Protecting Your Assets: Strategies for Effective Estate Planning in Tennessee

April 12, 2024

Why is Thorough Estate Planning Vital to Asset Protection?

Your estate plan can serve as a powerful tool to protect assets from various risks such as tax liabilities, creditors’ claims, bankruptcy, divorce, or business losses. Through the creation of a comprehensive estate plan, you can safeguard your hard-earned assets and securely pass them on to your loved ones. By carefully outlining how assets should be managed during your lifetime and distributed after your passing, you can ensure that your wishes are carried out and your family’s financial well-being is preserved.

However, due to the highly individual nature of estate plans and how they vary from state to state, consulting with a skilled estate planning attorney is essential to gain the utmost protection for your assets.

What Common Strategies Can You Utilize to Protect Your Estate’s Assets?

By drafting a will, you are making your desires for the distribution of your assets known and avoiding your state’s intestacy proceedings following your death. While this is an important first step toward securing your assets for those you love, it does nothing to prevent property loss during your lifetime and may not address other key issues, such as probate and taxes. By taking advantage of some or all of the following strategies, you can create a more robust estate plan to handle all contingencies.

Trusts

Trusts are a fundamental tool for protecting assets within estate planning. By transferring assets into a trust, you legally separate them from personal ownership, shielding them from creditors, lawsuits, and estate taxes. Trusts also offer flexibility in distributing assets to beneficiaries according to your wishes. You can even structure a trust to protect the inheritance of a loved one who may have difficulties handling their finances.

In 2021, Tennessee introduced a new statute allowing trust owners to register their trust with the state. If you are concerned about another state taking jurisdiction over your estate, registering a trust with the state of Tennessee is a good way to protect your assets.

Many varieties of trusts exist, and you may choose to utilize several types to meet your estate planning goals. Irrevocable trusts cannot be modified once created, while revocable trusts can be changed during the grantor’s lifetime. Whether you wish to ensure your estate avoids probate, have a favorite charity you want to support, or have other preferences for the distribution of your assets, a lawyer can evaluate your situation and draft a trust that is right for you.

Limited Liability Companies (LLCs) and Family Limited Partnerships (FLPs)

Business owners and entrepreneurs have unique financial situations that require tailored protection strategies. Without careful organization and planning, your hard-earned assets could be vulnerable to litigation or debts arising from your business activities. An LLC or FLP can safeguard personal assets for you and your loved ones by shielding them from business-related liabilities. LLCs and FLPs may also provide tax advantages and management flexibility. However, it is vital to consult with knowledgeable lawyers, tax professionals, and financial advisors to ensure your business is structured in a way that is best suited to your needs.

Unlike in other states, LLCs are relatively easy to create in Tennessee. They require minimal paperwork, and you don’t have to worry about bylaws, shareholder agreements, or other certificates that corporations do.

Insurance

Obtaining insurance coverage is another way to safeguard your assets and give your family a financial cushion after your passing. Life insurance secures financial support for beneficiaries, particularly if you experience a fatal accident or pass away unexpectedly. Long-term care insurance can help preserve assets from the high costs of healthcare in your later years. Policies like umbrella insurance provide extra liability coverage beyond standard limits, protecting assets from large claims.

Retirement Accounts

Well-funded retirement accounts are not only key to your financial well-being in your golden years, but they can also be passed to your spouse or another beneficiary as part of your estate plan. Retirement accounts like IRAs, 401(k)s, and Tennessee Consolidated Retirement System (TCRS) accounts offer protection from creditors and bankruptcy in many cases. Contributing to these accounts secures one’s financial future while protecting a significant portion of assets.

How Does Careful Tax Planning Preserve Your Assets for the Next Generation?

Ignoring tax implications in estate planning can lead to unnecessary taxes and reduced inheritances for beneficiaries. High-value estates can be subject to particularly severe federal and state tax rates.

Understanding tax laws and developing plans to minimize tax liabilities is crucial for ensuring your loved ones receive the maximum benefit from your estate. Starting your tax planning journey early can provide you with the greatest variety of options and allow you to make changes over the years as laws and your finances fluctuate.

Leveraging gifting strategies is one way to protect your estate from high tax rates. The federal gift tax exclusion is set at $18,000 for 2024 but is subject to yearly adjustments. By making annual gifts within the gift tax exclusion limits, individuals can transfer assets out of their taxable estates each year without incurring gift taxes. This approach allows for the gradual reduction of the taxable estate over time.

If you have a beneficiary pursuing higher education, you can contribute to their tuition through TNStars.

These specialized savings accounts offer tax advantages, even if the child you are gifting to is not directly related to you.

What is the Importance of Maintaining Your Estate Plan?

Protecting your assets is an ongoing process. Your life situation and finances are fluid, and your strategies may need to be adjusted to mirror these changes. Regularly reviewing and updating your estate plan is vital to ensure it reflects your current circumstances and goals. Life events like marriage, the birth of children, or changes in financial status can significantly impact estate planning needs.

Changes in state legislation can also impact your estate plan. For instance, Tennessee very recently repealed state income tax on personal income. Our team can advise you on how these changes will affect your estate and what you can do to maximize your assets.

How Can Our Law Firm Help You Plan for the Future?

Life moves quickly, and it’s never too early to begin safeguarding your assets. Working with an experienced estate planning attorney is crucial for developing a strong, personalized plan. Our lawyers at Brighter Day Law take the time to learn about our clients and their needs so we can craft the most effective strategy for preserving and distributing their wealth. Contact our office online or call (615) 437-8808 to schedule a no-obligation case evaluation and discover how we can put our knowledge to work for you.