- LAST WILL AND TESTAMENT: A will is a legal document that conveys how you want to distribute your real and personal property after you die. This estate planning tool allows you to choose your personal representative (Executor) as well as a guardian and trustee for minor children. If you do not have a will, your assets will be divided according to state law. We refer to this as “intestate succession.”
In Tennessee, you cannot disinherit your spouse or attempt to disinherit your spouse by not having a will and having property titled only in your name. The spouse is entitled to a marital share which is a child’s share or equal to 1/3rd. The spouse may file for an elective share which is up to 40% based on length of marriage. A valid pre-nuptial agreement is an exception. If you are dealing with a blended family, a trust may be more suitable to avoid assets being re-titled and not benefiting your children. Never leave distribution of your estate to the discretion of the personal representative by making that person the sole beneficiary. Legally, the asset now belongs to him or her. Wills must be witnessed by two individuals not inheriting from the will and notarized.
- HANDWRITTEN WILLS: In Tennessee, a handwritten will is valid if all the material parts of the will are in the person’s handwriting and signed by him or her. If the will is not notarized and witnessed by two people, the handwriting of the will must be proven by two witnesses in order to submit the document to the probate court.
- CHANGES TO WILLS: If you are married and have children from a previous marriage or relationship, and your will benefits your spouse, please keep in mind that if you designated your spouse as the beneficiary, he or she is not obligated legally to preserve assets for your children. If this is a concern, please consider a trust.
- COPIES OF WILLS: Store the original will in a safe place. A safety deposit box may not be a good storage solution because the personal representative cannot access it without his or her name on the card until the Letters Testamentary are issued. Consider also secure digital storage for copies.
- REVOCATION OF WILLS: You may revoke your will by destroying it or simply making a new one. To avoid confusion and litigation, the old will should be physically destroyed once the new will is executed.
- REVIEW: Review your will annually to determine if changes in your life and those of your beneficiaries affect the content. Make certain that those named as executors, guardians, trustees are available and in good health. Marriage, divorce and other material changes in your life and those of your beneficiaries may call for a review of your will.
- PROBATE: Probate is the legal process of administering the estate. Simply having a will does not avoid the probate process. If you own property in other states, an ancillary probate will also be opened in each state. Consider a trust as an alternative. Title the properties to the trust.
- SURVIVORSHIP OPTIONS: Your bank accounts including savings, checking, CDs, retirement account, etc. will pass outside of probate if you have a joint account holder or a “Pay on Death” (POD) option or “Transfer on Death” (TOD).
Please note if you have a joint account holder, the individual becomes owner of the account regardless of your oral conversations or intentions with that person.
Real estate held as joint tenants with right of survivorship, tenants by the entirety (married people) as well as remainder interests of life estates pass outside of probate.
- TRUSTS: To avoid the probate process, consider placing your property in either a Revocable Living Trust or an Irrevocable Trust. On your death, the trust would be administered without having court intervention thus protecting your privacy.
- IRREVOCABLE TRUSTS: Irrevocable trusts are often used as an estate planning tool to preserve assets for beneficiaries such as a family farm. Unlike a revocable living trust, you no longer own the asset – the trust does and this is why trust property is shielded from your future creditors including medical creditors.
However, current creditors at the time of the trust creation may have authority to seize the assets.
The irrevocable trust is a wise choice for those who own an asset not encumbered with debt. If the trust earns income, the trust would have a tax identification number.
- REVOCABLE LIVING TRUST: The revocable living trust provides flexibility and allows you to place assets into one holding place. The revocable living trust also avoids probate and can save thousands of dollars of legal fees. This is especially beneficial for clients who own property in more than one state in order to avoid multiple probates.
You may serve as the trustee and you would designate a successor trustee to take over the management of your property in the event you lose competency or die. The trustee has a lot of discretion compared to an executor of a will. This is particularly desirable when administering an estate.
Consult an attorney regarding naming a trust as beneficiary of retirement assets. If not handled properly, this transfer can cause costly tax issues.
- ADD CHILD(REN)’S NAME TO REAL ESTATE DEED:
You might ask, “Why not add my child(ren)’s name to the deed now and save money on a trust?” Here are some considerations:
- a) Gift Tax: If you give your child something of value that exceeds $14,000 during the course of the year, you have made a taxable gift. This includes adding your child's name to your deed - if your child does not pay you anything to be added to the deed, then you have made a taxable gift. As a result, you will need to file a federal gift tax return on IRS Form 709 in order to report the taxable gift to the IRS.
- b) Title Complications: Once you add your child's name to the deed for your home, you cannot sell it, refinance the mortgage or take out a new mortgage without your child's consent. Also, your child could sell his or her interest in the property to a third party without your consent.
- c) Creditor and Divorce Issues: If your child ends up with a tax lien, creditor problems or in divorce court, then the government, creditor or ex-spouse may place a lien on your property and attempt to force a sale.
- d) Delay in Medicaid Eligibility: By adding your child's name to the deed for your home, you have made a taxable gift for gift tax purposes, and you have also made a transfer that will delay your eligibility for Medicaid if you apply for assistance within five years after making the gift.
- e) Income Tax Problems Due to No Step Up in Basis: When you die, and your children inherit your home through probate, a revocable living trust, or irrevocable trust, then your children will receive a step up in the income tax basis of the home. This, in turn, will minimize capital gains taxes on the sale of the home after your death. On the other hand, when you add your child's name to the deed for your home during your lifetime, then the home will not receive a step-up in basis after your death which means that your child will owe capital gains taxes when the house is later sold.
- LIFE INSURANCE: Life insurance proceeds pass outside of probate. Please update the beneficiaries and contingent beneficiaries. The individual named receives the proceeds. Do not rely on oral conversations or intentions. If you intend this insurance to benefit a minor, then you must set this up in trust. If you intend this insurance to benefit a group of people, please specify their names. Do not rely on oral agreements with life insurance proceeds designated for your beneficiaries. Unless payable to the Estate, the individual named is the legal beneficiary. Consider making the proceeds payable to the Trustee of a Special Needs Trust to avoid disrupting government benefits of your loved one or the risk of a Medicaid take back.
- HEALTH CARE POWER OF ATTORNEY: Thehealth care power of attorney allows you to designate someone to be your representative, or agent, in the event you are unable to make or communicate decisions about all aspects of your health care.
- GENERAL DURABLE POWER OF ATTORNEY: This document allows you to designate an agent and authorize broad powers such as handling tax matters, insurance, bank accounts, and other financial matters. Authority may include gifting property, funding a trust and other important aspects of managing assets. If a power of attorney is not created during competency, this may result in a conservatorship which involves court intervention, more expensive legal fees and a loss of privacy.
- LIVING WILL: The living will is an advance directive authorizing a natural death in the event the individual is in a permanent vegetative state with no chance of survival. This document may not be necessary if you have a health care power of attorney.
- ADVANCE CARE PLAN: The state of Tennessee provides a free form at https://tn.gov/assets/entities/health/attachments/PH-4194.pdf.
- BURIAL / FUNERAL: If you wish to pre-pay your funeral expenses, please purchase an irrevocable trust through the funeral home. Any unused portion will be refunded to your estate or holder.
- MEDICAID: Think of Medicaid as an interest free loan. If Medicaid pays for your long term care, they want re-payment after your death.
- The home is an exempt asset to qualify for Medicaid; however, recovery of benefits paid out is only made by a claim against the probate estate. Avoid having an estate that must be probated.
- The institutionalized spouse may quit claim his/her interest in the home to the community spouse within one year. A valid Power of Attorney must be in place if the institutionalized spouse is incompetent. This means get your POA well in advance of incompetency if possible.
- An exception to a Medicaid recovery is a disabled child or blind child living in the home. Another exception is a sibling living in the home continuously for 1-year that prevented you from requiring long term care. Another exception is a child living in your home continuously for 2-years that prevented you from requiring long term care.
- If you give your home away, remember the 5-year look back period. Your benefits may be penalized and your care will become private pay for a certain time period. Also, keep in mind your children lose the step up basis regarding capital gains. Your asset may be at the risk of your children’s creditors. Give serious thought to a trust.
- There is no Medicaid take back with a Testamentary Special Needs Trust. This is a Special Needs Trust built inside of the will.
- If your loved one has been in the nursing home for several years, you may consider selling the home and paying for the care as private pay. If your loved one dies and he or she is not on Medicaid, there is no recovery.
- If your loved one does not own a home but instead has considerable monetary assets, consider buying a home. It must serve as their “homestead.”
- There are numerous options to consider. Please make an appointment for a detailed discussion.
- INTERNET DOCUMENTS: We have dealt with cases where an individual tried to save money and went online to write his trust. The trust failed. It was never funded with the real estate, bank accounts or life insurance despite listing such property on its schedule of assets. Consult an attorney who focuses on this area of law and you will no doubt your estate will save money in the future.
Estate planning is important to transfer your assets in the manner you desire to preserve what you have worked hard for during your lifetime. Call today to schedule an appointment with Olivia Wann (931) 232-4LAW.
NOTE: Reading this article does not imply an attorney-client relationship nor does this article constitute legal advice.