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January 27, 2016 In Estate Planning

Estate Planning And Divorce

Estate Planning And Divorce

Let’s talk about Estate Planning and Divorce. Will a divorce affect your Will? Over the years, many people have asked us about how a divorce will affect a Will or Estate Plan. Sometimes the question comes out of curiosity, and at other times, the person asking has just gone through a divorce. The best time to review or establish an estate plan is after the occurrence of a major life event.  In fact, these are often the only times many people even think about estate planning.

Major life events may include marriage, the birth of a child, or the death of a family member. Unfortunately, divorce is also a major life.

Beneficiary and Executor Designations

Typically, married couples have their estate plans drafted at the same time, and the terms of each plan are very similar. More often than not, one spouse has named the other as the executor of his or her Estate, as well as the sole beneficiary of his or her Estate.  While  Tennessee law contains a statute that essentially disinherits a person’s spouse in the event of divorce, that statute does not affect beneficiary designations or the titling or re-titling of assets.  Therefore, we do not advise that you rely on this statute alone.

In addition to reviewing your Will and other estate planning documents after a divorce, it is also important to  review the ownership structure and beneficiary designations of any assets that will not pass under the terms of your Will, such as retirement plans or life insurance policies.  Many assets, such as these, do not pass pursuant to the terms of a person’s Will, but rather will be distributed according to beneficiary designations.

Legal Guardians for Minor Children

In Tennessee, the only way to designate a legal guardian for a minor child in the event that something should happen to you is under the terms of your Will.   The person you choose to designate as the guardian of your child while you are married may greatly differ from whom you would select to fulfill the role after a divorce.

Let us help you with Estate Planning and Divorce Issues

As you can see, it is extremely important to undergo a comprehensive review of your assets and estate plan in the event of a divorce. If you have recently experienced a divorce or other major life event, or if you would like us to create or review an estate plan for you, please call us at 901-372-5003. We’re ready to help you.

January 8, 2016 In Estate Planning

No More Tennessee Inheritance Tax

No More Tennessee Inheritance Tax

As of January 1, 2016, the Tennessee inheritance tax is repealed. What this means is that families of persons who pass away in 2016 or later will not owe any Tennessee inheritance taxes. Looking forward, estate planning in Tennessee, in many cases, will be simplified because there will no longer be a need to develop strategies to avoid the Tennessee inheritance tax.

Do I need to make changes if I already have estate planning documents in place?

Probably not, but you can simplify your current documents to eliminate language that is unnecessary now that the tax has been eliminated.

Is there a federal inheritance tax?

Yes. For 2016, the federal estate tax exemption is $5,450,000 per person, meaning that families are not taxed unless the estate of the deceased family member exceeds that amount.  A married couple will therefore have an exemption of $10.9 million between them.

 

Tennessee Inheritance Tax Question?

We are Estate Planning and Probate Attorneys and we prepare Wills, Trusts, and other Estate Planning Documents. Please call us at 901-372-5003  if you’d like to speak with one of our attorneys.

November 5, 2015 In Estate Planning

Using The Tennessee Investment Services Trust Act To Create A Self-Settled Asset Protection Trust

The Knowledge You Need on the Tennessee Investment Services Act of 2007

The “Tennessee Investment Services Act of 2007,” (the “Act”) allows a person to create a self-settled asset protection trust. Tennessee is still one of only a handful of states to enact legislation permitting the creation of a self-settled, or self-created, asset protection trust.

Before the Act was passed in Tennessee, an individual could not protect his or her wealth from creditors and lawsuits while also retaining some control of his or her assets.   The Act allows an individual to create his or her own trust and maintain a certain level of control over the trust, while also protecting his or her assets from creditors and lawsuits.

One of the biggest perks of the Act is the trustmaker’s ability to retain a certain level of control over the trust. The trustmaker may retain the following rights, which include, but are not limited to, the rights to:

  • direct the investment of the assets;
  • receive distributions of principal at the discretion of the trustee;
  • live in a home owned by the trust;
  • veto distributions to any other permissible beneficiaries;
  • direct the distribution of the trust assets upon death to any one or more persons;
  • remove the trustee and other trust advisors and appoint their successors under certain provisions

 

In order to meet the statutory requirements, the trust must be carefully drafted and administered. For example, the trust must be irrevocable, meaning that the terms of the trust cannot be modified. Additionally, Tennessee law must govern the trust, and at least a portion of the assets of the trust must be administered in Tennessee. The person creating the trust cannot serve as Trustee, and the trustee of the trust must either be a resident of Tennessee or a corporate fiduciary authorized to conduct business in Tennessee. The trustmaker must also sign an affidavit that states, among other things, that the transferor of the assets to the trust is solvent and does not intend to defraud his or her creditors.

The Act implements a two year “look back” rule. This means that, after two years have passed since the assets were transferred to the trust, the trustmaker’s creditors cannot seize the assets of the trust to satisfy claims against the trustmaker.

It is important to note that the Act does NOT apply to certain creditors, claims or judgments, including those for past due child support, past due alimony or support of a spouse of former spouse or agreements setting forth division of marital property.

In summary, the Tennessee Investment Services Act of 2007 provides an asset protection opportunity for individuals who are concerned about the loss of their assets due to unforeseen creditors. The trust presents a unique solution to those who wish to protect their assets during their lifetime while still retaining the ability to manage those assets and benefit from them.

January 25, 2013 In Estate Planning, General, Uncategorized

Gun Trusts: Feinstein’s Bill Addresses Handguns Too.

Gun Trusts: Feinstein’s Bill Addresses Handguns Too.

According to the Washington Post, Senator Feinstein’s gun control bill not only seeks to severely restrict the sale and transfer of modern sporting rifles, but also “prohibits the sale or transfer of high-capacity, ammunition-feeding devices currently in existence” – a clear reference to gun magazines that hold more than 10 rounds.

While most gun owners don’t own an AR-15, millions of Americans own handguns for personal defense.  Many if not most of these “regular” handguns are sold with magazines that hold 10 rounds.  It’s these personal defense weapons that Senator Feinstein seeks to restrict.  If her bill becomes law, millions of Americans will no longer be able to sell, give away or pass their handgun to their family in their will.

It is unlikely that the entirety of the proposed bill will become law.  However, is seems probable that portions of the proposed legislation will.  If you are interested in maintaining control of your firearms, call us now to set up a Gun Trust at 901-372-5003.

For more info, click here for our previous blog post about Gun Trusts.

January 7, 2013 In Estate Planning

American Taxpayer Relief Act of 2012

American Taxpayer Relief Act of 2012

Happy New Year!  We hope this finds you having enjoyed a joyous and relaxing holiday season.  As you may know, on Wednesday, January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012. The new law contains some favorable provisions for taxpayers and donors and provides some certainty, for at least another year, and in some cases, permanently.  Below we have included some highlights of changes in effect for 2013 in the areas of charitable and estate planning:

The IRA Charitable Rollover

As we expected, donors age 70½ or older are once again eligible to transfer up to $100,000 from their IRAs directly to qualified charities without having to pay income taxes on the qualified distribution in 2013. In addition to the extension of the IRA Rollover provision for 2013, Congress provided two special transition rules:

1) Qualified distributions made by February 1, 2013, may be counted retroactively for the 2012 tax year.  This means that it is possible for those who act in a timely manner to make IRA Rollover gifts of up to $200,000 in 2013.

2) Another unexpected but welcome feature of the new law is the “do-over” provision.  Taxpayers who took a withdrawal from an IRA (mandatory or otherwise) during December 2012 may make a cash contribution to a qualified charity before February 1, 2013, and treat the gift as if it had been a direct distribution to charity that qualified as an IRA Rollover gift for 2012.

Estate, Gift and Generation-Skipping Tax Exemptions

The new law permanently preserves the current individual gift, estate and generation-skipping tax to a unified $5 million exemption level. This amount will be indexed for inflation – the inflation adjusted amount for 2013 is $5,250,000. The top gift, estate and generation-skipping tax rate was increased to 40 percent from the previous 35 percent. The new law also makes the portability of exemption between spouses permanent.  The higher exemption amount will certainly limit the number of estates subject to the federal estate tax which could provide opportunities to simplify estate plans.

However, keep in mind that Tennessee still has an inheritance tax.  The Tennessee inheritance tax will be phased out over the next three years.  For the remainder of 2013, the inheritance tax exemption will remain $1,250,000.  Beginning January 1, 2014, the exemption will increase each year  as follows:

$2,000,000—2014

$5,000,000—2015

Repealed—2016

As of January 1, 2016, the Tennessee inheritance tax will be eliminated, while the Tennessee gift tax was repealed last year.

Charitable Deduction Remains

Throughout 2012, a number of proposals were made to limit the charitable deduction.  Fortunately, the legislation as passed does not address or specifically limit the charitable deduction.

Individual Income Tax Rates

The new law permanently extends tax rates set by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 for taxpayers earning less than $400,000 a year and married couples earning less than $450,000. It increases the tax rate for high-income households earning more than that to 39.6 percent. The 2013 tax rates will be 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent.

Capital Gains Tax Rates

The capital gains and dividend tax rates for high-income households ($400,000 a year for single taxpayers and $450,000 for married couples) will increase to 20 percent. There will be no capital gains tax for taxpayers whose income falls in tax brackets below 25 percent. The capital gains tax rate will be 15 percent for taxpayers whose income falls at or above the 25 percent tax bracket but below the new 39.6 percent rate.  A medicare contribution tax of 3.8% on capital gains, dividends, interest and other unearned income will also come into play in 2013 for those with adjusted gross income over $250,000 ($200,000 for single taxpayers).  With higher capital gains rates and the addition of the Medicare contribution tax, gifts of appreciated stock or other appreciated property (either outright or to fund a charitable remainder trust or charitable gift annuity) will once again provide taxpayers with the opportunity to diversify out of appreciated assets in a tax efficient manner.

The next logical question is, “How does the new law impact me and my family?”  Of course, it depends.  Certainly, the climate for gifting is excellent.  People with potentially taxable estates can make large gifts to take advantage of the high federal exemption amount without paying Tennessee gift tax.  Thus, the combination of a high federal exemption and no Tennessee tax can yield extremely favorable tax and other results for your family.

We would love the opportunity to talk with you about how these changes impact your estate plan.  Please contact our office to learn more about potential opportunities for you and your family with this new legislation.

August 13, 2012 In Business Litigation, Civil Litigation, Estate Planning, General

Legal Problem Solving: Does Your Lawyer Merely Work the Problem? Or Solve the Problem?

Legal Problem Solving: Does Your Lawyer Merely Work the Problem? Or Solve the Problem?

Let’s discuss legal problem solving. Does your lawyer merely work the problem, or solve the problem? There’s a difference, you know.

  • A cookie-cutter response vs. a creative solution
  • Reaction vs. a plan of action
  • “Winning” the lawsuit vs. avoiding the lawsuit
  • Churning legal fees vs. finding a cost-effective solution up front

I saw a blog post once detailing a masterful stroke of legal genius by the lawyers for Jack Daniels, and wanted to share it. It’s a prime example of the type of culture and approach we cultivate at Patterson Bray– solving the problem vs. merely working the problem.

Legal Problem Solving at Patterson Bray

Our clients don’t just want legal answers.  They want solutions.  So at every stage our goal is to focus on the following question to the client:

“What do you ultimately want to accomplish?”

Sometimes that means we have to act not just as legal advisors, but also legal counselors – asking questions, raising issues the client may not have considered, and then sometimes even gently prodding and steering clients to think beyond their immediate short-term emotions and goals.

In virtually every case, our clients appreciate our focus on long-term solutions.  That might mean, for example, our client accepting a short-term loss in exchange for saving a relationship with a customer and securing new business, renegotiating as opposed to litigating a contract, and realizing that the cost of vindication might sometimes outweigh the perceived benefits. Many clients have even remarked how unusual it is that a lawyer would suggest an option that they weren’t even aware of, and that would generate less in billed fees for the lawyer.

But, then again, that’s how we internally answer the very same question we put to our clients:

“What do WE ultimately want to accomplish?”

We want to uniquely serve the best interests of our clients so that they ultimately come back.  And refer their peers, colleagues, friends, and family.

And they do.  And we’re confident you will, too.

January 25, 2012 In Estate Planning

Change to the Tennessee Inheritance Tax Proposed

Change to the Tennessee Inheritance Tax Proposed

Governor Bill Haslam and Republican leaders in the state legislature have proposed changes to the Tennessee Inheritance Tax as discussed recently in an article in The Tennessean.  The current Tennessee Inheritance Tax Exemption amount is $1 million with inheritance tax rates ranging from 5.5% – 9.5%.  The proposal would raise the exemption to $1.25 million and will continue to raise the exemption incrementally over the next several years to $5 million.  The current Federal Estate Tax Exemption amount is also $5 million.

The cut in inheritance tax would cost the state of Tennessee approximately $14 million a year and is paired with a proposal to a reduction in state sales tax on food.  Democrats have expressed little opposition to cutting both taxes.  Haslam plans to cover the tax loss with rising revenue from other taxes.

The change to the Tennessee Inheritance Tax would keep wealthy residents from leaving Tennessee and avoid the sale of family businesses to pay death taxes.

January 17, 2012 In Estate Planning, Uncategorized

Too Many Cooks in the Kitchen

Too Many Cooks in the Kitchen

There are a lot of different phrases and slogans to describe a situation where you have too many people in charge. Democracy may be preferable in some situations, but your estate plan is often not one of those situations. People often tell me they want to be fair so they want to name all their children as executors, trustees or powers of attorney at their death or incapacity. They feel that naming everyone will insure that things go smoothly and that there is no tension among the siblings that one child was treated preferentially. In fact, naming multiple children does not relieve tension or promote harmony…it creates tension, confusion and sometimes complete chaos.

As I frequently tell the disgruntled sibling who is upset that his or her brother or sister was named as trustee or executor, serving in these roles is a job, not a privilege. As a beneficiary, you get to sit back, let someone else do the work and then collect the proceeds. As an executor or trustee, you have to do all the work, deal with the disgruntled beneficiaries and then receive, in many cases, the same proceeds as the person who got all the benefits without any of the work.

The decision as to who will serve in these important roles is a big decision and should not be taken lightly. But in many cases, less is more. One person or entity is often the best choice. Two can insure that checks and balances are in place in case one person is out of line. More than two guarantees administrative headaches, fighting and taking sides. The administrative process of probate and trust administration is challenging enough because it usually involves families and money, two very emotionally-charged topics. When you add the grief from the loss of a loved one, too many cooks in the kitchen adds insult to injury. Instead of looking at what will be viewed as the most fair, consider who is the best-suited for the task and the most able to navigate family issues and money. In so doing, the result is often more fair for everyone. Unfortunately, fair or not, too many cooks in the kitchen rarely leads to a desirable result.

January 13, 2012 In Estate Planning

Reminder: Estimated Tax Payments due Jan. 17 (for self employed persons, etc.)

Reminder: Estimated Tax Payments due Jan. 17 (for self employed persons, etc.)

For all you estimated tax filers, here’s a friendly reminder that your next payment (using Form 1040-ES) is due next Tuesday, January 17, 2012.  (The ordinary deadline of the 15th is extended because the 15th falls on a Sunday, and the next day is the MLK holiday which is also a postal holiday.)

NOTE:  Estimated taxes are generally paid by self-employed persons, although others are potentially required to file. According to the IRS website instructions: ”Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.”

MORE: Previous Blog Post —  What is an Estimated Tax Payment?

January 12, 2012 In Estate Planning

Law FAQ: What is Digital Estate Planning?

Law FAQ: What is Digital Estate Planning?

Death in the digital age is a lot more complicated than it used to be.  In the past, it was easy to search paper records and watch the mail for bills and account statements to gather information about an estate.  It’s not so easy today.  Now many, if not all, records are filed or transmitted electronically, online.  And unfortunately, people have not left the passwords and location for the electronic records that the surviving family members will need.

In many cases, survivors may not even be aware of the existence of accounts or assets, prompting a load of questions: Can we find this stuff? Which computer is it on? Is it stored in the cloud? What about the smartphone? Can we circumvent the password or decrypt the data?

But there are other potential pitfalls, too. What, for example, happens to your social-network accounts when you die? Some people want them perpetuated while some people them destroyed.  Instructions should be provided and included with the list of passwords that are going to go to their survivors.

You should also consider potential liabilities lurking in your digital estate. For example, what if you have trade secrets or other sensitive information on your computer and, after your death, your family donates the computer for recycling without wiping the hard drive clean? If that trade secret falls into the wrong hands, your estate might be liable.

Digital-savvy estate planners advise clients to take three basic steps. First, do a complete inventory of all digital accounts and assets (see Digital Assets Checklist below) so that your estate administrator will know just what you have of potential value (or liability) and where it is. Second, assemble a list of all passwords. Third, select a fiduciary and give them the proper power to administer your estate and follow through with your wishes.

Digital Assets Checklist

• Home-security systems

• Smartphones

• Computers

• Voice mail

• Email accounts

• Cloud storage

• Social-network accounts

• Web pages and blogs

• Financial accounts (banks, stock trading, tax, etc.)

• Online sales and purchasing accounts

• Domain names

• Intellectual-property rights (manuscripts, music, photographs, etc.)

• Video games and virtual worlds

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