By Ashley D. Stearns, Attorney
According to the National Association of Estate Planners & Councils, it is estimated that more than half of all Americans do not have an up-to-date estate plan. Unfortunately, estate planning has become one of the most overlooked areas of financial wellness.
In the recent past, many families sought estate planning solutions to avoid adverse tax consequences. For example, in 2000, the federal estate tax exemption was only $675,000;
currently, however, the federal estate tax exemption for an individual is $11.18 million and $22.36 million for a couple.
But, regardless of whether an estate is impacted by the federal estate tax, basic estate planning should be on every adult’s to-do list. A basic plan includes establishing financial and medical powers of attorney to make decisions if you cannot, and deciding who will receive your assets, retirement benefits, home, or even proceeds from a life insurance policy upon your death.
There are certain documents that you should have regardless of your health, wealth, and age:
1. Durable power of attorney – Authorizes someone to act on your behalf in the event that you become unable to handle your financial affairs. The person you designate in the durable power of attorney can pay bills, file taxes, direct investments, etc. on your behalf.
2. Medical power of attorney/advanced directives – Allows you to specify the medical treatments you desire in the event you cannot express your wishes and it appoints someone to make other medical decisions for you in the event of your incapacity.
3. Last Will and Testament – The will is the core of any estate plan, and it distributes your property as you desire after your death. If you die without a will, then disbursements are made
according to Tennessee’s intestate succession laws, which might not align with your wishes. A will also names an executor to manage and settle your estate administration.
In addition to the basic estate planning documents outlined above, the following are some other areas that might warrant your consideration:
• WHO IS GOING TO CARE FOR MY MINOR CHILDREN?
• WHAT SHOULD I DO WITH MY RETIREMENT BENEFITS?
• HOW DO I ESTABLISH A SPECIAL NEEDS TRUST FOR MY CHILD WITH DISABILITIES?
• HOW DO I CREATE A LIFETIME TRUST TO PROTECT AN IRRESPONSIBLE ADULT BENEFICIARY?
• HOW DO I DRAFT AN ESTATE PLAN THAT ALLOWS FAMILY MEMBERS FLEXIBILITY DEPENDING ON THE TAX LANDSCAPE AT THAT TIME?
• HOW DO I PLAN FOR ASSET PROTECTION?
• HOW DO I TERMINATE OR MODIFY AN OLD TRUST?
In the past decade, Tennessee has become a leading state in the nation’s trust industry. Tennessee’s laws now provide a trustee (the person or entity responsible for the trust’s administration) with tools that allow the trustee to be proactive and flexible in administering
the trust. Historically, the trustee was limited to administering a trust as it was written. However, laws can and frequently do change, which can leave a document drafted a decade prior out-ofdate. Tennessee’s trust laws provide a trustee with tools to manage this challenge. These tools include methods for clarifying, revising, or terminating a trust agreement, potentially without going to court, which saves time and money. The Tennessee legislature has made a concerted effort to keep our trust laws at the forefront. In addition to our comprehensive Tennessee Uniform Trust Code, our laws permit decanting, community property trusts, a long-perpetuities period, and self-settled asset protection trusts.
Given the constant change, uncertainty, and increase in litigation in almost every area of life, asset protection is more important than ever. Asset protection is an essential component of all estate planning and warrants the same level of thought as taxes and dispositive planning.
Interestingly, my former law partner the late State Representative W. Kent Coleman was the House Judiciary chairman when the “Investment Services Trust Act of 2007” was enacted bringing self-settled asset protection trusts to Tennessee.
Currently, only 17 states have adopted statutory provisions allowing self-settled spendthrift trusts. These statutory provisions are so important because, traditionally, only assets transferred to an irrevocable trust for a third-party beneficiary could be protected from the claims of the thirdparty beneficiary’s creditors. Today, in Tennessee, an individual can shield the assets transferred to a trust for that individual’s benefit from future creditors. These types of self-settled asset protection trusts are most effective when there are no existing or pending creditor claims against the individual establishing the trust. Doctors, land developers, and those seeking an alternative to an antenuptial agreement are ideal candidates.
Finally, because wills, trusts, and powers of attorney are legal documents, it is crucial that they be properly executed under Tennessee law and drafted by a licensed attorney who practices in this technical area.