It’s not only natural to be thinking about what will happen to your property after you die. It’s also smart. For Tennesseans who want to spare their heirs the time and expense of going through probate, transferring assets to a living trust makes a lot of sense, since probate can be a lengthy process in the state. Whether you are just contemplating the idea or have already decided to create a living trust, this article will explain everything you want to know. If your estate is sizable or otherwise complicated, you could probably use a financial advisor’s expertise. SmartAsset’s free matching tool can help you find the right pro for your situation.
How to Create a Living Trust in Tennessee
Setting up a living trust is largely the same regardless of where you live in the U.S. Here are the basic six steps you’ll need to take:
1. Identify what should go into the trust. Some assets can’t, such as 401(k) plans and IRAs, which have to be in an individual’s name. Other things like bank accounts, securities and life insurance policies can but don’t need to, as long as you set up payable-on-death accounts or designate your beneficiaries. Most likely, it’s real estate and business interests that you want to protect with a living trust. (But as long as you are setting up the trust, you may decide to put everything you can in the trust.)
2. Choose the appropriate type of living trust. You probably want it to be revocable (as opposed to irrevocable), so that you can remove assets – or cancel the whole trust – in the event you need to sell some assets and use the proceeds. If you are single, your best option is likely a single trust. If you’re married, a Tennessee Community Property Trust will hold what you own jointly without your having to split property or say who owns what. (This option isn’t right for you if you’re in a later marriage with separate assets and children from previous relationships.)
3. Next, choose your trustee, who will manage the trust. With revocable trusts, it can be you, or in the case of a joint trust, you and your spouse can be co-trustees. If you name yourself, you’ll also need to choose a successor trustee for when you die.
4. Now create a trust agreement. You’re safest hiring an attorney to do this for you. But if you want to do this as cheaply as possible, you can use an online program.
5. Then sign the trust document in front of a notary public.
6. Finally, transfer your property into the trust. By state law, the trust will not take effect until deeds and titles are transferred or put in the name of the trust. (For things that can’t be titled, like jewelry or art, it’s enough to just list them in the trust agreement.) Again, you can do the paperwork yourself, though you’ll probably want a lawyer to help you.
What Is a Living Trust?
A living trust is like a will in the sense that they are both legal documents that assign where property is to go when the owner dies. The difference is that a living trust is also an entity that holds the property while the owner or grantor is alive. The primary aim of a living trust is to avoid probate, a court process that can take months and even years.
The trust, then, requires someone to manage it, and this person is called the trustee. As mentioned earlier, the trustee can be the grantor if it’s a revocable trust – or it can be an adult child, other relative, friend, lawyer, anyone you trust. When the grantor dies, it’s the trustee’s job to distribute assets as the grantor instructed. (In the case that the grantor was their own trustee, the successor trustee would step in.)
As noted earlier, there are revocable and irrevocable living trusts. The former is commonly preferred for its flexibility. Also, the grantor does not give up ownership rights. On the other hand, grantors of irrevocable trusts do give up all claim to control and ownership – and as a result, are off the hook for taxes.
How Much Does It Cost to Create a Living Trust in Tennessee?
The cost of setting up a living trust varies, depending on whether you use a lawyer, the lawyer’s fees and the costs for retitling assets. By not using an attorney, you’ll lower the amount considerably, since it’s the lawyer’s fees that are the biggest expense. Online programs will run you a few hundred dollars, while attorney’s fees are generally one thousand dollars or more (double that for couples).
If you’re not a detail-oriented person or uncomfortable going it alone, make sure the lawyer you hire is a trust specialist. Also, discuss fees upfront. If they are a fixed flat fee, make sure that retitling assets is included in the scope of work. If fees are hourly, ask for an estimate of how long the project will take and what would cause overruns.
Why Get a Living Trust in Tennessee?
The primary reason for creating a living trust in Tennessee – or anywhere – is to avoid probate, the court process for enacting a will. In Tennessee, probate will take at least four months. That’s how long state law gives creditors to submit any claims to an estate. And if many creditors are involved or people are contesting the will, probate can take years. (Tennessee is not one of the states that has adopted the Uniform Probate Code, which simplifies the probate process.)
In addition to taking a long time – all the while bank accounts are frozen and bills related to the estate are due – probate can be costly. There are attorney fees plus probate fees, which, in Tennessee, run from one to six percent of the estate value. (The fees and time can be even more if there is property in other states.)
Another reason for getting a revocable living trust is that your heir is disabled. In this case, the trustee will manage the trust and follow your instructions in providing for your beneficiary. Also, a living trust is a good choice for people who want to postpone the distribution of assets until heirs reach a certain age. (With a will, assets are distributed once probate concludes.)
Who Should Get a Living Trust in Tennessee?
Since the primary reason for getting a living trust is to avoid probate, people who are concerned about the delay and costs of the court process should consider a living trust. This is generally the case for those who live in states that have a lengthy probate period.
Tennessee’s probate period is considered long and it does not use the Uniform Probate Code. So a living trust is likely a good call if your estate is worth more than $50,000. At or below that amount, Tennessee allows for a simplified small estate process, which makes a living trust unnecessary.
You may especially want to get a living trust if your heirs will have a hard time paying the bills of your estate while it is frozen. Or if you own property in other states that also have lengthy probate periods.
Additionally, as stated earlier, you may want to set up a living trust for a disabled heir or perhaps an irresponsible one. Also, living trusts are a way for people to disinherit their children or leave more to some than others. (This is because they’re harder to contest than wills.)
As for irrevocable trusts, these really only make sense for very wealthy people who are also trying to minimize taxes.
Living Trusts vs. Wills
Even if you have a living trust, it would still be wise to have a will. The will can cover what was left out of the trust either by choice or accident. It can also leave instructions such as:
Forbidding your heirs from selling or giving away certain property
Forgiving a loan made to a relative
Stating your preference for the guardians of children who are minors
This chart compares living trusts and wills to help you understand the capabilities of both estate planning tools:
Living Trusts vs. Wills Living Trusts Wills Names a property beneficiary Yes Yes Allows revisions to be made Depends on type Yes Avoids probate court Yes No Requires a notary Yes No Names guardians for children No Yes Names an executor No Yes Requires witnesses No Yes
Living Trusts and Taxes in Tennessee
A living trust will not lower your Tennessee estate or inheritance taxes, since the state does not levy either kind.
Your federal estate taxes will also likely not be affected by a revocable living trust, since the exemption is $11.4 million for individuals.
The Bottom Line
Tennessee has not adopted the Uniform Probate Code. So if your property is worth more than $50,000, a living trust will enable your heirs to avoid the state’s lengthy probate period – and legal costs. Living trusts do cost money, though, so you should weigh the benefits with the outlay of $1,000 or more. Also, some assets such as bank and brokerage accounts can avoid probate if you designate beneficiaries. A living trust may especially make sense if you want to leave your estate to someone who has special needs or divide your estate in an unequal way.
Estate Planning Tips
Don’t go it alone. A financial advisor can help you with tax planning and wealth transfers as well as investing assets to preserve capital. To find an advisor near you, use SmartAsset’s free pro matching tool. In about five minutes, it will recommend up to three suitable advisors, based on your financial situation.
Designate your beneficiaries. As tedious as filling out the forms can be, it is well worth the trouble. Pensions, life insurance policies, retirement accounts and brokerage accounts can all be easily transferred if you designate your beneficiaries. Then keep them updated, especially if you subsequently have children or get divorced.
Photo Credit: © iStock/Wavebreakmedia, © iStock/suesmith2