Estate Planning Newsletter – November 2017

December 27th, 2017   •   Comments Off on Estate Planning Newsletter – November 2017   



With the Tennessee Inheritance Tax repealed, and the Federal Estate Tax having an exemption of approximately $5,500,000.00 and allowing a husband and wife to add their exemptions together, the use of trusts in estate planning (that were so prevalent a decade ago for tax planning) are no longer necessary in nearly as many situations.  The question then becomes in a non tax planning context whether it would be prudent for parents to leave assets in trust for adult children.  There is no hard and fast answer.  However, this letter will point out some of the advantages and disadvantages of doing a trust for adult children.




  1. Control of Assets. Sometimes testators want to retain control of assets in a trust.  An example I have run into frequently is a farmer who wants a “family farm” that has been in the family for generations to stay in the family.


  1. Protection From Creditors’ Claims. Most trusts are drafted with spendthrift provisions which would protect the beneficiaries of the trust from creditors’ claims attempting to reach the assets in the trust.


  1. Protection From Claims of Spouses and Ex-Spouses. The most common question I have in this regard is if assets are left outright to a child, and the child gets divorced, are the assets at risk in a divorce.  The answer to that question is that it depends on the facts and circumstances in the divorcing situation.  However, for assets held in a trust that are not owned by the child, those assets would not be marital property and not subject to division in a divorce.


  1. Nest Egg for the Beneficiary. Property held in trust might be considered as a “nest egg” or a retirement plan for beneficiaries that provides a financial safety net regardless of negative developments affecting the beneficiary.




  1. Costs. Creating and maintaining a trust increases costs for legal fees, accounting fees, and trustee fees.


  1. Income Taxes. Unless the income is distributed out of the trust to beneficiaries, trust income might be subject to increased income taxes.  The tax rates for trusts are very compressed compared to those for individuals.


  1. Fiduciary Decisions. The beneficiaries might have disagreements with the trustees about how the trust is invested, managed, administered, and distributions are being made.


  1. Less Flexibility. A trust that lasts a long period of time may have provisions drafted when the trustor had different anticipated results.  As a result, circumstances may evolve after the trustor’s death.  Although there are ways under the Uniform Trust Code to modify a trust, these processes involve complications and expenses.


MY RECOMMENDATION:   Parents should consider the factors in this letter to determine whether trusts would be appropriate for adult children or whether an outright distribution to adult children is a better estate planning approach.

Yours very truly,


 William C. Bell, Jr., Attorney at Law