Our Tennessee Estate Planning Attorney Frequently Asked Questions
One reason many people put off writing a will and planning their estates is that they have many questions about the process. We have heard all of these questions and provide answers to many of them in our Frequently Asked Questions. If your question is not answered here, feel free to call us directly.
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Can I Protect My Children's Inheritance From Divorce Claims? - Nashville Tennessee Estate Planning Attorney
In the course of my practice as an estate planning attorney, this topic will sometimes come up. Occasionally, I will have clients that do not trust their daughter-in-law or son-in-law and want to protect their children's inheritance from divorce claims. Unfortunately, without proper planning, this can result in the adult child losing a portion or all of their inheritance due to a divorce claim from a former spouse.
In Tennessee, when two parties get divorced, their assets are subject to what is called "equitable division of marital property." Also, equitable does not necessarily mean equal. For example, let's say John and Jane got married, and 10 years later, Jane filed for divorce. Further, let's say John received an inheritance from his mother in the amount of $150,000, and prior to the divorce, John deposited that into a bank account. A divorce court may rule that this is subject to equitable division in divorce, and court could rule that 70% (or even higher) goes to Jane! I am sure that John's mother would be devestated to know that the money she saved her whole life went to her son John's ex-wife.
However, there is a legal strategy that you can pursue to protect your children's inheritance from divorce claims. This is commonly referred to as a Children's Inheritance Trust. It is a way for your adult children to keep their inheritance separate, and thereby, protect the inheritance from future divorce claims (in addition to creditor claims, lawsuits, predators, and themselves!)
If you have questions about how you can protect your children's inheritance from divorce claims, I encourage you to download my free report on protecting your estate and your children's inheritance from divorce, creditors, predators, and other lawsuits.
If you need to speak with us today regarding these concerns, please contact our office, we are always here to help!
Daniel A. Perry
What is Crisis Medicaid Planning? - Nashville Tennessee Estate Planning Attorney
This is a concept that is referred to a situation where a person is preparing to go into a nursing home. With the rising medical costs, nursing homes charge anywhere, on average between $5,000 and $9,000 (or higher) per month. Therefore, with the average stay in a nursing home of 3.5 years, it's easy to see how a person's life savings can be completely eaten away by nursing home costs. However, for people who plan at least five years in advance, it is possible to protect nearly all of your assets from long term nursing home costs eating away your life savings.
Sometimes, unfortunately, people do not plan five years in advance. This is referred to as a crisis Medicaid planning situation. In these situations, your options are limited. However, there are strategies that you can pursue to protect 1/2 of the assets that you own on the date that you enter the nursing home (leaving assets for your surviving children when you pass away).
If you have questions regarding Medicaid planning or crisis Medicaid planning, I encourage you to download my free report on Avoiding Nursing Home Poverty. Please fill out the contact form to the left of your screen to download this free report. If you have questions about Medicaid planning, please contact our office, as always, we are here to help!
Daniel A. Perry
What Taxes Will My Children Have to Pay When I Die? - Nashville Tennessee Estate Planning Attorney
This is a very common question that I answer nearly everyday. However, there are several different taxes and multiple tax issues that could affect your family at your death. The first and most common type of tax is commonly referred to as the death tax. In Tennessee, the death tax (referred to as the Tennessee Inheritance Tax) was repealed on January 1, 2016, therefore, there is no death tax in Tennessee. However, there is still a federal death tax (referred to as the Unified Federal Estate and Gift Tax). This is a tax that the IRS levies on the transfer of wealth from one generation to the next. The IRS levies a tax on the transfer of an estate that exceeds $5.65 million on the date of death (including all assets, non-probate assets, and life insurance). If your estate exceeds $5.65 million on the date of death for 2017, the IRS has a top tax rate of 40%. However, there is an unlimited marital exemption from the federal estate tax. This means that you can leave an unlimited amount of money to a surviving spouse free from the estate tax (so long as the surviving spouse is a United States citizen). Therefore, this leaves the $5.65 million exemption wasted. However, within nine (9) months of the date of death, the surviving spouse can file an estate tax return (even if no estate tax is due) and elect portability. This has the effect of transfering the unused $5.65 million estate tax exemption to the surviving spouse, thereby creating a $11.3 million exemption from the federal estate tax for the surviving spouse.
There is also capital gains taxes that may impact your estate. The capital gains tax is a tax that is levied on the gain earned on an appreciating asset upon its sale. For example, if you buy 100 shares of Microsoft stock in 1990 for $20,000 and you sell the stock in 2020 for $40,000, you will owe capital gains tax on the $20,000 gain. However, when assets transfer to the next generation, the surviving heirs recieve a step up in tax basis. What this means is that the value of the asset that he or she inherited is given the value that the asset is worth on the day that your loved one inherited. For example, let's say instead of selling the Microsoft stock it passed to your child on your death in 2020. The stock would have a tax basis of $40,000 for your surviving child. Therefore, if your child later sold the Microsoft stock for $45,000, he or she would only owe capital gains tax on the $5,000 gain as opposed to the $20,000 gain.
There can also be income taxes that may be due from your final income tax return that would need to be filed, an estate income tax return may need to be filed and taxes owed, and there could be property taxes, or hall tax liabilities that may due depending upon your situation.
If you have concerns about taxes and what you can do now to limit the taxes that your children will have to pay at your death, please contact us at the number below. We are always here to help!
P.S., please contact us with the contact form on the left part of your screen to receive an immediate answer or download my free report on how taxes can impact your estate planning strategy. We look forward to hearing from you!
Daniel A. Perry
What Should You Ask The Estate Planning Attorney During Your First Meeting? | Nashville, Tennessee Estate Planning Attorney
As an attorney, but more importantly as a business owner, I feel we have a moral obligation to the community to educate the fellow members of the community so that they can become as informed as possible when it comes to making the correct decisions when purchasing a product or service. Therefore, I have decided to provide the following list on important questions every Tennessee resident should ask an Estate Planning Attorney when they meet with him or her regarding their estate planning during the first meeting.
1. How Many Areas of Law Do You Practice In?
It is important to know the answer to this question. Estate and Probate laws are complex. You select the lawyer that constantly keeps themselves up to date on all the various estate planning and tax law changes that occur in this complex field. Choosing the lawyer that practices in 5, 6, 7, or 8 or more different practice areas may not be the best lawyer to plan the estate for your family.
2. How Much Does It Cost?
After the first meeting, the lawyer should be able to answer this question in a direct fashion. You should never pick an attorney or law firm to handle any legal matter that is anything other than completely crystal clear about the financial arrangements involved.
3. How Many Other Families Have You Helped Similar To Our Situation?
You should always pick an attorney and law firm that has client testimonials from many of their previous satisfied clients.
4. How Many Lawyers Are In Your Firm?
This is an important question. It is always a good idea to work with the law firm that has several other estate planning lawyers, practicing in multiple states, as those attorneys can bounce ideas off of one another when it comes to specific estate planning situations.
5. Are You Published on Estate Planning Topics and/or Provide Any Presentations on Estate Planning Throughout the Year?
You should never work with an attorney that isn't well versed in the various estate, probate, and tax laws that affect your estate planning. A good way to ensure that you work with an extremely knowledgeable and experienced estate planning attorney, is to seek out their published work on estate planning and/or attend any presntation that he or she may be giving on estate planning.
If you have questions about estate planning, please feel free to call or e-mail us with your question. As always, we are here to help!
Daniel A. Perry
What is Medicaid Spend Down? Franklin, Tennessee Estate Planning Attorney
I was recently speaking with a client who called my office to talk about her elderly mother. As it happened, she was planning to admit her mother to the nursing home. She spoke with a caseworker at the nursing home in order to apply for Medicaid assistance, and was informed that her mother would not qualify. When she asked why, the case worker said, your mother needs to go through Medicaid spend down first.
Confused about this, she called my office.
Medicaid qualification and Medicaid planning is a very confusing and often misunderstood concept and practice here in Tennessee. Medicaid Spend Down is a process that refers to a person who applies for Medicaid, but has too much assets to qualify. In order to qualify for Medicaid (TennCare as it is called here in Tennessee), a person can own no more than a home, a car, prepaid funneral, and no more than $2,000 extra assets (the rules are different for married couples when one spouse is in the nursing home and one is not in the nursing home). If you own more than this minimum amount, then you will not qualify for Medicaid.
Medicaid Spend Down referrs to the concept when a person doesn't qualify and has to spend their assets down to that minimum amount (home, car, prepaid funeral and $2000) before qualifying for Medicaid.
For example, let's say John is going into the nursing home. He owns a house, a car, and $100,000 in extra cash. If John applies for Medicaid, he will be denied. John will be required to spend the extra $98,000 on his own nursing home care before he qualifies for Medicaid (TennCare) assistance. Given the expense of the nursing home at between $75,000 and $115,000 per year, it is likely that John will spend through this extra $98,000 in the first year to year and a half, and then qualify for Medicaid.
However, Medicaid is not free! After John dies, Medicaid will exercise a lien against his home and force John's adult children to sell the home so that Medicaid can be repaid for all the costs that Medicaid paid out on John's behalf during his lifetime when he was in the nursing home. In many cases, this can be substantial, and results in Medicaid (TennCare) eating up all the assets of the estate.
There are legal strategies that you can pursue to prevent long term care and nursing home costs from eating through all of your savings during your final years, but you must plan at least five years in advance of going into the nursing home.
If you have questions about Medicaid Spend Down, nursing home costs, and protecting your estate from Medicaid liens, please call our office and our attorneys would be happy to discuss these legal issues with you on the phone or in person.
As always, we are here to help!
Daniel A. Perry
Fidelis Law, PLLC
My Father Passed Away. My Two Brothers and I are the Only Heirs, What Should We Do?
This is a very common question. Nearly every week in my law practice I am asked what should someone do when their loved one passes away. Unfortunately, it depends on the circumstnaces, the assets that they own, whether there was a will or trust in place, and where the property is located. When I was speaking with this particular client, it turned out that this family's father did not have a will. I informed them the first thing would be to make a list of all the assets and debts that their father owned. Next, I informed them that we would need to determine who was going to act as Administrator of their father's estate, and go through the process of filing a probate administration and getting that person appointed and confirmed as the Administrator. We would also need to get releases signed by everyone who was an heir of their father's estate and file a detailed accounting and inventory of all the debts and assets of the estate. I informed this family that all valid debts and taxes would need to be paid before a judge would authorize the distribution of their father's estate. I explained that this process would take a minimum of four to six months and could last as long as two years.
If you have had a loved one pass away recently, I'm very sorry to hear about your loss. The most important thing you can do right now is focus on your family and getting through this very difficult time. However, once you are through your family's grieving process, and before you do anything else, please download one of Our Free Reports on Probate and Estate Planning. Should you need anything after reading this Free Report, please feel free to contact our office.
Daniel A. Perry
Can I Just Use TOD's for All My Accounts and Avoid Probate?
I was speaking with a prospective client recently who asked me the following question:
"Can I Just Use TOD's for All My Accounts and Avoid Probate?"
I am asked the question constantly by clients, prospective clients, and even financial advisors. However, as I explain to everyone who asks, relying on TOD's (the poor man's estate plan) is a foolish endeavor. TOD's (transfer-on-death) is a designation that you can make on nearly every type of financial account (checking account, savings account, investment account, IRA, mutual fund, etc.) that allows the account to pass immediately to a named beneficiary after death. In addition, this type of designation allows the account to transfer outside of probate. Therefore, TOD's are very important planning tools. Although, they do have their drawbacks. The following is a list of how using TODs can backfire and cause more expenses:
- The Beneficiary Named on the TOD Predeceases You
- There Are Not Enough Assets in the Probate Estate to Cover the Claims and Costs of Administration
- Your Will Conflicts with the Beneficiaries Named on Your TODs
- A Creditor Makes a Claim to Bring the TOD Account into the Probate Estate
- The TOD Account is Subject to the Claims of the Estate
In each of the cases named above, the TOD account can be brought into the probate estate because (1) there is no where for the account to go after death, (2) there are insufficient assets in the probate estate to cover the final debts and costs of administration, therefore, the TOD account gets brought into the probate estate, (3) and a disgruntled heir files a claim because the TOD account conflicts with the Last Will and Testament.
However, that's not all! What about your real estate, other real estate interests, cars, and personal effects? These are all probate assests that will have to be administered through the probate administration process.
Therefore, it is imperative not to rely on TOD's as your sole estate planning strategy as relying on TOD's will not always result in the avoidance of probate.
If you have questions about estate planning, or want to discuss setting up your own estate plan, please contact our office to schedule an initial consultation.
Daniel A. Perry
Estate Planning Attorney
What Happens If I Die Without a Will?
I was recently speaking with a husband and wife couple following one of my educational events on avoiding probate and unnecessary estate settlement costs. This family had a very common question for me.
"Dan, we don't own too much. We only own our home, some savings and retirement accounts totalling about $100,000. I don't think we need to do anything. What happens if we both die without a Will?"
This is a common misconception, unfortunately, that leads to families facing unnecessary taxes, costs, and attorney's fees after the death of a loved one. As I tell every client, every person, regardless of wealth, is in need of a comprehensive estate plan to protect their loved ones after their death.
However, if you pass away without a Last Will and Testament, you are said to have died intestate. This is a legal term that means you died without a will. If you die intestate, then the State of Tennessee has decided what will happen to your assets after your death. Many people are shocked to learn what the State of Tennessee has planned for their estate after death.
The most common misconception is that if you are married, then your assets pass to your spouse after death automatically. This is absolutely not true! If you die without a Will in Tennessee, then your estate is divided equally among your spouse and living children. Although, your spouse cannot receive less than 1/3 of your estate.
Many people are shocked to learn this when I tell them this fact. Therefore, regardless of wealth, everyone, over the age of 21, is in need of a Last Will and Testament. Especially, if you are married and with children, you need a comprehensive estate plan in place to protect your family in the event of your death.
If you have questions about estate planning in general, or you are interested in setting up your own estate plan, please contact us to schedule an initial no cost, estate planning session to discuss your goals and needs.
Daniel A. Perry
Estate Planning Attorney
Can I Just Write My Will Myself?
I was recently presenting at an educational seminar to a group of wonderful families in Franklin, Tennessee a few months ago. Following my presentation I was asked a very common question, "Dan, can't I just write my will myself." In this day and age, there is a tendency to becoming a do-it-yourself expert. For instance, I mow my own lawn, I'd love to learn to be my own auto mechanic, and I'd really love to learn how to build a privacy fence myself for my backyard. Afterall, what could possibly go wrong????
Well, I could do something wrong while changing the oil, changing the battery, working on the brakes to my car myself, and it would likely cost thousands and thousands of dollars to fix. Afterall, I'm not an auto mechanic and I don't work on cars everday. In addition, I could also build my own privacy fence, and likely fail miserably since I don't build privacy fences or operate as a carpenter everyday. This could also cost me thousands of dollars in expenses just to fix my attempt to do-it-myself.
Just like you wouldn't be your own auto mechanic, you wouldn't be your own carpenter and home improvement expert, you shouldn't write your will yourself. Although, you certainly could if you so decided. A valid Last Will and Testament in Tennessee is required to be notarized and your signature witnessed by two independent witnesses. In addition, you must be competent when you sign your will and name where you want your property to go and who you want to be in charge when you pass away. There is certainly nothing to stop you from trying to do this yourself.
However, why take the risk of making the mistake of not writing your will correctly, risk it not being valid at your death, and your assets passing to your heirs not in accordance with your wishes. Afterall, there is the Tennessee Annotated Code that controls Last Will and Testaments as well as a long list of controlling case law that determines the validity of wills in Tennessee. Why take the risk? Perhaps you should just hire the professional that works in this area of the law everyday and understands the statutes and case law that determines the validity of wills and estates.
Just one minor mistake could cost your family severe headaches and tens of thousands of dollars in legal fees to correct your minor mistake after you're gone.
If you have questions regarding estate planning, wills, and trusts, please contact us at (615) 472-2482 or e-mail us at [email protected] to schedule your initial consultation. We look forward to hearing from you soon.
Daniel A. Perry
Estate Planning Attorney
Who Should I name as a Beneficiary on my IRA Account?
I was recently speaking with a one of my clients, and they had a very common question. "Dan, with what you are doing for us with our estate planning, how should we change our beneficiaries on our IRAs?" This is a very common question and leads to a lot of confusion between the financial advisor community and the legal services community. First, next to your home, an IRA is usually a family's most valuable asset. For a married couple, I rarely (if ever), recommend for the family's trust to be named as the primary beneficiary of their IRA account. The reason for this involves IRS tax rules. When an IRA transfers to a surviving spouse after death, the stretch out provisions are very favorable for the surviving spouse from a tax perspective. Therefore, it is not usually advisable to name a living trust as the beneficiary.
However, when a non-spouse is named as a beneficiary, the rules completely change from both a tax perspective and an asset protection perspective.
Generally, the IRS requires non-spouse beneficiaries to begin taking their required mininum distributions (RMDs) from the IRA that he or she just inherited beginning in the year after the year of death of the original owner. The first RMD must be taken from the newly established Inherited IRA by December 31 of that next year. For example, if the original owner died in 2017, then the first RMD must be taken by December 31, 2018.
As a non-spouse beneficiary, you must directly roll over the inherited assets to an Inherited IRA in your own name and use your own age and the IRS Single Life Expectancy Table for calculating the first year RMD. For each year after, you would subtract one year from the initial life expectancy factor.
If you do not take the required minimum distribution from your account, you will be subject to a penalty equal to 50% of the amount that should have been withdrawn.
However, if the original account owner died prior to age 70.5, you may choose to elect to use the five-year rule. Generally, this rule applies if the original owner died before April 1 of the year following the year the original owner would have turned age 70.5. If you take advantage of this rule, you do not have to begin taking RMDs in the year following the year of the original owner's death.
Under this five year rule, you can withdraw your inherited IRA assets at any time, and in any amount. However, you must withdraw all assets by December 31st of the fifth anniversary year following the IRA owner's death. As long as the account is depleted within this timeframe, the RMD penalites can generally be avoided.
However, under both scenarios described above, nothing prevents the adult children (non-spouse that inherited the IRA) from liquidating the IRA all at once, or faster than usual, and incurring significant tax consequences. Any amount of money that is withdrawn from an Inherited IRA is subject to ordinary income tax (which could push that individual into a higher tax bracket). It is for this reason, that many of my clients opt for naming their Accumulation or Conduit IRA Trusts as the contingent beneficiary. This is a planning strategy that forces their heirs to stretch out their distributions, restrict the liqudiation of the Inherited IRA, and allows the RMDs to accumulate inside the IRA. This allows the IRA to substantially increase in value over the lifetime of that non-spouse beneficiary.
In addition, the U.S. Supreme Court issued a decision in 2009 that says that Inherited IRAs are not protected assets. Therefore, these assets are subject to creditor claims, divorce claims, lawsuits, and other predators. This could create a situation in which the inheritance that you leave to your adult children is seized by future unknown creditors. It is for this reason that many of my clients opt to name their IRA Trust as the contingent beneficiary of their IRA accounts.
If you have questions regarding IRA Trusts and estate planning in general, please contact our office at (615) 472-2482 or e-mail us at [email protected] to schedule an initial consultation. We look forward to hearing from you soon!
Daniel A. Perry
Estate Planning Attorney