2019 IRS Contribution Limits for 401k, 403(b) and IRA Retirement Accounts

The IRS recently announced the new cost of living adjustments to the annual limits on retirement contributions for 2019.  These are the limits that outline the amount of money you can contribute to certain tax benefited retirement plans.  This can and should affect how you formulate your Tennessee estate and retirement planning.  A really good strategy for long term estate planning is to make sure a significant portion of your assets are in these tax advantaged accounts.

The new 2019 annual limits for contributions to a 401(k), 403(b), most 457 plans and the federal government Thrift Savings Plan increases for 2019 to $19,000.00.  This is the first change we have had in a few years and it is certainly good news for retirement savers.  The annual catchup contribution allowance for these plans, available to those over 50, stands at $6,000.00 for 2019.   As a result, someone over the age of 50 can contribute $25,000.00 annually to their 401k starting in 2019.

The limit for contributions to an IRA (Roth or normal IRA) also went up in 2019.  It is now a limit of $6,000.00.  For those who take advantage of the Roth IRA, the AGI (Adjusted Gross Income) phase-out level for the ability to contribute was adjusted up for 2019.  The phase-out now begins at $193,000.00 for married couples filing jointly and $122,000.00 for singles and heads of household.  Once you hit these levels, the ability to contribute begins to phase out until it is eliminated on a gradual scale.

It is important to work to update your beneficiary designations on your retirement and other accounts while you review if any of the above changes can affect you.  In Tennessee, if you have a proper beneficiary designation, these assets can pass outside of probate.  If you do not have any designation or if you name your estate the beneficiary, then this money will pass through your estate in the probate process.  This will certainly extend the time it will take to get to the proper beneficiaries.  Sometimes this is necessary or preferred, but it is really important to make an informed decision on this issue.  Many times, the beneficiary designations do not match the terms in the Will - and this is usually unintended.  Life circumstances also change and this is an important thing to remember so your beneficiary designations match your intentions that are expressed in your Will.

Impact of Divorce on Terms in a Will that Benefit the Former Spouse in Tennessee

When a Will is executed by someone, and then they are later divorced, the divorce revokes any benefits that were going to go to the former spouse under the Will.  This revocation is automatic and by statute that was passed by the Tennessee legislature.  T.C.A. § 32-1-202(a) provides as follows:

(a) If after executing a will the testator is divorced or the testator's marriage annulled, the divorce or annulment revokes any disposition or appointment of property made by the will to the former spouse, any provision conferring a general or special power of appointment on the former spouse, and any nomination of the former spouse as executor, trustee, conservator or guardian, unless the will expressly provides otherwise.

When individuals remarry after their divorce, the provisions that were revoked by T.C.A. § 32-1-202, are automatically revived by the subsequent remarriage.  Additionally, under T.C.A. § 32-1-202(d) a formal separation (by court order or otherwise) does not terminate the status as husband and wife and is not considered a divorce for purposes of this section.  In other words, a formal legal separation does nothing to the terms of a Will that benefit a spouse.  Only a final divorce changes the terms of the Will.  This section provides:

(d) For purposes of this section, divorce or annulment means any divorce or annulment that would exclude the spouse as a surviving spouse within the meaning of § 31-1-102(b). A decree of separation that does not terminate the status of husband and wife is not a divorce for purposes of this section.

This statute needs to be considered anytime there is an individual who dies who has been divorced when they still have any provision for their ex-spouse in their will.  It is important to note that under Tennessee law there is not an automatic revocation of a life insurance policy that benefits your spouse after a divorce.  The Tennessee Supreme Court has ruled on this issue previously.  I have blogged on this topic and

Can You Have a Handwritten Will in Tennessee – and Should You?

Some people decide to do Wills that are written in their own handwriting (handwritten Wills).  It is my advice that this is a very poor decision and you should always consult a Tennessee Wills attorney to help you make sure that this very important document is done correctly.  Even though that is my best advice, I know some people will ignore this advice.  As a result, I will answer the question.  Yes, you can have a handwritten Will but it is a very bad idea.  A handwritten will is called a holographic Will.  A holographic will must be done in the handwriting of the testator. 

There are three different types of Wills under Tennessee law that are allowed.

(1) Normal Will with execution completed pursuant to T.C.A. § 32-1-104.

(2) Holographic Will pursuant to T.C.A. § 32-1-105 (in handwriting of the testator)

(3) Noncupative Will pursuant to T.C.A. § 32-1-106 (will completed while in imminent peril of death)

Under Tennessee law a handwritten or holographic Will must comply with the specific requirements found in T.C.A. § 32-1-105 which provides as follows:

Tennessee Allows Signatures on Affidavit to Will to Satisfy Statutory Witness Signature Requirement for Wills Executed Prior to July 1, 2016

The 2016 Tennessee legislature passed Public Chapter 843 and it changed Will execution witness requirements for certain Wills executed prior to July 1, 2016.  This statute was passed in order to address a problem that came up due to recent Tennessee Court of Appeals decision.  The Tennessee Court of Appeals decision was In Re: Estate of Bill Morris, 2015 WL 557970 (Tenn. Ct. App. 2015).  I previously blogged on this case here.  In the Morris case, the Tennessee Court of Appeals found that witness signatures on the Affidavit attached to the Will are not the same as having the witnesses actually sign the Will.  As a result, the Court found that a Will is not valid when the witnesses only sign the Affidavit attached to the Will.

The Tennessee legislature essentially reversed this case by amending T.C.A. § 32-1-104.  This amendment provides that for any Wills executed prior to July 1, 2016, a witness signature affixed to an Affidavit which meets all of the requirements for witnesses under Tennessee law shall be considered signatures to the Will.  However, this statutory change requires that the signatures are made at the same time the Testator signs the Will and that the Affidavit contains language meeting all of the requirements of T.C.A. § 32-1-104(a).  As a result, T.C.A. § 32-1-104 now reads as follows (the new section that is added is subpart (b)):

(a) The execution of a will, other than a holographic or nuncupative will, must be by the signature of the testator and of at least two (2) witnesses as follows:

(1) The testator shall signify to the attesting witnesses that the instrument is the testator's will and either:

(A) The testator sign;

(B) Acknowledge the testator's signature already made; or

(C) At the testator's direction and in the testator's presence have someone else sign the testator's name; and

(D) In any of the above cases the act must be done in the presence of two (2) or more attesting witnesses.

How Do You Contest an Individual’s “Lack of Testamentary Capacity” to Execute a Will in Tennessee?

One way to contest a will in Tennessee is to assert that the decedent had a “lack of testamentary capacity”.  Basically, this is an assertion that the individual who executed the will was not actually competent to execute the will.  Tennessee has many cases that discuss this claim in the context, most often, of a will contest situation.

The Tennessee Court of Appeals has said the following about what is required to establish “lack of testamentary capacity” contest to a will:

The law requires that the testator's mind, at the time the will is executed, must be sufficiently sound to enable him or her to know and understand the force and consequence of the act of making the will.  American Trust & Banking Co. v. Williams, 225 S.W.2d 79, 83 (1948). The testator must have an intelligent consciousness of the nature and effect of the act, a knowledge of the property possessed and an understanding of the disposition to be made. Goodall v. Crawford, 611 S.W.2d 602, 604 (Tenn. App. 1981). While evidence regarding factors such as physical weakness or disease, old age, blunt perception or failing mind and memory is admissible on the issue of testamentary capacity, it is not conclusive and the testator is not thereby rendered incompetent if her mind is sufficiently sound to enable her to know and understand what she is doing. American Trust, supra; 79 Am.Jur.2d Wills § 77 (1975).

If the individual who executes a Will does not meet the above factors, then the Will can be attacked under a theory of “lack of testamentary capacity”.  Medical evidence and testimony is best to be able to attack a Will under this theory.  If a doctor is willing to testify that the individual did not appreciate what they were doing at the time of the Will, then that could form a strong basis to defeat a Will.  One thing you can do to prevent a Will contest over this issues is to have a doctor assess the individual around the time they do their Will to make sure they have the mental capacity to make a will.

If you are going to pursue this kind of theory in Tennessee, then you need a competent Tennessee litigation attorney who handles Will contest cases in a probate litigation setting.

Signatures of Witnesses to Will on Affidavit, but Not on Actual Will Does Not Comply with Tennessee Law

A recent Tennessee Court of Appeals’ decision of In re Estate of Bill Morris, No. M2014-00874-COA-R3-CV, 2015 WL 557970 (Tenn. Ct. App. 2015) discussed the requirements for witness signatures on a Tennessee will.  T.C.A. § 32-1-104 has very specific requirements for the execution of a will under Tennessee law.  These requirements are as follows: 

The execution of a will, other than a holographic or nuncupative will, must be by the signature of the testator and of at least two (2) witnesses as follows:

(1) The testator shall signify to the attesting witnesses that the instrument is the testator's will and either:

(A) The testator sign;

(B) Acknowledge the testator's signature already made; or

(C) At the testator's direction and in the testator's presence have someone else sign the testator's name; and

(D) In any of the above cases the act must be done in the presence of two (2) or more attesting witnesses.

(2) The attesting witnesses must sign:

(A) In the presence of the testator; and

(B) In the presence of each other.

In the Morris case, the witnesses signed an affidavit attached to the will that attested the will but they did not actually sign on the will document.  The question, therefore, in this case was whether this will complied with Tennessee law and was a valid will to be admitted for purposes of establishing the decedent’s wishes.

Can a Person Hide a Will From Beneficiaries in Tennessee?

One issue that comes up in Tennessee estates on occasion is when beneficiaries or heirs believe a will has been concealed or hidden by somebody.  Sometimes there are suspicions about a person hiding or even destroying a will that does not benefit them.  The question is then asked, what can be done about this situation? 

Tennessee law clearly provides that destroying or concealing a will to prevent probate is against the law.  Specifically, T.C.A. § 39-14-131 provides that it is a felony to do this in Tennessee.  The entire statute is as follows: 

Any person who destroys or conceals the last will and testament of a testator, or any codicil thereto, with intent to prevent the probate thereof or defraud any devisee or legatee, commits a Class E felony.

As a result, what can you do if you are in this situation?  My recommendation is for you to hire an attorney in your area to send a letter to the suspected individual.  This letter should demand that a copy of the will be produced.  It should cite to this statute that makes it clear that it is illegal to hide or destroy a will.  Often this alone will cause the individual to produce the appropriate will as is required under Tennessee law.  Obviously, if this is unsuccessful then authorities may need to get involved to deal with this situation. 

What is the Purpose of Naming a Trustee in a Tennessee Will?

A lot of people do not completely understand the different positions that are often identified in a Tennessee will.  One such position that is identified in many wills is the position of a trustee.  Often wills provide for assets to be paid to certain individuals including minor children.  This often occurs when people designate a minor child as a direct beneficiary in a will (such as to a son or daughter).  Or money or property can be left to adult children but if those adult children are deceased when the person who wrote the will dies, then potentially their minor children (grandchildren) could obtain assets (this is often done when there is a per stirpes designation in a will). 

For this reason, it is almost always important to name a trustee in your will even if a trustee is unlikely to ever actually be needed.  The trustee is the person who would hold the money or assets on behalf of the minor individual until the time the assets are distributed to the beneficiary at the appropriate time.  This is a very important position.  Essentially this is the individual who makes all decisions about when the minor children can have access to any of the money left to them in trust.  Oftentimes, a minor child will still need money to be used for their benefit like to buy them clothing, school supplies, a car or to pay for their education.  This should be an individual that you absolutely trust. 

Often in wills a trust that is established for minor children or minor grandchildren will terminate at a certain age.  Many people provide that the trust will terminate once that person reaches 25 or 30 years old.  I recommend that you do not allow the trust to terminate at 18 years of age because in my opinion 18 year olds should not be getting a large chunk of money.  It is best to keep the trust active for an extended period of time beyond age 18 so the money is not squandered.  When the child reaches a more advanced age, they are more lik...

In Tennessee Should You Add Your Children to Your Bank Accounts When You Need Assistance Later in Life?

A troubling amount of elderly individuals in Tennessee add one or more of their children to their bank accounts as joint owners with right of survivorship in order to have them assist in paying bills and taking care of other matters late in life.  This is certainly a tempting option because it can be a simple way to allow someone to help an elderly individual late in life so their financial matters are taken care of by someone.  However doing this is fraught with danger.

When an individual is added to a bank account with right of survivorship, then upon the elderly individuals passing, the entire account passes to them pursuant to the right of survivorship terms.  This can cause an unequal distribution of assets among children for instance (even if the will clearly states that everything should be split between your children equally, this money in the account passes outside of that requirement). 

Another major problem is if the “co-owner” on your account obtains a judgment against them by a creditor then the creditor can often collect against your account.  This is a significant risk.  For instance, if one of your children gets into an automobile accident and unfortunately severely injures someone but they have insufficient insurance coverage to pay for the damages, then the injured party could obtain a judgment against them and execute against your account to pay the judgment. 

Additionally, the account will be considered part of your child’s assets for purposes of bankruptcy or other purposes.  As a result, there is a tremendous risk in adding even responsible, financially stable individuals as owners of your bank account.  I recommend doing this in almost all circumstances because the downside consequences are so significant.  There are other options like having a properly completed Power of Attorney completed that will allow your children to assist you with your finances later in life.  Also, if you are trying to avoid probate for those accounts, then you can list them as a P...

Do Tennessee Courts Recognize Handwritten Wills?

The short answer to this questions is simply yes, you can have a handwritten Will in Tennessee.  That is as long as it complies with the requirements for a holographic Will under Tennessee law.  The requirements for a holographic Will are found in T.C.A. § 32-1-105 which states,

No witness to a holographic will is necessary, but the signature and all its material provisions must be in the handwriting of the testator and the testator's handwriting must be proved by two (2) witnesses.

Therefore, if someone is going to have a handwritten Will in Tennessee, the important or “material” provisions in the Will must be entirely in the testator’s handwriting.  Additionally, the individual who made the Will must actually sign the Will.  Ultimately, the handwriting of the person who made the Will must be proved in Court by two witnesses.  If all these requirements are met, then a handwritten Will can be deemed valid in Tennessee.

Now I need to get on my soapbox.  Just because you can do your own handwritten will does not mean that this should be done.  I do not recommend that anyone prepare their own handwritten Will.  There are simply too many mistakes that can happen in this process.  There are many unintended consequences when people try to “save money” and do their own handwritten Will.  Tennessee law is filled with examples of significant mistakes that were unintentionally made by people who try to draft their own wills.  Unfortunately, at the point these mistakes are discovered, it is too late to correct the mistakes.  As a result, I recommend that everybody in Tennessee should have a Will done by a competent Tennessee Wills attorney.  It is not that...