Update on estate tax and trust law, overview of estate planning and common estate planning mistakes.

1. By: Mike Adams, CPA, JD, LLM
Williams, McDaniel, Wolfe, and Womack
5521 Murray Ave, Memphis TN 38119
901-767-8200
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2. Pursuant to Treasury Department Circular

230, this is to advise you nothing herein can
be used for the purpose of avoiding tax-
related penalties. If you wish to engage this
firm to provide formal written advice
regarding federal or state tax issues please
contact the author.
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3. Direct where and how your assets go.

 Direct who is in charge of money.
 Direct who gets custody of children.
 Prevent court supervised guardianship.
 Protect children from themselves.
 Protect children from divorce & lawsuits.
 Asset Protection for self.
 And…
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4. By the IRS,

By Probate Court,

By lawsuits and creditors,

By your children’s spouses,

By the wrong heirs,

By overcharging lawyers.

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5. By Joint property w/ Right of Survivorship

By Beneficiary Designation

◦ Life Insurance
◦ Retirement Accounts
By POD and TOD for Bank Accounts

By Living Trusts

◦ Also good for incapacity
◦ More expensive than wills.
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6. Fed taxes anything > $3.5M (for now)

TN taxes anything > $1M

ALL assets (including life ins.)

Due 9 months after death

Fed Tax Rate = 45%

TN Rate = 9.5%

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7. $3M $3.0M
H W
Joint -1.0M
(dies first) ________
Taxed  $2.0M
TN Tax of $195k
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8. .5M
1.5M $0 1.5M
H W
Joint -1.0M
________
1.0M
Taxed  $1.0M
Family Trust
Fed Tax of $0k
-Holds $1M
-Spouse controls
for family . TN Tax of $84k
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9. Imposed on FMV of gifts when given.

Annual Exemption: $13k/yr per person.

Unlimited exemption for health & education, IF

paid directly to school or health care provider.
TIP: Make sure grandparents know about this.

$1M Lifetime Exemption

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10. Tennessee has NO Lifetime Exemption:

Gifts more than $13k cause immediate tax.

TRAP: Adding someone’s name to the deed of

your house is a taxable gift.
Tax can be 5.5% to 16% of the gift.

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11.  Planning for Death
 (Docs, Life Ins, Assets)
 Planning for Disability
 (PoA, Disab. Ins, LTC)
 Asset Protection
 (Liab. Ins & Docs)
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13. April 29, 2009: Congress passes $3.4

Trillion budget:
◦ 1/3 of Budget financed by borrowing.
◦ Fixes Federal Estate Tax Exemption at $3.5M
◦ Tax Rate remains at 45%
◦ The budget plan sets the parameters for
subsequent tax and spending bills.
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14. TN Trust law amended in July 1, 2007

Allows child to be beneficiary AND

trustee:
Protects from Creditors

Protects from Lawsuits

Protects from Divorce

Saves taxes at children’s death.

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15. Co-Trustees = stronger protection.

Child should have right to resign.

Trust must have spendthrift clause.

Trust Must have ascertainable

distribution standards.
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16. This problem can cause up to $225,000

in TN tax when first spouse dies!
Problem: TN Exemption < Fed. Exemption

Solution: Update will to address new law so that two

trusts for spouse are created instead of one. One trust
holds $1M for Tennessee exemption, the other holds
the difference between the TN and Federal exemptions.
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17. You can now modify irrevocable trust.

(TCA 35-15-411(a))
If Settlor is alive and Settlor, Trustee, and

Qualified Benes agree, then no court approval
is necessary to change trustee, even if
inconsistent with material purpose of the
trust.
If Settlor is deceased, change must be within

original purpose of trust & court must
approve.

18. Direct distribution from 401k to charity is not

taxed as income.
Person must be over 70 ½

Counts for required distribution from 401k

Available 2008-09 only (for now).

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19. Effective July 1, 2007

Irrevocable

4 year waiting period from transfer before

assets are exempt, if transfer was fraudulent.
Independent Trustee required

Settlor can retain many powers over trust.

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21. Joint Ownership: Too Much (Estate taxes)

Joint Ownership: Too Little

(Unnecessary Probate)
Joint Ownership: Wrong People

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22. Beneficiary Is Deceased

Beneficiary Is a Minor

Beneficiary is now the ex-wife, etc.

Not coordinated with the Will. (taxes)

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23. Auto insurance caps too low.

No “umbrella” policy.

No Long Term Care Insurance.

No Earthquake Insurance.

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24. Child eligible for governmental benefits.

◦ Medicaid, SSI, TennCare, etc.
Assets disqualify them from benefits.

Trust preserves benefits and provides a

way to supplemental gov’t benefits.
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25. Support of a Spouse

◦ (In the Standard of Living SHE Deserves)
Support and Education of Children

How Long Do You Plan to Be Dead?

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26. Assets Increase – Should add complexity.

Assets Decrease – Should reduce complexity.

How You Own Assets Changes

Kids Grow Up and/or Marry

Age & Health Changes may make Revocable

Trust appropriate.
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27. 2001 Tax Act Changed Everything

◦ Federal and TN Exemptions are not equal now.
TN Adopts Uniform Trust Code.

◦ Better opportunity to protect children’s inheritance
◦ Can amend an IRREVOCABLE trust if all parties agree.
TN Inheritance Tax - Unlikely to be Repealed.

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28. Who Declares You To Be Incompetent?

Who Manages Your Financial Affairs?

Who Pays For Your Care?

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29. Who Makes Medical Care decisions?

Do You Want Artificial Feedings?

Artificial Life Support?

Document What You Want!

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32. Mike Adams, JD, LLM, CPA
901-767-8200
madams@wmww.com
Williams, McDaniel, Wolfe, & Womack
5521 Murry Ave
Memphis, TN 38119
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