Estate Planning

By Ashley D. Stearns, Attorney

Trail, Coleman & Stearns, PLLC

1. ASSEMBLE A TEAM.  Make it a priority to assemble an experienced team to help you create your estate plan. Collaborate with a financial advisor, tax professional, life insurance professional, and estate planning attorney to map out a complete estate plan that’s customized for you. Each person plays a critical role in the process and can provide invaluable legal and financial advice. Most importantly, you and your team will create a plan that ensures your assets are distributed to the people and organizations you choose—with as little confusion as possible. 

2. OUTLINE YOUR WISHES.  At a minimum, make sure you have the core estate planning documents.  There are certain documents that you should have regardless of your health, wealth, and age:
   
   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.
   
   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. 
   
   Will – 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.

Don’t confuse will preparation with an estate plan. A will is an important part of your estate plan, but an estate plan provides an overarching strategy for your loved ones and assets following your death.

3. KEEP BENEFICIARIES UP TO DATE.  Any assets you have in accounts with named beneficiaries will go to those individuals, even if your will says otherwise. These accounts include but aren’t limited to:

• Retirement plans (401ks, IRAs)
• Life insurance policies
• Bank accounts
• Payable-on-death and transfer-on-death accounts   

4. USE YOUR TRUST TOOLBOX. When you create a trust, you decide what you’re going to put into it, who gets what, and how it’s distributed.    In recent past, 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-of-date.  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.
   
   
5. UNDERSTAND ESTATE TAX LAWS.  Discuss with your CPA current estate tax laws, 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 amount is $13,990,000 per individual, and the tax rate is approximately 40% on the amount above $13,990,000 per individual.  The exemption amount is indexed for inflation in future years.  The $13,990,000 exemption is portable between spouses, so a married couple can leave up to $27,980,000 to the beneficiaries of their estate without incurring any federal estate taxes.  An estate tax return is required to be filed at the death of the first spouse to report the amount of unused exemption that is left to the surviving spouse.  An estate tax return (Form 706) is due nine months after the decedent’s date of death. In addition to the estate tax, there is also a federal gift tax.  There is an annual exclusion of $19,000 available for gifts to each individual per calendar year.  Additionally, the federal estate tax exemption amount is “unified” with the lifetime gift tax exemption amount, and the gift tax rates are the same as the estate tax rates.  If an individual’s gifts to any one or more beneficiaries during a calendar year exceed his or her available annual exclusion amounts for gifts to such beneficiaries, then he or she will not immediately owe gift taxes, but will reduce his or her available lifetime gift and estate tax exemption amount by the amount of such excess transfers.  Under current law, an individual would not owe federal gift taxes until the combined lifetime taxable gifts have exceeded $13,990,000, as adjusted for inflation.  For example, if an individual made taxable gifts (in excess of the available annual exclusion) in 2025 of $13,990,000 or less, then no federal gift taxes would be due, but the lifetime estate and gift tax exemption amount would be reduced to zero. 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.