The IRS recently announced the 2021 federal estate tax rate limits, which are $11.7 million for individuals and $23.4 million for married couples. This is increased from $11.58 million and $23.16 million respectively in 2020.
Under this new guidance, wealthy Americans will be able to leave up to $23.4 million to their heirs without being subject to federal estate tax rates, which top out at 40%. The federal gift tax exemption will remain at $15,000 annually, meaning gifts made up to that amount will not be taxed by the federal government.
Will There Be Changes Under the Biden Administration?
While estate tax rates have stayed fairly consistent over the past few years, estate planning attorneys across the country are being asked by their clients how the presidential election may affect future federal tax limits.
During the campaign season, the Biden/Harris team proposed reducing the estate tax exemption to $3.5 million for estates and $1 million for gifts. The ability to pass such measures, however, appears to be a long shot, considering the current makeup of the Senate. The Democratic party now holds a very slim majority and lowering the estate tax threshold is not particularly popular on the Republican side. It would be difficult, if not impossible, at this point to get a majority of Senators to agree to such legislation.
Complicating matters further is the coronavirus pandemic. It’s anticipated that Congress will spend the next few months working on financial relief packages for individuals and businesses impacted by COVID-19. As such, major overhauls to the estate tax are anticipated to take a backseat in 20201 in favor of more pressing matters.
However, when it comes to the whims of Congress, estate planning lawyers “never say never.” That’s why we are continuing to keep a watchful eye on Congress should support begin to emerge for estate tax reform in 2021 and beyond. For real-time updates, be sure to follow our estate planning blog, or subscribe to our newsletter. Finally, if you have specific questions about the federal estate tax or how to avoid “death taxes” on your estate when you are gone, please contact us at (615) 846–6201 to schedule an appointment.
Estate planning offers legal protection for families and individuals through all of life’s transitions. Wills, trusts, powers of attorney, and healthcare directives are the most common estate planning tools we use to help clients protect their wishes, safeguard their assets, and ensure provision and care for their loved ones following their death or incapacity.
What Does My Estate Plan Have to Do with My Divorce?
Your estate plan can be impacted greatly if it’s not updated after a divorce. For example, if your ex-spouse has been named as a beneficiary on your life insurance policy, they may still be able to collect the proceeds if you suddenly pass away without updating your documents. Your ex-spouse may also retain authority roles as your power of attorney or healthcare agent unless you revoke such power. As a single adult, you must also name the people you now want to act on your behalf or manage your affairs in an emergency once the role is no longer filled by your ex-spouse.
Won’t a Divorce Automatically Stop My Ex-Spouse from Having Such Power?
While this topic has been introduced in the Tennessee General Assembly, no laws have been passed yet to prevent it. Although a divorce decree will remove your ex-spouse from inheriting under your will or serving as Personal Representative/Executor, it does not remove them from serving under other documents like your power of attorney or healthcare directive. And it doesn’t remove them from inheriting anything they receive as a beneficiary outside of probate such as life insurance, bank accounts, retirement accounts, or trust funds. That is why you must update your documents after a divorce to be certain that your ex no longer has this power.
What Documents Should I Update?
During your divorce, the law prevents you from making many changes to your financial situation or medical insurance. Once the decree is signed though, you will want to review and update the following documents:
Will
Trust
Power of Attorney
Healthcare Directive
Beneficiary Designations on Life Insurance Policies
Beneficiary Designations on Retirement Plans
Beneficiaries on any accounts with Payable on Death Provisions
Getting Help
Tennessee has laws that dictate when documents can be updated or altered as you move through the divorce proceedings. It’s important to speak with an experienced Davidson County will and trust lawyer before you make any changes, as any unapproved transfers or changes to your documents could be considered fraudulent. If you need help getting started, we are here to assist you with your planning. Contact our office by calling (615) 846–6201 or click here to schedule an appointment.
A probate attorney in Nashville will make the process easier.
If you are dealing with an estate that has to go through the probate process in Tennessee, your smartest move is going to be to work with a probate lawyer in Nashville. There are cases where very simple estates will move through fairly easily, but there is still a matter of paperwork, accounting, etc. to consider; and a probate lawyer can save you an incredible amount of time and hassle.
Do your estate in advance to avoid probate
The best way to avoid the need for a probate lawyer in Nashville is to make sure that your estate planning has been done in advance. This means that you’ve set up wills, trusts, and any other applicable legal documents so that those you leave behind won’t have to deal with taking the entire estate through the court system. Trusts, such as a revocable living trust, are one of the most common tools for avoiding probate, but there are some other possible options. I’ve outlined them for you below:
Having a Will does not guarantee you will not go to probate
Some people think that having a Will (also known as a last will and testament) means that your estate will bypass the process. However, any reputable probate lawyer in Nashville will tell you that this isn’t the case. Having a Will is certainly still important, as it provides important directions for the passing of your estate, but it doesn’t get your heirs off the hook when it comes to probate.
Small estates may be able to avoid probate
If the estate is truly a “small” one, then you may be able to avoid probate. This can happen in cases where the only thing left behind is personal property. In these situations, there is no true estate to be inherited. The laws regarding the allowable value of an estate to be considered in this group do change, so it might be helpful to at least chat with a probate lawyer to see if the estate qualifies. If so, the heir may be able to create an affidavit that will work instead of going through probate. There are also some simplified court procedures available to heirs of these very small estates.
*If you are needing to transfer the property and assets of a small estate, we want you to check out our Tennessee Transfer Toolkit. It’s the perfect guide for transferring Tennessee estates that don’t need probate.
Payable-on-death-accounts can be transferred without going through probate
Many banks and other financial institutions allow for accounts to be transferred after death without going through probate. It’s a good idea to discuss your inheritance plan with a Nashville probate lawyer or estate planning attorney to ensure that this is a good option for you. This kind of planning has to be done in advance and should take your entire estate plan into account.
These are just a couple of tools available to those who want to avoid the eventual need for a probate lawyer. If they have not been put into place, or you’re not sure if these rules apply to you, we invite you to schedule a free call with us to see how we can help.
Do you remember the story of Terri Schiavo? While her situation was unfortunate, it sparked a conversation among families around the country. What would you want in a medical emergency? And who do you want to make decisions for you?
What is an Advance Directive?
An Advanced Directive allows you to make medical decisions in advance of an emergency and name an agent to carry them out. It is also called a Living Will. An Advance Directive lets you tell your family and medical providers what is important for your quality of life. It’s important to let your loved ones know if you would want to continue medical treatments or not in the event that your quality of life decreases significantly. Your doctors will ask about your Advance Directive if you are unable to make decisions or communicate for yourself.
A living will is also known as an advance directive for healthcare.
If you have to go to the hospital for any reason you have probably been asked if you have an Advance Directive or Living Will. While it’s important to have your wishes in writing, it’s even more important to educate and prepare your loved ones in case they ever need to make difficult decisions about your care. Talking about your wishes with your family can assure them that they are doing the right thing for you in difficult times.
While it can be difficult to have this conversation, it is incredibly important that your family knows how you would want to be treated in an emergency situation. So please check out The Conversation Project and reach out to your loved ones to begin this conversation.
I hope you’re staying healthy and if you have any questions regarding this topic please schedule a complimentary call with us here!
