Wills

A will provides for the distribution of property owned by you at the time of your death in any manner you choose (subject to Tennessee's heirship laws that prevent disinheriting a spouse). Your will cannot, however, govern the disposition of properties that pass outside your probate estate (such as certain joint property, life insurance, retirement plans and employee death benefits) unless they are payable to your estate.

Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. If a will provides for the outright distribution of assets it is sometimes characterized as a simple will. If the will establishes one or more trusts, it is often called a testamentary trust will. Alternatively, the will may leave probate assets to a preexisting inter vivos trust (created in your lifetime), in which case it is called a pour over will.

Aside from providing the intended disposition of your property to spouse, children etc., there are a number of other important objectives that may be accomplished in your will.

  • You may designate a guardian for your minor child or children if you have survived the other parent-and, by judicious use of a trust and appointment of a trustee, eliminate the need for bonds and supervision by the court regarding the care of each minor child's estate.
  • You may designate an executor of your estate in your will and eliminate need for a bond; you may also eliminate the need for court supervision of the settlement of your estate.
  • You may choose to acknowledge or otherwise provide for a child (e.g.' stepchild, godchild, etc.) in whom you have an interest, an elderly parent other individuals.
  • If you are acting as custodian for the assets of a child or grandchild under Uniform Gift (or Transfers) to Minor Act, you may designate your successor custodian and avoid the expense of a court appointment.

What Happens if You Die Without A Will?

If you die intestate (without a will), Tennessee's laws of descent and distribution will determine who receives your property by default. Typically the distribution would be to your spouse and children, of if none, to other family members. Tennessee's plan reflects the legislature's guess as to how most people would dispose of their estate and builds in protections for certain beneficiaries, particularly minor children. That plan may or may not reflect your actual wishes, and some of the built-in protections may not be necessary in a harmonious family setting. A will allows you to alter Tennessee's default plan to suit your personal preferences.

When you need a Tennessee wills and trusts lawyer, you can count on our estate planning law firm to provide you with responsive service at reasonable legal fees.
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Understanding the Difference Between a Will and a Trust

Everyone has heard the terms "will" and "trust," but not everyone knows the difference between the two. Both are useful estate planning devices that serve different purposes, and both can work together to create a complete estate plan.

One main difference between a will and a trust is that a will goes into effect only after you die, while a trust takes effect as soon as you create it. A will is a document that directs who will receive your property at your death and it appoints a legal representative to carry out your wishes. By contrast, a trust can be used to begin distributing property before death, at death or afterwards. A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." A trust usually has two types of beneficiaries -- one set that receives income from the trust during their lives and another set that receives whatever is left over after the first set of beneficiaries dies.

A will covers any property that is only in your name when you die. It does not cover property held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.

Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the deceased wanted. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money. Unlike a will, which becomes part of the public record, a trust can remain private.

Wills and trusts each have their advantages and disadvantages. For example, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust does not. On the other hand, a trust can be used to plan for disability or to provide savings on taxes. The Jones Law Firm can tell you how best to use a will and a trust in your estate plan.
 
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Trusts

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." The rules or instructions under which the trustee operates are set out in the trust instrument.

There can be several advantages to establishing a trust, depending on your situation. Best-known is the advantage of avoiding probate, the court process by which a deceased person's property is passed to his or her heirs. In a trust that terminates with the death of the donor, any property in the trust prior to the donor's death passes immediately to the beneficiaries by the terms of the trust without requiring probate. This can save time and money for the beneficiaries.

Certain trusts can also result in tax advantages both for the donor and the beneficiary. These are often referred to as "credit shelter" or "life insurance" trusts. Other trusts may be used to protect property from creditors or to help the donor qualify for Medicaid.

Unlike wills, trusts are private documents and only those individuals with direct interest in the trust need know of trust assets and distribution. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated.

Kinds of Trusts

Trusts fall into two basic categories: testamentary and inter vivos.

A testamentary trust is one created by your will, and it does not come into existence until you die. In contrast, an inter vivos trust starts during your lifetime. You create it now and it exists during your life.

There are two kinds of inter vivos trusts: revocable and irrevocable.

Irrevocable Trusts

An irrevocable trust cannot be changed or amended by the grantor. Any property placed into the trust may only be distributed by the trustee as provided for in the trust document itself. For instance, the grantor may set up a trust under which he or she will receive income earned on the trust property, but that bars access to the trust principal. This type of irrevocable trust is a popular tool for Medicaid planning.

Revocable Trusts

Revocable trusts are often referred to as "living" trusts. With a revocable trust, the person who created the trust, called the 'grantor", maintains complete control over the trust and may amend, revoke or terminate the trust at any time. This means that you, the grantor, can take back the funds you put in the trust or change the trust's terms. Thus, the grantor is able to reap the benefits of the trust arrangement while maintaining the ability to change the trust at any time prior to death.

Revocable trusts are generally used for the following purposes:

  1. Asset management. They permit the named trustee to administer and invest the trust property for the benefit of one or more beneficiaries.
  2. Probate avoidance. At the death of the trust grantor, the trust property passes to whoever is named in the trust. It does not come under the jurisdiction of the probate court and its distribution need not be held up by the probate process. However, the property of a revocable trust will be included in the grantor's estate for tax purposes.
  3. Tax planning. While the assets of a revocable trust will be included in the grantor's taxable estate, the trust can be drafted so that the assets will not be included in the estates of the beneficiaries thus avoiding taxes when the beneficiaries die.

Testamentary Trusts

As noted above, a testamentary trust is a trust created by a will. Such a trust has no power or effect until the will of the grantor is probated. Although a testamentary trust will not avoid the need for probate and will become a public document as it is a part of the will, it can be useful in accomplishing other estate planning goals. For instance, the testamentary trust can be used to reduce estate taxes on the death of a spouse or to provide for the care of a disabled child.

Supplemental or Special Needs Trust

The purpose of a supplemental needs trust is to enable the donor to provide for the continuing care of a disabled spouse, child, relative or friend. The beneficiary of a well-drafted supplemental needs trust will be allowed to benefit from the trust assets for purposes other than those provided by public benefits programs. In this way, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid and low-income housing. A supplemental needs trust can be created by the grantor during life or be part of a will.

Credit Shelter Trusts

Credit shelter trusts are a way to take full advantage of state and federal estate tax exemptions.
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Trust Administration

The average person has had little experience dealing with trusts and often has many questions upon becoming a trustee for the first time. Through our experience in helping people administer trusts, we have found that many individuals have unreasonable expectations concerning the way living trusts operate following a death. It is true that a living trust in many cases drastically reduces the costs and delays involved in passing on assets at death. A living trust accomplishes this feat by avoiding probate.

However, even without a probate, many administrative chores have to be completed, legal documents prepared, taxes returns filed, and other matters that take time and cost money.

Living Trusts and Probate Avoidance

Although living trusts have been around for centuries, only recently have they achieved a high degree of popularity among the general public. The reason for this surge in popularity is that living trusts help to avoid probate. You might be wondering, “What is probate, and why is everyone trying so hard to avoid it?” The short answer is that probate is a court-supervised procedure for collecting a deceased person's assets, paying debts and taxes, and distributing the property to the person's beneficiaries (either according to the instructions the person set forth in his or her will or as determined by state law if the person died without a will). The probate process usually takes 8 or more months to complete, although it may take longer in complicated cases.

Living trusts avoid probate with respect to those assets that are transferred into the living trust before death. In other words, living trusts avoid the court procedure otherwise required to transfer assets to a person's beneficiaries at death. However, even though no court procedure is involved, that does not mean there is nothing to do. The living trust makes administration easier, but it does not do away with administration altogether. For example, assets still have to be collected and managed pending distribution to the beneficiaries, appraisals of assets have to be made, debts and taxes have to be paid, tax returns may be required (living trusts do not avoid estate taxes, as some people have been led to believe), and legal documents must be prepared in connection with the distribution of the trust property to the beneficiaries.

Thus, although it may come as a surprise to you, you should realize that post-death administration of a living trust will take time and may cost money, such as legal fees, accounting fees, asset transfer fees, and your own Trustee fees if you decide to accept any. The other beneficiaries of the Trust, if any, will also need to understand that the process may take longer than they anticipated. However, in comparison to probate, these delays and costs are substantially reduced, often resulting in time savings of months and costs savings of 75 to 90 percent.

Moreover, if at any time a beneficiary of the Trust believes that the Trustee has acted improperly or without regard for the beneficiary's interests, the beneficiary may file a petition with the court to force the Trustee to make a full report and accounting or to redress an alleged breach of trust, including removal of the Trustee.

Finally, circumstances may arise in which there are questions about whether the Trustee should or should not take certain actions (e.g., selling a business interest or real property, commencing litigation). In such cases, it may be advisable for the Trustee to petition the court for instructions whether to proceed in a certain way. Such a petition protects the Trustee if there is a fear that the Trustee's decision will be second-guessed by a beneficiary. Also, if relations between the Trustee and the beneficiaries are hostile, it may be advisable for the Trustee to seek court approval of the Trustee's accountings to minimize potential arguments with the beneficiaries.

Administration of the Family Trust

After the Trustor's death, the Trust continues as a management and distribution vehicle that will exist only as long as is necessary to identify and collect trust assets, pay debts and taxes, and distribute the trust assets to the beneficiaries (or in further trust, depending on the terms of the Trust). You might visualize this trust as a funnel through which all of the trust assets will pass to the beneficiaries (with the exceptions of tangible personal property, life insurance proceeds, and other nontrust assets that may pass directly to the beneficiaries outside the Trust). It is the successor Trustee's job to collect and manage the trust's assets, appraise trust property, pay all taxes and expenses relating to the administration of the Trust, and distribute the trust property according to the Trustor's instructions.

Distributions of Property

One of the first questions the Trustee and other beneficiaries usually ask us is, “When will the trust property be distributed?” Many people, having heard that living trusts avoid probate, assume that all estate administration procedures are avoided and that the property in the living trust somehow passes to them automatically. As a result of this misunderstanding, many beneficiaries are disappointed to learn that the trust administration process is often measured in weeks or months (and in some cases longer), rather than in hours or days.

Trustee Duties, Powers, and Compensation

As Trustee, you will act in a fiduciary capacity. As such, you owe certain legal duties to the beneficiaries. In managing the trust property, you must use at least ordinary business ability. If you exceed your trustee powers, you may be held liable for loss or damage to the trust estate.

Your basic duties as Trustees involve the collection, management, and investment of trust assets and the accumulation and distribution of income and principal under the Trust. Another important set of duties relates to tax matters.

Under the Trust Law, you owe a duty to the beneficiaries to make them aware of the existence of the Trust and to keep them reasonably informed of the Trust and its administration. State law also requires that you provide the beneficiaries with certain information on reasonable request and that you give a full accounting and report of all trust transactions not less often than annually or when the trust terminates.

Regardless of whether you intend to make a formal accounting to beneficiaries, you must keep careful records of all trust transactions. In fact, if you do not prepare a formal accounting, you should probably keep these records forever, because there is no statute of limitations and your liability exposure will continue indefinitely.

If the trust allows, you will be entitled to reasonable compensation for your services as Trustee. In determining reasonableness, factors such as the amount of time spent in trust administration and the size of the trust estate may be considered. You do not have to accept a trustee's fee. If you do, you should know that it is reportable as taxable income.

The successor trustee will be responsible for a variety of tax filings which can include income tax returns for the deceased person and the estate and estate tax returns. We will help you determine which returns are required.

How We Can Help You – If You Are The Successor Trustee

As your attorneys, our job is to assist you in carrying out your duties as Trustee. We will help you collect and value assets, pay debts and taxes, and prepare the necessary transfer documents in connection with the eventual distribution of trust property to the appropriate beneficiaries. We will also prepare any accountings and reports to be given to the beneficiaries. If any court action is necessary, we will represent you in that action.

How We Can Help You – If You Are a Beneficiary

If you are a beneficiary of a trust, you have rights. The exact nature of those rights is governed by Tennessee law and the specific trust document. If you feel that the successor trustee is not performing their fiduciary duties, we can assist you in enforcing your rights and assist you in moving toward a resolution of the issues.
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Estate and Trust Administration

Trust administration is the logical byproduct of proper estate planning. Trusts may require administration during the life of the grantor if the grantor becomes incapacitated. A decedent's trust must be administered by the trustee after the death of the grantor; even if it is only to supervise the immediate distribution of all trust assets to the named beneficiaries. However, some trusts, according to their terms, must be administered for an extended period. For example, a trust holding assets for children until they attain certain ages (often either twenty-five, thirty, or thirty-five), or for the benefit of grandchildren, may require ongoing long-term administration. In all events, trustees (and for that matter, personal representatives of probate estates) are responsible for tax matters (income and estate), and must address the claims of creditors.

Probate estates require administration during their pendency – which, due to the mandatory four-month publication period, must continue for at least six months. The personal representative named in the will (or appointed by the court if the decedent died intestate) may be required to administer the probate estate for much longer periods, perhaps years, depending on the nature of estate assets and claims against the estate. Family disputes, ongoing litigation, IRS audits, and assets that are difficult to liquidate are a few examples of events that can cause extended probate administration. A person nominated in a will has priority for appointment by the court as personal representative. If there is no will, state law lists those with priority for appointment.
 
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