Wills, Trusts, and Estate Planning · Wills, Trusts, and Estate Planning: ... State of Texas...

PRESENTED BY: PRINCIPAL ATTORNEY EVELYN L. GORDON

Wills, Trusts, and Estate Planning: Controlling the Distribution of Your Assets

Discussion Points ◦ What is Estate Planning?

Why should I plan my estate?

◦ 4 Primary Items of an Estate Plan Last Will and Testament Declarations of Guardianship Durable Power of Attorney Advanced Medical Directives

◦ Trusts Alternatives to a Last Will and Testament Types of Trusts Advantages and Disadvantages

Determining how you want your assets distributed.

What is an estate?

◦ your current net worth or

your net worth at the time of your death

◦ less any liabilities

mortgage, personal or consumer loans, unpaid taxes, funeral expenses

◦ everyone has an estate

Types of Assets

◦ real and personal property, including

real estate, land, and improvements on the land

bank accounts, stocks, bonds, insurance policies, government, retirement, and employee benefits

oil, gas, and mineral rights

vehicles, furniture, jewelry, clothing, personal effects, heirlooms, etc.

Who determines how my assets will be distributed?

◦ you decide; or

◦ State of Texas will decide for you

What are the benefits of planning your estate?

◦ minimize estate administration expenses

probate costs, administrator fees, attorney fees

◦ minimize taxes paid by the estate

◦ advance healthcare decisions


◦ specify exactly how you want your estate divided –

you control what happens to the fruit of your labor

◦ provide security and peace of mind for your loved ones specify who will care for children

provide for children’s education

plan funeral arrangements

protect property from creditors

◦ ensure beneficiaries promptly receive property avoid probate delays


◦ priority of claims upon decedent’s death

funeral and last illness expenses, up to $15,000

family allowance for surviving spouse and minor children

amount fixed by probate court

expenses of probate administration

secured claims if mortgaged property is sold and the proceeds are not required to pay the above items


◦ priority of claims upon decedent’s death

claims for unpaid child support and

child support arrearages reduced to judgment

state taxes (including out-of-state taxes)

costs of a decedent's confinement in prison

state claims for reimbursement of medical assistance payments

Dying Intestate (Without a Will)

◦ What happens if I die without a will?

State of Texas will determine your legal heirs based on how closely the individual is related to you

non-relatives, stepchildren, godchildren receive nothing

charitable organizations receive nothing

Dying Intestate

State of Texas transfers your assets to legal heirs

could result in unexpected costs and delays

if legal heirs cannot be located, the State gets everything

Dying Intestate

◦ Legally married at time of death?

what and how much heirs receive is based on whether the asset is community or separate property

Dying Intestate

community property is all assets acquired during marriage, including

salary, wages, income generated from community and

separate property

retirement or pension funds based on income earned during marriage

cash dividends and income earned on separate property investments

Dying Intestate

community property

cannot avoid community property system through a will

need written agreement to reclassify community property

premarital property agreement;

marital property agreement; or

community property partition agreement

Dying Intestate

◦ quasi-community property out-of-state married person

acquires property in non-community property state

relocates to Texas

Texas courts may treat as community property

Dying Intestate

separate property is all assets acquired before

marriage and

gifts received during marriage

inheritances received during marriage

assets purchased with separate property

settlement awards for personal injury

separate property by written agreement

Dying Intestate – Community Property

◦ spouse inherits ALL community property if

no surviving children; or

all of decedent's surviving children are also children of the surviving spouse

Dying Intestate – Community Property

◦ children

if all surviving children are not the children of surviving spouse,

surviving children or their descendants receive decedent's 1/2 share of community property;

spouse keeps their 1/2 share of community property and occupies the homestead for remainder of life

Dying Intestate – Separate Property

◦ children

separate personal property divided

2/3 to children or their descendants and

1/3 to the surviving spouse

separate real property passes to children, but

surviving spouse has life estate in 1/3 of real property, including right to live in, use, and enjoy property during surviving spouse's lifetime


◦ surviving spouse, no children

separate personal property to surviving spouse

separate real property -

1/2 to surviving spouse; and

1/2 to decedent's parents or collateral relatives

collateral relatives = siblings or their descendants

if no collateral relatives, all separate real property passes to surviving spouse


◦ surviving children and no spouse

all separate personal and real property passes to the children or their descendants

Dying Intestate

◦ ALL ASSETS on hand at end of marriage are legally

presumed to be community property

until proven to be separate property by clear and

convincing evidence

a marriage ends at death or by divorce

Disadvantages of Dying Without a Will

◦ you may want spouse to receive everything, but

spouse might only receive 1/2 of the community property and 1/3 of your separate property

with will, can give spouse all or none of your separate property can give spouse portion of your ½ community property can pass unlimited amount to spouse free of estate tax


◦ if one heir has already received their intended

portion of your estate prior to your death and

you die without a will, that heir could receive an additional portion


◦ your assets could end up with those you don’t want

to have them

◦ if legal heirs cannot be located, your entire estate would pass to the State of Texas

4 primary items of every estate plan

◦ Last Will and Testament

◦ Declarations of Guardianship

◦ Durable Power of Attorney

◦ Medical Directives

Legal document outlining how you want your assets divided after your death.

70% of Americans die without a will

◦ only 32% of African Americans have a will

◦ only 26% of Hispanics have a will

50% of parents die without a will

Texas recognizes 3 types of Wills

◦ Holographic Wills (Handwritten)

◦ Formal Typewritten Wills

◦ Oral Wills

very rarely recognized

under very limited circumstances

highly discouraged

Holographic Wills

◦ handwritten entirely by you

can be written on anything

must be signed

no date required (but IMPORTANT you include a date)

no witnesses required

no notary required

Disadvantages of Holographic Will

◦ more likely to be contested than a typewritten will

hurdles to proving authenticity

does not include assurances of capacity

greater potential for fraud, duress, or undue influence


no designation of an executor

no designation of a guardian for young children

Disadvantages of a Holographic Will

no alternative beneficiaries for lapsed gifts

void or illegal gifts

beneficiary dies before you

survival period of beneficiaries


no provision for simultaneous deaths

if not possible to determine which spouse died first, who should be deemed to have died first?


innocent mistakes can invalidate the will

typing part of document

failure to include some assets

instructions are unclear or contradictory

Formal Wills

◦ typewritten wills prepared according to Texas

probate laws

Advantages of Well-Drafted Formal Will

reduce amount of administrative fees paid by estate

significantly reduce possibility of will being contested

attorney fees for will contest may be paid out of the estate

All Wills Should Contain

◦ testator’s name, address, and intent to write a will

◦ instructions for payment of any outstanding debts

◦ identification of any trusts

All Wills Should Contain

◦ testamentary bequests

simple will – entire estate given to 1or 2 people

specific bequest – gift of a specific item

demonstrative bequest – paid from specific fund

general bequest – paid out of general assets of estate

residual bequest – paid out of amount remaining after payment of administration expenses, taxes, creditors’ claims, other bequests

Invalid Will Bequests

◦ property that cannot pass by will

(non-probate assets)

joint tenancy with right of survivorship

life insurance with named beneficiary

retirement plans with named beneficiary (e.g., pensions and IRAs)

POD bank accounts

TOD stock accounts

trust property

Important Will Clauses

◦ appointment of executor and alternate

◦ guardianship appointment


◦ survival of beneficiaries

120-hour rule

unless will states otherwise

◦ simultaneous deaths


◦ funeral arrangements

special burial requests

amount to be spent on funeral


◦ no contest clause

decedent’s heirs

someone named in Will revoked by probated Will

spouses

creditors

assignees of any of the above individuals or

anyone with financial interest in probated Will

◦ self-proving clause

PROPER EXECUTION!!!

formal wills and their codicils (amendments or

supplements) must be:

signed by the person making the will (the testator)

attested to by 2 credible witnesses over the age of 14

signed by the witnesses in presence of the testator

Grounds for Contesting a Will

◦ can only challenge a Will for

defective execution

valid revocation

incapacity

undue influence

fraud

mistake or

testator unaware of will contents

“Tell Your Family You Love Them – Write Your Will.” Marcia Brixey, Forbes (March 30, 2011)

Who should make financial decisions if you become mentally or physically incapacitated?

What is a Power of Attorney (POA)?

◦ signed document granting specific individual authority to act on your behalf

often includes access to grantor’s assets and

authority to handle grantor’s financial affairs

Durable Power of Attorney

durable or “enduring” if it continues to be effective even if grantor becomes incapacitated

must be executed prior to incapacity

ends immediately upon death of grantor

Why do I need a Durable POA?

◦ security and peace of mind daily needs will be met

◦ financial affairs properly attended to if you become mentally or physically disabled

Your Living Will.

What is a Living Will?

◦ written statement regarding medical treatment for when you are no longer able to provide informed consent; or

◦ separate medical directive documents that

tell doctors and hospitals whether you wish to receive life support

3 types of Medical Directives

◦ Medical Power of Attorney

◦ Directive to Physicians and Family or Surrogates

◦ Out-of-Hospital Do-Not-Resuscitate Order

Medical Power of Attorney

◦ authority to make your health care decisions*

◦ begins when doctor certifies incapacity**

◦ agent must follow your instructions

◦ physician must comply with agent’s instructions or

transfer patient to another physician


◦ Medical POA cannot also serve as your health or

residential care provider


◦ "health care"

any treatment, service, or procedure to

maintain, diagnose, or treat physical or mental condition


◦ your agent may

consent, refuse to consent, or withdraw consent to medical treatment and life-sustaining treatment


◦ Medical POA can be revoked

◦ divorce revokes a spouse’s POA authority

Directive to Physicians and Family

◦ instructs your physician not to use artificial

methods to extend natural process of dying

◦ authorized by Texas Health & Safety Code


◦ legal requirements

at least 18

sound mind

free will

signed before 2 witnesses


◦ at least 1 witness cannot be

related to you by blood or marriage

beneficiary to your estate

designated to make health care treatment decisions

your attending physician

employed by your attending physician

employee of a health care facility in which you reside*


◦ effective when you become “qualified patient”

terminal or irreversible condition diagnosed and certified in writing by attending physician

◦ valid until revoked

Out-of-Hospital Do-Not-Resuscitate Order

◦ tells medical personnel if you want resuscitation

◦ declares which measures should not be used

cardiopulmonary resuscitation (CPR)

advanced airway management

defibrillation

artificial ventilations

transcutaneous cardiac pacing

HIPAA Release Authorization

◦ Health Insurance Portability and Accountability Act

U.S. Department of Health & Human Services

◦ protects privacy of patient health care information

◦ authorization grants access to your protected medical information

ESSENTIAL DOCUMENTS ◦ Last Will and Testament

◦ Declaration of Guardian if Later Incapacity

◦ Declaration of Guardian of Children

◦ Agent to Control Disposition of Remains

◦ Durable Power of Attorney

◦ Medical Power of Attorney

◦ Directives to Physicians and Family or Surrogates

◦ Out-of-Hospital Do-Not-Resuscitate Order

◦ HIPAA

Alternatives to transferring assets through a Will.

What is a Trust?

◦ a document that transfers assets to a trustee

transfer of ownership while maintaining possession

trustee manages asset(s) for benefit of someone else

duty to safeguard, invest, administer income and assets

trustor can designate himself as the trustee

all trusts are revocable (can be terminated)

Advantages of a Trust

◦ shields assets

◦ Distribution(s) can be structured to occur over time

flexibility with amount of each distribution

cannot do this with a Will

◦ beneficiary gets immediate possession

◦ confidential (no public probate)

◦ can reduce estate taxes

◦ typically more difficult to contest than a will

Types of Trusts

◦ Testamentary Trusts

◦ Charitable Trusts

◦ Education Trusts

◦ Spendthrift Trusts

◦ Life Insurance Trusts

◦ Living Trusts

Testamentary Trusts

◦ created in a will and goes into effect upon death of

trustor

◦ can be used to provide asset management for young children or minors

Charitable Trusts

◦ any charitable purpose

irrevocable

indefinite beneficiaries

attorney general represents all beneficiaries

cy pres doctrine – if original charitable purpose no longer possible, court or trustee designates another purpose

Rule Against Perpetuities does not apply

Education Trusts

◦ sets aside money for education of children or grandchildren

combined or separate trusts

purpose (tuition only or basic support as well)

final distribution of trust balance

◦ avoids need for appointment of conservator

“Spendthrift” Trusts or Clauses

◦ distributions made only for “health, support, education, or maintenance”

◦ trust assets cannot be used to pay beneficiary’s creditors

Life Insurance Trusts

◦ primary purpose is to avoid taxation of proceeds from

life insurance policy

◦ Irrevocable Life Insurance Trust (ILIT) used to avoid taxes associated with life insurance policies

policy must be originally owned by the trust or transferred to the trust

3 years prior to death

must obtain taxpayer id for ILIT

trust must file a tax return if income of $600 or more

income of less than $600 must be claimed by grantor

Living Trusts

◦ allows you to place all of your assets in a trust while you

are still living

can name yourself as the trustee

must transfer title of ALL property to the trustee

must report income from trust assets

trust must file separate tax return unless grantor and trustee are the same person

at death, assets distributed according to trust without probate

Disadvantages of a Living Trust

◦ does not automatically terminate upon divorce

◦ possible transfer fees

◦ title problems

may require purchase of policy to supplement title insurance

failure to transfer all assets to the trust

◦ property may be reevaluated for property tax purposes

◦ Texas tax trusts, but not estates

◦ might jeopardize homestead exemption

◦ might jeopardize Medicaid qualifications

◦ creditors have longer time to make claims

Essential Estate Plan Supplemental Planning

Last Will and Testament

◦ assets transfer at death

◦ probate required

Declaration of Guardian(s)

Durable Power of Attorney

Medical Directives

Trusts ◦ Testamentary Trusts

◦ Charitable Trusts

◦ Education Trusts

◦ Life Insurance Trusts

◦ Living Trusts

avoid probate

shield assets

spendthrift precautions

tax savings

Copyright © 2014 by The Law Office of Evelyn L. Gordon. All rights reserved. No part of this PowerPoint Presentation may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods.

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