This is a list of the most frequently asked estate planning questions to help you better understand the estate planning process. While some of the answers to the questions which follow may not apply in your situation, you may find the answers to be informative nonetheless.

IRS Circular 230: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax related matter addressed herein

Once Your Will and/or Trust is Signed:

Guardianship Questions:

Questions about Gifts:

Revocable and Irrevocable Trust Questions:

Power of Attorney Questions:

Probate Questions:

 

 

Q. Where is the best place to keep my signed original estate planning documents?

A. The best place is probably in a safe deposit box because it will protect the documents from theft, fire, accidental loss, and most other types of damage or harm. A potential problem, though, is getting it opened after your death.

If you decide to keep your estate planning documents in a safe deposit box, consider naming a family member or your Executor or trustee as a joint holder on the box. That should simplify matters following your death because someone will be able to get into the box without delay. Also, if you live in a flood zone, be sure to put the document in a water-tight plastic bag. As many shocked clients have learned, water damage caused by flooding can ruin the contents of a safe deposit box.

Another place to keep your original estate planning documents is with the attorney who drafted them. However, I have decided not to retain original documents because of concern over theft, fire, flood, storms, or other loss of the document. It would also be prohibitively expensive to store hundreds or thousands of original documents. Also, what would happen if I were to die or my law firm were to cease operations?

Many people keep their original estate planning documents at home in a secure place. If you have a safe at home, that can be a good place to keep them. Be aware though, when thieves enter your home and discover a locked safe, they often take the whole safe thinking they'll find cash and jewelry. The last thing they want is a file containing your estate planning documents, but that's one of the things they'll get if you keep them in your safe. Therefore, unless your safe is bolted to the foundation of your house, it may not be the best place to keep your originals.

 Another option with regard to a Will is to deposit it with the county clerk's office. Taking this approach can be a great idea, except that you need to be sure your records at home clearly indicate where the original can be found. Moving to a different county or changing your Will can cause problems as well.

More people than you would expect keep original Wills and other estate planning documents in an air-tight plastic bag at the bottom of their freezers. Freezers are well insulated and heavy, and have a way of withstanding fires, hurricanes, and tornadoes. Also, they don't die or move away, and they are stolen far less frequently than in-home safes.

Q. If someone's Will is in a safe deposit box at a bank when he or she dies, how do you get access to it?

A. There are three ways to get the Will out of the box.

The easiest way is if another person is named as a joint holder of the box. That person can retrieve the Will with no problems or delays.

If no other person has access to the box, Tennessee law allows a spouse, child, grandchild or the Executor named in the Will to examine the contents of the box while in the presence of a bank employee. If a Will is found, the bank will be required to send it to the court. Note, though, some banks will give it to your lawyer and allow that lawyer to file it with the court.

Another option is to go to court to request that a judge order an examination of the box. If a Will is found, it will be sent to the court. This should be the option of last resort because it takes longer, requires the filing of papers with the court, and usually involves a lawyer and the associated legal fees.

Q. Should I give copies of my Will and other estate planning documents to my children and to the Executors of my estate?

A. For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and Executor and/or trustee named in the documents is given a copy.

If you are the type of person who values your privacy, who does not especially trust your children, Executor, or trustee, or if you have written a Will or trust which does not treat all the children equally, then it may not be a good idea to hand out copies. Also, you may have more money than your children expect, and depending on how your Will or trust is written, giving them a copy may be letting them know too much about your personal business.

On the other hand, if you have a fairly open relationship with all your children, you regularly discuss finances with them, and you are leaving your estate to them in equal shares, then go ahead and give everyone a copy. Of course, if you decide to change your Will or revocable trust, you should be sure to give all the same people copies of the new documents. If you don't, then there may be some arguments following your death over which document controls the disposition of your estate.

Q. I have a Will and I want to make a minor change. Is there a way for me to make the change myself without hiring a lawyer?

A. Yes, there are a few ways. One way is to make the change yourself by writing an amendment to your Will (called a "codicil") entirely in your own handwriting. You should be sure to date and sign the new document and clearly state which section of your Will you are modifying. When you write a codicil by hand, no witnesses or notary are required. You could also type the codicil, but if you do, you will need two witnesses to the signing.

Of course, if the change is important and you want to be sure it's done right, you should not try to make the change yourself, but instead you should hire a lawyer to prepare a codicil for you.

Guardianship Questions:

Q. If my husband and I die together, where would our children live for the first day or week or month until a judge can determine who will be their guardian? What if there are relatives we absolutely don't want them to live with, even temporarily?

A. There is no simple answer to your question because where your children would live depends on when you die and where your children are when you die.

For instance, you and your husband may be with your children when you both die, thereby leaving them without immediate supervision. Or your children may be at day care, at school, or with a babysitter, and that means the supervision they are receiving would soon be coming to an end. In these types of situations, it is likely that the police will show up and take charge.

The police would allow your children to be placed in the care of a relative or friend as long as they are convinced that person is not unfit to care for the children. The police can use the computer in their car to obtain this type of information. For instance, a relative who has a criminal record would probably not be allowed to take the children.

If your children are old enough to tell the police who to call, the police would likely do so and attempt to leave the children with the proper party. But if your children are too young to know phone numbers, addresses, or even complete names, or if no temporary guardian is available, then the police would take your children to Child Protective Services (CPS).

CPS would care for your children until a suitable family member or friend is located. CPS may place your children in foster care, if necessary, until a judge determines who the permanent guardian will be.

It may be the case that your children are already in the care of a relative or close friend when you both die. In such a situation, the police and CPS may never get involved with the care of the children. Instead, the children would most likely remain with that family until a judge makes a determination as to permanent guardianship.

You mentioned that there may be relatives you don't want your children to live with, even for a brief period. The problem is that if the police don't know how you feel, and if the relative otherwise checks out, the children may be placed in that person's temporary care. Unfortunately, it is too often the case that relatives want to control the children's inheritance, and they know funds will be available if they are acting as guardians.

You could prepare a witnessed and notarized document stating your intention regarding who you do and do not want to serve as guardian. In fact, that information is often contained in a person's Will. But the problem is that this document will probably not be available when it's needed. Most people don't think to send their kids to school, daycare, or a friend's house with a copy of their Will or other legal documents, and even if they did, the police may not be inclined to rely on the document's validity.

If the police show up and several relatives or friends demand to take care of the children, the police will most likely not make a choice between them, but will instead deliver the children to CPS. An investigation will then be  conducted by CPS to determine who is most suitable to take care of the children until a guardian is formally named by the court.

You should be sure to state in your Will who you want to serve as the guardian of your children in the event you and your husband pass away before your children are legal adults--age 18 in Tennessee. You can name any person you want, and you can also provide a list of persons in order of preference. You can even name two persons to serve, but they must be married to each other.

 

 

Gifts:

Q. What gifts can I make without having to pay gift taxes?

A. Every year, you can give any person you want as much as $12,000 without any gift tax consequences. This dollar amount is known as the annual exclusion, and it is now indexed for inflation. It will be increasing from time to time in $1,000 increments.

If you are married, the amount you can give to each person doubles to $24,000 since the person receiving the gift can receive $12,000 from each spouse. Gifts can be in the form of cash, stocks, bonds, real estate, or anything else of value. Buying real estate or bonds in the names of one or more other persons is the same as making a gift of that property to them. The value of the gift would be the amount of money you spent to buy the property or the bond.

You can also make tuition payments for any person you choose, and these payments do not count toward the $12,000 annual limit. Payments you make for medical expenses don't count against the $12,000 limit either. However, if you make a tuition or medical payment, be sure to pay the school, hospital or doctor directly, as a check made payable to a person which is used for tuition or medical care counts towards the $12,000 annual limit.

If you want to give more than $12,000 to any one person, to the extent your gifts exceed $12,000, you will use up a portion of your $1,000,000 lifetime exemption. This is the amount each person can give away without having to pay gift or estate taxes. By way of example, if you give one of your children $45,000 this year, you can exclude the first $12,000 under the annual exclusion, and the other $33,000 will leave you with a remaining lifetime exemption of $967,000.

Keep in mind that if the gifts to any person exceed $12,000 during a single calendar year, you will be required to file a gift tax return by April 15th of the following year to report the gift. That is how the IRS keeps track of how much of your $1,000,000 lifetime exemption is still available. Once you have given away more than the $1,000,000 lifetime limit, you must start paying gift taxes. The estate and gift tax rate is presently 45%.

Before making large gifts, it is often a good idea to talk to an estate planning attorney. Once gifts are made, you can't go back and do things a better way. For instance, if you are planning to make really large gifts, then it may be wise to create trusts for the benefit of your children. There are a number of important advantages to creating trusts, with few downsides.

Q. What exactly are 529 accounts, and are they really as good as everyone seems to think?

A. Yes, 529 accounts are that good. In fact, they are one of the best ways--and many people think they are the best way--to save for a child's education.

You have a number of options when it comes to saving for college. There are Uniform Transfers to Minors Accounts, education IRAs, and prepaid tuition plans, to name a few. All the options have their advantages, yet 529 accounts seem to combine the best features of all of them to make a fairly good investment vehicle.

The main advantage is that the earnings and most withdrawals are income tax free. Even though you must use after-tax money to create the accounts, all capital gains, dividends, and interest are generally tax free. Withdrawals are subject to income taxes only when they are not used for tuition, room, board, and other authorized expenses.

Another advantage is that gifts to a 529 account not only qualify for the $12,000 annual gift tax exclusion, but you can even make five years worth of gifts today and elect to treat them as being made equally over a five year period. In other words, if a married couple with four grandchildren can give as much as $120,000 to each grandchild right now, for a total of $480,000 to the four grandchildren. Each grandchild will be treated as receiving $24,000 per year for five years.

As far as estate taxes are concerned, all amounts you contribute to the account will be excluded from your estate even though you are the person controlling the account. However, you should note that if you elect to spread your contributions over five years for gift tax purposes, and you die within that five year period, a portion of the gift will be included in your gross estate.

You can also designate a successor to yourself to control the account should you die before a grandchild goes to college.

There are a few downsides worth noting. Unlike some of the other alternatives available for saving for college, 529 accounts don't let you choose the investments yourself. All you can pick is the type of investment portfolio the account will maintain. Also, if you use funds in the account for non-qualified purposes, a 10% penalty will apply to the portion of the withdrawal which constitutes investment gains. Importantly, as well, some of the tax laws which make 529 accounts so great may expire in 2011 if Congress fails to extend the new tax laws, and other key benefits can always be changed during a future session of Congress.

Overall, 529 accounts present you with an unbeatable combination of features. The accounts offer income tax free growth and withdrawals with no gift taxes, no estate taxes, retained control of the funds, and flexibility in the future should circumstances change. The only real problem with 529 accounts is coming up with the cash needed to maximize your gifts to the accounts.

I recommend calling your broker or financial planner for details on how to set up the 529 accounts.

Revocable and Irrevocable Trust Questions:

Q. For whom are living trusts most appropriate? What are the pros and cons?

A. For starters, while it is true that probate can be expensive and time-consuming in some other states, in Texas, we have a streamlined system of probate. As long as you hire a lawyer with experience in probate court, you have a well-written Will, and nobody files a lawsuit after your death, then probate is typically not so bad.

Stories you read in the paper may lead you to believe otherwise. The heirs of multi-million dollar estates frequently fight it out in court for a larger inheritance. Also, bookstores carry dozens of books which talk at length about the delays and high costs associated with probate.

Even so, living trusts are useful estate planning tools, and they do have their place in many people's estate plans. If you find any one of the following benefits appealing, then a living trust may be appropriate for you.

 Benefit #1: No Court Involvement. When a person dies, most properties pass either under a person's Will or under a living trust. Some properties--such as life insurance, IRAs, and certain types of bank and brokerage accounts--pass directly to named beneficiaries. If property passes under a Will, then the Will must be probated at the courthouse. Probate typically entails hiring a lawyer, filing a number of papers with the court, attending one or more hearings, and providing a written inventory to the court valuing the properties which passed under the Will.

Some people don't want this type of involvement with the court, so they opt for a living trust. By transferring all properties which would otherwise pass under your Will to a living trust, you can avoid the court entirely. For estates which don't owe estate taxes, there is usually less work for the lawyers, and that translates into reduced estate administration costs.

Benefit #2: Privacy. As mentioned above, when a person dies with a Will, an inventory must be filed with the court. You may not want your friends, neighbors, or the media to be able to read a listing of what you own and what it is worth. After all, an inventory is a public record. With a living trust, your properties and their values are all kept private.

Benefit #3: Plan For Future Incapacity. You may be worried that one day you won't be able to manage your own finances, and you may want to name someone to handle these types of matters for you. You can address this potential problem with a power of attorney or with a living trust. A power of attorney will usually be accepted by banks, title companies and the like, but there is always the risk that an institution's legal department will reject it. The same person who may be denied the ability to use a power of attorney will likely be allowed to do anything he or she wants when acting as trustee of a living trust.

Benefit #4: Harder to Challenge. If you are planning to disinherit one of your children or grandchildren, you may be better off with a living trust because there is nothing filed at the courthouse. Also, it is a little harder to contest a living trust than a Will. Many people are interested in doing as much as possible to prevent a successful challenge to their estate plan.

Benefit #5: Avoid Out-of-state Probate. If you own property in another state, you can avoid a costly probate proceeding in that state by transferring the property to a living trust.

Before you establish a living trust you need to understand the downsides, which include the following:

Disadvantage #1: Time-consuming to Set Up. Depending on how many different types of properties and accounts you own, it can take quite some time to switch everything over to the name of your living trust. Also, some financial institutions in Texas are not geared up to handle living trusts, so you can expect a little trouble and frustration in getting the trust fully established.

Disadvantage #2: Complicated. Wills are usually shorter and simpler to understand than living trusts. Also, with a Will, you can sign it and forget about it. But with a living trust, you need to put your property into the trust and run your life out of it for as long as you live. For many people, this downside outweighs all the potential benefits.

Disadvantage #3: Time-consuming to Revoke. A year after you set up the living trust, you may decide you don't want it any more. At this point, you will need to return to every bank and brokerage house, and undo everything you had done to establish the trust. You can expect more lawyers' fees too.

Disadvantage #4: Post-Death Costs Not Eliminated. If you have a taxable estate (which is generally an estate over $2,000,000 in 2007 and 2008), there will be a lot of work to be done after death regardless of whether probate is required. Typically, there are tax returns to file, trusts to establish, assets to value, and more. Avoiding probate will only marginally reduce the cost of administering a taxable estate.

Disadvantage #5: May Still Need to Probate Will. If you leave just one bank account or one piece of real estate out of the trust, probate will still be necessary. And probate takes about as long when there is one asset as when there are twenty.

Q. What is the difference between a Living Trust and a Bypass Trust?

A. A Living Trust is a revocable trust created while a person is alive, whereas a Bypass Trust is typically an irrevocable trust created at death. A Bypass Trust can be created by a Living Trust or by a Will. (Yes, a Living Trust can create a Bypass Trust, but a Bypass Trust would never create a Living Trust.)

A Living Trust is simply an ownership arrangement where property is held in the name of a "trustee" rather than in the name of the person who really owns the property. People almost always create Living Trusts for their own benefit, with the goals of avoiding probate, addressing the possibility of future incapacity, and keeping matters private.

Normally, the person who creates a Living Trust names himself or herself as trustee and as beneficiary. Upon that person's death, all or a portion of the property which remains in the Living Trust passes according to the terms specified in the trust agreement.

Bypass Trusts are most often created when a husband or wife dies in order to save taxes when the other spouse passes away. When a married person dies and leaves everything to his or her spouse, that surviving spouse may then be too wealthy to pass everything to their beneficiaries tax free. Being "too wealthy" means the married couple is worth over $2,000,000-the estate tax exemption in 2007. The Bypass Trust is a way to shelter the first spouse's $2,000,000 exemption from taxation when the surviving spouse dies, thereby doubling the amount that can be left tax-free to $4,000,000.

Bypass Trusts do have non-tax benefits though, and for some people, saving taxes is not the motivating factor in creating one. For instance, Bypass Trusts protect the trust property from creditors' claims, and they allow the deceased spouse to direct where the trust property passes when the other spouse dies.

There are some exceptions to the statements contained in this answer. For instance, Bypass Trusts are not always created at death. Some wealthy people create them during life, and other people use their estate tax exemptions for different purposes rather than the creation of a Bypass Trust. Also, in answering your question, I have assumed that when you said "Living Trust," you meant the standard type of revocable trust people across the country regularly create and not another unusual type of trust which may be created while someone is living.

Q. What is a Miller Trust, and how does it work?

A. A Miller Trust is a written trust agreement which makes it possible for people to obtain Medicaid nursing home coverage even though they actually make too much money to qualify for Medicaid. Importantly, they are not actually called Miller Trusts anymore. Instead, they now go by the name Qualified Income Trusts.

The rule in Texas is that you must have both limited resources and limited income in order to qualify for Medicaid coverage. These are two distinct tests that must be met, and if you don't satisfy both of them, then Medicaid nursing home coverage will not be available.

The first of the two requirements--that you must have limited resources--has nothing to do with Qualified Income Trusts. Basically, if you have more than $2,000 worth of assets, you are too wealthy to qualify for Medicaid no matter how little money you earn.

Cash, stocks, bonds, retirement accounts, non-homestead real estate, and other investments are included in the $2,000 figure, but your homestead (no matter how much it is worth), $2,000 of personal property, a burial plot, a small amount of life insurance, and a car are generally not counted.

People with more than $2,000 can give away properties or convert them into properties which are not counted. However, depending on the date of the transfer, there may be a 36 month or 60 month look-back period. The look back period is a way to keep you from giving away all your property and then applying for Medicaid the next day. For transfers made prior to February 8, 2006, the 36 month look-back period continues to apply unless the transfer was made to a trust, in which case the longer 60 month look-back applies. For transfers on or after February 8, 2006, a 60 month look-back applies to all transfers.

Also, there are rules which generally allow the spouse of someone trying to qualify for Medicaid to retain about $2,541. worth of property. A spouse's property is not counted when determining the total value of assets for the $2,000 resources test.

The second of the two requirements--that you can earn no more than a certain dollar amount of income per month--is where Qualified Income Trusts enter the picture. In 2006, the monthly dollar limit is $1,869, but this amount changes from year to year. People who earn more can't qualify for Medicaid unless they have a Qualified Income Trust.

What you do is assign your income to the Qualified Income Trust, and the wording of the trust limits how much of the income can be distributed. This way, a person who makes more than the monthly limit will be treated as earning less than that amount, thereby satisfying the Medicaid income test. The trust can allow for certain payments, including insurance premium payments, other payments to support a spouse, and $60 each month for the beneficiary's personal needs.

Money remaining in the trust after those payments are made must be paid to the nursing home for the beneficiary's care, with Medicaid picking up the balance. With Qualified Income Trusts, people can get the government to cover the portion of the nursing home costs that they can't afford.

Lawyers prepare Qualified Income Trusts. Therefore, everyone who needs one must first meet with a lawyer to discuss the specifics of the trust and all the other planning that goes with it.

 

Q. My retirement plan at work has grown to a little over $1,000,000, and it's going to get bigger because I still have about ten years before I retire. My wife and I have some other investments, but the retirement plan is the bulk of our estate. If I die first, I want to let my wife use the income from the retirement plan for the rest of her life, but after she dies, I want the balance to pass to my two daughters, not to my wife's next husband or anyone else. What should I do?

A. You have a very complicated problem with no simple solution. Here are five approaches you can take.

Option One. You could name your wife as the primary beneficiary and make her promise to name your daughters as her sole beneficiaries after her death. This approach is simple, but risky, as it leaves your wife in total control. After your death, your wife will have the ability to roll your plan over to her own IRA and name her own beneficiaries. With you out of the picture, your wife may break her promise and leave your daughters no part of your retirement money. Your wife would also have the ability to liquidate the plan at any time by making a distribution of the entire amount to herself.

 

Option Two. Rather than naming your wife as the beneficiary, you could provide for the plan to pass to a trust for her benefit. As the beneficiary of the trust, your wife could receive the income from the retirement plan while she is alive, and then after her death, the remaining assets could pass to your daughters as provided in the trust instrument. As you can see, a trust may be a good solution to your problem, but there are a number of potential drawbacks.

 For starters, many company retirement plans cannot be paid to irrevocable trusts without income taxes being due on the plan's entire value. Even though tax laws allow your employer to administer your retirement plan following your death with continued income tax deferral, it is probably your employer's policy to make a lump sum distribution of the entire plan to the trust at your death. Most employers don't want to be bothered with years of bookkeeping following the deaths of their employees. You should check with the benefits department at your company to see what types of payout schedules are possible with your plan. If continued income tax deferral is available, you may have found the best answer to your question.

If you go forward with the idea of a trust, you may want to name someone other than your wife as trustee. Naming your wife leaves her in total control of how the trust property is invested and distributed. She would have the power to negate your intentions by making large distributions to herself, even to the point of using up all the trust property. If you name one of your daughters as trustee (or both of them as co-trustees), then a potential family conflict arises because your wife would need to seek approval from your daughters whenever she needs money. You could name a trust company as trustee, but your wife may not be too happy having to ask a trust officer for money. Also, trust companies charge fees for their services. Trust companies are right for some people and not for others.

Option Three. If you are fortunate enough to retire before your death, you can roll over your company retirement plan to an IRA and achieve all your goals. With an IRA, you can name one or more trusts as the beneficiary, and still continue most of the income tax deferral. Whatever is left in the IRA when your wife dies can pass to your daughters with the possibility of further income tax deferral if they choose. These issues relating to an IRA rollover are good for you to know, but they are not yet relevant because your retirement money is still in a qualified plan at work.

Option Four. You can designate your daughters as partial beneficiaries of your retirement account, with the balance passing to your wife. This way, everyone is guaranteed to get something. After your death, your wife can roll her portion over to an IRA without current income taxation. Your daughters will likely be able to defer income taxes over their life expectancies as well.

 Option Five. Another approach is to buy a life insurance policy which names your daughters as beneficiaries. Your wife could be named as the primary beneficiary of your retirement plan. For instance, if you think $400,000 is enough for each daughter, then you could buy an $800,000 policy. Structured properly, the insurance can pass to your daughters (or to trusts for their benefit) without income or estate taxes. Everyone would get enough money, and there would be no conflicts following your death. If you consider that the combined income and estate taxes on your retirement plan could reach as high as 50 - 70% of the entire plan, then spending a few thousand dollars per year on life insurance makes a lot of sense.

Please note, this answer contains some generalities, and many exceptions apply.

Power of Attorney Questions:

Q. What is the difference between a Medical Power of Attorney and a Directive to Physicians?

A. A Medical Power of Attorney is a document that allows you to name an agent to make medical treatment decisions for you in accordance with your wishes if you are not able to do so yourself.

A Directive to Physicians is a document that allows you to address what kind of medical treatment you would like to receive if you ever face a terminal or irreversible medical condition. It is often referred to as the document where you tell the doctors to "pull the plug." Most people request that all treatments other than those needed to keep them comfortable be discontinued or withheld so they can be allowed to die as gently as possible.

The main difference between the two documents is that the Directive to Physicians is where you actually express your own specific preferences as to the use of life sustaining treatment, and the Medical Power of Attorney is where you name one or more persons to make most medical decisions for you.

Within a Directive to Physicians, it is also possible to name an agent to make medical treatment decisions for you in accordance with your personal wishes if you do not also have a Medical Power of Attorney. Even so, most people go ahead and sign both a Directive to Physicians as well as a Medical Power of Attorney, and they do not name an agent within a Directive to Physicians.

Q. If I name someone to make medical decisions for me in a Medical Power of Attorney, can that person later decide not to turn off the machines even though I have signed my Directive to Physicians?

A. If you have both a Directive to Physicians and a Medical Power of Attorney, there certainly can be some overlap.

For instance, a decision made by your agent under a Medical Power of Attorney may have the effect of ending your life within hours or days even though you may not yet have reached the point at which your Directive to Physicians would have applied to your medical condition.

In situations where there is overlap, Texas law states that your attending physician and the agent you have named to make medical decisions must act in accordance with your directions. Presumably, this means that if your physician has determined you are in a terminal or irreversible condition, your Directive to Physicians should be honored. However, since the law is not as clear as it could be, it is a good idea to include a provision in your Medical Power of Attorney requiring your agent to comply with a validly executed Directive to Physicians.

Probate Questions:

Q. Which assets are handled outside of probate?

A. There are a number of different kinds of properties that may pass outside the provisions of your Will.

The list includes life insurance, retirement plans, individual retirement accounts, and annuities. When you purchased or set up these types of assets and accounts, you were probably asked to fill out a form listing the beneficiaries who will receive payments upon your death. These investments will pass to the named beneficiaries regardless of whether you have a Will. However, if you don't have a beneficiary named, if the beneficiary named is your "estate," or if all the beneficiaries are dead, then those investments will be paid to your estate and pass under your Will.

Certain bank and brokerage accounts will also pass outside your Will. For instance, payable-on-death accounts (sometimes called "POD" accounts) will be distributed to the named beneficiary. Additionally, accounts set up by one or more persons as joint tenants with rights of survivorship will pass to the surviving account holder or holders.

Some banks allow you to set up what they call trust accounts even though there is no written trust agreement. These types of accounts will pass to a named beneficiary without going through probate as well.

Not all joint accounts pass to the survivor. When joint accounts are set up as tenants in common, the portion of the account that was owned by the decedent passes under his or her Will.

Many people have decided to create revocable or irrevocable trusts as part of their estate plan. Virtually all such trusts are designed to pass directly to persons or other trusts named in the document rather than under a last Will and testament.

You may find that most of your estate consists of non-probate property. Therefore, it is extremely important to coordinate the beneficiaries of all these properties to make certain your assets will be distributed as you want when you pass away.

Q. Must a Will be probated if the estate is less than $2,000,000? Are insurance proceeds included in that total?

A. There is no requirement that you probate a Will no matter how much the estate is worth. Wills need to be probated only if property is not transferred by some other means.

You are confusing probate with the filing of a federal estate tax return. Regardless of how the property is transferred at death, if an estate is valued at $2,000,000 or more in 2007, then a federal estate tax return must be filed. And yes, you must include proceeds of life insurance owned by the decedent in computing the $2,000,000. (This $2,000,000 amount will be increasing to $3,500,000 in 2009).

The probate process is primarily a method of changing title from the deceased to the person or persons who inherit the property. Some assets require probate, such as real estate and bank accounts held only in the name of the deceased, while others do not, such as life insurancepolicies or retirement plans payable directly to named beneficiaries.

Q. I'm named as the executrix of my father's Will. What do I do when he dies?

A. There are some steps you must take and other steps you may need to take. Exactly what you must do depends on the types of assets your father owns and the size of his estate.

Find the Will. Locating an original Will can sometimes be difficult. Many people keep their Wills in a safe deposit box, while others keep them at home or some place else. It may be a good idea to talk to your father and find out where his is kept. If it's at the bank, be sure you're authorized to enter the box, otherwise it may be harder to get the Will out.

Hire a Lawyer. Most of the time, it's necessary to hire a lawyer. The judges in some smaller counties allow people to represent themselves in probate matters, but you still may have trouble preparing all the necessary forms that are required. It's safe to say, therefore, that lawyers must be hired in the vast majority of cases.

Application For Probate. The first document your lawyer will prepare is an application for probate. The original Will is filed at the court house along with the application and a filing fee. The application is usually several pages long, and it describes certain facts about your father, his Will, and his property.

The Probate Hearing. After a ten day mandatory waiting period, a probate hearing will be held. Your lawyer will schedule this hearing for you. Under ideal circumstances, you can get your hearing two weeks after the application is filed. However, it often takes three weeks or longer to schedule a hearing because of the backlog in the courts and other scheduling conflicts. In larger counties, the hearings are held in a crowded courtroom, and dozens of cases are heard one after another. In smaller counties, the hearings are often less formal, with the judge often shaking your hand at the door to his or her office, and then showing you to a chair right there in the office.

Testimony and Order. At the hearing, your lawyer will ask you a number of routine questions. Most of the time, the judge will then sign an order admitting the Will to probate. The order is a document which your lawyer will have prepared and brought to the hearing. You will also be asked to sign the written document containing your testimony.

The Oath. After the hearing, you will need to sign an oath stating that you will fulfill your duties as independent executrix of your father's estate. The word "independent" means that you will not need to ask the court for permission to sell estate assets or to conduct any other duties as executrix.

Letters Testamentary. After your oath is filed, you will be able to order "letters testamentary" from the county clerk. The letters will authorize you to close bank accounts and collect and claim other estate assets. You can order as many letters as you think you will need.

Notices. Within 30 days of receiving letters testamentary, you must publish a "notice to creditors" in a local newspaper. This notice lets creditors of your father's estate know where they may file claims to recover money they are owed. It must be published even if your father has no creditors. Certified letters must also be sent to all of the charities named in your father's Will. Proof that you performed these tasks must be filed with the court as well.

File the Inventory. Within 90 days of qualifying as executrix, you must file an Inventory with the court. The Inventory lists all the assets which pass under your father's Will. Importantly, the inventory doesn't always list everything a person owns, since you don't have to list assets that pass directly to named beneficiaries. For instance, life insurance, retirement plans, some joint accounts, and many other properties are designed to pass directly to a named beneficiary. After the Inventory is filed, the judge will sign an order approving the Inventory.

Tax Returns. Estates valued at over $2,000,000 must file a federal estate tax return and a Tennessee inheritance tax return if valued over $ 1,000,000.00, within nine months of death. Taxes will be owed if the net estate exceeds that amount. The tax rate on assets over $2,000,000 is 45%. You may also be required to file income tax returns for the estate. Often, the lawyer handling the estate will also prepare the estate and inheritance tax returns. However, few lawyers prepare income tax returns.

In answering your question, I have assumed your father's Will was executed, witnessed and notarized properly, and that it contains all the right language. Not all probate proceedings are as easy as this answer indicates. For instance, you may find yourself in the middle of a Will contest, or your father's Will may have been written in another state, thus complicating the probate.

 

Q. What is a holographic Will, and how does it work?

A. A "holographic" Will is a Will that is written entirely in your own handwriting.

No witnesses are required, and no portion of the Will may be typed. If you type some or all of the words, or you incorporate other markings or other documents into the text, you could inadvertently invalidate the Will. The idea behind holographic Wills is that since the entire document is in a person's handwriting, there is no need for witnesses to sign it to establish its validity. Holographic Wills don't need to be notarized either, but they do need to be signed.

Most lawyers would tell you it's a bad idea to write your own Will because you can easily create ambiguities and other defects that can lead to litigation following your death. This is especially true in second marriage situations when one or both spouses have children from prior marriages or relationships.

If you decide to write your own Will, you should be sure to say in the introductory sentence that it is your Will, and that you are revoking all prior Wills. If you don't revoke all prior Wills, your handwritten Will and any other Wills that have not been revoked will be looked at together to determine who inherits your estate. As you may expect, problems arise when the various documents conflict.

Be sure to identify each bequest clearly and to give away all of your property. A frequent problem with handwritten Wills is that they list some accounts and properties, but then leave out others. Property that you don't mention in your Will passes to your heirs as determined by our legislators in Austin. Your heirs may not be the same persons named in your Will. Also, going to court and figuring out who your heirs are can be an expensive and time-consuming matter.

It's often the case that handwritten Wills don't name an executor, and the ones that do may fail to state that the executor should serve as an "independent" executor. Failure to name an "independent" executor could result in an administration of your estate which is fully court supervised, expensive, and lengthy.

Another important provision that is often left out of a holographic Will is a waiver of bond. When you don't request a waiver, the judge can require that your executor post a bond. Sometimes, it's not possible to even get a bond, and if your executor can get one, it will undoubtedly be expensive.

Lastly, it should be noted that handwritten Wills are almost always more difficult to probate than typed Wills because courts require two witnesses who are familiar with your handwriting to testify that the Will was, in fact, written by you.

Q. I've moved to Tennessee from Michigan, where I had a simple Will drawn with my daughter as the only beneficiary. Do I need to get a new Will made in Tennessee?

A. Yes, you should prepare a new Tennessee Will.

While it is true that Tennessee recognizes the validity of a Will executed in Michigan, your daughter will have an easier time probating your Will if you have a new one prepared using correct Tennessee language.

For instance, the end of your Will should have what is called a "self-proving affidavit" which is a long statement discussing the signing ceremony. Tennessee has its own unique form of "self-proving affidavit" and it is different from the one used in Michigan. It is possible that the judge will refuse to recognize Michigan’s "self-proving affidavit" thereby causing your daughter unnecessary delays and expenses.