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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
What are the benefits of planning your estate?
◦ 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
What are the benefits of planning your estate?
◦ 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
What are the benefits of planning your estate?
◦ 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
Dying Intestate – Separate Property
◦ 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
Dying Intestate – Separate Property
◦ 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
Disadvantages of Dying Without a Will
◦ 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
Disadvantages of Dying Without a Will
◦ 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
Disadvantages of Holographic Will
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
Disadvantages of Holographic Will
no provision for simultaneous deaths
if not possible to determine which spouse died first, who should be deemed to have died first?
Disadvantages of Holographic Will
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
Important Will Clauses
◦ survival of beneficiaries
120-hour rule
unless will states otherwise
◦ simultaneous deaths
Important Will Clauses
◦ funeral arrangements
special burial requests
amount to be spent on funeral
Important Will Clauses
◦ 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 Power of Attorney
◦ Medical POA cannot also serve as your health or
residential care provider
Medical Power of Attorney
◦ "health care"
any treatment, service, or procedure to
maintain, diagnose, or treat physical or mental condition
Medical Power of Attorney
◦ your agent may
consent, refuse to consent, or withdraw consent to medical treatment and life-sustaining treatment
Medical Power of Attorney
◦ 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
Directive to Physicians and Family
◦ legal requirements
at least 18
sound mind
free will
signed before 2 witnesses
Directive to Physicians and Family
◦ 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*
Directive to Physicians and Family
◦ 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.