ESTATE AND TRUST PLANNING

 

  1.  Ways to Avoid Probate

Name survivor payees on accounts

Life Insurance

Pre Paid Burial Contracts

Life Estates

Trusts

 

Survivor Beneficiaries:  Plus:  Easy to do.  You just have to do it.

Minus: Will not settle everything.  Cannot distribute unequally, or easily give to minors

Life Insurance:  Plus:  A good way to save for your family.  Bypasses creditors.

Minus:  Cannot control it with your will, unless you give it to your estate, then it will not bypass creditors.

Pre Paid Burial Contracts:  Good idea.  Just make sure your family knows about it (so they can use it) and it actually covers everything.  Nothing like a $1,500 surprise opening and closing fee.

Life Estates:  Plus:  Keeps step up basis.  You get to use it for the rest of your lifetime. 

Minus:  Problems with refinancing, or selling to move.

Trusts:  More on this later.  Plus:  No probate.  With the right trust you can plan for a business, or protection in the event of disability.

Minus:  Useless property is in the trust.  Expense of deeds into trust and out of trust.

  1. Wills

Bad idea wills: 

Nuncupative:  32-1-106. Nuncupative will.

(a)  A nuncupative will may be made only by a person in imminent peril of death, whether from illness or otherwise, and shall be valid only if the testator died as a result of the impending peril, and must be:

 

     (1)  Declared to be the testator's will by the testator before two (2) disinterested witnesses;

 

     (2)  Reduced to writing by or under the direction of one (1) of the witnesses within thirty (30) days after such declaration; and

 

     (3)  Submitted for probate within six (6) months after the death of the testator.

 

(b)  The nuncupative will may dispose of personal property only and to an aggregate value not exceeding one thousand dollars ($1,000), except that in the case of persons in active military, air or naval service in time of war the aggregate amount may be ten thousand dollars ($10,000).

 

(c)  A nuncupative will neither revokes nor changes an existing written will.

 

            Holographic:   § 32-1-105: “No witness to a holographic will is necessary, but the signature and all its material provisions must be in the handwriting of the testator and the testator’s handwriting must be proved by two (2) witnesses.

            Both of those sound great, but . . .

Nuncupative - Finding two witnesses and having them sign affidavits to admit the wills is a pain.  Also, movies aside, who is thinking about a will when they are dying?  Who would ever know to reduce the will to writing within 30 days?  $1,000.00 can be distributed faster without a nuncupative will, unless it is at a bank, in which case getting the nuncupative will to probate will cost more than $1,000.00.

Holographic:  Same issue about two witnesses.  It ALL has to be in handwriting.  Not just a form with a signature.  Good source of steady employment for attorneys as issues tend to be created by holographic wills instead of settled by them.

Intestate Succession: 

(a)(1) The surviving spouse may elect to take the spouse's elective share in decedent's property by filing in the court and mailing or delivering to the personal representative, if any, a petition for the elective share within nine (9) months after the date of death.

Tenn. Code Ann. § 31-4-102

            The size of the elective share depends upon how long the couple had been married before the first one died as opposed to before the first one tried to cut the other one out of an inheritance.

(a)(1) The surviving spouse of an intestate decedent who elects against taking an intestate share, or a surviving spouse who elects against a decedent's will, has a right of election, unless limited by subsection (c), to take an elective-share amount equal to the value of the decedent's net estate as defined in subsection (b), determined by the length of time the surviving spouse and the decedent were married to each other, in accordance with the following schedule:

If the decedent and the surviving spouse were

The elective-share

married to each other:

percentage is:

less than 3 years                                  10% of the net estate

3 years but less than 6 years                20% of the net estate

6 years but less than 9 years               30% of the net estate

9 years or more                                   40% of the net estate

 

Tenn. Code Ann. § 31-4-101

 

It is interesting that the options of a surviving testate spouse are markedly different than the options of a surviving intestate spouse, who receives a fixed sum, no matter how long the couple were married.

 

(a) The intestate share of the surviving spouse is:

(1) If there is no surviving issue of the decedent, the entire intestate estate; or

(2) If there are surviving issue of the decedent, either one-third ( ⅓ ) or a child's share of the entire intestate estate, whichever is greater.

 

Tenn. Code Ann. § 31-2-104

§ 30-2-102. Support allowance

(a) In addition to the right to homestead, an elective share under title 31, chapter 4, and exempt property, the surviving spouse of an intestate, or a surviving spouse who elects to take against a decedent's will, is entitled to a reasonable allowance in money out of the estate for such surviving spouse's maintenance during the period of one (1) year after the death of the spouse, according to the surviving spouse's previous standard of living, taking into account the condition of the estate of the deceased spouse. The court may consider the totality of the circumstances in fixing the allowance authorized by this section, including assets that may have passed to the spouse outside probate.

(b) The allowance so ordered shall be made payable to the surviving spouse, unless the court finds that it would be just and equitable to make a division of it between the unmarried minor children. If there is no surviving spouse, the allowance shall be made to the unmarried minor children.

(c) The court may authorize the surviving spouse to receive any personal property of the estate in lieu of all or part of the money allowance authorized by this section, and in any case where the court makes an allowance in money, the surviving spouse shall be entitled to select and receive any personal property of the estate, of a value not exceeding the allowance in money, which shall be in lieu of and which value shall be credited against the allowance.

(d) The allowance authorized by this law is the absolute property of the surviving spouse for these uses and shall be exempt from all claims and shall not be taken into the account of the administration of the estate of the intestate or seized upon any precept or execution.

(e) In determining the amount to be allowed as a year's support, the court may, in its discretion, appoint freeholders to set aside that year's support, as previously required by law.

(f) If the allowance set by the court as provided in this section is not satisfactory to the surviving spouse electing against the decedent's will, the surviving spouse of an intestate decedent, the unmarried minor children of an intestate decedent or the personal representative, then appeal may be made to the appropriate court in accordance with § 30-2-609. Proceedings on appeal shall be de novo without the intervention of a jury except when demand for a jury is made in accordance with Tennessee Rules of Civil Procedure, Rule 38; provided, that in jurisdictions where probate matters originate in a court whose judge is also a chancellor, the appeal shall be made as otherwise provided by law; and provided further, that in cases heard in a probate court whose judge is required to have the same qualifications as prescribed for circuit judges, the appeal shall also be made as otherwise provided by law.

(g) Any action to set aside the property designated in this section shall be brought within the time limits set by § 31-4-102.

Tenn. Code Ann. § 30-2-102

The right of a surviving spouse to have a year’s support is not terminated because the surviving spouse dies within a year of the first spouse to die. 

(a) Death of a surviving spouse within the one-year period for which the allowance is provided under § 30-2-102, for the surviving spouse's maintenance, shall not affect the vested right of the surviving spouse to the allowance or the ordering thereof by the court.

Tenn. Code Ann. § 30-2-104

That deadline is 9 months.  Tenn. Code Ann. § 31-4-102

            There is also the right to homestead. 

(a) The surviving spouse may make application to any one of the courts named in § 30-2-202 in the county where the husband or wife, as the case may be, last resided before death, for the appointment of two (2) freeholders or householders of the county, unconnected by affinity or consanguinity with those interested in the estate of the deceased, to allot and set apart the homestead to the applicant, in connection with the county surveyor, or the surveyor’s deputy.

(b) Any action to set aside the property designated in this section shall be brought within the time limits set by § 31-4-102.

Tenn. Code Ann. § 30-2-204

If this statute sounds old fashioned, it is because the statute comes to us generally untouched from the original 1858 Code.

            As you can see, the right of homestead is in addition to, and not in place of, any other remedy.  You can also see that it is a bit obscure and not all that easy to implement.  This is why many cases are resolved by paying the surviving spouse $5,000 as is provided in Tenn. Code Ann. § 30-2-209.

If real estate is so situated that homestead cannot be set apart, as provided in this part, then the realty shall be sold and five thousand dollars ($5,000) of the proceeds invested in real estate, under the direction of the court having jurisdiction to be held as homestead subject to the law governing homestead, or if the court deems it more desirable and practical, it may order the payment of five thousand dollars ($5,000) in cash or other personal property outright and in fee to the surviving spouse, if any, otherwise to the minor children, if any, in lieu of all other homestead rights in the realty of the deceased.

Tenn. Code Ann  § 30-2-209

 

The Problems with Intestate Succession:  There is no will to waive accounting, bond or inventory.  This makes probate more tedious and expensive unless everybody agrees to waive them.  There are statutes that provide for doing this if all beneficiaries agree.  If there are family disputes, or minor beneficiaries, waiver of accounting, bond and inventory is not going to happen.

Your savings go just by the rules of intestate succession.  Anything else requires a timely disclaimer.

Finally, and importantly, you do not get to pick who will run your estate.  The Court will.

Formal Will:  A formal will can accomplish almost all estate planning needs.  It can choose a fiduciary to run your estate, waive accounting, bond and inventory, parse out who gets what according to need and establish trusts if necessary.

You can get a form online.  Those forms employ lawyers almost as much as holographic wills.  Karl fought one dispute all the way through the Court of Appeals.  Just because the testator wished to save a few Dollars.  Penny wise and pound foolish, as the old saying goes.

 

  1.  Trusts:

Revocable Living Trusts

Irrevocable Trusts

Testamentary Trusts

Special Needs Trusts

You only use a trust when there is a purpose to the trust.  Avoiding probate is not really a good reason. (Revocable Living Trust Salesmen in motel conference rooms.  So bad that selling Revocable LivingTrusts has its own section in the Consumer Protection Act.)

Real property in another state is a good reason for a trust.  Ancillary probate (going through one now in Florida) means two court proceedings in two states with two or more lawyers.  Having property from the other state in a trust means no probate in that other state.

Family members who are mentally or physically disabled, addicts, or substance abusers.

Revocable Living Trusts: Pro:  NO worry about tax issues while living as placing stuff into a RLT is not a completed gift as far as the IRS is concerned.  Can do most things any other trust can do except asset protection.

Con:  If you have already done one be awfully sure that you have actually transferred your property into it.  If not, see a lawyer.

Irrevocable Trusts:  Irrevocable trusts can be used for asset protection.  To do that you have to give up absolute control over your assets for the duration of your life.

Irrevocable trusts can be used for disability planning, like TennCare and VA benefits.  Be careful because transfers to such a trust MUST be made in anticipation of the lookback period:  5 years in the case of TennCare and 3 years in the case of the VA.

Do not try this at home kids.  The IRS has a lot of laws about how trusts have to be distributed and taxed.  Be careful and learn what you are getting into.  Read the fine print and make the lawyer explain it to you.  Call in your financial advisor and your accountant.  These trusts become a separate taxable entity and must have a taxpayer ID number assigned to them, and file annual tax returns.

When?  Business succession, family issues, taxable estates, estates that are not taxable – but are still complicated

Testamentary Trusts:  Irrevocable Trusts that only start after you have stopped.

All the same things, except it is a little harder to protect the assts going into the trust from creditors.

Special Needs Trusts:

Funded by the beneficiary:  Subject to TennCare estate collection

Funded by anyone else (other than a spouse):  No TennCare estate collection

Individual and Pooled

Qualified Income Trusts:  If your income is over the monthly limit ($2,313.00 this year) you will need to put your income into a Qualified Income Trust to continue qualifying for TennCare benefits.  It doesn’t really do anything except create more work for you and make TennCare bureaucrats happy. 

 

            Karl D. Warden

            1504 17th Avenue South

            Nashville, TN 37212

            (615) 308-0210

            karl@karlwarden.net

 

Paul R. White

133 Laird Road

Nashville, TN 37205-3241

(615) 255-6441

paulrwhitelaw@comcast.net