Law FAQ: Questions About Revocable Living Trusts

Law FAQ: Questions About Revocable Living Trusts

What is a revocable living trust?  A revocable living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die.  But, unlike a will, a living trust can avoid probate at death, control all of your assets and prevent the court from controlling your assets if you become incapacitated.

How does a revocable living trust avoid probate and prevent court control of assets at incapacity?  When you create a revocable living trust, you transfer assets from your name to the name of your trust, which you control.  Legally, you no longer own anything; everything now belongs to your trust.  So there is nothing for the courts to control when you die or become incapacitated.  The concept is simple, but this is what keeps you and your family out of the courts.

Do I lose control of the assets in my revocable living trust?  Absolutely not.  You keep full control.  As trustee of your trust, you can do anything you could do before – buy and sell assets, change or even cancel (or revoke) your trust.  That’s why it’s called a revocable living trust.  You even file the same tax returns.  Nothing changes but the names on the titles.

Is it hard to transfer assets into my trust?  No.  Your attorney, financial advisor, insurance agent and other professionals can help.  Typically, you will change titles on real estate, stocks, bonds, CDs, bank accounts, investments, insurance and other assets with titles.  Revocable living trusts also own tangible personal property and other assets that do not have titles.  Some beneficiary designations should also be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die.

Doesn’t this take a lot of time?  It will take some time – but you can do it now, or you can pay the courts and attorneys to do it for you later.  One of the benefits of a revocable living trust is that all of your assets are brought together under one plan.  Don’t delay “funding” your trust; it can only protect assets that have been transferred into it.

Feel free to contact us for more information about how a revcoable living trust would work in your estate plan.

Probate Process: How long does it take?

Probate Process: How long does it take?

probate process, how long does it takeHow long does the probate process take? I often pose this question at seminars and get a variety of answers. Two of my favorite answers are “years” and “forever.” While neither answer is correct, it typically indicates that someone in the room (or perhaps a friend or neighbor) has had a bad experience with Probate Court at some point. In Tennessee, a Probate Estate must remain open for a minimum of four (4) months from the time of first publication. This period is designed to give creditors time to come forward and assert a claim against the Estate.  An Estate must remain open the full four (4) months regardless of whether the deceased person had any debts.

Time Starts to Run on the Date of “First Publication”

When an estate is opened in Shelby County Probate Court, the clerk’s office notifies The Daily News, and they publish a public notice regarding the opening of the Estate, typically within a week of the opening of the Estate. This first publication marks the start of the four (4) months, and the Estate cannot be closed until 4 months after the date of first publication.

However, bear in mind that this is a minimum amount of time, and there is no guarantee that the Estate can be closed at the end of the 4 months. I frequently tell clients that 6-9 months is a more realistic average for a straightforward Probate Process. The “first accounting” is not due until 15 months from the opening of the Estate, so if the Estate is closed out within that 15 month period, you are still doing pretty well.

Why does the Probate Process take so long?

So what makes the probate process last beyond the 4 months? A number of factors often contribute to how long a Probate Estate is open. Preliminarily, there are 8-10 steps that must be completed for every Probate Estate regardless of the size of the Estate, the cooperation of the Beneficiaries, or the debts of the deceased person. If these steps have not been completed or if the proper letter has not been received from Tenncare of the Tennessee Department of Revenue, the Estate cannot be closed. If there are minor Beneficiaries involved and the Will does not contain instructions on holding those funds in trust, we often have to seek court guidance and have additional hearings regarding handling these funds. Likewise, if Beneficiaries are fighting, the Probate Process will often take significantly longer than the 4 month minimum. If the decedent left a number of debts, and creditors have filed claims against the Estate, each valid claim must be paid in full or settled before the Estate can be closed. If the decedent had property in more than one state, the process can take much longer. These are just a few of the factors that can contribute to a lengthier Probate Process.

Every Probate Case is Different

Although the correct answer is rarely, if ever, “years” and definitely not “forever,” the Probate Process can last much longer than Beneficiaries are expecting. The Probate Estate that is open for years is not the norm, but most attorneys who do a lot of Probate work will typically have at least a couple of cases that drag on for one reason or another. In many cases, where everything is straightforward, 6 months should be a reasonable estimation of how long it takes. Unfortunately, we often can’t predict when we open an Estate the circumstances that may arise, so while it may seem simple on the front end, it could also turn out to be more complex. If we know some of the complicating circumstances in the planning stages, we can often  incorporate strategies to avoid some of the Probate pitfalls.

Need help with Probate Court?

Please call us at 901-372-5003. We know you have a lot on your mind and the thought of going to court can be overwhelming. We are experienced probate lawyers and we can guide you through the Probate Process.

How to Avoid Probate

Did you know that you can eliminate the Probate Process altogether through revocable living trust planning? If you would like to learn more about Probate or about planning to avoid probate, please call us. We can guide you through an Estate Plan designed specifically for you and your family.

Law FAQ: Doesn’t joint ownership avoid probate?

Law FAQ: Doesn’t joint ownership avoid probate?

Not really. Using joint ownership usually just postpones probate.  With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate.  But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the beneficiaries.  Click here  to read my post from last week about the problems with a probate court administration.

Watch out for other problems associated with jointly-owned assets.  When you add a joint owner, you lose control.  Your chances of being named in a lawsuit and of losing the asset to a creditor of the new joint owner are increased.  There could also be gift and/or income tax problems.  And since a will does not control jointly-owned assets, you could disinherit your family (click here to read a post by Lindsay Jones about unintended heirs).

With some assets, especially real estate, all owners must sign to sell or refinance.  So if a joint owner becomes incapacitated, you could find yourself with a new joint owner – the court – even if the incapacitated owner is your spouse.

Our firm recommends estate planning strategies that can reduce the problems associated with jointly-owned assets, or even eliminate them altogether.  For example, click here to read my prior post about using revocable living trusts.

Feel free to contact us for more information.

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Law FAQ: What is Probate and why is it bad?

Law FAQ: What is Probate and why is it bad?

What is Probate and why is it bad?  (a.k.a. Why simply having a will might not be enough.)

Probate is the legal process through which the court sees that, when you die, your debts are paid and your assets are distributed according to your will.  Indeed, a will is a “ticket” to Probate.  If you don’t have a valid will, your assets are distributed according to state law.  But….

Probate can be expensive.  Legal fees, executor fees and other costs must be paid before your assets can be fully distributed to your beneficiaries.  If you own real estate in other states, your family could face multiple probates, each one according to the laws in the state where real estate is owned.  These costs vary, but a good rule of thumb is the cost of Probate will be 6% of your total estate.

Probate takes time, usually nine months to two years, but often longer.  During part of this time, assets are normally frozen so an accurate inventory can be taken.  Nothing can be distributed or sold without court and/or executor approval.

Your family has no privacy.  Probate is a public process, so anyone can see what you owned, whom you owed, who will receive your assets and when they will receive them.  The process “invites” disgruntled heirs to contest your will and can expose your family to solicitors.

Most importantly, your family has no control.  The Judge and the Probate Court process determines how much it will cost, how long it will take, and what information is made public.

Our firm employs estate planning strategies that can reduce the hassle of the probate process, or even eliminate it altogether.

Feel free to contact us for more information.

Law FAQ: My mom’s will leaves everything equally to me and my sister. Why am I not getting anything?

Law FAQ: My mom’s will leaves everything equally to me and my sister. Why am I not getting anything?

A person’s will only applies to assets or accounts that are in the person’s sole name or are payable to the person’s estate.  Typically, we are dealing with assets in someone’s sole name name if we are looking at someone’s will.  I frequently tell clients that assets are often payable to someone’s estate on accident.  For example, assume mom’s husband was named as beneficiary on her life insurance policy.  He dies several years before her, and she never added another beneficiary and does not have a contingent beneficiary on the policy.  In most cases, that policy will say her estate is the beneficiary by default.

The important thing to note is that jointly-owned assets and assets with a beneficiary designation do not pass pursuant to mom’s will.  They pass upon death by operation of law, which means that jointly-owned assets pass to the surviving owner and accounts with a beneficiary designation pass to the named beneficiary on the account, regardless of what mom’s will says or if she has a will.  These assets do not pass through probate, and mom’s will does not apply to these assets.  So, if sister was the joint owner on mom’s checking account and CDs because she was the primary caretaker, the checking account and CDs belong to the sister upon death, even if the will specifically says everything is to be divided equally between the children.  This means that your sister gets everything, and you get nothing.  The will simply does not apply to the distribution of these assets.  To add insult to injury, if your sister wants to fulfill mom’s intent, she may have to deal with gift taxes and the gift tax ramifications of splitting the accounts with you.  Thus, even if sister wants to split the accounts because she knew what mom wanted and wants to comply, she may not want to split the accounts bad enough to pay gift tax on the transfer from her to you.

In many cases, this result is not what mom wanted or intended.  I will be posting more in the coming weeks about intent versus content because all too frequently the content of someone’s will or trust or the structure of their assets do not coincide with what their intent.  After someone dies, it is often too late to reconcile the two, even if most people involved agree as to what the person’s intent was.  An effective estate plan can prevent this disparity between intent and content.   Unfortunately, the true test of an estate plan occurs after someone dies when it is often too late to go back and correct the discrepancy.  Please contact our office if you need assistance in establishing an estate plan or determining if your plan accomplishes your goals and intentions.

Law FAQ: Why would I want a revocable living trust?

Law FAQ: Why would I want a revocable living trust?

Contrary to what you’ve probably heard, a will may not be the best plan for you and your family. That’s primarily because a will does not avoid probate when you die.  A will MUST be validated by the probate court before it can be enforced, and the probate process is part of the public record (thus potentially airing your family’s personal financial details), can be extremely costly, burdensome, potentially divisive to the family, and consume considerable time and energy at precisely the time you are trying to deal with the loss of your loved one.

Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated.  So a court could easily take control of your assets before you die – a concern of many elderly people and their families.

Fortunately, there is a simple and proven alternative to a will – the revocable living trust.  It avoids probate and lets you keep control of your assets while you are living, even if you become incapacitated, and also after you die.

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Law Talk: A Conservation Easement Can Save You Thousands in Taxes

Law Talk: A Conservation Easement Can Save You Thousands in Taxes

In 2010, Congress extended the enhanced tax deduction for Conservation Easement Donations (“CEDs”), but only for a limited time.  This provision is a real gem for anyone owning a piece of undeveloped land.  But you must act quickly.

CEDs allow landowners to create and grant a property easement to a land trust or other non-profit and deduct the value of the easement form their income taxes, all while maintaining full control and ownership of the property.  The amount of the deduction is determined by the decrease in value of the property from before the easement to after.

Example:   Farmer John owns 100 undeveloped acres near a growing town.   John decides to donate a conservation easement to ABC Land Trust.  The easement simply restricts John from developing the property into residential or commercial development, which he never intended to do anyway.  Essentially, John and his family and his heirs can still farm, hunt, fish, ride ATVs and otherwise enjoy the outdoors on the land as they had always planned.  Indeed, the great part is that John still owns and controls his land.  He can even still sell the land as encumbered by the easement.  He has only donated the right (and the value associated with the right) to development the land.

So what does John get for the donation?   He gets an income tax deduction equal to the value of the donation, which is determined by comparing the appraised value of the land with development rights vs. the appraised value of the land without the development rights.  For example, if his 100 acres of developable land was worth $1 million dollars, but the land – as restricted by the easement prohibiting future development – would be worth $100,000, then John would get a tax deduction of $900,000!

Moreover, the recent Congressional legislation allows individuals to spread out the value of the deduction for up to 15 years.

This is just an overview of CEDs.   Each situation is unique, and landowners should consider taking advantage of this amazing tax deduction.  While Congress may ultimately extend the time period to take advantage of this tax strategy, the legislation is currently expected to expire on December 31, 2011.

Patterson Bray — Law FAQ Series: Submit Your Legal Questions!

Patterson Bray — Law FAQ Series: Submit Your Legal Questions!

In thinking about how we might better serve our friends, clients, and prospective clients seeking reliable information on the web about Tennessee law, we decided to start a new series called Law FAQ (Frequently Asked Questions).  Similarly, we will have periodic blog posts regarding current legal news or informative topics called Law Talk.

Using “Question & Answer” format, we will provide a 30-45 second shot of useful information a few times each week.  Sample topics may include personal injury, business law, construction law, commercial litigation, negligence, medical malpractice, technology, estate planning, auto accidents or car wrecks, insurance law, asset protection, civil rights, brain injury, wrongful death, hospital negligence, nursing home abuse, pharmacy error, workers’ compensation, probate, charitable planning, and trusts.  See a sample Law FAQ here.

We also want this series to be interactive, and so we invite you to submit questions or suggested topics by filling out the Contact Form here and including “Law FAQ” in the Subject/Inquiry box.  Please be assured that your privacy is paramount, so you can be confident that we will not include any names or any identifying details or information when posting about a particular question or topic.  Further, while we may not have the space to answer every specific question, we will do our best to cover in a general way any topics that are submitted.

We also welcome your thoughts and feedback in the Comments section below any of the posts on the blog.

We hope you will enjoy Law FAQ and Law Talk series.  You can easily follow the series by adding our blog address to your Google/RSS feeder, or you can follow along on Facebook by clicking here and then hitting the “Like” button.  You can also keep up with the series on Twitter by clicking here and then hitting the “Follow” button.

We hope you won’t necessarily need all of the information included in the Law FAQ series, but we hope that you will be able to pick up some interesting and valuable information along the way.

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Patterson Bray serves the communities of Memphis, Cordova, Bartlett, Germantown, Collierville, Millington, Southaven, Shelby County, Oakland, Tennessee, Nashville, Brentwood, Franklin and surrounding areas.

Leaving a Legacy Greater Than Wealth: More than an Estate Plan

Leaving a Legacy Greater Than Wealth: More than an Estate Plan

estate plan lawyer

An estate plan isn’t all you need. While providing our children with a better life than we had may be a noble goal, the goal is often lost in translation because of the means we choose. As the saying in America goes, it is “shirt sleeves to shirt sleeves in three generations.”  In fact, studies show  that 60% of transferred or inherited wealth is lost by the end of the second generation, and 90% of family wealth is lost by the third generation.

Is money really the root of all evil?  Is giving our children a life of affluence replacing more traditional values such that our descendants cannot manage wealth?

Approaching an estate plan from strictly a tax, asset protection, or other objective standpoint may indeed add to the problem.  These issues certainly need to be addressed as part of any comprehensive estate plan, but perhaps the seeds of a legacy are planted during lifetime instead of at death and have little to do with a dollar figure.

Leaving a legacy may involve telling our children and grandchildren how the wealth was accumulated, the work ethic that helped us achieve what we have achieved, and the hard times we went through to get there.  It may involve teaching our children, even adult children, how to manage money, invest wisely, plan well, and save for retirement.  In that case, even if the money is gone or depleted, we have left a legacy far greater for our descendants because we have truly given them the tools to accumulate and maintain their own wealth.  Indeed, isn’t this giving them the better life we had envisioned for them?

We Can Design an Estate Plan Especially for You.

One of our primary goals in working with clients and prospective clients is helping them design an estate plan that fits in with their overall goals and values, rather than fitting their goals into a “cookie-cutter” estate plan. If we can help you, please call (901) 372-5003 or email us here.  Your initial consultation with us is always free of charge.