Estate Taxes:
1. Who has to pay estate taxes?
2. What assets are included in my taxable estate?

Revocable Living Trusts:
1. Why should I have a Revocable Living Trust-centered estate plan rather than a Last Will and Testament-centered estate plan?
2. What is a Probate Court Administration?
3. Will joint ownership and beneficiary designations avoid a Probate Court Administration?
4. Will a Durable Power of Attorney for financial transactions avoid a Probate Court administration at incapacity?
5. Will I lose control of my assets transferred to a Revocable Living Trust?
6. If I become incapacitated or die, who controls the assets of my Revocable Living Trust?
7. Who should be named as successor trustee and what does a successor trustee do?
8. Is the cost to establish a Revocable Living Trust expensive?
9. Is a "living will" the same as a Revocable Living Trust?

Funding Your Revocable Living Trust:
1. What does "funding my Revocable Living Trust" mean?
2. Why is the funding of my Revocable Living Trust so important?

Irrevocable Life Insurance Trusts (LITs):
1. What does a life insurance trust do?
2. How does an ILIT reduce estate taxes?
3. How does an ILIT work?
4. Why not just name someone else as owner of my insurance policy?
5. Are there any restrictions on transferring my existing policies to an ILIT?
6. Can I make any changes to the ILIT?

Charitable Remainder Trusts (CRTs):
1. What does a CRT do?
2. How does a CRT work?
3. Who can receive income from the CRT?
4. Who should be the trustee of the CRT?

Estate Taxes

1. Who has to pay estate taxes?

Depending on how much you own when you die, your estate may have to pay estate taxes before your assets can be fully distributed. Estate taxes are different from, and in addition to, the expenses of a Probate Court administration (which can be avoided with a Revocable Living Trust) and final income taxes. In addition, the State of Tennessee has its own inheritance tax. Your estate will have to pay estate taxes and inheritance taxes if its net value when you die is more than the "exempt" amounts set by Congress and the State of Tennessee at that time.

Federal estate taxes are expensive, and they must be paid in cash, usually within nine months after you die. Since few estates have this kind of cash, assets often have to be liquidated. But estate taxes can be substantially reduced or even eliminated; if you plan ahead.

2. What assets are included in my taxable estate?

To determine the current net value, add your assets, then subtract your debts. Include your home, business interests, bank accounts, investments, personal property, IRAs and other retirement plans as well as the death benefits from your life insurance that you own.

Revocable Living Trusts

1. Why should I have a Revocable Living Trust-centered estate plan rather than a Last Will and Testament-centered estate plan?

A will does not avoid a Probate Court administration at your death as a fully funded Revocable Living Trust-centered plan would. A will must be verified by the probate court before it can be enforced.

Also, because a Last Will and Testament can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. So the Probate Court could easily take control of your assets before you die. A fully funded Revocable Living Trust avoids a living Probate Court administration, and lets you keep control of your assets while you are living, even if you become incapacitated.

2. What is a Probate Court Administration?

A Probate Court administration is the legal process through which the court sees that, when you become incapacitated or die, your debts are paid and your assets are properly handled or distributed according to your Last Will and Testament or under state law if you do not have a Last Will and Testament.

A Probate Court Administration can be expensive, and if you own property in other states, your family could face multiple probates, each one according to the laws in that state.

A Probate Court Administration takes time and is a public process, so any "interested party" can see what you owned and who you owed. The process "invites" disgruntled heirs to contest your will and can expose your family to unscrupulous solicitors.

3. Will joint ownership and beneficiary designations avoid a Probate Court Administration?

With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without a Probate Court administration. But if the surviving owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.

In addition, when you title property in joint names or name an individual on a beneficiary designation, you lose control. The asset may now be subject to the creditors, divorce proceedings or other problems of the joint owner or beneficiary.

4. Will a Durable Power of Attorney for financial transactions avoid a Probate Court administration at incapacity?

Many financial institutions will not honor a power of attorney unless it is executed on their form. And, if accepted, it may work too well -- giving someone a "blank check" to do whatever he/she wants with your assets.

5. Will I lose control of my assets transferred to a Revocable Living Trust?

Absolutely not. As trustee of your Revocable Living Trust, you have total control of your assets until your incapacity or death. You can amend, or even revoke, the terms of the trust. You even file the same income tax returns.

6. If I become incapacitated or die, who controls the assets of my Revocable Living Trust?

Your personally selected successor trustee will control your assets. If you and your spouse are cotrustees, either of you can act and have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, your handpicked successor trustee will control your assets.

7. Who should be named as successor trustee and what does a successor trustee do?

Successor trustees can be individuals, such as adult children, other relatives, or trusted friends, and/or a corporate trustee. If you become incapacitated, your successor trustee looks after your care and manages your financial affairs for as long as needed, using your assets to pay your expenses. If you recover, you automatically resume control. When you die, your successor trustee pays your debts and distributes your assets. All this is done quickly and privately, according to instructions in your Revocable Living Trust, without court interference.

8. Is the cost to establish a Revocable Living Trust expensive?

It costs more to establish a Revocable Living Trust than to have a Last Will and Testament prepared. But when compared to all the costs of a Probate Court administration at incapacity and death, the cost to establish a Revocable Living Trust is minimal. The cost of your Revocable Living Trust will depend on how complicated your plan is.

9. Is a "living will" the same as a Revocable Living Trust?

No. A Revocable Living Trust is for financial affairs. A living will is for medical affairs; it lets others know how you feel about life support in terminal situations.

Funding Your Revocable Living Trust

1. What does "funding my Revocable Living Trust" mean?

Funding your Revocable Living Trust is the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the trustee of your trust. You will also change most beneficiary designations by naming your Revocable Living Trust as beneficiary.

2. Why is the funding of my Revocable Living Trust so important?

If you have signed your living trust document but haven't changed titles and beneficiary designations, you will not avoid a Probate Court administration at your incapacity or death. Your Revocable Living Trust can only control the assets that it owns.

Along with your Revocable Living Trust, your attorney will prepare a "pour over will" that acts like a safety net. When you die, the will "catches" any forgotten asset and directs them into your Revocable Living Trust. The asset must go through Probate Court administration first, but then it can be distributed according to the instructions in your Revocable Living Trust.

You are ultimately responsible for making sure all of your appropriate assets are transferred to your Revocable Living Trust.

Irrevocable Life Insurance Trusts (LITs)

1. What does a life insurance trust do?

An ILIT allows you reduce or even eliminate estate taxes by removing the death proceeds of life insurance from your taxable estate, so more of your estate can go to your family.

2. How does an ILIT reduce estate taxes?

The ILIT owns your insurance policies for you. Since you do not personally own the insurance, the death proceeds will not be included in your taxable estate so that your estate taxes are reduced.

3. How does an ILIT work?

You establish the ILIT, and name a trustee, other than yourself, to manage the ILIT. The trustee purchases an insurance policy, with you as the insured, and the trust as owner and beneficiary. The trustee uses cash that is gifted from you to the ILIT to purchase the policy. When the insurance benefit is paid after your death, the trustee will collect the funds, make them available to pay estate taxes and/or other expenses (including debts, legal fees, probate costs, and income taxes that may be due on IRAs and other retirement benefits), and then distribute them to the beneficiaries, or trusts for beneficiaries, you have named in the ILIT.

4. Why not just name someone else as owner of my insurance policy?

If someone else, like your spouse or adult child, owns a policy on your life and dies first, the cash/termination value will be in his/her taxable estate. But, more importantly, if someone else owns the policy, you lose control. This person could change the beneficiary, take the cash value, or even cancel the policy, leaving you with no insurance. The policy will also be subject to the claims of the owner's creditors.

5. Are there any restrictions on transferring my existing policies to an ILIT?

Yes. If you die within three years of the date of the transfer, it will be considered invalid by the IRS and the insurance will be included in your taxable estate. However, this three year does not apply if you transfer cash to the ILIT, and the trustee uses the cash to purchase a new life insurance policy.

6. Can I make any changes to the ILIT?

An insurance trust is irrevocable, so you can't make changes after it has been established. But the trust can be drafted with maximum flexibility.

Charitable Remainder Trusts (CRTs)

1. What does a CRT do?

A CRT lets you convert a highly appreciated asset (stock, real estate, etc.) into lifetime income. It also reduces your income taxes now and estate taxes when you die. No capital gains taxes are paid when the asset contributed to the CRT is sold.

2. How does a CRT work?

You transfer an appreciated asset into an irrevocable trust. This removes it from your estate, so no estate taxes will be due on it when you die. You also receive an immediate charitable income tax deduction. The trustee then sells the asset at full market value, paying no capital gains tax, and invests the proceeds in income-producing assets. For the rest of your life, the trust pays you an income. When you die, the remaining trust assets go to the charity or charities you have selected.

3. Who can receive income from the CRT?

The trust income, which is generally taxable in the year it is received, can be paid to you for your lifetime, and if you are married, the income can be paid to you and your spouse for as long as either of you lives.

In addition, the income can also be paid to your children for their lifetimes or to any person or entity you wish, providing the trust meets certain requirements. There are gift and estate tax considerations if someone other than you receives the income.

4. Who should be the trustee of the CRT?

You can be your own trustee. But you must be sure the trust is administered properly, otherwise, you could lose the tax advantages and/or be penalized. Most people who name themselves as trustee have the paperwork handled by a qualified "third party administrator."

However, because of the experience required with investments, accounting and government reporting, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustee.