Tennessee Estate Planning Law : Tennessee Estate Planning Lawyer & Attorney : Bryan Howard : Howard & Mobley Law Firm : Nashville, Chattanooga, Memphis

 John Kluge recently became the fifth United States billionaire to die in 2010. The others are Mary Janet Cargill, Dan Duncan, Walter Shorenstein, and George Steinbrenner.

The families of these five billionaires will receive a tremendous tax break due to the absence of federal estate taxes in 2010. It is still possible that Congress will pass a retroactive estate tax to keep these families from enjoying this windfall. If Congress does attempt to impose a retroactive tax, these families, among others, can be expected to challenge the constitutionality of the tax.

Meanwhile, numerous widows and widowers with estates of $2 million to $3 million are worried about dying in 2011. Their families will pay substantial estate taxes unless Congress “fixes” the law.

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Certain estate planning transactions are sensitive to interest rates that are established each month by the IRS. The interest rates, in turn, are based on market interest rates for debt obligations issued by the U.S. Government.

One rate that is used for several estate planning transactions is known as the Section 7520 Rate. The 7520 Rate for transactions in October of 2010 will be 2%. This ties the all time low (February, 2009) in the 21 year history of the 7520 Rate.

October will be a fantastic month for transactions that work well when the Section 7520 Rate is low. These transactions include grantor retained annuity trusts (“GRATS”), charitable lead annuity trusts (“CLATS”), installment sales to grantor trusts, and intra-family loans. Installment sales and loans use different interest rates than the 7520 Rate, but these rates are also near the all-time low.  If you already have an intrafamily loan, you should consider refinancing the loan in October.

The low interest rate environment is not good for charitable remainder annuity trusts (“CRATS”) and qualified personal residence trusts (“QPRTS”). Even though low interest rates are not favorable for QPRTS, some of my clients are establishing QPRTs to take advantage of the current low values of residential real estate.

Higher estate taxes are on the way in January and you should consider acting now to take advantage of the opportunities presented by the record low IRS interest rates.

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Estate planning for owners of intellectual property such as literary works has always been challenging. Copyright laws are complex. Maximizing financial returns from the property is heavily dependent on proper “marketing.”

History abounds with high profile court battles that are fought long after the death of the creator of the intellectual property. One such case, which is described in the enclosed article by Robert L. Moshman in the Wealth Strategies Journal, involves the works of the author Franz Kafka. His works were most recently fought over in an Israeli court earlier this year. He died in 1924. As stated in the article “everyone associated with Kafka ignored his requests.” He undoubtedly has rolled over in his grave several times.

Intellectual property rights can create significant estate tax problems. In my experience, the estate tax problems are secondary to proper management of the property rights following the creator’s death. At a minimum, proper planning requires knowledge of estate planning and intellectual property laws, an industry expert, and a sophisticated executor. The article mentions the idea of a literary executor, who would typically be an industry expert. Using a literary executor is a good idea, though it failed miserably for Edgar Allen Poe due to his poor selection of the literary executor.

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Some people mistakenly assume that their Will controls the disposition of all of their assets. There are several ways that your assets pass to someone outside of your Will.

Assets that are owned as tenants by the entirety with your spouse or joint with right of survivorship will pass to the other owner or owners by operation of law.

A large number of assets pass by beneficiary designation. Common examples are bank accounts, retirement accounts such as 401(k) plans and IRAs, and life insurance. See the enclosed article from Fidelity regarding important considerations in your choice of beneficiary designation.

If you transfer ownership of your assets to a trust before you die, the trust will dictate how the assets pass upon your death. A number of my clients have transferred all or a portion of their assets to a revocable trust or an asset protection trust.

Under Tennessee law, your spouse is entitled to elect against your Will and receive a share of your estate, year’s support, exempt property, and homestead. As a general rule, your spouse will elect to receive these benefits when they are better than the Will.

Even if your Will does not direct your Executor to pay your debts, your creditors will file claims against your estate and will be paid prior to the beneficiaries named under your Will.

Even if your Will does not direct your Executor to pay your tax obligations, the IRS and the State of Tennessee have priority over the beneficiaries of your Estate regarding the payment of income, inheritance, estate and generation-skipping transfer taxes, including interest and penalties. They have a “secret” lien against all of the assets of your Estate. If the Executor of your Estate fails to pay your tax obligations, the IRS and the State of Tennessee will be able to collect taxes from your Executor (to the extent that the Executor has distributed assets to the beneficiaries) or from the beneficiaries of your Estate (to the extent that they received assets from your Estate or from other methods such as beneficiary designations).

Because there are so many ways to receive assets that are not dependent on the terms of your Will, it is very important to make sure that you account for all of these potential non-testamentary transfers when planning for the disposition of your assets.

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