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| Many basic estate planning strategies will facilitate the transfer of your wealth to your beneficiaries. 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. | ||||||||||||||||||||||||||||||||||||||||||||||
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| • Powers of Attorney • Last Will and Testaments • Revocable Living Trusts • Asset and Divorce Protection Trusts for Children • Dynasty Planning • Irrevocable Life Insurance Trusts • Gift Trusts • Spousal Gift Trusts • Retirement Benefits Trusts • Special Needs Trusts |
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| POWERS OF ATTORNEY 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. |
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| 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. |
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| REVOCABLE LIVING TRUSTS We 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. |
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| 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. There are Case Studies on this site illustrating the use of Asset and Divorce Protection Trusts as part of a complete estate plan. |
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| DYNASTY PLANNING 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. |
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| 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, 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. |
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| GIFT TRUSTS Every individual is entitled to give $11,000 per year (up from $10,000 in 2001) to a donee without incurring any gift tax. Together, spouses can annually give $22,000 free of gift tax to each child and grandchild. 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. |
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| 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. |
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| 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. This is referred to as a "Stretch-Out" and will defer the payment of income tax on the retirment 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. |
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| SPECIAL NEEDS TRUSTS Many persons with disabilities 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. |
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