ESTATE PLANNING

There is a common misconception that estate planning is only for the wealthy. This is not true!

Estate planning is the process of deciding how you want to distribute your estate when you die and selecting the most appropriate method for achieving your desires–this could be a Will, a Trust, or even a combination of the two. Whether your estate is worth $10,000 or $10,000,000 when you die, there are still decisions to be made about how your estate will be distributed when you die and how the process will be handled (known as probate/estate administration). 

For instance, do you want everything to go to your spouse? Or maybe to your children? Or maybe even your grandchildren? Are those who will inherit your estate responsible enough to manage their inheritance if something were to happen to you today? Do you have any adopted children or stepchildren that you want to be sure are included in your estate? Who do you want to be in charge of carrying out your wishes when you die? These are just a few simple questions that will have a huge impact on your estate plan. 

Another consideration which should be made when developing your estate plan is whether you have significant assets invested in retirement accounts, including 401(k)s, IRAs, annuities, etc.—particularly those which are tax-deferred (you have not yet paid income taxes on the amounts accumulated in these accounts but will pay income tax when amounts are withdrawn). If the proper planning is not done with these types of assets (which requires advanced knowledge in this area of the law), your heirs may incur a significant income tax on these assets upon your death. With proper estate planning, we can minimize this income tax burden to your heirs. 

An additional consideration is whether your heirs may be required to pay death taxes (i.e. inheritance tax, estate tax) when you die. If you are a resident of Tennessee, this is your lucky day—Tennessee’s inheritance tax was completely repealed effective January 1, 2016. There is also currently no gift tax in Tennessee. Although the Tennessee inheritance was repealed, there still remains a federal estate tax. The good news, however, is that most of us will be exempt from paying this tax. For those who die in 2022, the federal estate tax exemption is $12,200,000 per person. This means that a married couple may pass as much as $24,400,000 to their heirs without incurring an estate tax (please note, however, that there are specific steps necessary get the double exemption—it is not automatic).

When we are considering your estate plan options, we carefully consider the possible income and estate tax which will apply to your estate and the specific ways we may minimize or eliminate these taxes for your heirs. A little planning can go a long way.

So what’s next?

First things first, we will schedule a consultation with you to determine your goals, review your assets, and determine whether there are any special considerations we need to make for you (for example, if you have a blended family, we want to be sure we understand your family dynamics and craft an appropriate plan for you to address any concerns or issues). This consultation meeting is an educational meeting for you and is an information-gathering meeting for us.

We will ask you to complete a confidential estate planning questionnaire to bring with you to your consultation. Completing this form in advance will save us time during your consultation so that we may spend more time on the important stuff.

The consultation is an information-gathering exercise for us. By the end of your consultation, we are usually able to recommend a plan tailored specifically for you.

For most clients, the most basic estate plan will consist of two parts:

1. Advanced Directives

2. Will or Trust

Advanced directives are documents that enable you to plan for the end of your life. They usually become effective if and when you become unable to manage your own affairs or direct your own health care. The most common types of advanced directives are durable general powers of attorney, durable powers of attorney for health care, and living wills. Advanced directives are your only way of directing in advance how the end of your life will look. You get to decide who will make financial and legal decisions for you (durable general power of attorney) and who will make decisions regarding your health care (durable power of attorney for health care). The living will provides you the means to communicate whether you want to donate your organs and whether you want nourishment through tube feeding at the very end of your life.

In the event you become incapacitated and do not have any advanced directives in place, most likely your family will be required to petition a court for a conservatorship over you. It’s always preferred that you determine the person who gets to make decisions for you instead of a court. The conservatorship process is stressful, expensive, and time intensive, so it makes sense to avoid the conservatorship process by having advanced directives in place.

Most people don’t know that advanced directives are no longer effective upon your death. This means, for instance, that when you die, your attorney-in-fact can no longer use the power of attorney to write checks on your behalf. This is when your Will or Trust becomes critical!

A Will is an estate planning document which directs how your estate is to be distributed upon your death. A well-drafted Will will appoint a Personal Representative (i.e. Executor) to manage your estate; address bond, inventory, and accounting for your Personal Representative; address a fee for your Personal Representative; and direct the disposition of your estate in detail. In order for a Will to be effective, not only must the Will be carefully drafted, but there are certain formalities that must be followed in the execution of the Will itself. Contrary to common belief, a notary does not a valid Will make.

A Revocable Living Trust is essentially a substitute for a Will. A Will and a Revocable Living Trust will contain most of the same information, but with a Will, your Personal Representative will likely need to probate your estate. With a properly drafted and funded Revocable Living Trust, we can typically avoid the probate process. For a client with real property in multiple states, a Revocable Living Trust will enable him or her to avoid probate in multiple states, which is a significant cost savings overall for the client. A Revocable Living Trust has other benefits, such as privacy and limiting the contestability period, which we will explain in more detail during your consultation.

Whether you already have a Will or Trust which you would like us to review, or are just beginning to plan for your death, we can help you. We will review any estate plan you already have in place and will determine if it is still a good plan for you. If not, or if you do not have an estate plan in place, we will work together with you to develop a comprehensive estate plan that will accomplish your desires upon your death and minimize your tax exposure.

 Contact us today to schedule a consultation to discuss your estate plan.