NEW: Ask me about clearing unnecessary and expensive trusts from your estate plan. Wills and trusts designed to avoid death taxes that once applied to smaller estates are no longer needed. You no longer need to pay for a trustee or trust tax returns or put up with having to beg a trustee for what is essentially your money. To find out more, try my:
*FREE 1/2 Hour Offer:* Bring me any tax return, will, trust, or other legal document–You get a free 1/2 hour of advice, and I get to prove my value.
Estate planning benefits nearly everyone, but it is one of the most complex areas of the law. An uninformed person sentences his executor and family to much more bookkeeping, paperwork, taxes, legal fees, court costs, and frustration in general. As an Accredited Estate Plannerl, I can help you avoid all these unpleasant consequences and accomplish your wishes, be kinder to your family and more effective. (As explained in Background,Wis is an Accredited Estate Planner). Read about the demise of Tennessee gift and inheritance taxes below. As you read on, notice how each tool can achieve your goals.
Your Will is a document that transfers your property after your death. I have drafted hundreds of Wills and taken many of them through Probate Court.. With a Will you pick who gets your property. Without a Will, state law decides. For example, in Tennessee, your surviving spouse shares equally with your children, but not less than one third. At age 18 your children receive their share outright. With a Will, you pick who manages your estate – your Executor. Without a Will, a court appointed administrator manages your estate. With certain exceptions, he must post a bond. There are restrictions on nonresident executors. With a Will you may request a guardian to care for your minor children. Otherwise, the court appoints one.
A properly drafted Wlll saves money. For example, your Will can waive costly legal requirements for the estate, such as an executor’s bond, an inventory and a formal accounting. Likewise, a well-drafted Will avoids family squabbles by making your intentions clear. Don’t draft your own Will; it is far too easy to create an ambiguity. The laws are complex and unexpected. For example: (1) A new Will does not automatically revoke your prior Will, so you can end up with two Wills. (2) Adding hand-written changes to a Will may not work. (3) The law automatically revokes your Will if you later marry and have a child. (4) Your spouse can demand some of your property regardless of your Will. (5) If you divorce, each spouse is automatically written out of the other’s Will (and trust).
Without planning, a minor inheriting significant property requires a court appointed legal guardian for the property, resulting in: significant legal costs, posting a bond, an annual accounting to the Court, restrictions on investment of the child’s assets. Finally, the guardian must give the property to your child at age 18, a delicate age. You may eliminate the expense of such a legal guardianship by creating a Trust for such property in your Will. The Trust provides many other benefits, as discussed below.
ASSETS THAT MAY THWART YOUR PLANNING
Your Will cannot dispose of life insurance and other death benefits unless they are payable to your estate. Also untouchable are real estate and bank and brokerage accounts held jointly with right of survivor ship (JTWROS). As your lawyer I can help you overcome these types of obstacles. Update your Will every year or two or when circumstances change.
YOUR POWER OF ATTORNEY
The second basic building block for estate planning is the Durable General Power of Attorney (DPOA). The DPOA authorizes a person you name to handle your legal affairs. It avoids the need for a guardianship if you become unable to handle your affairs. The DPOA is inexpensive, requires no court proceedings and works even if you lose mental capacity.
ADVANCE CARE PLAN (TENNESSEE’S “LIVING WILL”)
The Tennessee “Advance Care Plan” allows you to tell your physician and hospital to withhold certain treatments if you have specified medical conditions. It also allows you to name people to make medical decisions for you if you are unable. For example, if you are in a coma to avoid tube feeding.
The Trust is one of our most useful estate planning tools. What is it and what can it do? A Trust is a legal relationship you create by agreement or by Will, under which you give cash or property to a Trustee. Following the Trust document, the Trustee manages and invests the Trust assets on behalf of the beneficiaries, selecting the amounts and times of Trust distributions. You pick the beneficiaries. They may be almost anyone, including yourself.
A living Trust works during your life, created by a Trust agreement. A testamentary Trust comes into existence at your death, generally created by your Will. See Where There’s a Will There’s a Waste below..
You select a Trustee to manage your Trust. Most persons select a corporate Trustee, because of its ability, continuity and reasonable cost. Some select an individual Trustee, to add a human touch. You may have one of each. There are restrictions on nonresident Trustees.
Besides dodging guardianships for minors, a Trust offers financial protection for vulnerable beneficiaries, such as the very young or old. Your Trust agreement is limited only by your imagination. You may specify investments or an investment adviser for the Trust. The popular “spendthrift provision” protects Trust property from the beneficiary’s creditors or divorcing spouse. You may offer an incentive for getting a college education. A “second chance” provision gives a beneficiary part of his share at a specified age, waiting to distribute the rest.
REVOCABLE LIVING TRUSTS
Many persons consider the revocable living Trust (RLT) the Cadillac of estate planning, and most of my clients opt for RLT’s. During your life, you are the Trustee. See REVOCABLE LIVING TRUSTS, below.
I have created an improved version of the RLT, which I call a Merging RLT©. It simplifies the operation and taxation of an RLT after the Gran-tor’s death. Normally, after a client dies with an RLT, if the RLT continues it must obtain an em-ployer identification number and file its own tax return, from then on. Taxation of the trust is complex and harsh. It requires a unique account-ing system, and trusts pay higher income taxes than other taxpayer — 35% on undistributed trust income in excess of $11,150. In contrast, with my Merging RLT at the Grantor’s dies his RLT merges into the surviving spouse’s RLT. Income from its property is taxed to the surviving spouse. No EIN or trust taxation. Consult me to find out if a Merging RLT is for you.
ESTATE & GIFT TAXES
Once your and your spouse’s gross estates reach a certain value, you must consider death taxes. However, as explained below, this figure will be over $5,000,000 by 2016. In 2015, a federal credit offsets the federal estate tax and gift tax on at least $5,430,000. Tennessee, however, once had an inheritance tax on estates in excess of $1,000,000. In 2012, Tennessee repealed the Tennessee gift tax as of January 1, 2012. The new law phases out the Tennessee inheritance tax by 2016. The Tennessee inheritance tax exemption is $5,000,000 in 2015 and in 2016 the inheritance tax completely disappears.
AVOIDING DEATH TAXES
With the tax changes discussed above, taxes are much less of a driving force, so you can concentrate on your family. However, we can offer you strategies for reducing these taxes. One strategy is to make annual exclusion gifts, which are gift tax free on up to $14,000 per donor per donee. Certain tuition and medical costs are likewise gift tax free. Transferring property to grandchildren is tempting, but may generate a generation skipping tax.
CREDIT SHELTER TRUSTS
With a “credit shelter trust” that holds the maximum amount not subject to the estate tax for the first spouse to die, a couple can avoid the estate tax on the first to die and shelter that same amount in each estate. For example, by placing $1,000,000 in a “credit shelter trust” instead of giving it outright to the surviving spouse, that $1,000,000 is taxed in the estate of the first to die, where it generates no tax since it is under the limit. It likewise is not taxed in the surviving spouse’s estate since the SS does not receive it.
Another type of trust is a Q-TIP trust, specially drafted to hold property exclusively for the surviving spouse, yet dispose of the property as the first deceased spouse specifies. With an election, these trusts can either be treated as the property of the surviving spouse or as the property of the estate of the first to die.
Life insurance is an important estate planning tool, but it an estate includes proceeds from life insurance on your life that you own at your death. An irrevocable life insurance Trust is one way to avoid such estate taxes. I can work with your insurance broker. If you feel charitable and have property that would generate capital gain if sold, consider a Charitable Remainder Unitrust. The CRUT may give you more income for less taxes than any other strategy.
Estate Planning is one of the most complex areas of the law, since it deals with state property laws and state and federal death and income taxes. Allow me to help you through the maze.
Clients enjoy our personal service. They like the fact that I am a good listener and I answer their questions. Finally, they are confident in my expertise, since I have 35 years experience and I am an Accredited Estate Planner (AEP). See http://www.naepc.org. “He simplified and organized my estate plan and helped me understand my documents, while designing them so they are easier for my family to deal with.” Laine Agee, an AP computer teacher.