Trusts are a legal tool that can be used for many purposes including estate planning, asset protection, and income tax minimization. Trusts are a way of managing property with the intention of protecting it so that it can be passed on via inheritance to future generations.
Trusts establish a fiduciary relationship that allows a third party to hold a person’s assets on behalf of that person’s beneficiary or beneficiaries. The person establishing the trust and designating the beneficiaries is known as the “settlor” or “trustor,” and the third party who holds the assets on behalf of the beneficiaries is the “trustee.”
Why do people create trusts?
Why do people create trusts in the first place? How do you know if you need a trust? First, people create trusts to control and protect their assets, especially for after they pass away. Trusts provide legal protection for the trustor’s real and personal property, and can also provide protection from creditors. Second, people create trusts because they are concerned about their money being spent on someone other than who it was intended for. Trusts are established to make sure that the trustor’s assets are distributed according to their wishes. If you have significant assets, especially a significant amount of real estate assets, or you have very specific wishes about how and when you want your assets distributed after you pass away, a trust might be for you. The best thing to do is talk to your attorney, who will help you determine whether a trust is the best way to protect your assets.
A beneficiary cannot just “take” an inheritance out of a trust
Since the purpose of a trust is to protect your assets, beneficiaries cannot just take their inheritance out of the trust as they please. The trustee must follow the terms of the trust established by the trustor.
Minors & age clauses within trusts
People under the age of 18 legally cannot control their own money. A trust may be established for a minor beneficiary in order for them to have financial resources during their minority, but these resources are managed by the trustee according to the terms established by the trustor. For example, a trustor may include that their beneficiary receives a regular allowance from the trust.
However, turning 18 does not necessarily mean that the beneficiary will automatically have unlimited access to the trust. Many trustors include payout clauses that extend the trust for a certain amount of time after the beneficiary turns 18. The policy behind this is that, while an 18-year-old may legally be able to control money and property and enter into contracts, the late teenage and early adult years are still a very developmental stage of life. An 18-year-old very well may not have the maturity and money management skills required to handle a significant amount of assets. Age clauses allow for the beneficiary to continue receiving periodic funds from the trust, but provide another level of protection of the trustor’s assets until the beneficiary reaches an age of presumed maturity, usually when the beneficiary reaches their mid-20s.
Trusts for beneficiaries with special needs
These types of trusts are intended to provide for individuals with special needs while also allowing them to retain government benefits like social security or Medicaid. The Trustee will distribute funds from the trust as needed, or on a regular schedule, to take care of the special needs beneficiary’s living expenses and health care needs.
Do you have assets that need to be directed to a beneficiary in a specific manner?
The terms for receiving an inheritance are set when the trust is created
Overall, money moves from a trust only according to the terms set forth at the creation of the trust. This may mean a periodic payment to the beneficiary distributed by the trustee, lump-sum payment to the beneficiary at a certain age, or both. Assets cannot be removed from the trust unless the terms provide for it. To obtain assets from the trust that are not provided for within the terms of the trust, you likely will have to go to court.
In conclusion
When it comes to estate planning, there are many ways that you can distribute your assets according to your wishes. One of the most popular ways is to create a trust.
There are many types of trusts out there. A trust can be either revocable or irrevocable and it can have unique clauses for receiving an inheritance. Trusts are in many ways the opposite of a will. A will is used to distribute property after someone dies, while a trust is set up while someone is alive and involves giving up control over the assets.
Not sure if a trust is right for you? Discuss your financial and family situation with a qualified attorney first.
As a parent, you want your child to lead a happy and fulfilling life and have healthy marriages of their own. However, it is hard to ignore the possibility of divorce. No matter how much you may love your child’s spouse, your interest is always in protecting your child. So when estate planning, how can you ensure that your child’s inheritance will not be split with their spouse in a divorce?
Division of property in a divorce will depend upon whether the property is considered “separate property” or “marital property”.
What is the difference between separate and marital property? Separate property is the property that belonged to an individual before marriage. This can include monetary assets, cars, real estate, and sometimes even pets. Marital property, on the other hand, is the property that was acquired or shared during the marriage. So what happens if your child puts their inheritance into a joint bank account? To answer this, we need to discuss how Tennessee law views inheritance.
How does Tennessee view “inherited” property in a divorce?
In Tennessee, inherited money or property is generally considered to be separate property. This means that whether your child inherits before or during their marriage, the court will treat the inheritance as exclusively belonging to your child. They are not obligated to share it with their spouse. However, have you ever heard a long-married couple say “what’s mine is yours, what’s yours is mine?” Many couples treat property this way, which can work well unless the couple decides to separate. This brings me to a very important point:
If your child puts an inheritance into a joint banking account shared with their spouse, it would become marital property subject to division at divorce.
How can you ensure that your child’s inheritance will be divorce-proof, no matter how your child handles the inheritance?
One way to ensure the safety of your child’s inheritance is to set up a Family Trust. In general, a family trust is an estate planning tool that protects your family and your assets. A family trust is a three-party relationship between you (the Grantor), your child (the Beneficiary), and the person in charge of maintaining and distributing the assets in the trust (the Trustee). Through a Family Trust, you will be able to determine how and when your assets will be distributed by the Trustee to your Beneficiaries after your death.
In the divorce context, a Family Trust is a great option because the property is held by the Trustee. This means that on paper, the property from the Trustee will not technically belong to your child. So in the event of a divorce, a court will not consider the assets from the trust for division. Family Trusts are generally flexible and easy to set up, and they are even cost-effective. Of course, if a Family Trust is not right for you, your estate planning attorney will be able to provide alternate options to achieve the same goal!
Do you need a family trust to protect your children’s inheritance?
Of course, nobody wants to believe that their child’s marriage will end in divorce. However, estate planning is all about considering life’s “what if” questions. In the end, setting up a trust for your family will allow you and your child the confidence that their inheritance is safe.
To learn more about trusts and other estate planning tools that Elder Law Attorneys in Tennessee use, follow us on Facebook or Instagram!
Probate is the legal process of transferring some of a deceased person’s assets to their heirs. Once you or someone you love passes away, there may be questions about what specific assets and property within an estate actually have to go through probate court, and which assets pass directly to beneficiaries. The short answer is that only assets that a person owned that were in their own name, alone, must go through probate.
The Probate Estate
Assets that go through probate make up what’s called the “probate estate.” For example, an individually owned bank account with no named beneficiary or a car titled only in an individual person’s name will pass through probate.
All other assets pass to the named beneficiaries without going through the probate court.
So, what are some specific things that do not pass through probate?
Here are a few examples:
Property held in joint tenancy with a right of survivorship
Any assets or real property held in joint tenancy (with a right of survivorship specified in the deed) by the deceased and one or more other people doesn’t need to go through probate. When one owner dies, the survivor(s) automatically owns the property.
Property held in tenancy by the entirety
If the deceased individual owned real estate with their spouse in tenancy by the entirety, the surviving spouse is automatically the sole owner when the other spouse passes away.
Payable-on-death bank accounts
A payable-on-death bank account is an account that passes to the beneficiary at the death of the account holder, therefore it does not pass through probate. Check with your bank to see whether your bank account(s) have payable-on-death beneficiaries.
Assets registered in transfer-on-death form
Tennessee residents can name transfer-on-death beneficiaries for securities. Assets registered in the transfer-on-death form pass directly to the named beneficiary without needing to go through probate.
Life insurance proceeds
When life insurance policies or annuities specify a beneficiary, the proceeds do not go through probate.
Retirement accounts
The funds in retirement accounts do not go through probate if the account holder designated a beneficiary.
Trust assets
Assets held inside a Trust by a Trustee do not go through probate.
Probate doesn’t have to be complicated
Learn how to prepare for and navigate probate
Overall, knowing which your assets must pass through probate, and which do not pass through probate, can save you a lot of unnecessary stress and confusion. Designating probate vs. non-probate assets is an important part of your overall estate plan strategy. It is important to take the time to talk to an attorney in order to identify your assets, decide who your beneficiaries should be, and determine what the best method is for those beneficiaries to receive their share.
We invite you to participate in our “Estate Planning Challenge,” which is a daily email campaign where you can identify all of the people, assets, and decision-makers that you will need to consider before meeting with an attorney to further discuss your estate plan.
At some point, everybody thinks about creating a Last Will and Testament. However, many never do. Having a conversation about what will happen to your belongings after your death- and then seeing it on paper- is a daunting task.
So, what happens if you never do it? We’ll give you our best lawyer answer- it depends! When a person dies without a will, they die “intestate.” Every state has different intestacy laws that dictate who will inherit a person’s property when they die intestate. So who inherits your things depends largely on what state you live in, and your family composition. Below we detail what will happen to your estate if you die intestate in Tennessee.
What happens when you die intestate in Tennessee?
Are you married with or without children?
Let’s start with the simplest scenario: if you are married with no children, your spouse will inherit your entire probate estate. However, this will change if you do have children. If you are survived by your spouse and one child, each will inherit one-half of your estate. Additionally, if you are survived by your spouse and more than one child, your spouse will inherit one-third of your estate, with the remainder split evenly among your surviving children.
Let’s say you die without a will in Tennessee while unmarried or widowed with children…
If you do not have a spouse or are widowed, your estate passes to your children. All of your biological and/or legally adopted children inherit equally. In some cases, children are able to prove their parentage by DNA testing after a parent has passed in order to claim part of the estate. All children will inherit equally, so it is important to inform your family of all children who may have a right to inherit from you.
What happens in the tragic case of a child dying before a parent? If your child gave you grandchildren before they passed, then their share of inheritance will pass to those grandchildren. Otherwise, their share will be split among your other children.
Or you die while unmarried without children…
Let’s say you are not married and you have no children, but your parents survived you. Your parents will inherit your entire estate. If neither of your parents survived you, your estate would then pass to any siblings you may have.
I don’t have any close heirs. Who gets my assets if I die intestate?
But wait: I am not married, I have no children, I survived my parents, and I have no siblings. What now? In this case, a probate attorney may need to do what is called an “heir search” which is basically creating a family tree to find your closest relative(s). Your closest blood relatives will receive your estate. In the event that they cannot be found or do not respond to the attorney, your estate may be deposited with the Probate Clerk’s office and ultimately turned over to unclaimed property.
Who will inherit your assets?
Create a will if you want control over who inherits your estate
Of course, the easiest way to avoid confusion and know for certain where each piece of your estate will end up is to create a valid estate plan including a Last Will and Testament. Thinking about what will happen after death is a daunting task, but in the end, it will save your surviving family more money and stress.
Do you want to get a head start on your Will or need to update your Will? Take our Virtual Estate Plan Challenge! We created this 7-email series to help our Clients and guests organize their thoughts about their wishes for their estate. You can use this information later on when you create your documents. Give it a try!
Every family is different and has different needs. The family unit can be as simple as a married couple or as complex as a blended family with committed partners. Regardless of who makes up your family, you need to ensure that you have adequate legal protection for your partner and any children. This week we will discuss why legal documents like wills, trusts, and powers of attorney are appropriate for unmarried couples and why these documents are important to make sure your family comes first.
How do you plan to care for your life partner in Tennessee?
*One caveat before we discuss what you can do, let me say what you cannot do. You cannot disinherit your spouse. So if you are in a new relationship but still legally married to someone else, your options will be limited. To read more about this topic, click here.
Tennessee does not recognize common law marriage
Many people believe that even without a marriage certificate, couples who live together for a certain number of years and hold themselves out as spouses to the community become “common law married.” Only about ten U.S. states allow common law marriage, and if you meet the requirements for common law marriage in one of those states before moving to Tennessee then you may qualify to inherit from your partner as a spouse, but it would be an uphill battle if anyone challenged your right to inherit as a spouse. The better (and less expensive) option is to create an estate plan.
Siri: Contact a qualified estate planning attorney near me
Make it as official as you can
While there are some rights and privileges that you cannot achieve without the formality of marriage, we can re-create many spousal rights through an estate plan. An estate plan requires evaluating your family situation, your assets, and your wishes to develop legally binding documents that will meet your goals for decision-making during your lifetime and asset transfer upon death.
Most people don’t like to think about their own death or their partner’s, but this is essential to having a solid plan in place. Estate planning is a big part of my Nashville law practice, and here is what I recommend for families choosing to forgo the traditional contract of marriage:
Create appropriate Powers of Attorney in Tennessee
If you are in a committed relationship and trust your partner to make decisions for you, you should both create the appropriate powers of attorney. A Power of Attorney will allow your partner to have decision-making authority in an emergency situation if you are unable to do so. This can include medical and financial powers of attorney. Depending on your personal comfort level, your partner may also be authorized to act on your behalf and at your direction even if there is not an emergency, for example, if you were out of town for something that had to be done in person like a real estate closing.
Create a Will
When you die, your family of origin may feel entitled to an inheritance in favor of your life partner. Without a Will, Tennessee law is on their side. In order to protect the family you have created with your partner, you will need a properly executed Will. A Trust may also be appropriate depending on your situation.
Consider what will be important to your family of origin when you are gone. Will they be upset if you pass family heirlooms to your partner or children who are not legally related to them by blood? Are there significant assets that they expect will “stay in the family?” If so, and assuming it is safe to do so, I encourage you to discuss your wishes with your family of origin and see what provisions can be made for them. It is often easier for your loved ones to accept your wishes if they heard them directly from you, rather than reading them on paper when you are gone.
In order to make sure that your companion receives any inheritance that you would like them to have, you will need to have a Will and make them a beneficiary of whatever share you would like them to receive. I encourage you to speak to your loved one about your resources and how they would be passed in three scenarios- (1) if you die first, (2) if they die first, (3) if you die together in a common accident. Particularly if you have kept your finances separate, think about how you would gain access to each other’s accounts, how long it would take, and how the family would support itself in the meantime.
POD accounts are an excellent way to pass on assets to your unmarried partner.
Add Beneficiary Designations to your accounts
Many types of accounts allow you to add beneficiary designations to them. The most familiar type is life insurance, but there are many others. If you have retirement accounts like IRAs and/or 401k accounts, look at adding your partner as the beneficiary to those funds when you pass. The same can be done with brokerage accounts and bank deposit accounts.
Rather than going through your “estate” as laid out in a Will, the financial institutions holding money for you will essentially cut a check to your beneficiary when they learn that you have died.
And finally….
Think about who depends on you?
You need to consider what might happen to your partner when you pass away. Similarly, how would you care for the family if they were to die or become disabled? How can you ensure that any serious long-term disruption to your family life is a bump in the road (at least financially speaking) and not a train going off the rails?
Whether you make significant earnings at your career or you make valuable contributions within the home or both, your family would be lost without you. That’s why it’s important to have a plan in place. If you are a Tennessee resident committed to helping your family, whether married or not, schedule a call with us to talk about how you can protect your family when they need it the most.
Many people think that if they are married, their spouse will automatically inherit everything when they pass and so they don’t need a will. While there are some situations where a spouse does inherit everything, it is not the default under Tennessee law. In Tennessee, if you are married and have children, your spouse will share your probate estate with your children. I call this the S.A.K.S. method (Spouse and Kids Share). In other words, your spouse does not inherit everything automatically.
To clarify:
If you die without a will, Tennessee law dictates that the spouse and children split the estate.
However, I believe that everyone should create their own plan for distributing their assets after death, even if the state has an understandable default on how to do this. Here’s why:
Having a Will can make it easier for your family to go through probate.
Having a Last Will and Testament can be an important way to reduce any burden on your family after your death. In your Will, you decide not only who will inherit your estate but also key decisions like who will serve as Personal Representative (also known as the Executor) and whether you want to require or waive documents that are required by statutes. Having a Will is your chance to have a say in the probate of your estate before you die. The process can be much less complicated for your beneficiaries as well because you may decide to be even more specific about some of the more difficult decisions that need to be made.
It is much easier on your family if you have an estate plan in place. A last will and testament will provide instructions on how to designate and divide assets between family members and friends. If you die intestate (without a will), then the state’s inheritance laws will determine who gets what.
Preparing an estate plan will cover situations that may arise after your passing
Have you considered what might happen if your spouse remarries? Are you aware that a future spouse can take an interest in a portion of your estate? Would you want part of your assets to go to a new spouse or to any children that they may have with that spouse? Do you have family or children that should benefit instead? There are many other factors to consider, but it’s important to discuss these things with your attorney when you create your estate plan.
A Will provides security for your spouse
If you are more concerned about your spouse inheriting from you than your children, you can plan for that too! The general rule in Tennessee is that the spouse would get no less than a third of the estate.
For example, if you are splitting the estate with two or more children, the spouse would get a third. If there is only one child, the spouse would get half.
What if you want to provide more? With a Will, you can designate that your spouse gets everything or only leave certain things to your children. Many spouses write “I love you” wills, where they inherit first from each other, and then their children only inherit when the second parent dies.
Use a Will to protect spousal inheritance from changes in family dynamics
Another consideration in making a Will is your family dynamic. Do you have children from different relationships throughout your life? Do you have concerns about how your children from those relationships will get along with your current spouse when it comes to your estate? It is important to consider how you want inheritances to be split. Your Will can dictate how your assets will be handled! You can also designate your preference for the guardian of any minor children in the event that both you and the other parent die.
Additionally, a Will provides provisions such as the appropriate age at which your children should take over responsibility for managing any inheritance. One primary concern many parents have is whether young adults will be mature enough to make sound judgments concerning any money they inherit. Your Will can establish a certain age at which young adults gain control of their inheritance, to ensure that it isn’t squandered when you would prefer it be used towards education or sound investments.
In short, your Last Will and Testament should be drafted so that your wishes regarding your family are honored.
A Will can safeguard your beneficiaries if they become disabled
Are any of your assets expected to go to a loved one who has a chronic medical condition? If so, you’ll want to consider that an inheritance could disqualify them from any means-tested government benefits that they may receive or be entitled to, which could be devastating if they are counting on that benefit. The most common examples of this are Supplemental Security Income (SSI) and TennCare (Medicaid). You’ll want to have a contingency plan in your estate plan to make sure that their benefits are secure and not at risk of being cut off due to an inheritance. You don’t want their government assistance to decrease just because you died! You definitely need a plan for that. Make sure to work with a qualified estate planning attorney so you can refrain from making errors with your family’s benefits.
If you want control over who can access your digital assets, you must make a Will
Many digital assets are governed by terms and conditions which are unlikely to specify who will take over your accounts when you die. Some providers, such as Facebook, permit you to designate someone as a “legacy contact.” However, not all companies are robust enough to provide this type of service. A Will protects your digital assets from falling into the wrong hands or being lost in digital space with no one able to claim them. Check out our blog post about how to create or change your Facebook “legacy contact” here.
In conclusion
These are just a few of the things that you’ll want to consider when making an estate plan. I want to encourage you to have a long discussion with your spouse about how your assets should be split when one of you dies. There shouldn’t be any surprises! I cannot stress the importance of knowing each other’s values and putting them in writing. It is crucial to have the outcome you desire. A failure to plan can end up in expensive court litigation. This is why we encourage everyone to speak with an experienced estate planning attorney about how they and their spouse can protect each other through proactive planning.
Are you ready to make your Will? Schedule a free initial call and make your plan with the Team at GALS!
