A will may be the most cost effective estate planning instrument on the front end. Wills save money, trouble and time even when there is not much estate to distribute. Entering into probate without a will means either posting a bond for the value of the estate, making an inventory and accounting that anyone who wants can see, or getting all the potential heirs to sign off that they don’t want a bond, inventory or accounting. Wills mean the person you believe to be most qualified to run the estate rather than who the law picks.
Wills do not have to cost much. At the same time, wills can contain a great deal of complexity; handling situations and saving familial disputes and taxes. For instance a will can set up a number of trusts that only come into being when the testator dies.
Wills may be the most that any average person will ever need by way of testamentary documents. They are not always the answer. Someone who is likely to need benefits in the future may need an irrevocable trust instead. Additionally, if there is real property in more than one state the additional cost of a trust is less than the ancillary probate in the state where the property is will cost.
A decision about what testamentary instrument to use for complex estates is one that ought to be made with input from the attorney, the financial advisor and an accountant.
A living will is not really a power of attorney. No fiduciary is chosen. I group it with powers of attorney as any living will should instruct your decision maker under your healthcare power of attorney. The person making healthcare decisions for you should also know you’re your wishes are when medical care can no longer make you well again.
Like the healthcare power of attorney it should be deposited with all of your medical providers and with your decision maker under your healthcare power of attorney.
Federal and Tennessee estate tax laws have changed radically in the last few years. The wills you drafted back in the day have not. Therein lies a problem. Wills you drafted to minimize taxes in the 90’s and 2000’s may well cause significant problems for your clients and you.
Why would I say such a thing? Divisor clauses.
When federal and Tennessee estate taxes kicked in at $600,000.00, the most common method of tax avoidance was a Family and Marital Trust. When the first spouse died every penny that could pass free of taxes was put into the family trust. That trust could lend support to the surviving spouse if necessary, although it was primarily for the children. The rest went into the marital trust because transfers to surviving spouses were not taxable. The surviving spouse was to spend the marital trust money first so that when that spouse died there would be less estate to tax.
There were a lot of plans that divided all assets up into separate trust for each spouse to take maximum advantage of tax avoidance. Those trusts are ticking time bombs if the couple divorces.
Now, the applicable federal estate tax exemption amount is $11,200,000.00 and rising. Moreover, Portability means dividing assets before death has significantly reduced relevance for most people. The new exemption amount can easily result in every estate asset funding the family trust with no money left over for the marital trust. Family trust were not really designed to primarily support the surviving spouse. Issues will arise, especially if there are step children involved.
Old wills may contain other unpleasant surprises as well. Courts and the Board of Professional Responsibility no longer smile on you appointing yourself as fiduciary for an estate. If it does happen, you should have written evidence of advising the client to seek advice of counsel about entering into a contractual relationship with you.
Wills that name a bank as fiduciary also pop up occasionally. Banks change ownership every other day. The named bank may no longer be in existence. Even if it is, the bank may not be interested in an estate under a million or so dollars. And, if it does agree to become a fiduciary, bank fees are notoriously high. Trusts can be substantially drained in a few years with little benefit to the family. If a third party fiduciary is a must, consider one of the several non-depository trusts here in Nashville. They charge less and keep the client’s financial advisor in place.
Have a look at the wills you drafted a few years back. Make sure there is nothing in them that will come back to bite you later.
There are so many new options for the Tennessee practitioner. Trusts can now provide for responsible children to be their own trustee and still have protection from creditors. Irrevocable trusts can now be amended without even having to go to court. Remember the old Rule Against Perpetuities? The Tennessee Rule is now 360 years.
Old wills can be problems. They can also be opportunities. As my wife says, make lemonade out of lemons and talk to your clients with old wills about the new estate planning opportunities out there for them today.