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Wills

Your estate is probably a lot more valuable than you think. It’s a good idea to periodically estimate the value of your estate. The assets you own - an automobile, jewelry, appliances, a home, bank account, business, securities, etc. - make up your estate. In order to insure that these assets will be distributed according to your wishes at the time of your death, you need a Will.

Your Will:

A. Determines to whom property will be distributed: family, friends, institutions.

B. Determines how your estate will be distributed: outright gifts or in trust.

C. Determines who will supervise the process: Executor, Trustee, Guardian.

Resident and non-resident individuals may serve as sole executor of a Tennessee estate. Non-resident personal representatives must appoint, in writing, the Secretary of State of Tennessee as his or her agent for service of process. The Court may require the non-resident personal representative to post a bond even if bond is otherwise waived.

D. Simplifies Estate Administration.

  1. Guidelines for property distribution avoids conflict.
  2. Waive bond of fiduciaries (T.C.A. Section 30-1-206).
  3. Waive inventory of estate (T.C.A. Section 30-2-301).
  4. Self-proving Affidavit (T.C.A. Section 32-2-110).

E. Minimizes Taxes.

  1. Federal Estate Tax.

a. Unlimited Marital Deduction.

In a simple will, couples leave everything to each other. When the first partner dies, the surviving spouse receives the entire estate free of federal estate taxes. Surviving spouses benefit from an “unlimited marital deduction,” which eliminates federal taxes on estates of any size inherited from a husband or wife.

b. Unified Credit Exemption Equivalent.

Year Exemption Equivalent Top Tax Rate

2001 $ 675,000.00 55%
2002 $1,000,000.00 50%
2003 $1,000,000.00 49%
2004 $1,500,000.00 48%
2005 $1,500,000.00 47%
2006 $2,000,000.00 46%
2007 $2,000,000.00 45%
2008 $2,000,000.00 45%
2009 $3,500,000.00 45%
2010 Estate Tax Repealed -0-
2011 $5,000,000.00 45%
2012 $5,120,000.00 45%
2013 $1,000,000.00 55%

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law on December 17, 2010. Without this compromise legislation, income and estate tax rates for most Americans would have increased. But this reprieve is only temporary, as most of the new tax provisions expire at the end of 2012.

Based on the expiration of previous legislation, there was no estate tax for taxpayers who died in 2010. There was also no automatic “step-up in basis” that brought an heir’s basis in his or her inheritance up to fair market value. So, in 2010, some beneficiaries realized a higher income tax impact when they sold the inherited assets than they would have paid in estate taxes. Congress attempted to fix this inequity by giving personal representatives the choice of tax treatments. Personal representatives for decedents who died in 2010 have the choice of:

i. A $5 million exemption and a 35-percent top tax rate or

ii. No estate tax, but a cap on an income tax basis increase for estate assets.

The lifetime gift tax exclusion for gifts transferred in 2010 remains $1 million. For deaths after December 31, 2010, the estate tax returns. The new act reunifies the gift and estate tax exemption and increases it to $5 million per taxpayer, with a maximum tax rate of 35 percent. This means that you can potentially give away $5 million during your lifetime without tax impact. The generation-skipping tax exemption will also increase to $5 million. Remember that, for lifetime gifts, you can apply a $13,000 per donee annual exclusion to your gifts before you tap into your unified credit exclusion. Married couples can double the annual exclusion and gift $26,000 per donee.

A new provision added to the tax code is the portability provision, which permits a spouse to apply the unused portion of a deceased’s spouse’s $5 million exemption to increase the surviving spouse’s available exemption.

Simple wills can present a problem when the assets pass on to children. With these wills, couples can’t take full advantage of the federal tax rules.

There is a relatively easy solution for couples with a potentially taxable estate. When the first spouse dies, assets held in his or her name should not pass to the surviving spouse. Instead, an amount that qualifies for the estate tax exemption goes into a trust. The trust owns the assets and an appointed trustee manages them.

The surviving spouse is designated as the income beneficiary of the trust, and the children are the ultimate beneficiaries. If assets held in the trust generate earnings — as investments or rental property might — the surviving spouse can live off that income. The surviving partner also has the assets that were registered in his or her name before the spouse died.

When the second spouse dies, his or her assets will go to the children, as will the assets that were held in trust after the first parent’s death. Each estate will qualify separately for an exemption from estate taxes.

Some people resist the idea of setting up a trust because they imagine having to go through red tape every time they want access to their assets. But you can establish a credit-shelter trust so that your assets pass into it only upon your death.

2. Tennessee Inheritance Tax

a. Unlimited Marital Deduction.
b. Exemption.

Public Chapter 761 amended the inheritance tax law, T.C.A. § 67-8-316 by adding the following subsection which expands the exemption that is allowed against that portion of the estate distributable to one (1) or more beneficiaries of an amount to be determined by the following schedule:

In the case of a decedent dying: Amount
On or after July 1, 1998, but
before January 1, 1999 $ 625,000
In 1999 $ 650,000
In 2000 and 2001 $ 675,000
In 2002 and 2003 $ 700,000
In 2004 $ 850,000
In 2005 $ 950,000
In 2006 through 2012 $1,000,000
In 2013 $1,250,000
In 2014 $2,000,000
In 2015 $5,000,000
In 2016 and thereafter Repealed

3. Special attention needs to be given to the “gap” between the Tennessee Inheritance Tax exemption and the Federal Estate Tax Exemption Credit Equivalent. A Tennessee Qualified Terminable Interest Trust is one possible solution.

PLAN YOUR WILL

A. Estimate the value of your estate.

B. Decide on distribution.

C. Get professional advice.

Discuss lawyer’s fees before the Will is prepared. Cost of the Will may depend on the size and complexity of your estate and how much time is spent in preparing your Will. The initial expense of preparing a Will is usually returned many times over in tax and probate savings.

WILL REQUIREMENTS

A. Any person of sound mind 18 years of age or older may make a Will (T.C.A. Section 31-1-102).

B. Holographic Wills (T.C.A. Section 32-1-105):

1. A Holographic Will is a Will written entirely in the handwriting of the decedent.

2. The Will cannot be typed and then signed by the decedent.

3. Witnesses are not necessary to a Holographic Will.

4. In order for a Holographic Will to be admitted to probate at least two (2) witnesses who are familiar with the handwriting of the decedent must swear that they recognize the writing to be that of the decedent.

5. A Will improperly drafted may be more dangerous than no Will at all.

C. Execution of Will:

1. A non-Holographic Will (one not in the handwriting of the person making the Will) must be signed by the Testator and two witnesses. There can be more than two witnesses, but there must be two.

2. The Testator must signify to the attesting witnesses that the instrument is his or her Will and either:

a. sign the Will in their presence, or

b. acknowledge that the signature already made is his or hers, or

c. at his or her direction and in his or her presence have someone else sign his name for him or her.

3. In all of the above cases, the act must be done in the sight and presence of the two or more attesting witnesses.

4. The attesting witnesses must sign:

a. in the sight and presence of the Testator and

b. in the sight and presence of each other (T.C.A. Section 32-1-104).

D. Witnesses.

1. Must be witnessed by two (2) disinterested witnesses.

2. No Will is invalidated because attested to by an interested witness, but any interested witness shall, unless the Will is also attesting by two (2) disinterested witnesses, forfeit so much of the provisions therein made for him as in the aggregate exceeds in value, as of the date of the Testator’s death, what he would have received had the Testator died intestate. (T.C.A. Section 31-1-103(b).

3. No attesting witness is interested unless the Will gives to him some personal and beneficial interest.

4. If real estate is owned outside Tennessee, it may be advisable to have the Will witnessed by three (3) disinterested witnesses. Some states require three (3) witnesses to attest a Will.

E. Attestation Clause.

1. Signed by the Testator as and for his Last Will and Testament in the presence of us, the undersigned, who at his request and in his presence and in the presence of each other subscribed our names on the date and year first above written.

2. Clause does not have to be in a Will to make it eligible for probate, but it raises a presumption in favor of the Will.

3. If this clause is not in the Will the attesting witnesses could testify in court that the instrument conformed to the law.

F. Affidavit of Witnesses to Prove Will.

Any or all of the attesting witnesses to any Will may, at the request of the Testator or after his death at the request of the Personal Representative or any person interested under the Will, make and sign an affidavit before any officer authorized to administer oaths in or out of this state, stating such facts as they would be required to testify to in court to prove the Will, which affidavit shall be written on the Will, or, if that is impracticable, on some paper attached thereto, and the sworn statement of any such witness so taken shall be accepted by the court of probate when the Will is not contested as if it had been taken before such court. (T.C.A. Section 32-2-110).

CHANGING A WILL.

A. How do you change or revoke your Will?

Your Will is automatically revoked if you tear it up, burn it or make a new Will which specifically states that you are revoking the old one. If you want to destroy your old Will, be sure you destroy all copies of it. You may change your Will at any time by writing a new one or by adding a codicil - a separate document that changes the provisions of the existing Will or adds new provisions to it. You can add any number of codicils to your Will. You cannot change a written Will orally or by simply scratching out and rewriting on the original document. Codicils must be executed with the same legal formalities required in making the original Will.

B. When should a Will be changed?

1. Change in marital status (T.C.A. Section 31-1-102).

2. Additional heirs born.

3. Death of heirs.

4. Relocation to another state.

5. Significant changes in composition or size of estate.

6. Significant changes in law.

7. Changes regarding beneficiaries, personal representatives, guardians or trustees.

C. How to change a Will.

1. Codicil.

2. Memorandum incorporated by reference.

I direct that all of my furniture, household goods, jewelry and personal effects shall be distributed in accordance with the provisions of a certain Memorandum written entirely in my handwriting and signed by me and which said Memorandum refers to this my Last Will and Testament. If for any reason said Memorandum is not found and properly identified as such by my Personal Representative within thirty (30) days after the probate of my Will, then all of the aforesaid property shall become part of my residuary estate as provided for hereinafter.

3. New Will.

4. Never write on Will in an effort to amend same. Changes such as crossing out lines or adding words will not be honored by the court, and may invalidate the entire Will.

   
Robert W. Wilkinson, Attorney-at-Law
281 Broadway Avenue, Oak Ridge, Tennessee 37831
Call Today! (865) 482-4928
 

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