Written by Jim Worthington on September 8, 2020

Kentucky estate planners are busy this summer learning about several pieces of legislation that the General Assembly passed, all of which became effective on July 15, 2020. Lawyers and other advisors will be incorporating these new laws into our advice to clients. These new laws are fairly technical and each will be immediately important for only a few clients, but practitioners need to be aware of all of them. The order in which they’re discussed is not a ranking of their importance.

Kentucky adopted the Uniform Power of Appointment Act, which is codified at KRS Chapter 390. Powers of appointment allow a beneficiary of a trust to modify the trust for their own benefit or for the benefit of future beneficiaries. A skilled drafter can use powers of appointment to build in flexibility to adapt the trust to unanticipated situations. This Act significantly changes Kentucky law, so everyone will need to read it carefully and set aside their old knowledge.

The Kentucky Community Property Trust Act now allows Kentucky spouses to receive the double step‑up in basis that married couples in community property states receive. It is codified beginning at KRS 386.620. That step‑up is only for federal tax purposes, however; Kentucky law will not recognize the increased basis.

KRS 386.175 was adopted in 2014 so that older trusts could be modified by decanting. The idea is that the newer trust will serve the beneficiaries better, just as an older bottle of wine will taste better after being decanted into a new container. A technical correction amended KRS 386.175 to provide that the second trust is a modification of the first trust. Among other advantages, this avoids the need to obtain a new Taxpayer Identification Number for the trust.

The spousal and children’s exemption of KRS 391.030 increased from $15,000 to $30,000. An interesting issue arises with open estates: the statute doesn’t say when it goes into effect. Since the court awards the exemption “on application” of the surviving spouse or children, a good argument exists that it applies to all open estates. In fact, the 2003 unpublished Court of Appeals case of Estate of Reynolds v. Reynolds reached that conclusion. So, even if you already requested $15,000 for your client in an open estate, you should consider requesting it again.

KRS 396.011 and 396.012 have been amended to require that creditors present their claims “within the earlier of” 60 days from actual notice to the creditor, 6 months from appointment of the personal representative, or 8 months from the date of death.” However, Northern Kentucky lawyer Ed Buechel points out a serious flaw in KRS 396.012’s new wording: “The notice shall state that creditors must present their claims within six (6) months after the appointment of the personal representative or be forever barred.” A notice worded that way wouldn’t be consistent with the law because it would ignore the “earlier of” language of KRS 396.011. If the clerks publish notice that doesn’t include the “earlier of” language, creditors will argue that they have 6 months from appointment, even if that date is later than 60 days from actual notice or 8 months from date of death. We can only hope that the clerks recognize this inconsistency and use the correct language in their published notices.

Finally, as I already discussed in an earlier blog post, Kentucky adopted the full Uniform Power of Attorney Act in KRS Chapter 457. One important change there is that some powers, including gifting and modifying trusts, must now be expressly authorized. Practitioners will either have to use the statutory form provided in the Act or modify their current forms so clients can provide that express authorization. The statutory short form provides some guidance on how to do that, but many practitioners will want to develop their own form rather than rely on the one in the statute. As a bonus to readers who’ve made it to this point, click here for version 1.0 of my new power of attorney form.

The legislature made a lot of change to what many perceive as a static area of the law. The fluid nature of even established areas of law is why lawyers “practice.” We must constantly expand our knowledge and refine our skills to best serve our clients. Hopefully, this quick introduction to 2020’s changes will help you do that.