Our Estate Planning Frequently Asked Questions
When is the best time to make an estate plan? How can I leave money for my grandchildren’s education? What can I do now to avoid my assets going into probate? We answer these and many more questions on our frequently asked questions page.
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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
What Elder Law Issues Are Most Important to Discuss With Your Aging Parents?
I am constantly asked by many of my clients how, when, and what elder law issues should be discussed with their aging parents. This is never an easy conversation to talk about with your parents. It is never easy to have the discussion with your parents on what it will be like when they are gone and what they are doing to protect their assets and the wealth that they spent a lifetime to accumulate.
First, it is important to make sure that your parents have their final affairs in order. This includes having at the very least a Last Will and Testament. All of us are familiar with a will. This is a legal document that states where your stuff will go and who will be in charge when you pass away. However, the main issue with a will, is that the family will have to go through a long and drawn out probate court process. Probate is public, meaning anyone will be able to go to court and see how much money you owe and who is getting your assets and in what proportion after you die. In addition, probate lasts anywhere from six months to two years or more and costs on overage more than $10,000 or $20,000. Due to the increased delay, complexity, and cost of going through probate, a majority of our clients prefer a revocable living trust in order to avoid the probate process entirely for their family after death.
Second, it is important to make sure that your parents have their disability legal documents in place. These documents include the Health Care Power of Attorney, Durable Power of Attorney, and Living Will Declaration. These documents allow you to state a person of your choosing to make important health care and financial decisions when you are no longer capable to do so. In addition, the Living Will Declaration allows you to state your wishes when it comes to the withdrawal of life support systems. Having these documents in place prevent your loved ones from having to make these decisions without knowing your wishes. Also, without these documents in place, your family members would have to go to court to have a judge appoint a guardian to make these health care and financial decisions.
Finally, it is important to discuss Medicaid and future nursing home expenses with your aging parents. As we all know, average life expectancy has been increasing, and due to advances in modern medicine, many more people will require skilled nursing home care in the future as the baby boomer generation gets older. Therefore, many of us will continue to require skilled nursing home care. For this reason, it is important to discuss protecting your parents’ assets from nursing home expenses.
The rules of Medicaid (or TennCare as it is called in Tennessee) allow an individual to own a home, a car, a prepaid funeral, and no more than $2,000 of other assets in their name while still qualifying for Medicaid. If you meet these requirements, then Medicaid will cover your nursing home care expenses. However, if you do not meet these requirements, then you will be required to pay for your own nursing home expenses until you have no more than $2,000 worth of assets in your name. In addition, due to increasing costs of nursing home facilities (average is $5,000 to $8,000 per month), life savings of $450,000 can be spent on nursing home expenses in just a few years.
In addition, another rule of Medicaid requires TennCare to recover the costs that were paid to the nursing home during your life by requiring your estate to sell your home after you die so that TennCare can be reimbursed for all of their costs.Due to these concerns, an Irrevocable Medicaid Trust can be beneficial to protect assets from these future nursing home expenses. An Irrevocable Medicaid Trust allows you to protect your assets from future nursing home expenses by establishing this trust and funding all of your assets into this trust. However, in order to protect your assets in this way from future nursing home expenses, you will be required to establish this trust and fund this trust with all of your assets at least five years before nursing home expenses begin.
Do I Need a Will or a Trust?
A very common question that we receive from our clients is whether they need a will or whether they need a trust. When our clients ask us this question we will always say that it depends on what you want to accomplish for your family. If it your desire to keep your financial and family affairs private and you want to make things as smooth for your family after you are gone, then perhaps a revocable living trust would be what you would want to consider putting in place.
However, regardless of which option you feel is better to accomplish what you want for your family, every family needs the important disability legal documents in place. These documents include your health care power of attorney, financial power of attorney, and living will declaration. It is extremely important to have these important legal documents in place. These documents give the power to a person of your choosing, usually a spouse or close family members, so that they can make important financial decisions, access medical records, and speak with doctors if you are ever in a position where you can no longer make these important decisions on your own any longer. In addition, these documents also state your wishes when it comes to the withdrawal and withholding of life support systems. The reason that these legal documents are so important is because if you do not have them in place, your family would be required to sue you to have you declared incompetent and to have a judge award a person to make these decisions on your behalf. Unfortunately, this takes an unnecessary amount of time, money, and stress on your family that they would have not been required to go through had you taken the time to put these important legal documents in place.If you only have a last will and testament in place, commonly referred to as a will, your family will have to go through the probate process. This is a court proceeding where the court presides over the process of paying all your final valid debts, taxes, and other claims before distributing your assets to your heirs. Most probate proceedings take anywhere from six months to two years or longer and cost in excess of $20,000 in many cases. In addition, if your bank accounts and real estate are titled in your name at the time of your death, your bank accounts and real estate titles may be frozen, and your family members will not be able to access those accounts or sell the real estate and will have to wait on the court to authorize your executor/administrator to sell the home and access the financial accounts.
However, on the other hand, if you have a trust, and all of your assets are properly titled in the name of the trust when you die, then none of your assets will be frozen. The financial accounts and the title to your real estate will never be frozen, and your family members will have immediate access to these assets. In addition, there will be no probate court involved and presiding over the distribution of your assets to your loved ones and the payment of your final bills and funeral expenses. Essentially, a trust will save your loved ones time, stress, cost, attorney fees, and make things extremely smooth for your loved ones after you are gone.
What is an Irrevocable Life Insurance Trust?
I am often asked questions by clients and prospective clients regarding life insurance. Specifically, families will ask me how much life insurance is appropriate and whether the life insurance proceeds will be taxed when the proceeds are pay out to their children and loved ones. First, the question regarding how much life insurance is appropriate for your family is a question that you should ask a financial planning or life insurance professional. However, the question regarding whether the IRS will tax the life insurance proceeds is an important question, and also a question that very few people think to ask their estate planning attorney.
The assumption about life insurance is that it is there to help your family and loved ones handle final expenses in the event of your death. Although, depending upon a number of factors such as whether you own the life insurance policy and how much life insurance is set to pay out at death, will determine whether or not the proceeds will be taxed by the IRS.
According to the IRS, if you own your life insurance policy on the date of your death, it is considered part of your taxable estate and can be assessed estate tax liability by the IRS. For example, let’s say that on the date of your death you own a home worth $500,000.00, $4 million in investments and other assets, and a life insurance policy with a value of $10 million. In this situation, the IRS would determine that the gross taxable estate for estate tax purposes is $14,500,000. However, with the current estate tax exemption, and let’s say that the surviving spouse utilized portability from the first deceased spouse, then $10,860,000 would be exempt from the federal estate tax. However, the remaining $3,640,000 would be subject to the federal estate tax, which has a top tax rate of 40%. Therefore, under this example, because of the $10 million life insurance owned at the date of death, the estate would have an estate tax liability of approximately $1,456,000. This tax would be due no later than nine months after the date of death.
Therefore, due to the significant estate tax liability present in this example, an irrevocable life insurance trust may be an appropriate avenue to reduce or completely eliminate the estate tax liability.
First, an irrevocable life insurance trust is irrevocable. This means that once the trust has been established by the settlor, it can never be revoked. Second, the settlor cannot be the trustee of the trust. This means that once you set up the trust, you will lose all control and you must select someone else to act as trustee of the trust during your lifetime. Third, the trust must own the policy. This means that the trustee of the trust must purchase the policy and pay all of the insurance premiums going forward.Now, how does this affect the estate tax liability in the example above? Well, let’s say that on the date of death you still owned a home worth $500,000 and $4 million in investments and other assets. However, let’s say that you set up an irrevocable life insurance trust earlier in life and the trust purchased the $10 million policy. Well, under this example, the taxable estate would be $4,500,000 and the $10 million life insurance policy would not be considered a taxable asset for estate tax purposes. This also means that the estate would only be worth $4.5 million, and under the $5.43 million estate tax exemption. Therefore, in this example, this type of advanced planning would be an estate tax savings of approximately $1.45 million.
Frequently Asked Questions about Living Wills, Healthcare Power of Attorneys, and Advanced Healthcare Directives
I am often asked questions regarding the important disability legal documents including the living will, health care power of attorney, and advanced healthcare directives. Specifically, I am often asked do I need these documents since I am married and my spouse can make these decisions if something should happen to me.
Unfortunately, should you enter into an irreversible medical condition or be rendered incapacitated as a result of serious accident or illness, the lack of having advanced healthcare directives could lead to serious problems for yourself and your family when it comes to authorizing care and authorizing the withdrawal and withholding of medical care.
The two most important disability legal documents regarding medical care are the Healthcare Power of Attorney and Living Will declaration. The Healthcare Power of Attorney allows you to name the trusted person of your choosing to make healthcare decisions, speak with doctors, and access medical records should you be in a position where you are no longer capable of making your own healthcare decisions. The Living Will declaration allows you to state your wishes when it comes to the withdrawal and withholding of life support systems.
Should you fail to have these documents in place, your family may be left with the only other option but to pursue a guardianship proceeding in court so that your family members would be able to make these decisions on your behalf when you are no longer capable to do so. This would take time and money while you are staying in the hospital on life support systems, which may not be according to your wishes.If you have questions regarding advanced healthcare directives, healthcare power of attorney, living will declaration, estate planning, avoiding probate nightmares, and avoiding nursing home poverty, then I encourage you to attend one of our many free educational events that are held throughout the greater Nashville area every month. In addition, I encourage you to request one of our many free legal reports that are available on this website.
Can You Defer the Federal Estate Tax Bill and Should You?
As I have written in previous blog articles, the federal estate and gift tax only applies to those gross estates above $5.43 million in value. In addition, with portability under the federal estate tax, the unused portion of the $5.43 million of the spouse that died first can be transferred to the surviving spouse, and depending up on the circumstance, create at $10.86 million exemption from the estate tax. Also, the federal estate tax bill is due, along with the federal estate tax return, no later than nine months after the date of death.
However, what if you own a business? Obviously, when you pay any tax, you pay by usually writing a check. The IRS will not accept stock, bonds, furniture, cars, or real estate as a form of payment. The federal estate tax bill is no different. However, if you own a business, that could be a sizeable asset as part of your taxable estate. For example, if you have a taxable estate that is $15 million on the date of death with a business worth $10 million and $5 million in other assets, you could have an estate tax bill worth roughly $1,660,000. As stated above, this tax bill is due no later than nine months after the date of death. This could be very difficult for the estate, especially in the situation of a business where the business continues on in the family after the death of the business owner.
Well, under the IRS code, a business can enter into a payment schedule and defer the estate tax that is owed to the federal government. In the example above, this could appear to be a relatively attractive option as opposed to paying $1.66 million to the federal government in a lump sum. However, deferring estate taxes in this scenario should be heavily considered as such a strategy does have its consequences. For instance, the IRS will normally place a tax lien on the business when you engage in this type of tax deferral strategy. In addition, if the taxes are not paid pursuant to the payment schedule, the IRS can accelerate the amount due and demand the lump sum together with a considerable amount of interest and penalties. Therefore, you should only consider this type of tax deferral strategy when it comes to estate taxes after speaking with a knowledgeable and experienced estate planning attorney.If you have questions regarding the federal estate tax, deferring the federal estate tax for your business, the Tennessee Inheritance Tax, estate planning, avoiding probate nightmares, and avoiding nursing home poverty, then I encourage you to attend one of our many free educational events that are held throughout the greater Nashville area every month. In addition, I encourage you to request one of our many free legal reports that are available on this website.