Life Insurance Proceeds and Creditor Claims

Are life insurance proceeds subject to the claims of the decedent’s creditors under Tennessee law? Consider two scenarios.

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Spousal Rollover When RLT is Beneficiary

Is a spousal rollover available when the beneficiary of an IRA is a revocable trust? Surprisingly, in some cases, the IRS says yes.

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Joint Revocable Trust: Gift on Creation?

Not if the non-contributing spouse has the unilateral power to revoke:

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Children Born after the Will is Executed

A good Last Will and Testament will address the issue of children born after the document is executed. Nonetheless, the Tennessee Code has the situation covered: A child born after the making of a will, either before or after the death of the testator, inclusive of a mother-testator, not provided for nor disinherited, but only pretermitted, in the will, and not provided for by settlement made by the testator in the testator’s lifetime, shall succeed to the same portion of the testator’s estate as if the testator had died intestate. The statute goes on to say that a pretermitted child’s share is to be funded pro rata out of the shares of the other beneficiaries.  Note that the quoted statute only […]

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Revocable Trust as Post-Nup?

Can a revocable trust created by one spouse after marriage constitute an enforceable postnuptial agreement for divorce purposes? This question arose in a recent case decided by the Tennessee Court of Appeals. The facts are as follows: Husband and Wife were married in 2006. It was a second marriage for both parties. In 2009, Husband established a revocable trust, naming himself as trustee and Wife as successor trustee. The revocable trust named Husband as current beneficiary and Wife and children as remainder beneficiaries of anything left in the trust at Husband’s death. Husband also executed a will that directed his probate assets to the revocable trust at death. Husband funded the revocable trust with at least four properties: (1) a lakehouse […]

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Forms of Asset Protection

Ownership by the Other Spouse–It is not uncommon for a spouse with high liability exposure to transfer assets to his or her spouse with a lower risk profile. Tenancy by the Entirety (TBE)–TBE refers to assets titled in the name of husband and wife. A creditor of one spouse may not reach TBE property unless and until the non-debtor spouse dies or the TBE is severed by the divorce of the parties. Retirement Assets–State law protects IRAs from the creditors. Federal law protects qualified plans such as 401(k)s. This protection applies to the account owners. Whether it extends to beneficiaries who inherit the accounts is an open question. According to the Supreme Court, the answer is no, at least in […]

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Governor Signs SB0769

Today Governor Haslam signed SB0769, a bill that revises various provisions of the Tennessee Code relating to wills, trusts, and probate. The substantive provisions of the bill take effect July 1. Analysis of the bill may be found at the following links: 2017 Probate Omnibus Bill 2017 Probate Omnibus Bill: What’s Missing? Trust Funding & the Probate Omnibus Bill Memorandums of Personal Effects after SB0769 Tennessee’s Revised Slayer Statute Source: Tennessee Legislature Website Posted by Joel D. Roettger, JD, LLM, EPLS

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Funding a Trust with Annuities? Beware.

There are income tax consequences to transferring annuities for less than full and adequate consideration. If you are considering making a gift of annuities in trust, keep the following in mind: If an individual who holds an annuity contract transfers it without full and adequate consideration, such individual shall be treated as receiving an amount equal to the excess of the cash surrender value of such contract at the time of transfer, over the investment in such contract at such time, under the contract as an amount not received as an annuity. In other words, gifting an annuity triggers gain to the annuity owner to the extent the cash surrender value exceeds basis, as a general rule. In may be […]

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Trust Funding & the Probate Omnibus Bill

An unassuming provision in the probate omnibus bill may prove to be a trap for some unwary practitioners. SB 0769, the 2017 Probate Omnibus Bill, has been transmitted to the Governor for his signature. One of the more perplexing provisions of the incipient law is Section 13, which adds the following to the end of T.C.A. § 35-15-402, Requirements for Creation [of a Trust]:  (d)   A lifetime trust is valid as to any assets held by the trust to the extent the assets have been transferred to the trust. For purposes of this subsection (d): (1)   Assets capable of registration, such as real estate, stocks, bonds, bank and brokerage accounts, and the like, are transferred to the trust through the […]

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2017 Probate Omnibus Bill: What’s Missing?

The 2017 probate omnibus bill is notable not just for what it contains, but also for what it does not contain. The original version of the bill was HB 0567. It contained several sections that addressed the effect of divorce or annulment on an estate plan. Under current law, divorce/annulment, by itself and without any further action of the testator revokes any disposition or appointment of property made by the will to the former spouse, any provision conferring a general or special power of appointment on the former spouse, and any nomination of the former spouse as executor, trustee, conservator or guardian, unless the will expressly provides otherwise. Similarly, a decree of annulment, divorce, dissolution of marriage, or legal separation revokes […]

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Is a Resident Executor/Trustee Required Under Tennessee Law?

At first glance, the answer might appear to be yes: Any person who is not a resident of this state or any corporation that is authorized to exercise fiduciary powers, but is not authorized to do business in this state and does not actually maintain an office in this state, shall not be appointed or allowed to serve as trustee of a corporate or personal trust, personal representative of an estate, guardian, conservator for an incompetent person, guardian for a minor or in any other fiduciary capacity, unless there is also appointed as a fiduciary to serve with such nonresident fiduciary, a person resident in this state or corporation authorized to do business in this state and that maintains an […]

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Executors and the Decedent’s Unpaid Taxes: A Trap for the Unwary

An executor is normally not personally liable for the debts of a decedent. However, a special rule applies to federal taxes. Outside the Tax Code, in an obscure corner of federal law, we find the following: A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government. For this purpose, the term “unpaid claims” is intentionally broad, covering income tax (individual or estate), estate tax, gift tax, and the civil penalty associated with unpaid payroll taxes. Essentially, the government is saying “we get paid […]

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Five Ways Assets Pass at Death

Operation of law (e.g., joint tenancy with right of survivorship) Beneficiary Designation (life insurance, retirement assets, annuities) Will Trust (revocable or irrevocable) Intestacy (no will) In a properly designed estate plan, Items 1, 2, 3 and 4 will be coordinated so that all of your assets pass to your intended beneficiaries in the most tax-efficient manner. Income taxes are a particular issue with respect to Item 2. Item 5 is the product of (a) failing to plan altogether, (b) improper design (e.g., the will does not dispose of all your assets), (c) faulty execution of the will (e.g., no witnesses or signatures in the wrong place), or (d) lost documents.  Intestacy often leads to assets passing in undesirable ways, such as to […]

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