25 Documents to have before you die

25 Documents to have before you die

I ran across this Wall Street Journal list today and am reminded of how important it is to get certain life affairs in order.  The start of the new year is as good of a time as any.

Number one on their list should come as no surprise.  An original will is the most important document to keep on file.  If you don’t have a will and you do have kids, call a lawyer and make an appointment.  If you do have a will, pull it out and read it.  You may want to update certain provisions or maybe even remove certain beneficiaries who haven’t been as nice to you as you would like.

If you need help organizing your estate, call us.  There is no fee for our initial estate planning meetings.

Law FAQ: What is a HEET?

Law FAQ: What is a HEET?

A HEET is a Health and Education Exemption Trust.  This time of year many clients are making gifts to their children and grandchildren.  They often forget that gifts in excess of the $13,000 annual gift tax exclusion amount will be subject to Tennessee gift tax and affect their Federal Estate Tax exemption amount.  However, gifts made for a beneficiary’s health or education paid directly to the provider of services or to the educational institution are statutorily exempt and do not count against the annual gift tax exclusion amount.  And there is a code section that specifically authorizes a trust for the beneficiary’s health and education, a HEET.

A HEET enables clients to make completed gifts to beneficiaries for qualified health or education expenses.  Gifts to HEETs are not limited to the annual gift tax exclusion amount.  HEETs can provide a powerful planning tool for parents or grandparents who want to provide for their younger beneficiaries’ health or education needs, and who don’t want to be limited to annual exclusion gifts, don’t want complexity of more sophisticated gifting strategies, and don’t want to deal with the restrictions of strategies like 529 plans.

If you have questions regarding a HEET or how this trust could benefit your estate plan, please contact our office.

Who are my Beneficiaries? A critical question in planning for the future.

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How does Property Pass to Beneficiaries?

Do you know who your beneficiaries are? When we ask clients this question, their first response is often quick and affirmative. However, we frequently discover through the estate planning process that the beneficiaries listed on our clients’ life insurance policies and retirement accounts are not who they think they are, nor are they the intended recipients of the property.

One of the most common misconceptions we see is how property passes at someone’s death.  Accounts that have beneficiary designations  pass to the beneficiary or beneficiaries named on the beneficiary designation form for that account regardless of what your will or trust says.  So, for example, if my Will says that everything passes to my spouse at my death, but my beneficiary form on my life insurance names my children as beneficiaries, my life insurance proceeds  pass to my children and not to my spouse. Here are some examples of accounts that typically designate beneficiaries:

  • life insurance
  • retirement accounts
  • transfer on death accounts (TOD)
  • payable on death accounts (POD)

Periodically Review Your Beneficiary Designations

The  Supreme Court case of Kennedy v. Plan Administrator of DuPont highlights the unintended results that may occur if your beneficiary designations are not reviewed periodically.  In this case, William Kennedy named his wife, Liv, as the sole beneficiary of his pension and retirement savings plans at DuPont.  When the couple later divorced, the Qualified Domestic Relations Order (QDRO) provided that Liv gave up her rights to receive any benefits from William’s pension and retirement plan.  Unfortunately, however, the court order was never submitted to DuPont and the beneficiary was never changed.  When William later died, DuPont paid out the plan benefits to his ex-wife, Liv.  Their daughter, Keri, was appointed as Executor of William’s Estate and filed suit claiming that the Estate should receive his retirement benefits because the QDRO clearly provided that Liv had waived any interest she might have in those benefits.  The Supreme Court upheld the ruling of the Circuit Court in saying that DuPont properly paid the benefits to Liv and that Liv was entitled to the pension and retirement funds even though the parties were not married at the time of William’s death and the QDRO clearly provided otherwise.

Moral of the Story

The moral to the story is that the beneficiary designation governs. Thus, it is very important that you know who is named on your various beneficiary forms so that your property goes to the beneficiary or beneficiaries that you intend for it to go to.  It is clear that William did not intend for his benefits to go to his ex-wife instead of his daughter, but the Supreme Court held that the beneficiary designation governed and that DuPont properly paid the benefits to Liv.

Tips for Beneficiary Designation Forms

Here are some tips and common problems to watch out for with your beneficiary designation forms:

1. Do you know where the form is? Generally, employers maintain records of the form, but if they cannot find their form when the time comes, the burden may be on you to produce a copy of the form.

2. Is the form up to date? Changes in your life may require you to review the forms periodically. If you have had a recent marriage, divorce, birth or death in your family, it is important to review your beneficiary designations. And remember, your Will does not change who the beneficiary is on an account or insurance policy.

3. Do you have a contingent beneficiary named? If the beneficiary you have named dies before you or is involved in a common accident with you, you may not know who the benefits will go to if you do not name a contingent or secondary beneficiary.

4. Have you named a minor as a beneficiary? Minors cannot legally hold title to property, including these benefits. If you have named a minor, a guardianship may have to be established and administered through the Probate Court concerning applicable funds.

Want to talk it over with an Estate Planning and Probate Lawyer?

If you have questions regarding your beneficiary designations and how they factor into your Estate Plan, please call us at 901-372-5003 or email us today. We’re ready to help you plan for the future.


Is Tennessee a Community Property State for Estate Planning?

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Tennessee is NOT a Community Property State

Community property states such as California and Texas, permit assets to receive a step-up in basis to the current fair market value (FMV) at the death of the first spouse to die regardless of which spouse owns the assets.

Tennessee is a separate property state. This means that only the separate assets of the deceased spouse (titled in his or her name), or 1/2  of any jointly-owned property,  are entitled to a step-up in basis to the current FMV at the death of the first spouse to die.

Tennessee Community Property Act of 2010

But wait—this Act allows for ownership of assets in a Tennessee Community Property Trust.  Although this type of ownership of assets between a husband and wife is not always beneficial, it can provide a significant advantage in the right circumstances, especially for property with a very low tax basis.Provided the Trust meets certain requirements, the property owned by the Trust will be treated as community property.


The most significant advantage of this type of ownership is that both spouses’ interests receive a step-up in basis up to the FMV of the property upon the death of the first spouse.  In contrast, if the property was owned jointly or as tenants by the entireties, only 1/2 of the property would receive a step-up in basis at the first death. Thus, community property ownership can significantly reduce or even eliminate capital gains upon the death of a spouse.

We can advise you further.

Call us today at 901-372-5003 or email us here. We can talk with you about your assets and the best way to structure an Estate Plan that fits your family’s particular circumstances.

Law FAQ: Can I Place My Assets in a Trust and Protect Them from My Creditors?

Law FAQ: Can I Place My Assets in a Trust and Protect Them from My Creditors?

Before 2007, if an individual created a trust under which he is a beneficiary, the assets of the trust were subject to the claims of his creditors. As a result, an individual could not protect his wealth from creditors and lawsuits while retaining control of his assets. With the passing of the “Tennessee Investment Services Act,” Tennessee has become one of a few states in the nation to enact legislation permitting the creation of self-created (self-settled) asset protection trusts.
The law allows this protection by permitting the individual to create a self-settled asset protection trust referred to as an “Investment Services Trust” (IST).

An IST is an irrevocable trust into which an individual transfers assets while retaining the following rights: ability to direct the investment of the IST assets; receive distributions of principal upon 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. The settlor may not serve as the Trustee of the IST.

The Trustee must be either an individual residing in Tennessee or a corporate Trustee who is authorized to conduct business in Tennessee. At least a portion of the assets of the IST must be administered in Tennessee. At the creation of an IST, the settlor must provide an affidavit stating under oath that he does not intend to defraud a creditor and that he does not have any pending or threatened court action against him.

The Tennessee Investment Services Act provides an asset protection opportunity for individuals who are concerned about the loss of their assets due to unforeseen creditors. An IST 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.

If you are interested in protecting your assets from future creditors, please contact our office to schedule an appointment to discuss the use of an IST in your estate plan.

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Capacity to Make a Will in Tennessee

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Capacity to Make a Will in Tennessee

As an estate planning and probate lawyer, I’ve handled cases from time to time where a person’s capacity at the time he or she created a Will or Trust was an issue. The elderly have increasingly become targets for those looking to prey on their physical and/or mental weaknesses. Additionally, people are living longer, and Alzheimer’s and dementia are becoming more and more common. Given all these factors, it is likely to continue to be an issue, especially when a person of advanced age changes or attempts to change beneficiaries.

What is a Self-Proving Will?

In most cases, a Will prepared by a lawyer includes the statements of 2 witnesses and a notary so that the Will is what is referred to as “self-proving.”  If the Will is not self-proving, it must be “proven” after the person dies.  In any case where there are handwritten notations or the document is totally handwritten, capacity of the person making the Will must be established.

Standard for Testamentary Capacity to Execute a Will in Tennessee

The general standard in Tennessee for capacity to execute a Will or a Trust is that the Testator (i.e., the person leaving the Will) be “of sound mind and disposing memory.” A person who does not have the capacity to conduct general business transactions or to enter into a contract can still have the required testamentary capacity to execute a Will or Trust. Two key factors in determining whether this standard is met are that the person must understand (1) the nature and effect of the act, and (2) the extent of the property the person is seeking to dispose of.

Whether a person is “of sound mind and disposing memory” is easy to determine when he or she is at one end of the spectrum or the other. Unfortunately, capacity is often not an all-or-nothing deal but falls somewhere in between the two.  When a person whose capacity is questionable tries to make notes or create or modify a Will or Trust, it can be very hard to determine after the fact. Obviously, the opinion of the person’s physician is always preferable and can often help prevent questions later.

Without capacity to make or modify a Will, the person’s intent may not be able to be carried out, even if there is no question as to what he or she wanted or was attempting to accomplish.

Your Legacy is Too Important to Leave to Chance.

Proper execution of  testamentary documents (i.e., Will, Trust, etc.) can avoid confusion later after you die, which is why it is important to consult an attorney when planning for your beneficiaries. The goal of testamentary documents is to accomplish your goals and objectives. What a shame if your intentions are not fulfilled due to a legal technicality or because a document was not executed properly.

If you would like to learn more about planning for your estate, please call us at 901-372-5003 or visit the Estate Planning page on our website.

Law FAQ: Can I Sell My House to My Children for $1 to Avoid Gift Tax?

Law FAQ: Can I Sell My House to My Children for $1 to Avoid Gift Tax?

Many clients and others have asked if they could sell their house to their children for $1 to avoid gift tax.  The short answer to that question is “no”.  Any transfer for less than fair market value to an individual is a gift.  For example, if the residence being gifted is valued by a real estate appraiser to be $100,000, and the residence is sold to children for $1; there will be a transfer subject to gift tax of $99,999!

Whether or not a transfer results in the payment of gift tax depends on several factors.  Under both Federal gift tax law and Tennessee gift tax law, each individual can gift up to $13,000 to each child without incurring a gift tax.  This is referred to as the Annual Gift Tax Exemption amount.  However, Federal law and Tennessee law differ on how gifts in excess of the Annual Gift Tax Exemption are taxed.

Federal law currently provides for an additional lifetime gift exemption amount of $5 million.  Any exemption not used during lifetime can be used at death.  But Tennessee law does not provide for an additional lifetime gift exemption amount.  In other words, any gifts from an individual to a child in excess of the Annual Gift Tax Exemption amount will be subject to Tennessee gift tax at rates ranging from 5.5% to 9.5% depending on the total value of the taxable gift.  Each state has separate gift tax laws, so residents of states other than Tennessee and gifts made of real estate located in other states may have different tax rules that apply.

Therefore, making gifts (or sales for less than fair market value) to children of assets, especially real estate, can be wrought with potential gift tax traps.  Please contact us if you need assistance in making tax-efficient gifts to your children or if you have any related questions.

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Law FAQ: I’ve been named as Trustee of a trust….what do I do now?

Law FAQ: I’ve been named as Trustee of a trust….what do I do now?

The most important thing to remember when you step in as trustee is that these are not your assets.  You are safeguarding them for others:  for the grantor (if living) and for the beneficiaries, who will receive them after the grantor dies.  As a trustee, you have certain responsibilities.  For example:

-You must follow the instructions in the trust document.

-You cannot mix trust assets with your own.  You must keep separate checking accounts and investments.

-You cannot use trust assets for your own benefit (unless the trust authorizes it).

-You must treat trust beneficiaries the same; you cannot favor one over another (unless the trust says you can).

-Trust assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.

-You are responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires.

But you can have professionals help you, especially with the accounting and investing.  You will also probably need to consult with an attorney from time to time.  However, as trustee, you are ultimately responsible to the beneficiaries for prudent management of the trust assets.

Please contact us if you need assistance in serving in the role of a trustee or if you have any related question.

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Law FAQ: Why can’t I name my minor kids or grandkids as beneficiaries?

Law FAQ: Why can’t I name my minor kids or grandkids as beneficiaries?

You can certainly leave assets to your children and grandchildren if you do so correctly, and there are a number of options to choose from when planning for minor beneficiaries. The problem comes in when minor beneficiaries are not properly planned for, which usually occurs when a minor is named as a beneficiary on a beneficiary designation form (e.g. life insurance beneficiary or retirement account beneficiary) or outright in a will or trust (e.g. $15,000 to each of my grandchildren).

Why? Minors cannot legally hold property in their own name. An adult (custodian, trustee or guardian) must hold the assets for the minor’s benefit until the child reaches a certain age. In Tennessee, the legal age at which they can receive or own property directly is eighteen (18). In your estate plan, you can change the age at which you want them to receive the funds, but the minimum is eighteen. When a minor is named as a beneficiary or left an outright distribution in a will or trust, someone has to petition the court to be appointed guardian of the child’s property. Even if a natural parent and legal guardian is involved, the parent would have to seek to be appointed and subject to the court’s supervision in the management and expenditure of any funds. Custody and legal guardianship of the person of the child are not alone sufficient to handle the child’s funds absent a guardianship. I have been involved in many cases where a child’s natural parent has to be appointed as guardian and subject to the court’s ongoing supervision regarding their child’s funds because the other parent is deceased and the child was the beneficiary on the life insurance.

In some cases, the funds can be deposited with the court clerk, and the child can petition the court to release the funds when he or she reaches the age of 18. In other cases, an ongoing guardianship is required, which involves court approval for expenditures, annual accountings and sometimes a great deal of time and expense.

What should you do? I will talk more about some of the options for leaving funds to your beneficiaries in the coming weeks.  But for now, make sure you do not have your minor beneficiaries named on any beneficiary designation form.  If you would like to learn more about the options for your beneficiaries, please contact our office.

Law FAQ: What is living probate?

Law FAQ: What is living probate?

If you can’t conduct business due to mental or physical incapacity (dementia, stroke, heart attack, etc.), only a court appointee can sign for you – even if you have a will.  Remember, a will only goes into effect after you die.  Once the court gets involved, it usually stays involved until you recover or die and it, not your family, will control how your assets are used to care for you.  This public, probate process can be expensive, embarrassing, time consuming and difficult to end.  It does not replace probate at death, so your family may have to go through probate court twice!

In some cases, a durable power of attorney may prevent the lifetime probate process.  A durable power of attorney lets you name someone to manage your financial affairs if you are unable to do so.  However, many financial institutions will not honor one unless it is on their form.  If accepted, it may work too well, giving someone a “blank check” to do whatever the agent wants with your assets.  It can be very effective when used with a living trust, but risky when used alone.

Please contact our office if you have questions about the living probate process or if you wnat more information on strategies to avoid the process.