With proper counsel, each of these questions can be answered by your elder law attorney.
I am here to help you.
There are four specific legal documents everyone, including you, needs.
1. A Last Will and Testament.
2. A Durable Power of Attorney for Financial Affairs or a Springing Durable Power of Attorney for Financial Affairs.
3. A Power of Attorney for Health Care, also called an Appointment of Health Care Agent.
4. A Living Will, also known as an Advance Health Care Directive, which may form part of your Advance Care Plan.
What does each of these do?
1. A Will is an enforceable legal document that tells how your estate is to be distributed after your death. It may also designate who you want to be the guardian of your minor children.
2. A Durable Power of Attorney for Financial Affairs appoints someone as your agent, allowing them to make financial and legal decisions for you and gives them the legal power to act on your behalf. A Springing Durable Power of Attorney for Financial Affairs does the same, but the appointment only “springs” into effect at the time you become incapacitated due to illness or emergency. Both Powers of Attorney may give either complete control over all financial and legal decisions, or only limited, enumerated powers to your agent.
3. A Power of Attorney for Health Care allows you to name a person to make health-care decisions for you if you are unable to make them for yourself due to illness or emergency.
4. A Living Will is a witnessed document telling your appointed agent, usually a loved one, which life-saving or life-prolonging procedures you do or do not wish to receive in given circumstances. 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 money, home, car, and Pez collection. If you do not have a will, the Court will decide who gets your stuff. The key is control; you want to be the one who makes these decisions, not the State of Tennessee.
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 the guardian of your children will be. Their decision will be based on what they perceive to be the best interests of your children, but they will be ill-prepared to make this evaluation, as they have little understanding of your beliefs, values, morals, etc. The bottom line is that they are unlikely to appoint the same person you would choose for your child, and frankly have nothing invested in this decision.
What happens if I die without a valid Will?
If you die without a Will, the law of the State of Tennessee decides how your estate will be divided. This does not mean that the State of Tennessee will receive your estate, it only means that State Law (instead of you) decides who will receive your estate and in what amount. If you are married without children at your death, your estate will pass entirely to your surviving spouse. If you are married with children, your estate will pass to your children and your surviving spouse. If you are unmarried with children, your estate will pass entirely to your children. If you are unmarried and without children, your estate will pass to your parents if they survive you, otherwise to your brothers and sisters, otherwise to your nieces or nephews and more remote family members from the lineage of your grandparents. Only if no family member is found will the estate pass to the State of Tennessee, which makes this rare, indeed.
Can I just tape people’s names on the bottom of things I want to leave to them at the time of my death?
You can tape people’s names on the bottom of things, which would serve to indicate to your executor who you want those items to be given to, but there is a better way to dispose of your personal property. A better way is to leave a list of personal property and refer to the list in your will. This is called a “memorandum of personal property” and tells your executor your wishes as to the distribution of your personal property. It may only include tangible personal property (not real estate, or gifts of money, or stocks, etc.) and while not legally binding on your executor, it is a good way to tell your executor how you wish to have this property distributed. This memorandum may be changed 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 passes automatically outside a will.
Jointly-held accounts pass outside the will, including bank and brokerage accounts.
Life insurance proceeds with a named beneficiary pass outside a will.
Accounts which have a pay-on-death clause or named beneficiary, including bank or brokerage accounts, IRA’s, etc. pass outside a will.
Property already held in trust passes outside a will.
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 any decision about your financial or legal obligations.
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 unconscious. 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), kidney dialysis or breathing machines. You can use this form to tell your doctor you just want to be pain free and comfortable at the end of life. You may also add other special instructions or limitations in your form.
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?
Yes. Your Advance Care Plan is not effective until you are incapable of clearly expressing your own wishes. As long as you can do this, you may make your own decisions, even if they conflict with your Advance Care Plan.
I am young and healthy. Do I need an Advance Care Plan?
Yes. You never know when a sudden illness or 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 will make those decisions and some guidance as to what those decisions should be.
At what point will my estate be liable for federal gift taxation or federal estate taxation?
In 2016, the federal unified estate and gift tax exclusion amount is $5,450,000, which means that no federal estate or gift tax will be assessed until the taxable estate is more that $5,450,000. The current tax rate for taxable estates above $5,450,000 is 40%, but the key is that these taxes are only due on the taxable estate, and there are strategies available which allow us to reduce your taxable estate.
What about taxation in Tennessee?
In 2016, there is no longer any Tennessee inheritance tax.
What is the current annual gift tax exclusion amount?
You are allowed to give $14,000 per year to each recipient as a tax-free gift. If both you and your spouse wish to make a gift, the amount may be doubled to $28,000 per recipient per year. The recipient does not have to be someone in your family.
Aren’t life insurance death benefits completely 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 a trust and when is it used?
A trust is a financial agreement whereby one party, called the grantor, transfers title to certain property to the trust for the benefit of a particular person or organization, called the beneficiary. The person who administers the trust according to the trust documents is the trustee. The trustee is bound by law to distribute the assets of the trust according to given instructions. Because the individual grantor no longer has title to the property and has no ownership interest in the property, the property does not pass under a will.
Trust creation and administration is complex, but basically the advantage of having a trust is that the grantor can control distributions of property much more easily than property distributed according to a Will. For example, it is possible within a trust for distributions to be delayed until the recipient has reached a certain age. There can also be significant tax advantages and cost-savings associated with trusts.
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.
You probably have a lot of other questions. Please give me a call. I would be glad to talk to you. I offer a free initial consultation. (865) 531-9172.