has a son or daughter inheriting their interest in a company (or anyone other than the spouse), the surviving spouse’s new rights could complicate that plan.
Does SB 50 change anything about how my estate will be taxed?
Nothing materially changed from a tax planning perspective when it comes to estate planning, based on the changes in SB 50. Kentucky maintained its Inheritance Tax, which generally applies a tax rate of up to 16% to any inheritance given to a friend, son-in-law, daughter-in-law, coworker, cousin, aunt, uncle, or distant relative. Any pre-tax retirement account or appreciated asset a beneficiary receives may still be taxable, but these new rules didn’t change that.
However, there could be serious ramifications for beneficiaries, especially for taxable inheritances, if a spouse does attempt to pull the assets back. I can imagine a (purely hypothetical) scenario where a Traditional IRA gets distributed to a beneficiary. If that beneficiary cashes out the IRA and pays the taxes before a spouse renounces the will and pulls back the IRA, a major question arises: what happens to those taxes? And what happens to the account?
Does the new bill offer any other opportunities?
Beyond the new modern trust laws that may help certain use cases, one of the most useful changes may be the new implementation of Transfer-On-Death (TOD) designations for vehicles starting in 2028. Some people whose goal is to make their estate as easy as possible for survivors will try to avoid probate entirely. Generally, this involves creating a trust, as well as naming beneficiaries and TODs on accounts and other assets. Until now, Kentucky vehicle titles did not offer a TOD designation, meaning a vehicle titled in an individual’s name could still become part of the probate estate. Setting up a TOD on a vehicle could address this issue going forward.
We will understand more as time goes on
Since this bill is still so new, many attorneys are still trying to comprehend and understand all the new intricacies. From a financial planning perspective, the goal is to always stay as organized as possible, especially with your estate plan. Then your attorney can map the new law changes to your specific situation and confirm whether you need to update your documents. Personally, I would err on the side of asking whether you need to.
