WILLS, TRUSTS AND ESTATE PLANNING
STAY IN CHARGE
Most people begin planning for their future by thinking about a Will or perhaps a Trust.
Plan first for life.
How do you want to spend your retirement? What should happen when you get sick? How can you stay in charge?
The Garrett Law Firm can help you stay in charge, arranging for your choices to be known and your decisions followed. We can help you protect your spouse and dependents and leave a family legacy.
Contact an Austin estate planning and probate attorney for help.
A Medical Power of Attorney appoints someone as your voice. Who should your doctor listen to if a treatment decision must be made and you are unable to communicate? About half of people over 65 arrive at the hospital unable to direct their care.
A Durable Power of Attorney grants and limits the power of someone you name to handle your finances. You can appoint co-agents. You can require reports to a third person. This can become effective when you sign it. Or it can become effective if and when you or your doctor find that you have become mentally incompetent to manage your financial affairs. You may no longer be able to keep up with the paying the bills and filing tax returns. But you may still be mentally competent to do other things. If you have a business, granting a Limited Durable Power of Attorney to manage your business can keep it running if you are sidelined. Whatever your Durable Power of Attorney says, be careful who you pick for your agent. Elder fraud is rampant. An estimated 1/3rd of elder fraud is committed using a Durable Power of Attorney..
An Advance Directive to Physicians (sometimes called a “Living Will”) tells your doctor what to do if you are found to be in an irreversible coma or if, even with available medical treatment, you are not expected to live more than six months.
For clarity, add a Statement of Intent for End-of-Life Carestating what you want in your final weeks, days and hours, whether it is last rites, certain music or the presence of a faithful pet. Discuss your wishes with your family.
Also consider adding a Dementia Planning document. In December 2017 Demography published a study of Americans born in 1940. That study found that the lifetime risk of dementia is 30.8% for men and 37.4% for women. After 85, half of us have some form of dementia.
Stay in charge. Document your choices while you are still able. To help you talk about this difficult subject with your loved ones, consider “Your Conversation Starter Kit”, available at www.theconversationproject.org.
Other documents to consider include
A Mental Health Directive in case you are among the one in three nursing home residents who becomes temporarily deluded, disoriented or deranged due to a medication error;
A Declaration of Guardian in Case of Need to name whom you would want and keep a facility or paid non-family caregiver from inserting themselves should you ever need a guardian;
A Supportive Decision Making Agreement, authorizing others to gather information and advise you but keeping you the decision-maker
A Declaration of Guardian of Our Minor Children. While you can also do this in your Wills, it is easier and cheaper to replace this document than to add a Codicil to your Will as your children grow and their needs change.
A Family Caregiver Agreement, particularly if the VA, a Medicaid waiver program or a long-term care insurer will pay a family caregiver but also to clarify everyone’s expectations and give everyone a way to modify the arrangements and a way out as the situation changes;
An Out-of-Hospital Do Not Resuscitate order and, under the right circumstances, two other physician’s orders: a Do Not Hospitalize order and an in-hospital Do Not Resuscitate order.
An Appointment for Disposition of Remains so that your wishes are followed, whatever they may be, and designating someone to carry them out.
By deciding now, you can stay in charge. These documents can be important Alternatives to Guardianship.
In Texas settling an estate by probating a properly executed Will runs about one-quarter the average nationwide cost and generally takes much less time.
Many people have heard horror stories of defective or contested Wills or of lengthy or expensive probates in other states or in years gone by. They want to “avoid probate”. You might be able to do that, too.
Most of your assets can pass outside of your Will and, thus, outside of probate. Since Texas Medicaid can only recover from the probate estate (the estate which passes under your Will or, if you have no Will, to your heirs at law), passing property outside your Will and outside your probate estate is one way to provide for your heirs and avoid Medicaid Estate Recovery.
Whether or not you have a Will
- your assets must be inventoried because
- your debts must be paid and
- your remaining property must be distributed according to law.
In Texas, that is almost all there is to probate, if you have a properly executed Will.
But if Medicaid estate recovery is not a concern, you still may not want a
An Affidavit of Heirship in which two people who are not your heirs testify to the family composition can transfer real property if you have no other debts. Your heirs remain responsible for any mortgage. Note that while an Affiavit of Heirship indicates presumed ownership, it does not itself transfer title. A court will not enforce an Affidavit of Heirship until it has been filed in the county deed records for five years with no one complaining that it is incorrect. In certain situations, such as a community property interest in a home, if all the children are the children of the marriage, some title companies may wait less.
An Affidavit of Small Estate in which your heirs and two people who are not your heirs testify to the family composition and your assets can transfer your home and personal property if all of them sign agreeing to pay your debts and divide what remains according to Texas Law. It can be filed if you leave only your home, debts secured by real property, up to $60,000 in personal possessions and household goods; and no more than $75,000 in other property (such as a bank account.) Be sure that Texas Law passes your property the way you want. See the charts on the website of the Travis County Probate Court.
Dividing up the furniture and personal possessions often causes the greatest family quarrels. If you are confident that there will be no hard feelings in dividing these items, you might “avoid probate” by passing everything else outside your Will. You can title bank accounts Pay-on-Death or, with your spouse, Joint with Right of Survivorship. You can title brokerage accounts Transfer-on-Death. You can designate beneficiaries of life insurance policies, 401(k)s and IRAs. You can transfer title to your vehicle using a DMV form. You can transfer title to real property using a Lady Bird or a Transfer on Death Deed.
So why have a Will?
For all the lose talk about probate, a Will can make settling your estate faster, cheaper, easier — and make sure that whatever happens, your property passes the way you want. Your family can be spared the financial and emotional burden of a determination of heirship and, possibly, a court-supervised administration of your estate. Your property can be kept in your family and out of the hands of some current or future in-law and his children from another marriage. You and your spouse can agree in your Wills not to change them after one of you dies, perhaps accidentally disinheriting your children in favor of a new spouse on remarriage.
You can transfer assets to a Special Needs Trust while preserving someone’s eligibility for Medicaid and Supplemental Security Income. This is very important if your spouse may someday need Medicaid or if one of the people to whom you want to leave things becomes disabled.
A Will lets you decide who will handle your affairs, including filing your last tax return and, if necessary, handling your remains. Life is full of “what ifs.” A Will lets you provide for them.
The idea of a Will is simple. It is the language which can be confusing. Legal Terms
What if you never write a Will?
What if you get one from the internet or from a financial planner or an insurance agent which works in New York or Florida but not in Texas?
Would you even know? Would you only think that you have a valid Texas Will? What would happen if you did not?
Texas is a community property state. If you are married, you probably have at least one kind of community property. In Texas, there are five kinds.
You also have separate property. Some of it is personal property. Some of it might be real property.
If you do not have a Will and all your children are also the children of your current spouse, your half of the community property would go to your spouse. Whether you own your home together or one of you owns it separately, the surviving spouse has the right to live there for life.
Blended and non-traditional families without Wills can face unexpected situations. When you die, your community property interest is divided among your children (though your current spouse has the right to live in the home for life.) Two-thirds of your personal property goes to your children — born or adopted by you — but not to step-children or children for whom you are the legal guardian. One-third goes to your current spouse. If you die before your spouse, your children do not inherit from her unless they are also her children. You can solve this problem with a Qualified Terminable Interest in Property (a “QTIP Trust“).
You can name your children’s guardians in your Will. You can also name them in a separate document which you can change without changing your Will. (People who are great with little ones may not be skilled at parenting teens.) You and your spouse can also sign a special Temporary Power of Attorney for Our Minor Children naming a caregiver to arrange for your children’s medical care and education when you are unable to act.
Is a Will enough? Maybe. But maybe you need more.
How can you protect against the probable decrease in the federal estate and gift tax exemption?
How can you address an elimination of the step-up in basis rule, allowing people to inherit real estate and securities at the value they have when inherited?
How can you preserve your property for future generations? How can you protect your spouse or minor children from potential creditors? How can you protect a spouse who may someday need Medicaid or a family member with special needs? How can you give someone an incentive to finish college or a treatment program? How can you avoid hard feelings if you leave different amounts to different people? How can you avoid the trouble and expense of a second probate if you own real property or mineral rights in another state? How can you specify the health and personal care you want when there is no one left to act as your agent under a Medical Power of Attorney?
In many cases, the answer is a Trust. A Trust is simply an agreement by which one person is trusted to handle property for another, sometimes with positive tax results and sometimes preserving eligibility for government benefits such as Social Security and Medicaid. When you contribute to a 529 college savings plan or to a 401(k) retirement plan, you are in essence creating a Trust. You are trusting someone to handle your money for the person who will eventually receive it.
A Trust can become effective now, when a certain event occurs or when you die. It can be a separate document. It can be part of your Will.
A Revocable Living Trust is a trust which you can cancel (revoke) and is created while you are alive. It can allow one spouse to arrange assets for a better after-tax return or for other purposes if the first spouse is no longer medically competent to act. It can keep inheritance arrangements private. It can specify where and how you want to be cared for and require periodic assessments by a geriatric social worker. But a Revocable Living Trust cannot protect assets from creditors. It cannot exclude assets in determining financial eligibility for Medicaid. It can actually interfere with Medicaid planning. Over the years, it can even have a poor after-tax result. As with everything else, your circumstances determine how useful it may be for you. Your circumstances will change. So can your revocable living trust.
Some trusts are irrevocable. They can only be changed in limited circumstances and sometimes only with court permission. A common example is a testamentary trust, a trust created by a Will. You will not be able to change this after you are gone,
It could be used to provide both for your spouse and for the children of the current or a previous marriage or the grandchildren of that marriage. This is a Qualified Terminal Interest in Property or “QTIP” Trust. Other families use two separate trusts. These are called a Marital and a Family Trust, an A/B Trust or a Credit Shelter and Bypass Trust.
Your Will could contain a contingent trust to be created if someone may apply for Medicaid, is a minor (or under a certain age), has special needs, may struggle with alcoholism or drug abuse or if some other specified contingency such as bankruptcy or divorce occurs.
A testamentary Special Needs Trust can let your surviving spouse be much more comfortable and enjoy life much more than she would relying on Medicaid’s measly $60 monthly personal needs allowance. You won’t be there to bring her a new pair of slippers or pay her cell phone bill. But your Will can create a Special Needs Trust to pay for these and similar items and services without disqualifying her from the Medicaid she may need to pay for nursing home care. Some people call these Spousal Support Trusts.
Deciding how to benefit children and grandchildren and prevent them from having too much money, exposing them to youth’s temptations, can also be handled with a testamentary trust. You can allow for payments for a college education or a down payment on a house. You can determine what percentage can be paid by different ages and under what conditions. You can give the trustee absolute discretion over whether to pay anything at all.
If you have a family member with special needs or if you yourself have special needs or have been seriously injured, you may prefer to create a Special Needs Trust. Providing a distribution plan and a life care plan is an important part of making this work during the years to come.
If you are not able or eager to handle the burden of investing, managing and accounting for the money, a professional trustee can do so. Your financial advisor or investment manager can become the financial trust advisor. A family member or friend can be a distribution trust advisor or trust protector, advising the trustee on what to buy for you or removing him if necessary. Or a group of family members and friends can be a trust protector committee.
One form of Trust which should be separate from your Will is a pet trust. Fido may think that he is a member of the family and so may you. But the probate court’s family allowance will not include money for kibble and care while your estate is being settled.
There are other ways to provide for your spouse and your children — and for yourself. Cost, control and complexity may guide your choices.
15-20% of estate plans fail due to changes in assets, changes in health, changes in relationships or changes in the law.
Review your estate plan. Ask yourself
- Did I acquire any real estate this year?
- Did I acquire any accounts which have a beneficiary designation?
- Has my family situation changed?
- Does my estate plan still do what I want?
- In what name is my property owned? Do I need to make changes about survivorship and rights of survivorship?
Whatever you choose, review your documents with a lawyer every couple of years.
Your documents should work when you need them.
Terry Garrett, an experienced Austin estate planning and probate attorney, can help you stay in charge, save money and leave the legacy you want. The Garrett Law Firm works with individuals and families throughout Central Texas to create practical, low-cost solutions. 800-295-3449