There are four specific legal documents everyone needs:
- A Last Will and Testament;
- A Durable Power of Attorney for Financial Affairs;
- A Power of Attorney for Health Care, also called an Appointment of Health Care Agent; and
- A Living Will, also called an Advance Health Care Directive, part of your Advance Care Plan.
What does each of these do?
- A Last Will and Testament or “Will” is an enforceable legal document that says how your estate is to be distributed after your death. It also allows you to nominate a guardian for your minor children.
- A Durable Power of Attorney for Financial Affairs appoints someone as your agent, allowing them to make financial and legal decisions for you.
- A Power of Attorney for Health Care appoints someone as your agent, allowing them to make health-care decisions and arrangements for you if you are unable to make them for yourself due to illness or emergency.
- A Living Will is a document telling your appointed agent, usually a loved one, your wishes concerning life saving or life prolonging procedures. Part of the Advance Care Plan may include information about hospice, organ donation, and funeral arrangements.
Do I still need a Will even if I do not have significant assets?
Yes, your Will gives instructions for the distribution of all your real and personal property, including your home and property, money, furnishings, possessions and collections. If you do not have a Will, the Court will follow State Law to distribute your estate. The key is control: YOU should be the one who makes these decisions, not State Law.
If you have minor children, it is absolutely critical for you to have a Will. If you have minor children and die without a Will, the court will decide who has custody and guardianship of your children without your input. Their decision will be based on what they perceive to be the best interests of your children, but the Court is not prepared to make this decision. They have no understanding of your beliefs, values, or morals. They may not appoint the person you would choose for your child, and, frankly, have little invested in this decision.
What happens if I die without a valid Will?
If you die without a Will, State Law determines how your estate will be divided. This does not mean that the State will receive your estate, it only means that State Law (instead of you) decides who will inherit. Usually, your closest family will receive your estate, and only if no family member (up to descendants of your grandparents) is found will the estate pass to the State, which makes this quite rare.
Can I just tape people’s names on the things I want them to have?
You can tape people’s names onto your possessions, which may show your executor who you want to have those items, but a better way to dispose of your personal property is to leave a list and refer to this list in your Last Will and Testament. This is called a “memorandum of personal property” and tells your executor your wishes as to the distribution of some of your personal property. This may include only tangible personal property (not real estate, cash, stocks, etc.) and while not legally binding on your executor, it is a good way to tell your executor how you wish to have your property distributed. This memorandum may be modified at any time, so if you wish to change who gets what, you can easily do so without having to change your will.
What property passes outside a Will?
- Real property held in joint tenancy with the right of survivorship.
- Jointly-held accounts, including bank and brokerage accounts.
- Life insurance proceeds with a named beneficiary pass.
- Accounts which have a pay-on-death clause or named beneficiary, including bank or brokerage accounts, IRA’s, etc.
- Property already held in trust, including real property.
How does a Durable Power of Attorney for Financial Affairs differ from a Power of Attorney for Health Care?
Your appointed agent under a Power of Attorney for Health Care may only make decisions about your medical treatment and care. Your appointed agent under a Durable Power of Attorney for Financial Affairs may make financial or legal decisions on your behalf.
How does a Power of Attorney for Health Care differ from a Living Will/Advance Care Plan?
An Advance Care Plan is a document that tells your doctor how you want to be treated if you are terminally ill or permanently incapacitated. You can use a Living Will/Advance Care Plan to tell your doctor you want to avoid life-prolonging interventions such as cardiopulmonary resuscitation (CPR), organ support or a ventilator. You can use this document to tell your doctor you only want to be pain-free and comfortable at the end of life instead of being hooked up to machines. You may also add other special instructions or limitations in your plan.
On the other hand, the Power of Attorney for Health Care allows you to choose someone else to make health care decisions for you if you are too sick to make them for yourself. This person is called your Health Care Agent. Your agent can make any health care decision that you could make if you were able. Your Living Will allows you to give specific instructions to your representative about the type of care you would want to receive. The Appointment of Health Care Agent allows your decision-maker to respond to medical situations that you might not have anticipated and to make decisions for you with knowledge of your values and wishes.
If I create an Advance Care Plan, can I still make my own health care decisions, including decisions which conflict with my Plan?
Yes. As long as you are competent to make decisions, you can always make your own decisions, even if these decisions conflict with a previous Advance Care Plan, and even if you have assigned someone else as your agent.
I am young and healthy. Do I need an Advance Care Plan?
Yes. You never know when a sudden illness like COVID-19 or other medical emergency may make it necessary for others to have to make decisions on your behalf. It is important to make your wishes known, including who is assigned to make those decisions and guidance to that person as to what those decisions should be.
At what point will my estate be liable for federal gift taxation or federal estate taxation?
In 2023, the federal unified estate and gift tax exclusion amount is $12,920,000.00, which means that no federal estate or gift tax will be assessed until your taxable estate is more than $12,920,000.00 The current tax rate for taxable estates above $12,920,000.00 is a sliding scale which caps out at 40%, but the key is that these taxes are only due on the taxable estate, and there are strategies available which can reduce your taxable estate.
What about estate taxation?
There is currently no Tennessee or Alabama estate tax.
What is the current annual gift tax exclusion amount?
While you are alive, you are allowed to give $17,000 per year to any recipient as a tax-free gift. If both you and your spouse wish to make a gift, the amount may be doubled to $34,000 per recipient per year. The recipient does not have to be someone in your family.
Are life insurance death benefits tax-free?
The recipient or beneficiary of a life insurance policy does not owe income tax on proceeds, but the proceeds of the policy are included as part of the estate of the deceased if the deceased was the owner of the policy at the time of death. This means that while the recipient may not pay taxes, the estate of the deceased may. A way to avoid this is to establish an irrevocable trust as owner of the insurance policy. If this is done correctly, the trust is the owner of the policy at the time of death, eliminating the value of the proceeds from the taxable estate of the deceased.
What is the difference between a revocable living trust and an irrevocable living trust?
A revocable trust is what is says it is — a trust which can be revoked by the grantor. In this trust, usually the grantor, trustee, and beneficiary is the same — YOU! However, because you retain complete control over the trust assets, you may not be not protected from creditors trying to attack these assets.
An irrevocable trust is a trust set up for the benefit of another where the grantor relinquishes title and control of assets. The assets are no longer in the name of the grantor, nor does the grantor retain any control over distribution of the assets or play any role in the administration of the trust as trustee. When done properly, assets transferred into an irrevocable trust may be shielded from creditors.
