As a skilled estate planning lawyer Memphis, TN has to offer might explain, many basic estate planning strategies will facilitate the transfer of your wealth to your beneficiaries. As estate planning and probate attorneys in Memphis who prepare wills, trusts, and other plans, below is a list of some strategies we commonly use to achieve your goals. A summary of each strategy follows the list, or you may click on a strategy to be taken directly to its summary.
A power of attorney, such as a General and Durable Power of Attorney, is a legal document authorizing an agent to handle your financial affairs in the event you are unable to do so because of incapacity or other reasons. The agent is normally granted the power, in general, to perform all acts and deeds you could perform as if you were personally present and competent. This person will likely interact with an estate planning lawyer Memphis, TN trusts to execute these responsibilities.
LAST WILL AND TESTAMENTS
A Will is a legal document in which you instruct how your property is to be disposed of after your death. Under Tennessee law, a Will must be properly executed by being signed in the presence of at least two witnesses. Any person who is of sound mind and is eighteen (18) years of age or older can make a Will in Tennessee.
A Will should appoint a Personal Representative to comply with the terms of the Will, provide how the assets should be distributed and to whom they should be distributed, and appoint a guardian for any minor or incompetent children.
Before your Personal Representative can be charged with fulfilling its duties under your Will, the Will must be admitted to Probate Court and made subject to a Probate Administration.
REVOCABLE LIVING TRUSTS
We, as an experienced estate planning lawyer Memphis, TN relies on, have found the Revocable Living Trust to be a more flexible and useful estate planning tool than the Will-centered approach. Under a Revocable Living Trust-centered plan, you continue to have complete control of your assets during your lifetime. However, in the event of your incapacity, the Revocable Living Trust-centered plan will provide full access to your assets by your personally selected backup trustee without a Probate Court administration. A Will-centered plan cannot provide this flexibility. Indeed, one must die before a Will becomes effective. The Revocable Living Trust-centered plan also avoids Probate upon death, thus saving your family what could amount to a great deal of time, expense and red tape.
There are other benefits, of course, that flow from Revocable Living Trust-centered planning, such as complete privacy, avoiding multi-state Probate problems, protecting minors and dependents with special needs, and generally making the ultimate transfer of assets a much more efficient process.
There are Case Studies on this site illustrating the use of a Revocable Living Trust as part of a complete estate plan.
TENNESSEE COMMUNITY PROPERTY TRUSTS
As a top estate planning lawyer Memphis, TN provides might explain, the Tennessee Community Property Act of 2010 allows for community property ownership of assets in a Tennessee Community Property Trust. Although community property ownership of assets between a husband and wife is not always beneficial, it can provide significant advantage in the right circumstances.
As long as the Community Property Trust meets certain requirements, the property owned by the trust will be treated as community property. The most significant advantage of community property ownership is that both spouses’ interests receive a step-up in basis up to the fair market value of the property upon the death of the first spouse to die. In contrast, if the property was owned jointly or owned as tenants by the entireties, only half 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.
TENNESSEE TENANCY BY THE ENTIRETY TRUST
In Tennessee and many other states, when husband and wife jointly own real property, they own it as tenants by the entirety unless the deed specifies otherwise. Tenancy by the entirety is similar to joint tenancy in that it carries with it a right of survivorship, meaning it passes to the surviving spouse by operation of law at the death of the first spouse to die. Unlike joint tenancy with a right of survivorship, tenancy by the entirety provides asset protection for the couple from the creditors of only one spouse as well as protection for the surviving spouse from creditors of the first spouse to die.
Given the asset protection involved with owning property as tenants by the entirety, a skilled estate planning lawyer Memphis, TN relies on would likely advise our married clients who have established joint revocable living trusts to leave the real property, often the personal residence, out of the trust. If they owned their residence as tenants by the entirety, we often did not recommend transferring the property to the joint revocable trust because the tenancy by the entirety would be severed and the protection would be lost. Thus, we had to choose either to transfer the property to the trust to avoid probate or maintain the asset protection.
The Tennessee Tenancy by the Entirety Trust eliminates the need to make this choice and gives us the best of both worlds in many cases. It expressly provides for tenants by the entirety property to be transferred to a joint revocable living trust that is properly drafted to maintain this tenancy by the entirety protection. Therefore, we can transfer the property to a joint revocable living trust and get all the benefits of a revocable living trust, as well as the asset protection offered by tenancy by the entirety ownership.
ASSET AND DIVORCE PROTECTION TRUSTS FOR CHILDREN
Most parents leave their assets to their descendants directly. But the shares established for your children and grandchildren in your estate plan can be designed as Asset and Divorce Protection Trusts that may protect those assets from lawsuits, divorce proceedings, creditors, bankruptcy and other predators. The trustee of each trust can distribute assets for the beneficiary’s needs. Each beneficiary may serve alone as trustee of his or her own trust share, or you may choose to have someone serve as a cotrustee or sole trustee of the beneficiary’s share for the management and administration of the inheritance.
In addition, a portion, or possibly all, of the assets of a beneficiary’s trust share can pass free of death taxes to the next generation. In other words, you would be able to skip a generation of estate taxes on the transfer of your wealth between your children and their children. For further detailed information on specific situation, contact a estate planning lawyer Memphis, TN counts on from the Wiseman Bray, PLLC team.
There are Case Studies on this site illustrating the use of Asset and Divorce Protection Trusts as part of a complete estate plan.
Structuring the inheritance of all of your descendants (generation after generation) as an Asset and Divorce Protection Trust is referred to as “Dynasty Planning.” Dynasty Planning benefits one generation of family members after another without being taxed in any family member’s estate. Wealth that is never taxed grows far more than wealth that is taxed at every generation, especially when that wealth may also be protected from creditors and failed marriages. Dynasty Trusts are a golden opportunity for most families. By planning for children, grandchildren and even great-grandchildren, you can give your family many generations of potentially potentially tax-protected, creditor-protected and failed marriage-protected wealth.
There are Case Studies on this site illustrating the use of Dynasty Planning as part of a complete estate plan.
IRREVOCABLE LIFE INSURANCE TRUSTS
Even with proper drafting of a Last Will and Testament or the Revocable Living Trust which utilizes both spouse’s federal estate tax exemption amounts, there may be some tax due at the second death. If so, we may recommend the use of Irrevocable Life Insurance Trusts (ILIT) to own any existing individual life insurance policies. Ownership of any of your existing policies can be transferred to an ILIT established by the insured. If the insured lives more than 3 years after changing ownership of the life insurance policies, the death proceeds of the policies will not be included in your taxable estates. With the use of advanced planning strategies and the help of a top estate planning lawyer Memphis, TN has to offer, the 3-Year Rule can be avoided.
Even with the use of ILITs for individual policies to exclude them from the taxable estate, there still may be tax due at the second death. We recommend the use of a Joint ILIT to own a second-to-die, or survivorship, life insurance policy. Since the joint ILIT will be the initial owner of the policy, the 3-Year Rule will not apply. The death proceeds of the policy will not be included in your taxable estates and will provide liquidity to pay any death taxes due so that the assets in your estates will not have to be liquidated.
There are Case Studies on this site illustrating the use of Irrevocable Life Insurance Trusts as part of a complete estate plan.
Every individual is entitled to give the annual gift tax exclusion amount (indexed annually for inflation) to a donee without incurring any gift tax. These gifts will decrease your taxable estates. Rather than making these gifts to them outright, we recommend that you establish Gift Trusts for the benefit of your children and grandchildren that will exist for their lifetimes. The assets owned by the trusts may be protected from failed marriages and the creditors of your children and grandchildren while the assets remain in the trusts. The trustee of each trust can distribute assets for the beneficiary’s needs. Just as with the Asset and Divorce Protection Trusts, each beneficiary may serve alone as trustee of his or her own trust share, or you may choose to have someone serve as a Cotrustee or sole trustee of the beneficiary’s share for the management and administration of their inheritance.
SPOUSAL GIFT TRUSTS
Each spouse may give an amount up to the annual gift tax exclusion amount to a trust for the other spouse. We refer to these trusts as Spousal Gift Trusts. Each spouse may serve as trustee of his or her trust. These gifts will decrease your taxable estates, and the assets owned by the trusts may be protected from your creditors while the assets remain in the trusts. The trustee of each trust can distribute assets for your needs. At your deaths, the assets remaining in the trusts will pass tax-free to your designated beneficiaries. A respected estate planning lawyer Memphis, TN trusts can help you navigate outlining spousal gift trusts for your specific situation.
Retirement Benefits Trusts
If qualified retirement plans are a large part of your estate, it is important that your beneficiaries be permitted to withdraw from the account over each of their respective life expectancies after your death. A skilled estate planning lawyer Memphis, TN relies on will likely refer to this as a “Stretch-Out” which will defer the payment of income tax on the retirement plan over the life expectancy of each beneficiary. The portion of the plan not distributed will continue to grow income-tax free.
You may name your heirs individually as beneficiaries of your retirement plans. This will preserve the “Stretch-Out,” but your beneficiaries will own the account outright. As we discussed above, Asset and Divorce Protection Trusts can be established for your beneficiaries so that they may be protected for their lifetimes from creditors and predators, rather than outright distributions.
In the past it was believed that, under the IRS rules, the separate trusts established for children in your Revocable Living Trust were permitted to use the life expectancy of the beneficiary in determining the minimum required distributions (MRD) to the trust. In recent Private Letter Rulings (PLRs) issued by the Internal Revenue Service, it is now clear that this is not the case. The PLRs have given more guidance in naming trusts as beneficiaries of retirement plans and using the trust beneficiary’s life expectancy in calculating MRD.
In order for a trust to qualify as a designated beneficiary, four rules must be met. First, the trust must be valid under state law; second, the trust must be irrevocable at the death of the participant; and third, certain documentation must be provided to the plan administrator. Most trusts meet these requirements, or they can easily be satisfied.
The fourth requirement, that the beneficiaries of the trust must be individuals and must be “identifiable,” is not so easy to satisfy. The problem is that any remainder beneficiaries are considered.
The life expectancy of the oldest potential beneficiary of the trust is used to determine MRD. If lifetime Asset and Divorce Protection Trusts are established for your beneficiaries, these issues become even more relevant since the remainder beneficiaries become more likely to inherit at the death of a child.
In our practice, we recommend that clients establish a separate “Retirement Benefits Trust” (which addresses the issues raised above) as the beneficiary of any retirement plans. The balance of the estate will continue to be administered by the Revocable Living Trust. Use of a separate trust will permit you to take full advantage of the “Stretch-Out” opportunities provided by the IRS.
There is a Case Study on this site illustrating the use of a Retirement Benefits Trust as part of a complete estate plan.
Special Needs Trusts
As an estate planning lawyer Memphis, TN offers can attest, any persons with disabilities can qualify for government assistance programs. Receipt of an inheritance, in excess of the very limited exempt levels, will disqualify even the most severely disabled person from a wide variety of government assistance programs and services provided through those programs. Many of those services are difficult, if not impossible, to purchase outside of the government assistance programs. For that reason, Special Needs Trusts are often used to receive and manage the inheritance of those with disabilities.
A “Special Needs Trust” (SNT) is a colloquial term describing a trust for the sole benefit, or special needs, of a person with disabilities or other impairments. A SNT can either be a “support” SNT or a “supplemental care” SNT.
A “support” SNT will provide the basic support, including but not limited to food, clothing and shelter, of the beneficiary. The assets of a “support” SNT will be considered an “available resource” of the beneficiary. In other words, the assets will count as disqualifying assets for purposes of determining whether the beneficiary is eligible for needs-based public benefits.
A “supplemental care” SNT will be a secondary source of benefits for the beneficiary. The beneficiary’s basic support will be provided by needs-based public benefits. When drafted properly, a “supplemental care” SNT will not supplant the governmental assistance available to the disabled beneficiary. The “supplemental care” SNT will provide for any needs not funded by public benefits, including medical, residential and social needs.
In structuring the inheritance of a disabled beneficiary, a supplemental care SNT should be used to maintain the eligibility of the beneficiary for government assistance programs and services provided through those programs.
As you can see, there are many different ways for securing a financial future for your loved ones once you have passed. For more information on you specific needs, contact an estate planning lawyer Memphis, TN is proud to have working for it’s community today.
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