I get this question often. It’s usually followed by “It’s all going to my spouse anyway” or “I don’t have much.” I’m Daniel Hamilton, an estate attorney in middle Tennessee. In this post, I cover the common reasons why you need a will as part of your estate planning.
how property passes at death
At death, property passes in one of four ways. First, property owned jointly with right of survivorship passes to the surviving joint owner. Examples typically include the marital home and joint bank accounts, assuming the spouses are joint owners.
Second, property with beneficiary designations passes to the named beneficiaries. This includes life insurance policies, retirement accounts, and payable on death accounts.
Third, property held in trust passes according to the terms of the trust agreement. Examples include property owned by a living trust.
Finally, there is property commonly referred to as “probate property.” This property includes assets held in your sole name, without a joint owner, or where you have either failed to name a beneficiary or named your estate as the beneficiary. These are the assets that can pass through your will or through intestacy in probate court.
Intestacy in Tennessee
If you do not have a will, Tennessee law provides one for you. It’s called “intestacy.” Intestacy laws govern the transfer of your assets and the care of your minor children at your death. If you have children, intestacy does not leave everything to your spouse. Your spouse receives a child’s share or 1/3, whichever is greater.
This means that your children, including your minor children, will receive assets at your death, even if your spouse survives. This situation often forces the probate court to create a guardianship for your minor child’s property. The guardianship can last until your child reaches 25. A guardianship is often expensive, time-consuming, wrapped tightly in red tape, and completely avoidable through proper estate planning.
Intestacy laws can cause other inheritance problems. It allows young adults (18) to receive large inheritances. Stepchildren, fiances, boyfriends, and girlfriends do not inherit. Finally, intestacy may allow your property to go to the state of Tennessee if you do not have relatives who are close enough in relation. I’m sure you know several charities or religious institutions that could make better use of your money.
Intestacy laws may determine the person who raises your minor children. If parents fail to name a guardian in their will, the law creates a hierarchy of people for the court to consider. These people may, or may not, be the best people for your children.
Avoid Intestacy with Estate Planning
You do not have to accept intestacy. Through proper estate planning, you can avoid the problems mentioned above. I’m not able to cover all of your estate planning options here, but I will mention a few of the most common.
Choose Your Beneficiaries
Unlike intestacy, you can choose your beneficiaries in your will. You might leave everything to your spouse (or a trust for your spouse) to avoid children inheriting while your spouse is still alive. You may include stepchildren, non-family members, charities, religious institutions, in addition to your family members. For second marriages, you may make special provisions for your new spouse while providing for your children.
Create Testamentary Trusts
Trusts are not just for the wealthy. They can solve many problems when it comes to inheritance. A trust is simply an agreement whereby a trustee manages assets, held in a trust, for a beneficiary. If drafted a certain way, the trust protects assets from the beneficiary’s creditors. Creditors can include a divorcing spouse. When you create a trust in your will, it’s called a “testamentary trust.”
Trusts are the multi-tool of estate plans. You can create trusts for your minor children. This avoids the guardianship situation mentioned above. You can also create a trust for a child with special needs.
If you have a sizable life insurance policy, you could leave it in trust for your surviving spouse and/or children. This trust could protect your children’s inheritance if your surviving spouse remarried. This plan also works well with second marriages. You can take care of your new spouse while assuring your children that they will receive the balance at the death of your new spouse.
Trusts can manage assets for irresponsible children and/or protect a child’s inheritance during a divorce. Trusts can help reduce or avoid federal estate taxes. In Tennessee, trust planning is extremely flexible.
Cut Costs
A will allows you to reduce expenses and hassle during the probate process. You have the freedom to choose the right person (your personal representative) to manage your estate instead of leaving the decision solely to the court.
You may waive any requirements that your personal representative post a bond, file an inventory of your assets, or file an accounting for the estate. These requirements are often overkill and increase estate expenses.
You can include language in your will that encourages beneficiaries to mediate disputes. If necessary, you may even disinherit beneficiaries that are determined to cause trouble. If your estate plan includes a living trust, you may avoid the probate court process altogether.
Powers of Attorney
I know this post is specifically about wills, but a proper estate plan would not be complete without powers of attorney. In your power of attorney, you name your attorney-in-fact to make financial and healthcare decisions for you during your incapacity. These documents may keep you out of an expensive conservatorship proceeding where a judge would appoint someone to take care of these matters for you.
I hope you learned something about wills and estate planning in Tennessee from this post. If you have further questions, or if you would like to begin your estate plan, contact me today.
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