WILLS AND ESTATES

Wills and Estate Law

Blue Ballpoint Pen and a Last Will and Testament — Wills in Oak Ridge, TN
A wills and probate attorney can help you understand your estate planning options and draft a last will and testament. If you're the executor in someone else's will, an estate planning lawyer can explain your legal rights and responsibilities and help you take the estate through the probate process.
Losing a loved one is a sad and difficult time for family, relatives, and friends. In addition, those left behind must often figure out how to transfer or inherit property from the person who has died.
To do this, you must usually go to court. And dealing with the courts and the property of someone who has died is very complicated. Sometimes, however, family or relatives may be able to transfer property from someone who has died without going to court. But it is not always easy to tell whether you need to go to court or qualify to use a different procedure.
This section will give you some general information to help you understand what your choices may be, but we still encourage you to talk to a lawyer to get specific answers about your situation. You can usually pay the lawyer's fees from the property in the case.

Wills

Your estate is probably a lot more valuable than you think. It's a good idea to periodically estimate the value of your estate. The assets you own - an automobile, jewelry, appliances, a home, bank account, business, securities, etc. - make up your estate. In order to insure that these assets will be distributed according to your wishes at the time of your death, you need a Will.
Your Will:
A. Determines to whom property will be distributed: family, friends, and institutions.
B. Determines how your estate will be distributed: outright gifts or in trust.
C. Determines who will supervise the process: Executor, Trustee, Guardian.

Resident and non-resident individuals may serve as sole executor of a Tennessee estate. Non-resident personal representatives must appoint, in writing, the Secretary of State of Tennessee as his or her agent for service of process. The Court may require the non-resident personal representative to post a bond even if bond is otherwise waived.
   D. Simplifies Estate Administration.
  1. Guidelines for property distribution avoid conflict.
  2. Waive bond of fiduciaries (T.C.A. Section 30-1-206).
  3. Waive inventory of estate (T.C.A. Section 30-2-301).
  4. Self-proving Affidavit (T.C.A. Section 32-2-110).
   E. Minimizes Taxes.
  1. Federal Estate Tax.
a. Unlimited Marital Deduction.
In a simple will, couples leave everything to each other. When the first partner dies, the surviving spouse receives the entire estate free of federal estate taxes. Surviving spouses benefit from an “unlimited marital deduction,” which eliminates federal taxes on estates of any size inherited from a husband or wife.
b. Unified Credit Exemption Equivalent.
Year Exemption Equivalent Top Tax Rate
2001 $ 675,000.00 55%
2002 $1,000,000.00 50%
2003 $1,000,000.00 49%
2004 $1,500,000.00 48%
2005 $1,500,000.00 47%
2006 $2,000,000.00 46%
2007 $2,000,000.00 45%
2008 $2,000,000.00 45%
2009 $3,500,000.00 45%
2010 Estate Tax Repealed -0-
2011 $5,000,000.00 45%
2012 $5,120,000.00 45%
2013 $1,000,000.00 55%
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law on December 17, 2010. Without this compromise legislation, income and estate tax rates for most Americans would have increased. But this reprieve is only temporary, as most of the new tax provisions expire at the end of 2012.
Based on the expiration of previous legislation, there was no estate tax for taxpayers who died in 2010. There was also no automatic “step-up in basis” that brought an heir's basis in his or her inheritance up to fair market value. So, in 2010, some beneficiaries realized a higher income tax impact when they sold the inherited assets than they would have paid in estate taxes. Congress attempted to fix this inequity by giving personal representatives the choice of tax treatments. Personal representatives for decedents who died in 2010 have the choice of:
i. A $5 million exemption and a 35-percent top tax rate or
ii. No estate tax, but a cap on an income tax basis increase for estate assets.

The lifetime gift tax exclusion for gifts transferred in 2010 remains $1 million. For deaths after December 31, 2010, the estate tax returns. The new act reunifies the gift and estate tax exemption and increases it to $5 million per taxpayer, with a maximum tax rate of 35 percent. This means that you can potentially give away $5 million during your lifetime without tax impact. The generation-skipping tax exemption will also increase to $5 million. Remember that, for lifetime gifts, you can apply a $13,000 per donee annual exclusion to your gifts before you tap into your unified credit exclusion. Married couples can double the annual exclusion and gift $26,000 per donee.

A new provision added to the tax code is the portability provision, which permits a spouse to apply the unused portion of a deceased's spouse's $5 million exemption to increase the surviving spouse's available exemption.

Simple wills can present a problem when the assets pass on to children. With these wills, couples can't take full advantage of the federal tax rules.

There is a relatively easy solution for couples with a potentially taxable estate. When the first spouse dies, assets held in his or her name should not pass to the surviving spouse. Instead, an amount that qualifies for the estate tax exemption goes into a trust. The trust owns the assets and an appointed trustee manages them.

The surviving spouse is designated as the income beneficiary of the trust, and the children are the ultimate beneficiaries. If assets held in the trust generate earnings — as investments or rental property might — the surviving spouse can live off that income. The surviving partner also has the assets that were registered in his or her name before the spouse died.

When the second spouse dies, his or her assets will go to the children, as will the assets that were held in trust after the first parent's death. Each estate will qualify separately for an exemption from estate taxes. Some people resist the idea of setting up a trust because they imagine having to go through red tape every time they want access to their assets. But you can establish a credit-shelter trust so that your assets pass into it only upon your death.
2. Tennessee Inheritance Tax

a. Unlimited Marital Deduction. b. Exemption.
Public Chapter 761 amended the inheritance tax law, T.C.A. § 67-8-316 by adding the following subsection which expands the exemption that is allowed against that portion of the estate distributable to one (1) or more beneficiaries of an amount to be determined by the following schedule:

In the case of a decedent dying: Amount On or after July 1, 1998, but before January 1, 1999 $ 625,000 In 1999 $ 650,000 In 2000 and 2001 $ 675,000 In 2002 and 2003 $ 700,000 In 2004 $ 850,000 In 2005 $ 950,000 In 2006 through 2012 $1,000,000 In 2013 $1,250,000 In 2014 $2,000,000 In 2015 $5,000,000 In 2016 and thereafter Repealed

3. Special attention needs to be given to the “gap” between the Tennessee Inheritance Tax exemption and the Federal Estate Tax Exemption Credit Equivalent. A Tennessee Qualified Terminable Interest Trust is one possible solution.
PLAN YOUR WILL
A. Estimate the value of your estate.
B. Decide on distribution.
C. Get professional advice.
Discuss lawyer's fees before the Will is prepared. Cost of the Will may depend on the size and complexity of your estate and how much time is spent in preparing your Will. The initial expense of preparing a Will is usually returned many times over in tax and probate savings.
WILL REQUIREMENTS
A. Any person of sound mind 18 years of age or older may make a Will (T.C.A. Section 31-1-102).
B. Holographic Wills (T.C.A. Section 32-1-105):
  1. A Holographic Will is a Will written entirely in the handwriting of the decedent.
  2. The Will cannot be typed and then signed by the decedent.
  3. Witnesses are not necessary to a Holographic Will.
  4. In order for a Holographic Will to be admitted to probate at least two (2) witnesses who are familiar with the handwriting of the decedent must swear that they recognize the writing to be that of the decedent.
  5. A Will improperly drafted may be more dangerous than no Will at all.
C. Execution of Will:
1. A non-Holographic Will (one not in the handwriting of the person making the Will) must be signed by the Testator and two witnesses. There can be more than two witnesses, but there must be two.
2. The Testator must signify to the attesting witnesses that the instrument is his or her Will and either:
a. sign the Will in their presence, or
b. acknowledge that the signature already made is his or hers, or
c. at his or her direction and in his or her presence have someone else sign his name for him or her.
3. In all of the above cases, the act must be done in the sight and presence of the two or more attesting witnesses.
4. The attesting witnesses must sign:
a. in the sight and presence of the Testator and
b. in the sight and presence of each other (T.C.A. Section 32-1-104).
D. Witnesses.
  1. Must be witnessed by two (2) disinterested witnesses.
  2. No Will is invalidated because attested to by an interested witness, but any interested witness shall, unless the Will is also attesting by two (2) disinterested witnesses, forfeit so much of the provisions therein made for him as in the aggregate exceeds in value, as of the date of the Testator's death, what he would have received had the Testator died intestate. (T.C.A. Section 31-1-103(b).
  3. No attesting witness is interested unless the Will gives to him some personal and beneficial interest.
  4. If real estate is owned outside Tennessee, it may be advisable to have the Will witnessed by three (3) disinterested witnesses. Some states require three (3) witnesses to attest a Will.
E. Attestation Clause.
  1. Signed by the Testator as and for his Last Will and Testament in the presence of us, the undersigned, who at his request and in his presence and in the presence of each other subscribed our names on the date and year first above written.
  2. Clause does not have to be in a Will to make it eligible for probate, but it raises a presumption in favor of the Will.
  3. If this clause is not in the Will the attesting witnesses could testify in court that the instrument conformed to the law.
F. Affidavit of Witnesses to Prove Will.
Any or all of the attesting witnesses to any Will may, at the request of the Testator or after his death at the request of the Personal Representative or any person interested under the Will, make and sign an affidavit before any officer authorized to administer oaths in or out of this state, stating such facts as they would be required to testify to in court to prove the Will, which affidavit shall be written on the Will, or, if that is impracticable, on some paper attached thereto, and the sworn statement of any such witness so taken shall be accepted by the court of probate when the Will is not contested as if it had been taken before such court. (T.C.A. Section 32-2-110).

CHANGING A WILL.

A. How do you change or revoke your Will?
Your Will is automatically revoked if you tear it up, burn it or make a new Will which specifically states that you are revoking the old one. If you want to destroy your old Will, be sure you destroy all copies of it. You may change your Will at any time by writing a new one or by adding a codicil - a separate document that changes the provisions of the existing Will or adds new provisions to it. You can add any number of codicils to your Will. You cannot change a written Will orally or by simply scratching out and rewriting on the original document. Codicils must be executed with the same legal formalities required in making the original Will.
B. When should a Will be changed?
  1. Change in marital status (T.C.A. Section 31-1-102).
  2. Additional heirs born.
  3. Death of heirs.
  4. Relocation to another state.
  5. Significant changes in composition or size of estate.
  6. Significant changes in law.
  7. Changes regarding beneficiaries, personal representatives, guardians or trustees.
C. How to change a Will.
1. Codicil.
2. Memorandum incorporated by reference.
I direct that all of my furniture, household goods, jewelry and personal effects shall be distributed in accordance with the provisions of a certain Memorandum written entirely in my handwriting and signed by me and which said Memorandum refers to this my Last Will and Testament. If for any reason said Memorandum is not found and properly identified as such by my Personal Representative within thirty (30) days after the probate of my Will, then all of the aforesaid property shall become part of my residuary estate as provided for hereinafter.
3. New Will.
4. Never write on Will in an effort to amend same. Changes such as crossing out lines or adding words will not be honored by the court, and may invalidate the entire Will.

Trusts

A. What is a Revocable Living Trust?

A trust is an agreement that determines how a person's property is to be managed and distributed during his or her lifetime and also upon death.

A revocable living trust normally involves three parties:

The Grantor (also known as Trustor) - This is the person who creates the trust, and usually the only person who provides funding for the trust. More than one person can be the Grantor.

The Trustee - This is the person who holds title to the trust property and manages it according to the terms of the trust. The grantor often serves as trustee during his or her lifetime, and another person or a corporate trust company is named to serve as successor trustee after the grantor's death or in the event the grantor is unable to continue serving for any reason.

The Beneficiary - This is the person or persons who will receive the income or principal from the trust. This can be the grantor (and the grantor's spouse) during his or her lifetime and the grantor's children (or anyone else the grantor chooses to name) after the grantor's death.

A trust is classified as a “living” trust when it is established during the grantor's lifetime and as a “revocable” trust when the grantor has reserved the right to amend or revoke the trust during his or her lifetime.

B. How is a Revocable Living Trust Created?

There are two basic steps in creating a revocable living trust. First, an attorney prepares a legal document called a “trust agreement” or a “declaration of trust” or an “indenture of trust” which is signed by the grantor and the trustee. Secondly, the grantor transfers property to the trustee to be held for the benefit of the beneficiary named in the trust document.

C. Can a Revocable Living Trust be Changed or Revoked?

Yes. The grantor ordinarily reserves the right in the trust document to amend or revoke the trust at any time during his or her lifetime. This enables the grantor to revise the trust (or even terminate the trust) to take into account any change of circumstances such as marriage, divorce, death, disability or even a “change of mind”. It also affords the grantor the peace of mind that he can “undo” what he has done. Upon the death of the grantor, most revocable living trusts become irrevocable and no changes are then allowed.

D. Is a Revocable Living Trust an Adequate Substitution for a Will?

No! Even though a revocable living trust may be considered the principal document in an estate plan, a will should accompany a revocable living trust. This type of will, referred to as a “pour over” will, names the revocable living trust as the principal beneficiary. Thus, any property which the grantor failed to transfer to the trust during his or her lifetime is added to the trust upon the grantor's death and distributed to (or held for the benefit of) the beneficiary in accordance with the terms of the revocable trust.

There cannot be an absolute assurance that all property will be transferred to a revocable living trust during the grantor's lifetime. For instance, the probate estate of a person who dies as a result of an auto accident may be entitled to any insurance settlement proceeds. These settlement proceeds can only be transferred from the estate to the trust pursuant to the terms of a will. Without a will, the proceeds would be distributed to the heirs under the laws of descent and distribution.

Also, a parent cannot appoint a guardian for minor children in a revocable living trust. This can be accomplished only in the will.

E. Will a Revocable Living Trust Avoid Probate Expenses?

Property held in a revocable living trust at the time of the grantor's death is not subject to probate administration. Thus, the value of the property is not considered when determining a statutory fee for the personal representative or the estate attorney. Also, the amount of any required bond for the personal representative will be reduced to the extent the property is held in the trust and not subject to probate administration.

Nevertheless, certain expenses associated with the death of a person are not eliminated. Deeds to real estate transferring the property from the trust to the beneficiaries must be prepared. Inheritance tax returns must be filed, including assets in a revocable living trust. The decedent's final income tax returns must still be filed and income tax returns for the trust must also be filed.

F. What are Some of the Advantages of a Revocable Living Trust?

In addition to the savings in probate expenses, the avoidance of probate administration has other advantages. The administration of a revocable living trust at the grantor's death is normally a private matter between the trustee and the beneficiaries. Unlike probate, there are few public records to reveal the nature or amount of assets or the identity of any beneficiary. Property can often be distributed to the beneficiaries shortly after the grantor's death, avoiding much of the delay encountered with probate administration. Also, probate court approval is not necessary to sell an asset in a trust, thus avoiding further delay.

In addition to the avoidance of probate administration, “ancillary” probate administration in other states where real estate is owned can be avoided by transferring the out-of-state real estate to a revocable living trust. For those owning real estate in several states, this can be a significant advantage.

If the grantor becomes physically or mentally incapacitated, property held in this trust remains available to the grantor without the requirement of a court supervised guardianship or conservatorship. The successor trustee named in the trust document takes charge to manage the assets in the trust and pay the grantor's bills.

The successor trustee can be a trusted relative or friend, or can be a professional trustee such as a trust company or a trust department of a bank. Tennessee law does not require an individual serving as successor trustee to be a Tennessee resident. However, certain restrictions apply to banks or trust companies whose principal place of business is located outside the state of Tennessee. Since the activities of the successor trustee are not ordinarily supervised by a court or other independent third party, the selection of the successor trustee should be carefully considered.

The grantor is not limited to naming only one trustee. Two or more individuals may be named to serve as co-trustees or a combination of individuals and a corporate trustee may be named.

If an individual is to serve as successor trustee, the grantor should consider whether the trustee is to be bonded. The grantor's decision should be clearly stated in the trust document. If a bond is required, the bond premium is normally paid by the trustee from the assets in the trust.

G. What are Some of the Disadvantages of a Revocable Living Trust?

While the advantages of a revocable living trust receive most of the public attention, the disadvantages should also be considered.

Since a revocable living trust is a more complex legal document, it is often more costly to establish. Also, deeds and other transfer documents must be prepared transferring the grantor's assets to the trust, a process which can require a substantial investment of the grantor's time.

The use of a revocable living trust requires more ongoing monitoring to ensure that assets remain in the trust and that newly purchased assets are titled in the trust. For instance, a grantor who transfers funds to a second financial institution (perhaps to obtain a better interest rate) must remember to advise the new institution to title the new account in the trust.

After the grantor's death, some of the income tax rules applicable to a trust are not as liberal as those available to a probate estate. For example, a probate estate may elect to use a fiscal year as its tax year, while a trust is restricted to the calendar year. Trusts must pay estimated income tax payments while a probate estate is exempt from this requirement for the first two years. Trusts are also subject to other tax rules that do not apply to probate estates.

H. Does the Revocable Living Trust Reduce Income Taxes or Estate Taxes?

During the grantor's lifetime, the revocable living trust has no effect on the income tax which the grantor will owe. In fact, if the grantor is the trustee or a co-trustee, all income earned on assets held in the trust is reported directly on the grantor's income tax return and the trust is not required to file a return. After the grantor's death, the trust is taxed at the same rate as a probate estate. However, as mentioned above, a probate estate may enjoy certain relatively minor income tax advantages.

Regarding the estate tax, proper planning can often reduce the amount of tax payable upon the grantor's death. For the most part, estate tax planning can be equally accomplished through proper drafting in either a will or a revocable living trust. However, there are minor differences. For instance, under current tax rules a lifetime gift directly from a living trust to a donee will be subject to estate tax if the grantor dies within three years of making the gift. This three-year rule does not apply to gifts made directly from an individual to a donee.

I. Who can be the Trustee?
A grantor who desires to manage his or his own financial affairs and who is physically and mentally able can (and ordinarily should) serve as trustee. But provisions should be made in the trust for a successor trustee to take charge in the event the grantor becomes unable to continue for any reason or in the event of the grantor's death. Or, the grantor may simply desire to be relieved of asset management responsibilities, whether temporarily or permanently.

Probate

Probate may be defined as a court process for determining whether a Will is valid. A Will is probated or proved by offering evidence to show that it is the Will of the deceased and signing and witnessing of the Will meet legal requirements. In a broad sense, the term covers the entire administration process. 

The purpose of court administration is to:
a. Help protect the rights of heirs, devisees and creditors.
b. Protect against unfair and incorrect appraisals of an estate's assets.
c. Assure collection of Federal and state death taxes.
d. Facilitate an orderly distribution of the remainder of the estate.

CHECKLIST

The list of tasks required of a personal representative when settling an estate is long. The job is easier if an estate check list of required or desired actions is made. This list (downloadable in PDF format) should be discussed with the attorney, if one is employed, to determine what steps are required and by what dates they should be completed.

As the listed jobs are completed, the dates of completion should be indicated. This eliminates any doubt about what has been accomplished and what remains to be done. Some of the items listed may not be necessary in a particular estate.
Suggested Check List
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