By: Mike Adams, CPA, JD, LLM
Williams, McDaniel, Wolfe, and Womack
5521 Murray Ave, Memphis TN 38119
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.
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.
By the IRS,
By Probate Court,
By lawsuits and creditors,
By your children’s spouses,
By the wrong heirs,
By overcharging lawyers.
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.
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%
(dies first) ________
TN Tax of $195k
1.5M $0 1.5M
Fed Tax of $0k
for family . TN Tax of $84k
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
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.
Planning for Death
(Docs, Life Ins, Assets)
Planning for Disability
(PoA, Disab. Ins, LTC)
(Liab. Ins & Docs)
April 29, 2009: Congress passes $3.4
◦ 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.
TN Trust law amended in July 1, 2007
Allows child to be beneficiary AND
Protects from Creditors
Protects from Lawsuits
Protects from Divorce
Saves taxes at children’s death.
Co-Trustees = stronger protection.
Child should have right to resign.
Trust must have spendthrift clause.
Trust Must have ascertainable
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.
You can now modify irrevocable trust.
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
If Settlor is deceased, change must be within
original purpose of trust & court must
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).
Effective July 1, 2007
4 year waiting period from transfer before
assets are exempt, if transfer was fraudulent.
Independent Trustee required
Settlor can retain many powers over trust.
Joint Ownership: Too Much (Estate taxes)
Joint Ownership: Too Little
Joint Ownership: Wrong People
Beneficiary Is Deceased
Beneficiary Is a Minor
Beneficiary is now the ex-wife, etc.
Not coordinated with the Will. (taxes)
Auto insurance caps too low.
No “umbrella” policy.
No Long Term Care Insurance.
No Earthquake Insurance.
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.
Support of a Spouse
◦ (In the Standard of Living SHE Deserves)
Support and Education of Children
How Long Do You Plan to Be Dead?
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
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.
Who Declares You To Be Incompetent?
Who Manages Your Financial Affairs?
Who Pays For Your Care?
Who Makes Medical Care decisions?
Do You Want Artificial Feedings?
Artificial Life Support?
Document What You Want!