estate planning: important tools & considerations · 2019. 4. 9. · identifying non-probate...

2019 Edition

Estate Planning: Important Tools & Considerations

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Estate Planning – Important Rules & Considerations

Dustin S. Crouse, Esq. | Knoxville Elder Law

Estate Planning IntroductionWhat is estate planning?

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Question: What are the oldest known estate plan?

A: Wills of Ankh-ren & Uah (approx. 1797 B.C.)

• Uah gave most of his property to his wife• Had two witnesses• Provided guardian for children

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What is estate planning?

- Writing your will vs. estate planning

- What are the fundamental documents?

- Why do our clients avoid estate planning?

- What are the goals of estate planning?

- How should we approach estate planning?

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The Fundamental DocumentsWhat are they?

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The Last Will & TestamentTypes, Flexibility, and Consequences

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Question: What is the longest will ever probated?

A: Frederica Cook - 1066 Pages (95,940 words) long!

“The paper is gilt-edged and the bindings are of leather with heavy corners and canvas covers. Aside from the pages containing the introductory clauses, the pages are ruled with a single column and contain a priced inventory of laces, jewelry, furs, embroideries, dressing bags and objects of art.”

-Price, Clair (January 3, 1926). "Long Will Joins Odd Collection". The New York Times.

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What property does a will control?

- Interests in real / personal property

- Property interests owned in the testator’s name

- Business interests

- This is a major difference between estate planning and simply writing a will for a client

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Types of wills recognized in Tennessee

- Holographic Wills: Handwritten & Signed- Tenn. Code Ann. § 32-1-105

- Oral Wills: Declared & “Imminent Peril”- Tenn. Code Ann. § 32-1-106

- Why is this important?

- Attested Wills: Signed & Witnessed- Tenn. Code Ann. § 32-1-104

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When is it too late to write a will?

- Incapacity: “the testator’s mind, at the time the will is executed, must be sufficiently sound to enable him or her to know and understand the force and consequence of the act of making the will.”

In Re Estate of Elam, 738 S.W.2d 160 (Tenn. 1987)

Tenn. Code Ann. § 32-1-102

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What can we do in a will?

- Nearly anything you want

- Provide for young or irresponsible beneficiaries

- Provide for special needs children or spouses

- Contract with a spouse not to revoke a will

- Charitable contributions

- Nominate a guardian for children or disabled adults

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- Nearly anything you want

- You cannot disinherit a spouse in a will (well, you can, but it may be mostly ineffective)

- What about separated but not divorced?

- Spousal Elective Shares (Tenn. Code Ann. § 31-4-101)- 0-3 Years: 10%

- 3-6 Years: 20%

- 6-9 Years: 30%

- 9+ Years: 40%

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- Providing for young or irresponsible children

- Young Beneficiary’s Trust

- Set an age or event (or both)

- Spendthrift and spousal protection provisions

- Income-matching provisions

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- Providing for young or irresponsible children- Can encourage children to get or continue their

education or seek a stable career

- “HEMS” language

- Simply wait until a beneficiary is mature

- Protect against a future or pending divorce

- Encourage beneficiaries to earn

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- Providing for special needs beneficiaries

- Special or supplemental needs trusts

- The trust holds the assets for the benefit of the special needs beneficiary

- The trustee has full discretion, and the trust estate can only be used to supplement any needs-based assistance…not supplant it.

- Great tool for disabled children or disabled spouses

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- Contract with spouse to not revoke/amend will

- Tenn. Code Ann. § 32-3-107

- Material provisions may either be in the will, or the will may reference a contract with evidence to support it

- A great tool for protecting against the undue influence of a third-party

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- Contract with spouse to not revoke/amend will- Ex. John and Linda have been married for 28 years,

and each of them have children from prior marriages. They each want to split their estates to all of the children and step-children, but they want assurances that the goal can’t change after the first passes away. - Can we create a contract not to amend or revoke?- May only create minimal protection if the survivor is

determined.

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What should we avoid…and why?

- Expressing our displeasure with others

- Naming the wrong person as executor or trustee

- Not properly dealing with real estate

- Leaving $1.00 to disinherit someone

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Managing Non-Probate AssetsBeyond the Last Will & Testament

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Identifying Non-Probate Assets

- Our clients’ wills do not usually dispose of all of their property. Common non-probate assets include:- Life insurance with beneficiary designations

- 401(k) & other retirement plans

- Certificates of deposit

- JTROS and POD accounts

- Homes owned by husband and wife

- Property held by trusts

- Many clients are not aware of this!

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Identifying Non-Probate Assets

- Meeting with the client:

- Send a detailed information packet asking the client about all known assets, current documents, and health/family matters

- Discuss the client’s goals; e.g. avoiding probate, preserve assets, long-term care management, etc.

- Discuss ownership and beneficiary designation options

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Revocable Living TrustsEasing Estate Administration

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Revocable Living Trusts

- What is it?- Tenn. Code Ann. § 35-15-601 to 604

- Separate legal entity that takes ownership of a someone’s assets.

- Usually creator (grantor) is also the trustee

- Amendable and revocable by the grantor

- SSN of the grantor is used

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- Why use it?- To avoid probate and court supervision

- Unlike an irrevocable trust, the grantor retains full control over the trust assets

- Like a will, the grantor can alter, amend, or revoke at any time

- With new estate tax laws, most clients can benefit from uncomplicated and streamlined administration after death.

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- Important Provisions- Biographical & family information

- Identify beneficiaries

- Trustee, successor trustee, and trustee powers

- What happens if grantor becomes incapacitated

- Method of distribution at death

- List of assets

- Pour over will

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- Common Pitfalls- Real property!

- Not declaring personal property

- Managing beneficiary or potential beneficiary designations

- Not accounting for all of the assets

- Managing IRAs

- Not following up with client

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Power of Attorney & Advance DirectiveThe Most Important Documents

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What is a power of attorney?

- Delegating authority

- Immediate v. “springing”

- The fiduciary duty

- Other limitations

- Who is my agent?

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- Delegating Authority: Your client gives another individual or entity (the agent) the express authority to make personal, financial, business, or other expressed decisions for them.- Limited v. General: A power of attorney can be

used for specific decision-making powers (limited) or comprehensive decision-making (general).

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- Immediate v. Springing: This determines when a power of attorney may be used. - Immediately effective powers of attorney give the

agent the authority when the document is signed.

- Springing powers of attorney becomes effective upon some condition – usually incapacity – comes to pass.

- Pros & Cons

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- Fiduciary Duty: The agent has a duty of good faith, fair dealing, and loyalty to the person for which they are acting. - Can this be altered with express language in the

POA?- Are gifts to the agent allowable?

- In Re: Conservatorship of Patten, (Tenn. Ct. App. 2014)

- Are the creation of trusts allowable?

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- Picking an Agent: It’s important to ask our clients about their family, friends, and colleagues when discussing a possible agent- Personal, family, and money management

experience?

- What is the age of the agent or successor agents?

- Where are the proposed agents located?

- Are there reliable third parties?

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Question: When was the “living will” adopted in the United States?

A: 1976 (California)

- It wasn’t formally adopted by all 50 states until 1992.

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What is an advance directive?

- Codified in Tenn. Code Ann. § 68-11-1803- Has largely replaced a living will; however,

traditional living wills are still valid.

- Authorizes an agent to make healthcare decisions the principal would have made while having capacity.

- Unless otherwise specified, it only takes effect when the principal is determined to be incapacitated

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What is an advance directive?- Useful Tips:

- Combining the advance directive with the power of attorney for healthcare

- Carefully spelling out: (1) unacceptable quality of life scenarios, and (2) desired treatment in those scenarios.

- Comfort care

- Behavior management

- Music, aroma, pet, and nontraditional therapies

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Planning for IncapacityHow Incapacity, Disability, and Care Needs Affect Planning

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Medicaid (at a glance)General Rules & Why It’s a Necessary Discussion in

Estate Planning

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What is Medicaid

- State-run within federal guidelines (i.e. “TennCare”)

- TennCare accounts for approximately 1/3 of all spending

- Federal needs-based health insurance program

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Why is this important?

- 2019: $11.4 individual federal exemption

- 2016+: No Tennessee inheritance tax

- Our clients’ needs have shifted

- The costs of long-term care have emptied estates

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Rules (at a glance)TennCare CHOICES

- Medically Needy

- Assets: Less than $2,000 in total countable assets

- This is where most of the planning opportunities occur

- Income: Less than $2,313/month

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Asset Treatment

- Not Counted: 1 Home, 1 vehicle, Burial Trust, etc.

- Counted: Most other assets

- Countable v. Noncountable Assets

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Problem 1: Penalty Periods

- Does not include purchases for FMV

- How it’s calculated:

Transfers / $5,472 = Penalty (in months)

“Otherwise Eligible”

- Must report all transfers for <FMV within 60 months of TennCare application for benefits

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Problem 1: Penalty PeriodsExample: John is eligible for TennCare (i.e. medically needy, he is income eligible, and his total countable assets are below $2,000). He, or his agent, applies for TennCareto help pay for his nursing home costs. However, John transferred $34,500 to his son last year in anticipation of needing TennCare. When this is reported to TennCare, John’s application is denied. He is assessed a penalty period of:

$34,500 / $5,472 = 6.3 Months

John may reapply after this period (or until the transfer is cured)

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Solving Problem 1: Penalty Periods

- Early transfers / bequests

- Most important question: do we have five years to plan ahead?

- Qualifying irrevocable trusts

- Life estate deeds

- Long-term care insurance

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Problem 2: Estate Recovery

- Federally mandated

- This is how TennCare addresses the assets not counted for purposes of eligibility (usually the home)

- TennCare is entitled to recover from the estates of those who received benefits for Tenncare LTSS, up to the amount they paid for that individual

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Solving Problem 2: Estate Recovery

- Revocable Living Trusts do not work!-In Re Estate of Omer Stidham, 438 S.W.3d 535

- Most important question: what is the status of the property at death?

- Ultimate Goal: Removing assets from the individual’s name before death

- Removing assets and avoiding the penalty period is tricky.

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Problem 3: Crisis Situations

- Spending down v. spending up

- Spending down: private paying the nursing home until TennCare qualification

- Spending up: using assets to purchase non-countable assets, compensating private caregivers, etc.

- “Crisis Situation” – Usually when the client either needs nursing home care soon, is already residing in a nursing home, or is being taken care of by family.

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Solving Problem 3: Crisis Situations

- Ideas on “Spending Up”

- Personal Service Agreements (Contracts)

- Lease Agreements

- Purchasing Prepaid Burial Trust

- Purchasing a Residence and/or vehicle

- Medicaid Compliant Annuity Plans

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Case ExamplesImplementing Estate Planning Ideas

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Case Study

- Case 1: Supplemental Needs Trust- John and Linda have been married for 40 years. Linda

is currently residing in an assisted living facility and her care needs are expected to increase in the years to come. John has a history of significant heart problems. They come to their attorney to discuss a way to protect Linda and their assets.- Can we shift most of their assets to John’s name alone,

and create a testamentary Supplemental Needs Trust for Linda in his will?

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Case Study

- Case 2: Supplemental Needs Trust

- Linda is widowed but in relatively good health. She has a disabled adult son who is residing with her. Her son is currently receiving SSI payments. Linda approaches you wanting to update her will.

- Can we create a Supplemental Needs Trust in her will for the benefit of her son? Why?

- Who do we name as trustee?

- Who is going to be charged with his care?

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Case Study

- Case 3: Incapacity Planning

- Linda comes in with her daughter to discuss Linda’s recent, but early, diagnosis of Alzheimer’s Disease. Linda has a large home and more-than-modest cashable assets.

- Do we have five years to plan?

- What documents do we need?

- How do we assure that she will be taken care of?

- Personal Services Agreement?

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Case Study

- Case 4: Crisis Planning

- John is a widower and has recently been admitted to a nursing home has a permanent resident. He sold his home years ago, and currently has cash assets of approximately $30,000.00. The facility tells his family that he must private pay until he is Medicaid eligible.

- Spending up vs. spending down

- Special Needs Trust

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Case Study

- Case 5: Crisis Planning- John is a widower and has recently been admitted to

a nursing home has a permanent resident. He sold his home years ago, and currently has cash assets of approximately $250,000.00. The facility tells his only son that he must private pay until he is Medicaid eligible. - Spending up vs. spending down?

- Special Needs Trust?

- Gift and Medicaid Compliant Annuity?- Does the Power of Attorney allow certain actions?

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Case Study

- Case 6: Young Beneficiary Trust

- John and Linda have a son and daughter that are 18 and 21 respectively. Although, the children are adults, they have concerns about their children’s ability to responsibly manage money.- Young Beneficiary Trust with HEMS language

- Distributions upon graduating college?

- Probate v. non-probate assets?

- Who is the executor/trustee?

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Case Study

- Case 7: No Heirs

- Linda is 64 years old and has never married nor does she have any children. Linda just resolved a long estate dispute with her brothers over their father’s estate. She does not have her own estate plan.- Who is the beneficiary of her intestate estate?

- Who will serve as her executor?

- Who will be her beneficiaries?

- Are there any charities that she is interested in?

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Case Study

- Case 8: Revocable Living Trust

- John and Linda are healthy and recently became empty-nesters. John has just wrapped up the probate estate of his father and wants to discuss how to avoid the whole process for his children.- Revocable Living Trust?

- When is it relevant?

- Who will be her beneficiaries?

- Are there any charities that she is interested in?

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Thank You!

If you have any additional questions, you are more than welcome to reach out by phone, e-mail, or through my website:

Knoxville Elder Law | Dustin S. Crouse, Esq.

(865) 691-3355

[email protected]

www.knoxelderlaw.com

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