THE ANDERSEN FIRM A PROFESSIONAL CORPORATION. Probate, Trust Administration and Litigation in Tennessee

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1 ATTORNEYS AT LAW THE ANDERSEN FIRM A PROFESSIONAL CORPORATION Probate, Trust Administration and Litigation in Tennessee New York Office 110 E 37 th Street New York, NY South Florida Office 500 E Broward Blvd. Suite 1600 Ft. Lauderdale, FL West Florida Office 7273 Bee Ridge Road Sarasota, FL Tennessee Office 862 Med Tech Parkway Suite 200 Johnson City, TN The Andersen Firm, A Professional Corporation, All Rights Reserved. Revised 4/16/14

2 The Andersen Firm A Professional Corporation Any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

3 The Andersen Firm A Professional Corporation AV Preeminent Rated Law Firm Practices in Estate Planning, Estate Settlement, Estate Litigation, Asset Protection, and Elder Law

4 Probate What is Probate? Court supervised process of gathering up the assets of a deceased person (call the decedent ), paying the decedent s final bills, and then distributing the decedent s remaining assets in accordance with the decedent s will, if any, otherwise in accordance with Tennessee Law. When is Probate Necessary? When the decedent has left assets titled in his or her sole name

5 Probate cont. What if the decedent has not made a will but has left assets in his or her sole name? Probate will be required whether or not the decedent has left a will since the laws of the State of Tennessee provide a Will for those who chose not to make one.

6 Tennessee Statutes for Intestate Estates If the decedent IS survived by: 1. A Spouse and no descendents All probate assets to spouse 2. A Spouse and children spouse gets 1/3 or a child s share, which ever is greatest (i.e., with one child, the split would be 50/50) 3. Children or further descendants and no spouse, all equally to the children, per stripes

7 Tennessee Statutes for Intestate Estates cont. If the decedent is NOT survived by: 1. A Spouse or any descendants, probate assets are distributed equally to parents, if living, otherwise equally to siblings, per stirpes 2. A Spouse or any other surviving heirs, the probate assets are distributed to The State of Tennessee

8 Types of Probate Administration in Tennessee 1. General Administration for estates that have personal effects only. 2. Small Estates For estates that have total assets less than $25, Formal Administration For all other estates. 4. If the estate consists of real property only, a Petition for Munimnet of title is filed.

9 Problems with Probate Estates 1. Privacy Probate Estates are public record! Example Ted Williams 2. Time Usually takes 6-18 months or longer depending on the size of the estate. Minimum of 1 year if estate tax return is due.

10 Probate Avoidance Establish a Revocable Living Trust Prior to death If the decedent successfully established and funded a revocable living trust, probate of the decedent s estate will not be necessary; however, if one or more of the decedent s assets were left out of the trust, probate of those unfunded assets will be necessary. Note: If the decedent successfully funded all of his or her assets into the trust prior to death, probate will not be necessary, however, the decedent s trust will still need to be settled in a manner similar to probate but without the supervision of a court.

11 Probate Avoidance cont. Whole Life and / or Term Life Insurance Life insurance proceeds never go through probate. Unless the estate is the beneficiary.

12 Settling an Estate or Trust The Following is a Checklist of the steps that should be taken when settling an estate or Trust Some of the steps will be unique to settling an estate and some will be unique to settling a trust, and some will be necessary for both estate and trust administration Note that the person responsible for settling an estate is called the PERSONAL REPRESENTIVE ( PR ) and the person responsible for settling a trust is called the SUCCESSOR TRUSTEE ( TRUSTEE )

13 Settling an Estate or Trust Checklist The Decedent s will should be located and filed with the court; in Tennessee jurisdiction over probate is within the Chancery Court, so the will should be filed with the Chancery Court located in the county where the decedent resided at the time of his or her death. The PR or Trustee should locate and take possession of the Decedent s records. The PR or Trustee should take measures to protect the Decedent s personal effects and other property (e.g., make sure that no one is driving the Decedent s car or boat). Any interested person can petition the court for an order appointing a PR and issuing Letters of Administration to the PR; if the decedent left a will, the PR will be named within the Will; if the Decedent did not leave a will, Tennessee law provides the priority as to who should be appointed (e.g., surviving spouse; next of kin, creditor.

14 Settling an Estate or Trust Checklist Clerk of Court publishes notice for two consecutive weeks within 30 days of issuance of letter testamentary or of administration. The PR must mail or deliver by other means such published notice to all known or reasonably ascertainable creditors of the decedent. The PR must forward letters of testamentary or of administration and a complete copy of will to residual heirs page of will with paragraph detailing bequest to beneficiaries of specific bequests. The PR must obtain a taxpayer identification number for the Decedent s estate; the Trustee must obtain a taxpayer identification number for the decedent s trust. The PR must open an estate checking account; the Trustee must notify the Decedent s bank that he or she is the Successor Trustee of the Decedent s trust.

15 Settling an Estate or Trust Checklist cont. If assets are located outside of Tennessee, the PR or Trustee must determine how these assets need to be handled; in the case of real property located outside of Tennessee and titled in the Decedent s sole name, ancillary probate may be necessary. The PR or Trustee should redirect the decedent s mail. The PR or Trustee should determine if the Decedent was due any unpaid salary or any death benefits from the Social Security Administration or Department of Veterans Affairs. The PR or Trustee should obtain information on all assets owned by the Decedent, including those in the Decedent s sole name, in joint names with other persons, in trust, life insurance proceeds, retirement accounts and business interests. If the Decedent had an ongoing business, the PR or Trustee must determine what to do with the business (e.g., shut it down or sell it)

16 Settling an Estate or Trust Checklist cont. The PR or Trustee must order appraisals of the Decedent s real property and personal effects. The PR must file an inventory of the Decedent s estate assets within 60 days of being appointed; note that the inventory can be waived by will or by consent of residual beneficiaries. The PR or Trustee must determine if Federal and Tennessee estate tax return will be necessary (IRS Form 706); if a 706 is necessary, both returns must be filed 9 months after the Decedent s date of death; if estate tax will be due, the PR or Trustee must determine how the tax will be paid (i.e., will any assets need to be sold or will insurance proceeds need to be allocated to pay tax); note that the federal exemption is $2 million but the Tennessee exemption is only $1 million.

17 Settling an Estate or Trust Checklist cont. The PR must investigate all claims filed against the estate to determine their validity. The PR or Trustee must file the Decedent s final income tax return and any necessary Tennessee tax returns. Fiduciary tax returns (form 1041) will also be due. Accounting is filed within 15 months, then annually until estate closes; note that accounting can be waived by will or if waiver of inventory is signed by residual beneficiaries. There is no time limit for the PR to file a final accounting and close the estate; however, Tennessee requires a TennCare release (always required) and closing letter from IRS if 706 was filed (or sometimes a Statement from TN that no estate tax is due) before closing the estate.

18 Settling an Estate or Trust Checklist cont. If accounting is waived, the PR must file a statement saying that all claims are settled/paid, all expenses paid, all required notices were mailed to known or reasonably ascertainable creditors, final receipt and release from Department of Revenue has been filed with the clerk of the court, and remainder of the estate has been distributed according to the will or intestate succession; also, the beneficiaries must acknowledge proper distribution of the estate, If this is done and no notice of accounting is required by the clerk, no detailed statement, accounting or receipt is required from the PR and distributes. If there is an accounting filed, the PR must submit a copy of each original cancelled check with such accounting in addition to the release from Department of Revenue. Statement in lieu of final accounting can be filed if consented to by residual heirs then no requirement for receipts (see below). The PR or Trustee must make the final distributions of the Decedent s property; receipts are required from the beneficiaries unless excused.

19 Uses of Insurance in Settling an Estate A Second to - die policy can be used to pay the estate taxes for a taxable estate. Example $8million estate, exemption amounts currently $3.5M per person. Thus, with proper planning husband and wife can pass $745%. Roughly $450k is due in taxes 9 months after second spouse passes. A $500k second to - die policy can be used to pay taxes owed. Life insurance can also be used if there are concerns about estate liquidity and to provide for minor or dependant children.

20 Uses of Insurance in Settling an Estate cont. Irrevocable Life Insurance Trusts for Life Insurance Policies Irrevocable Life Insurance Trusts (ILITS) will keep the insurance policy out of the insured's taxable estate. ILITS can also provide generation skipping advantages to keep the proceeds out of the estates of the children, grandchildren or later generations. ILITS provide creditor protection Example If a child who owns a policy on their parents is sued, the state laws exempting policies on an insured s own life, do not exempt policies owned by a child on a parent. A trust can provide creditor protection so that the child s creditors cannot get to either the policy or the proceeds.

21 Probate and Trust Litigation There are two main categories of contesting the contents of a Decedent s Will or Trust: 1. Undue Influence 2. Lack of Mental Capacity

22 Contesting the Contents of a Will or Trust Undue Influence Undue Influence is the most frequent legal basis for challenging a Will or Trust. Undue Influence Over persuasion, duress, force or coercion to such a degree that there was a destruction of free agency and will power.

23 Contesting the Contents of a Will or Trust Undue Influence cont. Three factors to consider regarding Undue Influence: 1. Undue Influencer is a substantial Beneficiary of the Decedent s Will or Trust. 2. Undue Influencer held a confidential relationship with the Decedent (e.g., a child, a friend or business partner) 3. Undue Influencer actively procured the Decedent s Will or Trust. (e.g., located attorney to draft will or trust; attended meetings with attorney; held original documents)

24 Contesting the Contents of a Will or Trust Undue Influence cont. One should also should consider the naturalness of the disposition to the Undue Influencer compare the final, questionable Will to any prior Wills to assess any dramatic change in the disposition of the Decedent s estate.

25 Contesting the Contents of a Will or Trust Lack of Mental Capacity In order to establish sufficient mental capacity to sign a Will or Trust, the person making the will ( Testator or Testatrix ) or Trustmaker must understand the nature and extent of his or her property to be disposed of and their relationship to those who would naturally benefit from the Will or Trust ( Natural Objects of Bounty )

26 Contesting the Contents of a Will or Trust Lack of Mental Capacity cont. The person challenging the mental capacity of the Testator / Testatrix must prove that the person lacked mental capacity AT THE TIME OF EXECUTION evidence of lack of mental capacity around the time the Will or Trust was signed is taken into consideration but not sufficient to prove lack of capacity this is why lack of mental capacity is a statistically infrequent grounds for overturning a Will or a Trust since the burden of proof is so great.

27 Estate & Trust Litigation Avoidance Establish an estate plan early while there is no question of mental capacity. Review the plan on an annual basis and keep it up to date. Use a Revocable Living Trust and Fund ALL assets to avoid Probate. Choose Personal Representatives and Trustees carefully (e.g., a second marriage surviving spouse as sole Trustee; problem child sibling or other family member as Trustee)

28 Estate & Trust Litigation Avoidance cont. Be wary of the disposition of personal effects this is what beneficiaries fight over the most since money is easy to value and divide but stuff is not (consider family members emotional attachment to items; consider leaving detailed instructions and lists; consider allowing the beneficiaries to divide the personal effects as they agree and if they cannot, then allowing the property to be sold or donated to charity). Beware of joint accounts when a joint account is established, clearly state if it is to be with rights of survivorship or for convenience purposes only.

29 Conclusion: First, clients must plan NOW! Second, this not One Size Fits All Planning clients must do a cost benefit analysis to see which techniques are right for them. Third, Clients should use a team of competent and trusted advisors, including Accountants, Financial Advisors and Attorneys in order to develop an appropriate Estate Plan.

30 The Financial Advisors Easy 3 Step Process for Estate Planning 1. Call us at to set up an appointment for client. 2. Ask client for current estate-planning documents and forward them to The Andersen Firm. 3. Ask clients to fill out snapshot questionnaire and forward to The Andersen Firm.