Should You Add Your Children to Your Financial Accounts When You Need Financial Assistance Later in Life?

A significant number of older individuals in Tennessee add one or more of their children to their bank accounts to help them manage their finances.  They often do this as joint owners with right of survivorship in order to have them help to pay the bills and to take care of other matters late in life.  This can be an option that sounds very appealing.  However, doing this is a major problem and can cause devastating financial consequences that are completely unintended.   

When someone adds another person as a joint owner on the account, any judgments that the other person obtains against them, could lead to collection efforts against your bank account.  Once the other person is an owner, they are an owner of your account for all purposes.  For instance, if one of your children gets into a serious car accident and severely injures or kills someone else, but they have insufficient insurance coverage to pay for the damages, then the injured party could obtain a judgment against them.  They could then execute against your account to pay the judgment.

Also, when an individual is added to an account as an owner with right of survivorship, then upon the elderly individuals passing, the entire account passes to the other owner 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.  This may not be intended and can cause real problems between family members after their loved one dies. 

Additionally, the bank account will be considered part of your child’s assets for purposes of bankruptcy.  If they need to declare bankruptcy, your account could become an asset of the bankruptcy process and you could lose everything.  As a result, there is a tremendous risk in adding even responsible and financially stable individuals as owners of your account.  I recommend against doing this in almost all circumstances because the downside consequences can be so devastating. 

There are other options available to you like completing a

Creditor Claim Priority Under Tennessee Estate Law – Who Gets Paid First?

One question that is often asked is how creditor claims are handled if there is insufficient money in the estate to pay all of the claims.  T.C.A. § 30-2-317 provides a list showing the priority for any creditor claim against the estate of a deceased individual in Tennessee.  Claims and demands against an estate are divided into certain categories and the statue provides the order in which the claims or demands are to be paid.  T.C.A. § 30-2-317 provides the priority for claims against the estate as follows:

(a) All claims or demands against the estate of any deceased person shall be divided into the following classifications, which shall have priority in the order shown:

(1) First: Costs of administration, including, but not limited to, premiums on the fiduciary bonds and reasonable compensation to the personal representative and the personal representative's counsel;

(2) Second: Reasonable funeral expenses;

(3) Third: Taxes and assessments imposed by the federal or any state government or subdivision of the federal or any state government, including claims by the Bureau of TennCare pursuant to § 71-5-116; and

(4) Fourth: All other demands that may be filed as aforementioned within four (4) months after the date of notice to creditors.

Category number four basically provides the last layer of priority and is designed to account for all other possible categories of creditors.  This statute also provides specific instructions to the personal representative of the estate on how to pay the claims according to the priority found in this statute.  T.C.A. § 30-2-317(b) provides as follows:

(b) All demands against the estate shall be paid by the personal representative in the order in which they are classed, and no demand of one class shall be paid until the claims of all prior classes are satisfied or provided for; and if there are not sufficient assets to pay the whole of any one class, the claims in that class shall be paid pro rata.

After Someone Dies What Happens to Their Creditor Debt in Tennessee? Who is Responsible to Pay the Debt?

An individual who dies who owes money to creditors is largely still responsible for that debt after they are deceased.  Specifically, their estate owes the money to the creditors.  Many people are confused about this.  It is important to note that if nobody else was a co-signor or legally responsible for the debt, then family members, even spouses are not necessarily responsible for the debt.  Be very careful when receiving creditor collection calls after your loved ones passing because often they will try to get others to pay the debt of the deceased – often these individuals are not actually legally responsible for this debt.  

Required Notice to Creditors:

If a probate estate is opened up for a deceased person, then the creditors are put on notice of the opening of the estate and they have a certain amount of time (generally 4 months) to file a claim against the estate. See T.C.A. § 30-2-306.  This is a formal requirement and requires an actual filing of the claim in the Tennessee probate estate.  Any and all known creditors must be specifically sent notice of the opening of the estate. See T.C.A. § 30-2-306.  Additionally, an advertisement must be placed in a newspaper on two consecutive weeks to put additional creditors on notice. See T.C.A. § 30-2-306.  If the creditors do not file a claim with the estate within the appropriate statutory time period then their claim can be completely waived.  Additionally, if a probate estate is not opened up in a timely fashion then creditors can actually open up an estate in order to make sure they collect on the amount of money that is owed to the creditor.  Of course this only makes sense if there are actual assets in the estate.  

Creditor Claims Are Extinguished After 12 Months Post-Death:

One other very important thing to know is that if an estate is not opened up until greater than 12 months after death, then you are not required to provide a notice of creditors and the creditor claims against the estate are considered to be expired (except for TennCare).  For this reason, it is extremely important that if you have a claim aga...

Is a 401k Distributed Pursuant to your Will and is it Part of a Probate Estate in Tennessee?

One thing a significant amount of people do not realize is that a 401K is not necessarily part of someone’s estate in Tennessee.  As a result, almost always 401k assets are not distributed pursuant to the intentions expressed in your will.  Some people believe a 401k passes pursuant to whatever terms are in their will but this is simply not true.  As a general rule, when someone dies, their 401k proceeds are not distributed under the will.  They are instead distributed based on the beneficiary designations in the 401k.  This is important to remember when constructing an appropriate estate plan.  It also should cause you to check your beneficiary designations periodically to make sure they match your intentions. 

However, there are some circumstances where the 401k could be paid to the estate (and therefore pursuant to the will).  For instance, if somebody does not list any beneficiary on the 401k, then the proceeds would be paid into the estate (unless the 401k plan documents dictate otherwise).  Additionally, people can list their estate as the beneficiary for the 401k.  There are only a very limited number of circumstances where this would be appropriate.  Due to the tax and other consequences of such a designation, it is almost always better to list an individual as the beneficiary of a 401k. 

Due to the fact the 401k money is generally distributed pursuant to the beneficiary designation, the 401k assets are not part of a probate estate (however, they are still counted for purposes of the Tennessee Inheritance Tax and Federal Estate Tax).  This is usually a positive so you can avoid the claims of creditors in a probate estate and so the money can be distributed to the beneficiaries faster.

As a result, when planning how your assets will be distributed to your heirs or children, it is important to keep this information in mind.  If you desire to have your assets split equally among all of your children, for instance, then make sure your beneficiary designations on your 401k and life insurance policies reflect this intention.  Sometimes people have their will done correctly where it shows that all their assets should be split equally among their children, but they do not pr...

Probate Law - When does Real Property become the Property of the Beneficiaries in Tennessee?

Under Tennessee law, real property of an intestate decedent (an individual who dies without a will) vests immediately in the heirs upon death.  Additionally, the real property of a testate decedent (an individual who dies with a will) vests immediately in the beneficiaries named in the will unless the will gives directions to administer the real property through the estate.  T.C.A. § 31-2-103 provides in totality as follows:

The real property of an intestate decedent shall vest immediately upon death of the decedent in the heirs as provided in § 31-2-104. The real property of a testate decedent vests immediately upon death in the beneficiaries named in the will, unless the will contains a specific provision directing the real property to be administered as part of the estate subject to the control of the personal representative. Upon qualifying, the personal representative shall be vested with the personal property of the decedent for the purpose of first paying administration expenses, taxes, and funeral expenses and then for the payment of all other debts or obligations of the decedent as provided in § 30-2-317. If the decedent's personal property is insufficient for the discharge or payment of a decedent's obligations, the personal representative may utilize the decedent's real property in accordance with title 30, chapter 2, part 4. After payment of debts and charges against the estate, the personal representative shall distribute the personal property of an intestate decedent to the decedent's heirs as prescribed in § 31-2-104, and the property of a testate decedent to the distributees as prescribed in decedent's will.

This statute does not mean that real property cannot be used to pay any debts or obligations of the decedent.  This statute specifically provides that if the decedent's personal property is insufficient to discharge all of the decedent's obligations then the real property can be sold to satisfy those obligations.  It is important to have an experienced Tennessee probate attorney to assist you when dealing with real estate property in the context of an estate.

In Tennessee is Life Insurance a Probate Asset that Requires a Probate Proceeding?

The answer is almost always no.  As long as the life insurance policy has named beneficiaries (other than the estate) it is not subject to probate in Tennessee and passes outside of probate. (for a discussion on other assets that are no probate assets read this article here).  Most often, the named beneficiaries simply need to fill out some forms that the life insurance company has and the money will be distributed rather quickly.  This payment is not subject to creditors of the person who died (See T.C.A. § 56-7-201).

T.C.A. § 56-7-201 also provides that even if the estate is listed as a beneficiary of the life insurance policy, the money is still not subject to the debts of the decedent unless specifically stated in the will.  The entire text of T.C.A. § 56-7-201 provides as follows:

On the death of an insured, any life insurance acquired by the insured or the insured's spouse and payable to the intestate insured's estate benefits the surviving spouse and children and the proceeds shall be divided between them according to the statutes of distribution without being in any manner subject to the debts of the decedent. If the proceeds of the insurance are payable to the estate of a testate decedent or the trustee of a revocable trust of which the decedent was a settlor, the proceeds shall pass as part of the estate or trust and under the dispositive provisions of the will or trust agreement, as ordinary cash, whether or not the will or trust agreement uses any apt or express words referring to the insurance proceeds, but the proceeds shall not be subject to the debts of the decedent unless specifically charged with the debts in the will or trust agreement.

As a result, even naming the estate as a beneficiary in your life insurance policy does not have all of the potentially negative baggage for other probate assets.  In fact, there is a good argument that doing so can be a good decision in certain circumstances.  You would need to consult with an experienced Tennessee estate planning attorney to discuss your specific circumstance more.  For a listing of assets that are probate assets, read this article here.

Follow me on Twitter at @jasonalee for updates from the Tennessee Wills and Estates blog.

What happens if an incomplete inventory of a deceased individual's assets is filed with the court by the personal representative?

T.C.A. § 30-2-608 allows any individual interested in a deceased person's estate to file notification with the court that an incomplete inventory of the deceased individual's assets was provided to the court.  Specifically, T.C.A. § 30-2-608 provides as follows:

Any person interested in any deceased person's estate as legatee, distributee, surviving spouse, creditor, or otherwise, may, at any time before final settlement of the estate, show by proof that the personal representative has not returned a complete inventory, and the article or articles omitted in the inventory shall be debited to the personal representative at the value of the article or articles, unless the personal representative can show a sufficient reason for leaving the article or articles out of the inventory.

As a result, any of the individuals listed in this statute (which is basically anyone who would care) can establish by specific proof that a complete inventory has not been provided to the court and that this should be corrected.  Sometimes this may occur because the personal representative does not have specific information about the deceased person's assets that other individuals may have.  On the other hand, sometimes this may occur because the personal representative may leave off certain assets on purpose for inappropriate reasons.  Regardless, the statute provides an avenue for individuals who believe a complete inventory was not provided to contest the inventory submitted by the personal representative.  This can be important to determine the actual size of the estate for distribution and payment of creditors.

Debtor and creditor notice requirements for the administration of a Tennessee probate estate.

Tennessee law requires the provision of notice to debtors and creditors after an individual dies and a probate estate is opened.  T.C.A. § 30-2-306 requires the personal representative (the Executor, Executrix or Administrator of the probate estate) to provide notice to all creditors with "whom the personal representative has actual knowledge or who are reasonably ascertainable by the personal representative, at the creditor's last known address."  The complete requirements are listed in T.C.A. § 30-2-306(d) which provides as follows:

(d) In addition, it shall be the duty of the personal representative to mail or deliver by other means a copy of the published or posted notice as described in subsection (b) to all creditors of the decedent of whom the personal representative has actual knowledge or who are reasonably ascertainable by the personal representative, at the creditors' last known addresses. This notice shall not be required where a creditor has already filed a claim against the estate, has been paid or has issued a release of all claims against the estate.

Additionally, the clerk of the court where the estate is administered is required to provide public notice to creditors and debtors within 30 days after the issuance of letters testamentary or administration.  This notice is to be provided in a newspaper or public place pursuant to the statute.  The specifics of T.C.A. § 30-2-306(a) are as follows:

(a) Except as provided in subsection (e), it is the duty of the clerk of the court in which an estate is being administered, within thirty (30) days after the issuance of letters testamentary or of administration, to give, in the name of the personal representative of the estate, public notice of the personal representative's qualification as such by two (2) consecutive weekly notices published in some newspaper of the county in which letters testamentary or of administration are granted, or, if no newspaper is published in that county, by written notices posted in three (3) public places in the county, one (1) of which shall be posted at the usual place for posting notices at the courthouse.

This statute makes it clear that it is the duty of the personal representative to identify known creditors and to investigate potential creditors of the estate.  This does not require a search to the ends of the earth, but does require a reasonable...

Creditor Claims Against Estate- What happens if the estate fails to file timely objections to a creditor’s claim in a Tennessee probate estate?

The recent Tennessee Court of Appeals decision of In Re: The Estate of Rosalynn Karesh, No. W2012-00181-COA-R3-CV, 2012 WL 6562025 (Tenn. Ct. App. December 17, 2012) discussed the impact of untimely exceptions or objections to a creditor's claim.  The court noted that under T.C.A. § 30-2-314(a) the estate has a right to file written objections to any creditor claim that is filed against the estate.  Karesh at 4, 5.  This statute, T.C.A. § 30-2-314(a) specifically mandates that, “each exception shall include a reasonably detailed explanation of the ground or grounds upon which the person making such exception intends to rely.”  Karesh at 5. 

The court noted that the failure to timely file an exception to a creditor claim has consequences specifically, "failure to except to a claim amounts to an admission of its justness; and the claim becomes, in effect, a judgment against the estate at the end of the statutory period."  Karesh at 4 (citing, Needham v. Moore, 292 S.W.2d 720, 723 (Tenn. 1956)).  As a result, this is a very important requirement.

In this Karesh case, the estate only filed objections to a specific creditor's claims on the basis the claims were untimely but did not provide any specific objections to the actual merits of the claims. Karesh at 4, 5.  The estate did send a letter to the creditor discussing some objections but it was not filed with the Court within the appropriate time frame required under the statute.  As a result, the only objections timely filed with the Court were based on the alleged untimeliness of the creditor claim (which the court rejected).  As a result, the Appellate Court found that a written letter of substantive objections that was not filed with the court until after the time period passed for objections is not sufficient to properly raise objections to the credito...

When must TennCare be notified of an individual's death under Tennessee law in the context of a probate estate?

Under certain circumstances, TennCare must be provided with notice by the personal representative of the death of an individual in the context of a probate estate in Tennessee.  T.C.A. § 30-2-301 provides that within sixty days of a personal representative's appointment as the personal representative, they are required to execute and file an affidavit with the clerk that the Bureau of TennCare has been notified of the decedent's death if they are older then 55 years of age or are a TennCare recipient.  T.C.A. § 30-2-301(b)(5) provides as follows:

(5) Within the sixty-day period, the personal representative shall execute and file with the clerk of the court an affidavit that the bureau of TennCare has been notified of the decedent's death pursuant to § 71-5-116.

T.C.A. § 71-5-116(c)(2) provides as follows:

(c)(2) Before any probate estate may be closed pursuant to title 30, with respect to a decedent who, at the time of death, was enrolled in the TennCare program, the personal representative of the estate shall file with the clerk of the court exercising probate jurisdiction a release from the bureau of TennCare evidencing either:

(A) Payment of all medical assistance benefits, premiums, or other costs due from the estate under law;

(B) Waiver of the bureau's claims; or

(C) A statement from the bureau that no amount is due.

Therefore, it is clear that when someone is enrolled in TennCare at the time of their death, a release must be filed with the court in the probate estate stating that TennCare has been paid all it is owed from the estate; or that TennCare has waived any claim; or that TennCare has stated that no money is owed.