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Estate Planning

While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones.  Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.

We encourage you to take action to prepare your estate so that your spouse, children or other loved ones are spared the stress, strain and potential devastation that may result from a failure to plan.   

INCAPACITY Who will manage your affairs and make decisions for you in the or in the event you become incapacitated due to illness or injury?

If you become incapacitated due to illness or injury, you won’t be able to manage your own financial affairs.  Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated.  The truth is that in order for others to be able to manage your finances, they must petition a court to declare you legally incompetent.  This process can be lengthy, costly and stressful.  Even if the court appoints the person you would have chosen, they may have to come back to the court every year and show how they are spending and investing each and every penny.  If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home. Powers of attorney, healthcare directives and trusts are common tools used for incapacity planning. A will is a death planning tool, not an incapacity planning tool. A will takes effect only after your death.   
 
In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care.  The law allows you to appoint someone you trust - for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself.  You can do this by using a durable power of attorney for health care where you designate the person to make such decisions.  In addition to a power of attorney for health care, you may also desire a living will (advance healthcare directive) which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.

WHAT WILL HAPPEN TO YOUR ESTATE WHEN YOU DIE?

  • Have you provided for your spouse, children or other dependents?
  • Have you planned for beneficiaries that may need Medicaid or other government assistance for nursing home or other long term care?
  • If you do not have a will or trust, do you know who the state law mandated beneficiaries of your estate will be?
  • Have you protected the inheritance of your loved ones from their own misfortunes, divorce, creditors or lawsuits?
  • Have you planned for the tax implications of your death?

If you do not prepare your own estate plan, the State of Tennessee has prepared one for you. Unfortunately, it may not be what you want. The State’s plan may distribute your estate at your death to people other than who you would choose. For example, if you are married with children, Tennessee’s plan would divide your estate between your spouse and your children, as opposed to making your spouse the sole beneficiary and the children the alternate beneficiaries. Nor is the State’s plan concerned with saving costs, minimizing taxes or streamlining the administration of your estate.

WILL-BASED ESTATE PLAN

A will directs the administration and distribution of your estate at your death. A will does not control your affairs or appoint anyone to manage your affairs while you are living. A will does not avoid probate at your death. To the contrary, a will must be probated to have legal effect at your death. Upon the probate of a will, it becomes a public document that anyone can see.

A basic will, sometimes called an “I Love You Will,” typically gives everything to your spouse, or in the event there is no surviving spouse, to your children or other designated beneficiaries. You may designate a guardian for your minor children. A basic will does not provide any protections for the surviving spouse, children or other beneficiaries against claims that others may have against them. Such claims may arise from creditors, lawsuits, divorce, remarriage or other situations. A basic will does not include tax, Medicaid or long term care planning. A basic will might include a trust for your minor children.   

For incapacity, a will-based estate plan usually relies upon a durable power of attorney to plan for incapacity. While the power of attorney is a core estate planning tool, it can be ineffective if a bank, brokerage or other entity refuses to accept the power of attorney.  

More complex wills may include planning to minimize taxes; protect beneficiaries’ inheritances from predators and creditors (i.e. scammers, fraudsters, lawsuits, bad marriages, divorces, judgment creditors); care for beneficiaries with disabilities; and protect the inheritance of a spouse or other beneficiary who may be receiving Medicaid or need-based government benefits. 

REVOCABLE LIVING TRUST ESTATE PLAN

Revocable living trusts are excellent tools to not only avoid probate but also to plan for disability, management assets and protect privacy.  Like a will, you may amend, change or revoke your trust at any time. Unlike a will, assets funded to a revocable trust do not require probate administration.      

Because a revocable trust is not filed in the probate court, it is a private document. The identity of your beneficiaries and terms of your trust are not made public. This reduces the chances that a predator will be able to obtain information that could be used to prey upon your family. Similarly, it reduces the chances of identity theft or cyber-crime against your family. Today, privacy is more important than ever.  

To fully realize the benefits of a revocable living trust, it is important that the revocable trust be funded. In other words, you transfer your assets to your living trust.  For example, to transfer your home to your trust, you sign a deed titling your home to your trust. 

A well-drafted revocable living trust provides disability planning that cannot be achieved merely by a durable power of attorney. The trust instrument designates what circumstances will constitute your incapacity. It can also designate the persons who will determine whether you are incapacitated. It will provide instructions for management of your assets for the benefit of you, your spouse or other dependents during any period in which you are incapacitated. With the revocable trust plan, there is less concern of whether a financial institution will honor the power of attorney. Because your assets are titled to your trust, the trustee has the power to manage the assets without need to resort to the power of attorney. 

A durable power of attorney presents several problems when used as the cornerstone of disability planning.  Banks and other institutions may not honor the power of attorney. A disgruntled family member who does not like the person appointed may petition a court to revoke the power of attorney and to appoint a court supervised conservator. Additionally, a durable power of attorney grants power to the appointee but does not provide instructions to the appointee. Consequently, there is always a risk that the appointee may use the power in a manner contrary to what you would want him or her to do.  

In the event that you leave property out of your trust at the time of your death, a revocable trust plan includes a “pour over” will. This will designates your trust as the beneficiary of your probate estate.   

While the revocable trust is the cornerstone of the estate plan, the plan will also include a durable power of attorney and healthcare directives. A durable power of attorney can be drafted to grant the appointee the power to transfer unfunded property to your trust. Healthcare directives are used to manage your healthcare in the event of your incapacity. 

AVOIDING PROBATE

If you leave your estate to your loved ones using a will, your estate will have to be administered in probate court. The process can be expensive and time-consuming, and is open to the public. The probate court is in control of the process until the estate has been settled and distributed.  If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled.  Probate may tie up your assets for weeks or even months while trying to determine the proper disposition of your estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With a revocable trust plan, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.

PROVIDING FOR MINOR CHILDREN

It is important that your estate plan address issues regarding the upbringing of your children.  If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations.  You should discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time.  A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children.  The person, or trustee in charge of the finances need not be the same person as the guardian.  In fact, you may want to purposely designate different persons to maintain a system of checks and balances.  Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law.  Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accounting.
 
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary.  Make sure that your plan does not create an additional financial burden for the guardian. 

If a minor child receives an inheritance at your death, a court-appointed guardian may have to be appointed to manage the inheritance for the child until he or she is 18 years old. This is true even if there is a surviving parent. To be the guardian of the inherited funds for the child, the surviving parent would have to request the court to appoint him or her as the guardian. The parent-guardian would be subject to court oversight just like a non-parent guardian.   

To avoid a court-supervised guardianship, you can include a children’s trust in your will or revocable trust to manage your child’s inheritance. You can designate the manager (trustee) of the funds and specify the instructions for management of the funds for your child. In this manner, the burden and cost of a court-supervised guardianship of the inheritance can be avoided.

BENEFICIARY TRUSTS 

Consider leaving your spouse and children’s inheritances to them in trusts. In this manner you can protect the beneficiary’s inheritance from predators and creditors (i.e. scammers, fraudsters, lawsuits, bad marriages, divorces, judgment creditors); provide a management plan for disabled beneficiaries; and protect the inheritance of a spouse or other beneficiary who may be receiving Medicaid or need-based government benefits. For very large estates, trusts can be used to reduce estate taxes. 

Most of the time a family member can be designated to be the manager (called a “trustee”) of the trust, and a bank or other corporate trustee is unnecessary. Often, the spouse, child or other beneficiary is designated to be his or her own trustee. However, a supplemental or special needs trust for a disabled beneficiary requires someone other than the beneficiary to be the trustee.   

CHARITABLE BEQUESTS-PLANNED GIVING

Do you want to benefit a charitable organization or cause?  Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death.   



© 2018 John H. Baker, III Attorney at Law | DISCLAIMER AND TERMS OF USE
307 Hickerson Drive, Murfreesboro, TN 37129
| Phone: 615-896-5621

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The Elder and Special Needs Law Center - Murfreesboro, Tennessee, is a service of attorney John H. Baker III, of counsel with the law firm of Bullock, Fly, Hornsby & Evans. Offices are located at 307 Hickerson Drive, Murfreesboro (Rutherford County), TN 37129. Surrounding communities include Smyrna and LaVergne (Rutherford County), Franklin and Brentwood (Williamson County), Woodbury (Cannon County), Manchester and Tullahoma (Coffee County), Lebanon (Wilson County) and Shelbyville (Bedford County).