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iHQ: Article IV

About the Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters:

Frye, Oaks, Benavidez & O'Neil, PLLC has a boutique estate planning practice serving the GLBTI community’s unique needs Post-Obergefell and assisting their allies in the broader Texas community as well with family wealth preservation and transfer during life and at death. We work with all individuals and families of all sorts of backgrounds since we know how important it is that we provide for the beloved family, friends, and/or charitable entities we will leave behind.

DISCLAIMERS:

  • The Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters is not legal advice.
  • The Information Headquarters is not a suitable alternative to specific, tailored legal advice from a licensed Texas attorney that is based on the specific facts and circumstances of your case.
  • The Information Headquarters should not be relied upon by any prudent person at any point in time under any circumstances to attempt to ascertain or determine any legal obligation, rights, duties, or other responsibilities.
  • You reading the Information Headquarters does not create an attorney-client relationship or privilege.
  • The Information Headquarters is not an exhaustive resource on the totality of Texas law, trust law, federal law, and the various tax laws; only a few selected topics are covered as part of a broader, general discussion.
  • The Information Headquarters is solely prepared as a general educational resource for entertainment purposes and should not be relied upon by any prudent person at any time under any circumstances.
  • The Information Headquarters may not be used to attempt to evade or defeat any of the tax laws.
  • Please reference this publication explicitly if you quote from any of the content in any commercial, nonprofit, academic, or other context.

Original publish date of 11 January 2016

Prepared by Daniel L. O’Neil, Partner

Schedule an appointment with me to discuss your specific estate planning needs at 713.227.1717

Our other lawyers at the firm handle Family Law, Social Security Disability, Criminal Defense, Guardianship, Transgender (adults and minors) legal name and gender changes, Employment discrimination law for individuals, as well as Employee planning and advice for businesses.

Frye, Oaks, Benavidez & O'Neil, PLLC

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Article IV: To Probate Court and Beyond

Listing of topics:

Easy mode

§073: 30,000 foot overview of the probate process

§074: Heirship proceeding

§075: Small estate affidavit

§076: Muniment of title

§077: Local Rules

§078: Creditors in probate

§079: Independent or Dependent administration

§080: When someone important passes away …

§081: Application

§082: Not eligible to serve as Executor

Hard mode

§083: Litigation

§084: Mediation

Legendary mode

§085: The Unauthorized Practice of Law (“UPL”) in the State of Texas

§086: Elder financial abuse

§087: State criminal prosecution

§088: Federal criminal prosecution

§089: Tax crimes

 

ARTICLE IV

TO PROBATE COURT AND BEYOND

 

ARTICLE IV topics on EASY MODE

These are a few of the many things to be looking out for in the probate world and beyond.

§073: 30,000 foot overview of the probate process

To probate a Will it has to be established in court that the Will meets some basic requirements: it was executed correctly, it was not canceled or revoked, and it was self-proved (or is going to do it the hard way if not self-proved.)

This is a simple summary of some, not all, things that are going to happen in the probate process:

§074: Heirship proceeding

Heirship in the Probate Court is the relationship between a decedent (intestate, or Will failed to dispose of all property) and an heir (designated by the laws of descent and distribution) which results in the heir receiving property. The application to determine Heirship can be made with or without an application for Administration.

The court must appoint an Attorney Ad Litem for all unknown heirs. The court may appoint an Attorney Ad Litem for all of the living heirs whose names or whereabouts are unknown or who are incapacitated if, in the court’s discretion, it finds that the appointment is necessary to protect the interests of the living heir or incapacitated person.

The descent and distribution chart:

Article IV section 074 include chart 1

 

§075: Small estate affidavit

If there is no Will and the decedent owned a small estate, then a full blown probate might not be necessary and things might be able to be done on easy mode for intestate decedents with a small estate affidavit (“SEA” for short.) If the decedent owned real estate in addition to the homestead, a small estate affidavit is likely not going to work and will need to proceed with the determination of heirship route. An affidavit is also likely not going to be accepted to transfer title to stocks and bonds, since New Yorkers and the NYSE have never heard of a small estate affidavit – they may force you to go through an administration.

Here is some help from Fort Bend County on SEA:

Article IV section 074 include chart 2

§076: Muniment of Title

If there is a Will but few assets, then the easy mode for testate decedents will be proving validity of the Will, showing the estate has no debts, and that there is no necessity for administration. Going this route, no executor is going to be appointed since there will be no need for one. But just like with the small estate affidavit, the muniment may be ineffective to transfer title to stocks and bonds – so the New Yorkers may force you to go through an administration.

§077: Local Rules

If you are practicing in Harris County the Local Rules are important. You can find them here: https://www.harriscountytx.gov/probate/jurisdiction.aspx

If you are practicing in other counties, the rules in other counties might be important as well.

§078: Creditors in probate

 

When someone dies or becomes incapacitated, one of the last things that might be thought of was who they owed money to prior to their death or onset of incapacity. However, those creditors definitely are thinking about the money owed to them.

When an estate has plenty of money in it, it is called solvent: their assets actually exceed their debts. So it is a matter of determining what the debts are and paying them off. This is life on easy mode.

A decedent or incapacitated person owing debts to a creditor only has the assets belonging to them exposed. What this means practically is if their debts exceed their assets, they are insolvent and do not have enough money to pay what they owe. For these situations, there is a process laid out in the Estates Code to cover which of the creditors get paid at that point, and how little they get paid. Certain death expenses (such as funereal costs) will be paid even before any creditors get their share.

As a practical note, it is the rare unicorn of a creditor that will actually recognize a decedent’s estate is insolvent.

These are some issues to be concerned about:

Whether the estate is actually insolvent, or if the estate is subject to the Fraudulent Transfer Act due to secreted or improperly transferred assets.

If the creditor obtained a judgment against the decedent prior to their death, it becomes more likely they are going to try to double down their efforts on collecting when they start over in Probate Court. This probably matters most in the context of whether the creditor is an “interested person” that will race down to the courthouse (Editor’s note: I am old enough we had to file at the courthouse when I started out as a baby lawyer, but now we e-file – it’s just not the same mental picture!) and beat the family or friends in applying for probate. Put concisely, yes, the creditor is an “interested person” and they can be first to file if they like money.

Whether the decedent was testate or intestate; whether it is going to be an independent or dependent administration. Paths diverge.

v  Whether all estate assets are listed on the Inventory

v  Whether the intended recipients of exempt property are lawfully entitled to that exempt property

There are more issues of course. This is just a quick sampling of things to think about.

§079: Independent or Dependent Administration

Estate administration involves managing the estate and settling the estate. This is done by a personal representative (“PR” in shorthand) that needs to be approved by the court.

Independent administration will be free of court supervision to wind up the estate (after the inventory is filed) to do such things as settle up with creditors, set aside the homestead and other exempt property, sell assets for payments of debts and expenses, and distribute the remaining property in the estate to the beneficiaries entitled to it. This is a fairly short list of things to do but they are each much more involved than it sounds like. Imagine what it would look like if the court needed to be involved in nearly every decision.

Dependent costs more than Independent since the court needs to sign off on everything. Most Testators do not want a Dependent administration and if their Will is done by an actual Estate Planning lawyer then the Will should reflect this.

However some situations are better served by a dependent administration, especially when there are large numbers of creditors and many of them might prejudice their own claim, if they are New Yorkers that are not familiar with Texas probate.

§080: When someone important passes away …

The most important thing to do at first is to take time to grieve, accept the loss of that person, and to cherish the good memories you have with them throughout the years.

After you have seen to yourself and the other family members and friends grieving and trying to process the loss, then the paperwork process needs to begin.

Some of the first steps to take in that process include:

  • Funereal arrangements by the person named in the Appointment of Agent to Control Disposition of Remains;
  • Obtain multiple copies of the death certificate;
  • Locate and gather the essential and vital documents relating to the Will, trusts that exist, stocks/bonds/bank account information, and insurance policies;
  • Contact SSA to give notice of the death if the decedent was an eligible recipient;
  • Notify the relevant life insurance companies of the death;
  • Contact the Executor named in the Will;
  • Contact the Estate Planning lawyer that drafted the Will if you know who drafted the Will;
  • Contact the trustee of any trust created by the decedent, along with the lawyer that drafted the trust document if you know who drafted it;
  • Call the administrator of the decedent’s pension plan if they had one;
  • Notify the decedent’s banks and financial institutions of the death;
  • Notify the credit card companies where the decedent had an account;
  • Review medical bills and verify that insurance and Medicare claims have been processed

§081: Application

 

Probate begins with an Application to Probate Will and for Issuance of Letters Testamentary. This is the application. This is typically done by the Executor mentioned in the Will, but it can be done by any “interested person” which is often a creditor who wants their money. There are some basic requirements for the application spelled out in the Estates Code; the application should include the Will along with any codicils.

The clerk posts citation to all parties interested in the estate. The return date is then set and the hearing to probate the Will cannot be held until after the return date.

At that hearing the Executor presents proof of the death along with the Will. Then it is determined if the Will should be admitted to probate. The judge will issue an order probating the Will and appointing the Executor. The Executor takes the oath. Then the court issues Letters Testamentary to the Executor which confirm to the rest of the world that the Executor has authority to settle up the affairs of the estate.

The next steps include the Executor publishing a notice of creditors with a newspaper within the next month and receiving the publisher’s affidavit that the publishing was done lawfully. The Executor also sends the Letters Testamentary to creditors holding liens within the first two months of receiving the Letters Testamentary. The Executor has 60 days to send certified letters to beneficiaries including the order admitting the Will to probate along with a copy of the Will. Then a sworn affidavit needs to be filed with the court stating that notice to beneficiaries was completed, not more than 90 days after the Will was admitted to probate. The inventory, appraisement, and list of claims showing the current state of the estate also needs to be filed within 90 days; or an affidavit in lieu of inventory. The Executor needs to file the final income tax return for the decedent. There might estate tax stuff to work out for the very rare large estate that had no tax planning in place. Creditors are dealt with. The estate remaining is disbursed in accord with the Will. New titles are issued for titled assets. The Executor starts to breathe easier with all of this done now.

 

§082: Not eligible to serve as Executor

 

Some people are just not eligible to serve as an Executor. These include: an incapacitated person; a convicted felon unless that convicted felon was duly pardoned or had their civil rights restored; a nonresident of Texas that has not appointed a resident agent to accept service of process; a corporation unauthorized to act as a fiduciary in Texas; or a person that the court finds to be unsuitable.

Of course the last one is the most vague and requires the most careful consideration, especially in the GLBTI community and especially for unmarried individuals now Post-Obergefell. Sometimes the word unsuitable means a lot of different things. And sometimes it means the same thing.

 

ARTICLE IV topics on HARD MODE

This is what happens when probate is not straightforward.

§083: Litigation

Nobody participates in crafting an estate plan and following through with the formal Will execution ceremony with witnesses and notary just for fun. They are participating in the estate planning process so their last wishes are fully respected. Testators need to be aware of the possibilities of the numerous ways in which their estate plan (not just the Will – but also the nonprobate transfers) can be challenged.

Some family situations require extreme measures be taken to document capacity and intent, since we know a Will contest is coming just because that is who the family member is. This is a very important part of the estate planning process to discuss the entire family and learn about who the “troublemakers” are – so proper steps can be taken to document everything and to prepare for litigation.

Complex family situations (especially with GLBTI related family issues) require sophisticated legal counsel from such boutique estate planning practices as Frye, Oaks, Benavidez & O'Neil, PLLC.

Testators are not doing themselves any favors to be getting cheap Wills online, or from a lawyer that does not have a boutique estate planning practice. What they are getting from these options may be cheap, but it will cost them dearly in the end.

There are four main sorts of concerns:

  1. The only issue is the person you appointed as Executor in your Will. Your family thinks that person is a known scofflaw and habitual drunkard, so they are not to be trusted in a fiduciary position. Your family is not contesting anything in your Will or other matters. For our friends in the GLBTI community this is how conservative families used to challenge the same-sex (or trans*) romantic partner, since until Obergefell there was no legal recognition of their decades long union.
  2. The only issue is that the Will in your hands isn’t the right Will! A family member comes forward with a more recently dated Will than the one you have. Was the one in your hands revoked by the Testator? Is the Will in their hands a fake? Thus begins the litigation to find out which Will is THE Will.
  3.  The only issue is that the Testator had no capacity to execute the Will so it is not a valid Will. This is where videotaping the formal Will execution and taking other extreme measures will help document that there was capacity. Throughout history there have been some interesting challenges on capacity – two very interesting cases, coming to different conclusions, focused on the capacity of a “known drunkard” to execute a valid Will. With twitter and facebook posts these days one can amass a wealth of evidence that someone was not in their right mind at most points in the day, but what about the other points in the day such as when they were discussing estate, gift, and GST tax consequences with the lawyer drafting their Will?
  4. The only issue is that there was a incubus (or succubus, no judgment) that twisted the desires of the Testator with undue influence, and the Will does not reflect the Testator’s actual intentions. Litigating these issues requires looking at the totality of the circumstances – not snap judgment that the 80 year old man left his entire multimillion dollar estate to the 19 year old Abercrombie & Fitch underwear model he just met on grindr dot com. Undue influence also comes into play in a major way with changing beneficiary designations on nonprobate assets – and these lead to frequent criminal prosecutions, usually taking priority over the corollary proceedings on the civil issues in Probate Court.

An essential part of knowing what the minefields are, before any documents are executed, includes hearing about your family, friends, and charitable interests in detail. This lets us know the context for your estate planning – why you hate Uncle Touchy, why your nephew is your favorite person in the world, how you met your spouse or unmarried romantic partner. All of this matters. And we provide you a judgment-free safe space to tell us all about it. Which helps us in crafting the estate plan, documenting everything, and preparing for litigation if we know with certainty that it is coming from your Uncle.

§084: Mediation for GLBTI probate litigation

Mediation is a power alternative dispute resolution (“ADR”) tool that allows parties to creatively resolve the differences that have brought forth the litigation conflict. Unlike the harsh outcomes sometimes received by a judge or jury, you get the opportunity to make your case passionately, figure out what is really upsetting you, and try to reach a better outcome now than spending years (and lots of money) preparing for trial and then appeals.

The third party neutral mediator helps the parties narrow in on the problems and try to find a solution. Many times with complex families the issue is not strictly about money, it is about being upset over something that happened twenty years ago. Unlike in commercial litigation where being upset is not going to provide a lot of leverage in settling a breach of contract case, in family matters like divorce, guardianship, and probate sometimes an apology tilts the balance of negotiations and leads to a solution.

The mediation services that Frye, Oaks, Benavidez & O'Neil, PLLC offer in guardianship and probate litigation focus on one thing: respect for the family unit. We focus our efforts, especially in families with GLBTI related issues, on helping families reach a lasting, peaceful settlement and compromise that saves them the expense of protracted litigation and the years of anguish it takes to wind through trial and appeals.

Separate Quarters

The parties are separated by a full hallway in different conference rooms that do not share a common wall. The other party is not allowed to wander around and place a stethoscope against the door of your conference room to eavesdrop on your private conversations.

Anything you say to the mediator is strictly confidential. You can blow off all of the steam you want and the mediator will sit there, listen, and forget what you just said. If you want the mediator to bring an exact settlement offer, or raise certain issues with the other party, you need to explicitly authorize the mediator to take your offer on issues to the other party or allow the mediator to disclose the content you want to disclose.

Informal Atmosphere

Mediation is informal. There are no formalities like in the courtroom with “your honor” and “may I approach” and having to silence your cell phone. If you need to take a smoke break, you can go outside and pace down the street without needing to worry about being held in contempt like you would if you did that in court as the judge is trying to talk at you.

The goal is to reach a lasting resolution and one way that happens is to focus on your comfort and your freedom. Mediation is voluntary – you are not required to be here, chained to the chair. But you want to be here – to save yourself time, money, and frustration of letting a stranger (the judge) or strangers (the jury) solve your complex family problem and learn all about the details of your family that you might want to keep somewhat private.

Confidential Nature

Matters discussed during mediation are held in the strictest of confidence. Things said, or mean pictures of opposing counsel drawn on napkins during mediation, will never be disclosed outside of the mediation. We strictly uphold the confidentiality of our mediation process because our reputation is at stake and we protect your reputation as our own.

Fees and other details

  • The cost of mediation is charged on a single, understandable flat-fee basis based on the length of time booked.  
  • The cost is split evenly between the parties and must be paid in full three business days in advance of mediation, or the mediation will be canceled.
  • There are no hidden charges.
  • We have a private parking lot of our own out front so you do not need to worry about unexpected parking lot or garage fees.
  • We provide coffee and snacks free of charge for any mediation.
  • For full day mediations we also include a full lunch in the price of the mediation.
  • Investigating reports of abuse, neglect, and exploitation of adults who are elderly or have disabilities;
  • Conducting in-home investigations and providing or arranging for services;
  • Investigating allegations at facilities;
  • Educating the public about prevention of elder abuse.

Half-day mediations will typically run from 9am to 2pm, or 1pm to 6pm.

Full day mediations will typically run from 9am to 6pm.

We only schedule one mediation per day so if a half-day mediation is making good progress, we can continue.

Because we personally know how difficult it is to find time during the week for working people we offer night, holiday, and weekend appointments as well for a nominal extra charge.

 

 

ARTICLE IV topics on LEGENDARY MODE

This is what happens when probate is extremely the complete opposite of straightforward.

§085: The Unauthorized Practice of Law (“UPL”) in the State of Texas

About UPL generally

Section 81.101(a) of the Texas Government Code states: In this chapter the "practice of law" means the preparation of a pleading or other document incident to an action or special proceeding or the management of the action or proceeding on behalf of a client before a judge in court as well as a service rendered out of court, including the giving of advice or the rendering of any service requiring the use of legal skill or knowledge, such as preparing a will, contract, or other instrument, the legal effect of which under the facts and conclusions involved must be carefully determined.

Section 38.122 of the Texas Penal Code prohibits a person from holding himself out to be a lawyer unless licensed to practice law if it is done with an intent to obtain an economic benefit.

Section 38.123 of the Texas Penal Code prohibits a person from taking certain actions with respect to personal injury claims if done with an intent to obtain an economic benefit.

There are two separate kinds of UPL cases that are investigated:

(1) an individual not currently licensed to practice law in the State of Texas (this includes out of state attorneys as well as Juris Doctor candidates , unlicensed law school graduates, and individuals with no formal legal training) gives legal advice or misrepresents themselves as an attorney;

(2) a Texas lawyer in good standing with the State Bar of Texas facilitates the unlicensed practice of law by another individual.

UPL investigations begin with a simple target letter informing you that you have been accused of UPL and you have the opportunity to respond to the Investigator – often without having the full details of the conduct complained of in the complaint. If you get a target letter you should not fire off an angry response, as there could be unintended consequences of not professionally dealing with this legal matter. 

There are nearly 40 districts in Texas and this letter will come from an Investigator in a subcommittee in one of those districts. When a complaint is made on the UPLC's website the complaint is assigned to the proper geographic district. For instance, District 4 covers the Greater Houston area, so if the conduct complained of occurred in the Houston area then you would receive a target letter from an Investigator on the District 4 Subcommittee.

There is a short deadline to respond to the target letter and the investigation will be underway quickly. Once the investigation starts you need to have a lawyer on your side who understands this niche practice area and can help defend you through the investigation in correspondence with the Investigator and if you are subpoenaed to give oral testimony in front of the entire Subcommittee. There are a variety of ways to resolve the cases amicably prior to litigation. In the worst case scenario, you are sued in civil court or your file is referred to the Criminal District Attorney for prosecution. Both will follow you as an albatross for quite some time if you are not proactive in dealing with the investigation before the courts and the criminal justice system become involved.

The UPLC does not issue opinions on what constitutes the practice of law. However if you have a business idea and you would like to run it by a lawyer to see if it fits within the penumbra of UPL, you would be wise to have an opinion letter analyzing the business model and applying the current statutes and case law to the business. We stand behind our opinion letters and if you choose us to analyze your business we will defend the opinion letter in front of the UPL Subcommittee free of charge to you if your business finds itself with a target letter in the future.

More importantly, UPL in the Estate Planning and probate realm

Lawyers spend at least three years in law school earning the Juris Doctor (“J.D.”) They pass the Multistate Professional Responsibility Exam (“MPRE”) which addresses ethics. They study for the three day Texas bar exam, receive a passing score on the bar exam, and pass the character & fitness test before being admitted to the Texas bar and sworn in as a licensed attorney. Then they are under ongoing annual obligations to take Continuing Legal Education (“CLE”) to stay current.

People that are not real lawyers do not go through any of that, they just tell people that they are “lawyers” and then they will usually defraud them financially at best, or at worst seriously complicate their legal situation and create new problems. As a result of this the Supreme Court of Texas instituted the Unauthorized Practice of Law Committee (“UPLC”) to investigate people that are claiming to be lawyers and/or people that are doing legal work but are not lawyers.

At the very least there will be an investigation that takes place in the District that covers the part of the state where a victim or other person claims that you were practicing law in an unauthorized fashion (the “UPL Complaint.”) These investigations can start a year or longer after the complaint date. These investigations can last over a year. If your investigation is not closed out without further action or settled in an amicable fashion, you are looking at either a civil lawsuit you need to answer (or ignore) or potentially your file will be referred to the District Attorney’s Office for review and potential prosecution.

The unauthorized practice of law in the State of Texas is a crime. If you are not getting your estate planning advice from an estate planning lawyer you have confirmed is actually licensed to practice in this State and is currently in good standing with the State Bar, then watch out!

Texas has seen UPL most commonly in the estate planning (and tax) arena with scams and schemes to sell living trusts to seniors. Living trusts come with numerous cautions and discussions of pitfalls when a Texas lawyer is discussing them; but a fake lawyer or someone that is just a salesman trying to sell things so they make money off of you is not going to discuss any of these pitfalls or cautions. That should be your first caution – when things are too good to be true, they usually are. The deal with living trusts is that they do not exist in a legal grey zone where you will never pay taxes to the government ever again. If someone tells you this and doesn’t include the other relevant information, exceptions, and explanations then do not sign a contract with them and do not give them money.

Just because one or more district subcommittees of the UPLC are investigating you for alleged UPL does not mean you are going to the big house. But as is recommended with all white collar investigations and prosecutions, call your team of white collar criminal defense lawyers here at Frye, Oaks, Benavidez & O'Neil, PLLC - http://www.liberatinglaw.com/index.php/practices/40-areas/87-white-collar-criminal-defense.

§086: Elder financial abuse

Financial exploitation of elders in the Estate Planning and probate realm is a serious issue and requires reporting immediately.

Here is a link on elder financial abuse:

http://www.preventelderabuse.org/elderabuse/fin_abuse.html and another one on elder abuse: https://www.texasattorneygeneral.gov/seniors/elder-abuse

When there is even the appearance of financial impropriety Texas Adult Protective Services (“APS”) will be on your doorstep to investigate.

Adult Protective Services responsibilities include:

Just because APS is investigating you doesn’t mean you are going to the big house. But as is recommended with all white collar investigations and prosecutions, call your team of white collar criminal defense lawyers here at Frye, Oaks, Benavidez & O'Neil, PLLC - http://www.liberatinglaw.com/index.php/practices/40-areas/87-white-collar-criminal-defense.

§087: State criminal prosecution

If you are accused of improprieties related to money, you should probably start worrying about a potential criminal prosecution. Sometimes these will spring out of a contested probate litigation that is going really badly for one side – they just start making accusations and bend the ear of an Assistant District Attorney friend from junior high, and now you are a defendant facing hard time.

These prosecutions that are tangentially related to the Estate Planning and probate process run the gamut of all of the white collar crimes that are state offenses. As is recommended with all white collar investigations and prosecutions, call your team of white collar criminal defense lawyers here at Frye, Oaks, Benavidez & O'Neil, PLLC.

§088: Federal criminal prosecution

Just as there are state causes of action springing out financial improprieties, so too are there federal offenses related to the same behavior. In some cases the state will back off and let the United States Attorney’s Office take the lead on prosecution in the federal arena.

Money laundering in particular

Money laundering is a familiar concept for any person that has seen the film Office Space or the television show Weeds, but the digital age has expanded the reach of money laundering into Second Life, World of Warcraft, Bitcoin, and beyond the Silk Road. The federal government has nearly unlimited resources to fully investigate cases of potential money laundering since it shares such a deep historical nexus with organized crime and terrorist financing. Money laundering includes Bank Secrecy Act violations such as FBAR, whose criminal penalties could include a fine of $500,000 and/or ten years of imprisonment.

As is recommended with all white collar investigations and prosecutions, call your team of white collar criminal defense lawyers here at Frye, Oaks, Benavidez & O'Neil, PLLC -admitted in the Southern District and Northern District of Texas; in the Fifth Circuit Court of Appeals; and the Supreme Court of the United States. But, also can be admitted in other federal districts and Courts of Appeal around the country. http://www.liberatinglaw.com/index.php/practices/40-areas/87-white-collar-criminal-defense.

§089: Tax crimes

In addition to the other federal offenses potentially prosecuted related to financial improprieties in the Estate Planning and probate world, there are also the more specific tax crimes.

Tax crimes include failure to file, tax evasion, making false statements, tax fraud, evasion of payment, failure to supply information, failure to keep records, fraudulent withholding, motor fuel excise tax offenses, aiding or assisting the preparation of a false or fraudulent document, removal or concealment with intent to defraud, attempts to interfere with administration of the tax laws, conspiracy to defraud the government, false/fictitious/fraudulent claims, conspiracy to commit offense, fictitious obligations, identity theft, and more. The one thing they have in common is that there are serious consequences from not taking it seriously the moment two Special Agents (carrying a gun, unlike Revenue Agents) show up on your door step wanting to talk. Just like in an investigation for a violent offense you do have rights and you should exercise them by engaging a tax crimes lawyer to zealously represent your interests.

As is recommended with all white collar investigations and prosecutions, call your team of white collar criminal defense lawyers here at Frye, Oaks, Benavidez & O'Neil, PLLC - http://www.liberatinglaw.com/index.php/practices/40-areas/87-white-collar-criminal-defense.

 

This concludes ARTICLE IV.

Thank you for reading ARTICLE IV in Frye, Oaks, Benavidez & O'Neil, PLLC’s Information Headquarters.

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iHQ: Article III

About the Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters:

Frye, Oaks, Benavidez & O'Neil, PLLC has a boutique estate planning practice serving the GLBTI community’s unique needs Post-Obergefell and assisting their allies in the broader Texas community as well with family wealth preservation and transfer during life and at death. We work with all individuals and families of all sorts of backgrounds since we know how important it is that we provide for the beloved family, friends, and/or charitable entities we will leave behind.

DISCLAIMERS:

  • The Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters is not legal advice.
  • The Information Headquarters is not a suitable alternative to specific, tailored legal advice from a licensed Texas attorney that is based on the specific facts and circumstances of your case.
  • The Information Headquarters should not be relied upon by any prudent person at any point in time under any circumstances to attempt to ascertain or determine any legal obligation, rights, duties, or other responsibilities.
  • You reading the Information Headquarters does not create an attorney-client relationship or privilege.
  • The Information Headquarters is not an exhaustive resource on the totality of Texas law, trust law, federal law, and the various tax laws; only a few selected topics are covered as part of a broader, general discussion.
  • The Information Headquarters is solely prepared as a general educational resource for entertainment purposes and should not be relied upon by any prudent person at any time under any circumstances.
  • The Information Headquarters may not be used to attempt to evade or defeat any of the tax laws.
  • Please reference this publication explicitly if you quote from any of the content in any commercial, nonprofit, academic, or other context.

Original publish date of 11 January 2016

Prepared by Daniel L. O’Neil, Partner

Schedule an appointment with me to discuss your specific estate planning needs at 713.227.1717

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Article III: Planned Transfers

Listing of topics:

Easy mode

§056: Nonprobate assets

§057: Probate assets

§058: Probate avoidance

§059: Coordination of probate and nonprobate

§060: The basic gifting strategies

§061: Charitable bequest administration

Hard mode

§062: Disclaimer

§063: Power of appointment

§064: Crummey

§065: Income tax considerations

§066: Estate tax

§067: Gift tax

§068: GST tax

Legendary mode

§069: Tax planned trusts

§070: Zeroed out trusts

§071: Supplemental Needs Trust

§072: Other trust scenarios for minors, incapacitated people, and elders

 

ARTICLE III

PLANNED TRANSFERS

 

ARTICLE III topics on EASY MODE

Now that we know what you own, this article addresses your testamentary intention on where your assets should go – both during life, and at death.

§056: Nonprobate assets

Nonprobate assets are not going to pass through Probate Court, except in limited circumstances. As a result, nonprobate assets cannot be validly disposed of through a Will provision, though this certainly doesn’t stop some people from attempting (ineffectively) to dispose of nonprobate assets through their Will. These are assets that are titled externally with beneficiary designation forms such as 401(k)s, Payable On Death (“POD”) bank accounts, property that you hold as a Joint Tenancy with Right of Survivorship (“JTWROS”) if you die first.

A Will can always be contested; so too can these nonprobate beneficiary designations, both in Probate Court as well as risking a criminal prosecution too. The criminal prosecutions run the gamut of white collar crime charges and depend heavily on the facts and circumstances. These are popular cases to prosecute because the perception is that the defendant took advantage of a sweet old lady (or man) and with the alleged “elder abuse” angle, it becomes an uphill battle to demonstrate that no crime occurred.

§057: Probate assets

Probate assets are going to pass through Probate Court and can be validly disposed of through a Will provision. Probate assets are your stuff, the tangible things and your money. This is your art collection, your furniture, your jet ski, your great-grandmother’s heirloom family ring, and the other pieces of property you think about and make you happy.

§058: Probate avoidance

Particularly from people that have lived most of their lives outside of Texas in jurisdictions with different probate systems, they are convinced that all probate systems are bad and they do not want their estate having to go through Probate Court at all. There are a variety of mechanisms for a person to avoid Probate – some are tax advantaged, some are not. Some of these mechanisms contemplate a huge amount of risk, while others have risks minimized as much as possible. As with any sort of estate plan the facts, details, and circumstances matter – and as with most things in life, you get what you pay for, especially if you have read some publications that only tell you what you want to hear, and make promises that seem too good to be true.

§059: Coordinating probate and nonprobate

Coordination of probate and nonprobate assets really contemplates two different things:

  1. Paying the least amount of tax possible
  2. Not doing silly things like trying to dispose of a nonprobate asset in a Will provision

For #1 this means coordinating the unlimited marital deduction (now extended to our friends in the GLBTI community Post-Obergefell) with tax planning taking into account the concept of portability.

For #2 this means knowing what the beneficiary designations are on such things as life insurance, 401(k), POD accounts, JTWROS deeds, and other nonprobate assets. This also means updating beneficiary designations to reflect what you want to happen, if you designated someone 40 years ago that is no longer appropriate to still be a beneficiary (such as an ex-spouse or someone who passed away 20 years ago.)

But #2 folds back in on #1 with tax planned trusts such as the ILIT, where beneficiary designations need to reflect the rest of your estate plan. If you never transfer ownership of your life insurance policy to the Trustee of the ILIT then your estate plan has been frustrated. This can lead to estate tax under #1.

It is important to coordinate the plans for probate and nonprobate assets. For instance, it is not going to be a best practice to start naming off beneficiaries for your 401(k) in a Will provision, considering that it is a nonprobate asset passing to the beneficiary you named on that form. The Will provision has no impact on that nonprobate asset – so it looks bad, since it is a public record, and can potentially upset the beneficiary named in the Will provision since they are getting nothing and the person on the form took the entire amount months ago.

Outside of designated beneficiary forms on certain accounts, an inter vivos conveyance that is a probate avoidance mechanism can have the same impact. If you gift deed “the East Texas ranch” to Son 1 giving away your entire interest, then update your Will to give Son 2 your entire interest in “the East Texas ranch” then Son 2 is not going to be incredibly happy at receiving nothing.

When probate avoidance transfers are being made, it is important to compare against what is in the Will and whether the Will needs to be updated at that time to reflect the lack of ownership in an asset.

§060: The basic gifting strategies

Inter vivos conveyances

If you want to transfer things now while you are still alive and in good health you can do this. For instance, you can execute a gift deed outright to your child. This takes the asset out of your estate (but provides new, separate problems in long term planning for elder people who are contemplating short term eligibility for public benefits) but brings additional risks such as if they evict you through the proper legal process. This can also come with tax consequences if you have a low basis in the property it will be transferred, rather than receive a stepped up basis to the fair market value on your day of death if coming through Probate. There are numerous issues to consider in the context of executing a short two or three page gift deed. It’s not as easy as a signature.

Testamentary trusts

Like your Will, nothing happens until you pass away if you create a testamentary trust. With however you are funding the testamentary trust, it is not funded until after you have passed away. If you want control over your assets now while you are still alive, you should not place them into an irrevocable trust that you fund with an inter vivos conveyance – because once the asset goes into a funded trust now (if it is irrevocable) it is not coming back out.

Funding trusts now

But if you want to remove assets from your estate and give up all control of them (for tax purposes, or for other purposes) then you can fund the trust now while you are still alive – potentially so your beneficiary can enjoy the gift, or the income from the gift now while you can still enjoy them enjoying the gift.

Trusts provide a level of protection that since the gift is not made outright, there are restrictions on control and ownership. Spendthrift trusts provide a layer of protection from your beneficiary “losing it all” in a game of baccarat, or in a darkened street corner buying too much heroin. However, throughout history Trustees have taken advantage of beneficiaries – sometimes it is the people we would have last thought would betray us like that. There are civil causes of action against that Bad Fiduciary and risks of criminal prosecution they might be facing, but it is a case of the cat already being out of the bag, and the damage will already be done in the event a Trustee goes rogue.

Outright gifts

Outright gifts carry a level of risk as well, but there is no oversight of the beneficiary once they have received a large sum of cash. For some people this will change their life drastically with excesses; but for other people it is a nice nest egg for a house in the suburbs to raise children in or send their children to private school and college, which otherwise would have been out of their financial means prior to receiving the gift. No two situations are the same, no two family circumstances are the same. Making outright gifts requires a conversation about the beneficiary and getting to know your family dynamics better. If we know there are storms brewing on the horizon we always strongly recommend not making an outright gift and instead trying to find a trust situation that might fit the bill so your overall testamentary intention is not frustrated by your beneficiary’s life choices you do not agree with.

§061: Charitable Bequest Administration

Something that every Testator and their family should know about, in the event that they are charitably inclined, is the concept of charitable bequest administration.

When a person includes a valid nonprofit in their Will or Living Trust with Pourover Will, they have identified the importance of this nonprofit to be the same as their family, friends, and other loved ones that have passed through their lives. It is extremely important for the nonprofit to tread lightly in a number of different ways both when the Testator is still alive (since they can update their Will) and especially in the difficult time for the family and friends when the Testator has passed and the charitable bequest has become what is called “mature” since the estate is passing through the probate process.

Many nonprofits fail to have an effective bequest administration.

  • Some nonprofits do not appropriately treat bequests, which leads to potential donors changing their minds.
  • Some nonprofits do not demonstrate how valuable the bequests are, which leads to potential donors changing their minds.
  • Some nonprofits hassle family that just lost a loved one, so it looks like the nonprofit is just trying to shake money out of the dead guy. This is not an appropriate way to treat grieving family members.
  • Some nonprofits fail to make good impressions in other ways. In my practice the most memorable “disinheritance” was extremely memorable for all of the details related to me, in the course of updating the couple’s Wills, of how this nonprofit had failed them in numerous and myriad ways and now that nonprofit was losing out on millions. Millions with an ‘m.’

Types of gifts:

General or Pecuniary – “$40,000 to Nonprofit A”

This is the simplest gift possible. It is money and there are no strings on it. As long as you have this money in your estate and the Will is not contested, it is good to go. If you don’t have the money or if there is a Will contest, then it is not good to go.

Specific - “$100,000 to Nonprofit B to be used only on construction of the new wing of the nonprofit’s business office” or “100 shares of Yahoo stock to Nonprofit C”

This places strings on the use of the money in the first example; while the second example refers to specific property. If that specific property is no longer there because it was sold 20 years ago and the Testator never updated their Will, then the gift fails. In the event the restrictions on the money are too bold, the nonprofit can disclaim the gift. Specific bequests will usually come with a few cautions from the estate planning lawyer to annually review the estate plan (in case of specific property mentioned like the Yahoo stocks) to ensure the property is still there and still valuable enough it will not be disclaimed immediately. “Bad gifts” are things like real estate located near Superfund sites – these gifts will do more harm than good to the nonprofit, so in the event the nonprofit has a “gift acceptance panel” it is their job to catch the bad gifts and disclaim them immediately.

Residual – “Half of the residue of my estate to Nonprofit D”

This sort of gift is considered the most problematic just because there might not be anything in the residue. It will also take the longest to figure out exactly what is in the residue and valuation-wise, what half of it is. Residual gifts are often the “I can’t think of anyone else to give this to” gifts. If the intention is to make a better sort of gift, typically an arrangement can be worked out with the estate planning lawyer to structure a better gift.

Effective bequest administration is important for the Testators, their family in grieving, the lawyers and professional advisers surrounding the family, and the nonprofit themselves.

Bequest administration on the nonprofit side should not be viewed as the task nobody wants; because the person stuck with the thankless task usually does end up giving the impression to grieving families that the nonprofit only cares about shaking a few quarters out of a dead guy.

Effective bequest administration will maximize the value of gifts received, potentially increase the number of donors and improve the types of gifts they might wish to leave (general and specific rather than residual) – and most importantly, certain nonprofits will not continue receiving such a bad reputation in the estate planning and probate lawyer community for how they treat grieving families along with their lawyers and other professional advisers.

It is well worth it for nonprofits to have effective bequest administration in place.

 

 

ARTICLE III topics on HARD MODE

This section takes a closer look at some of the tax topics that arise in Estate Planning.

§062: Disclaimer

When you are crafting your estate plan and figuring out where your property should go, you need to be concerned about the intended beneficiary disclaiming the property. This will frustrate your testamentary intent. Most Testators need to discuss gifts in advance of their demise with the intended beneficiary, especially if they are uncertain of their tax situation and other factors that can lead to a disclaimer.

There are two sorts of disclaimers:

  1. The Plain Denial – this is a bad gift, I do not want it (e.g. real estate near a Superfund site)
  2. The tax advantaged or otherwise Planned Denial – this will adversely my tax situation this year (or create other reporting obligations I don’t want) and/or this gift should go to my child instead since they can use it more.
  3. Limited – you designate your share of that trust/estate goes to a class of possible beneficiaries such as your children or charitable entities. With a limited power of appointment you cannot designate this share goes to you, your estate, or your creditors/the creditors of your estate. This is the spendthrift version.
  4. General – much broader than the limited power of appointment, you have freedom on exercising designations or not.

Plain denial is pretty simple – you properly disclaim timely and no ownership is ever attributed to you. If you don’t do it properly or timely then you will have problems. Once you have met the requirements under state and federal law demonstrating you don’t want to touch the gift with a ten foot pole, your worries are over with respect to that gift. You cannot properly disclaim if you accept the property, income from the property, or direct where it should go when you change your mind and attempt to disclaim.

The planned denial will depend on the exact wording contained in the Will or Trust Document that the gift was generated from. In many circumstances a disclaimer is going to be treated like you predeceased the Testator/Settlor and the gift will pass to your children that “survived” you.

With the tax advantaged denial you will likely avoid gift and estate taxes entirely on that gift-shifting to your child; but there is the potential of GST tax for some transfers

§063: Power of Appointment

Focusing on the first word, this is a power you give to your intended beneficiary: the power to direct where their share of a trust/estate they have received should go when they pass away.

There are two sorts of powers:

A limited power, especially if not exercised, is likely not going to subject the holder to estate and gift tax. There needs to be specific wording utilized to ensure the power really is a limited power though.

A general power on the other hand, even if not exercised, exposes the holder to gift or estate tax. But in the event the holder of a general power designates a charity to receive the share, their estate will be entitled to the charitable deduction.

Powers of appointment provide flexibility decades down the line since nobody has a crystal ball to know which child might develop a drug, drink, or gambling problem; or which child becomes a billionaire and will designate someone more needy to receive an inheritance due to them.

Powers of appointment are an advanced tax topic and estate planning document drafting topic. You will not find powers of appointment included in holographic Wills or Wills you buy for cheap online.

§064: Crummey

It has the ‘e’ so it’s not Holden Caulfield’s crummy, nor is it good bread that is crumby.

A “Crummey” power is an annual notification to a beneficiary of a trust that within a certain time period they can withdraw a portion of the trust res, or if not withdrawn then it will become a fixed portion of the trust res. This is usually in connection with an annual gifting program, that the annual gift exclusion amount contributed to the trust can be withdrawn. This power makes the gift a completed gift since it is a present interest.

However this arrangement creates a problem since it is deemed a general power of appointment. This problem can be solved with a “five or five” solution – the beneficiary is restricted to withdraw no more than $5,000 or 5% of the value of the assets. But this creates a problem since the excess beyond the $5,000 (assuming annual gift exclusion amount was maxed out at $14,000 for a single parent or $28,000 for a gift splitting married couple) no longer has a present interest, and is thus not a completed gift. This problem led to the creation of another solution, which inevitably creates more potential issues.

§065: Income tax

When gifting a large asset through an inter vivos conveyance one of the most important considerations is the transferred basis, rather than waiting to take the stepped-up basis to fair market value on date of death of the decedent. This matters for capital gains tax to the transferee – which is a major consideration for middle class families who can be negatively impacted (as in the ability to put bread on the dinner table) by a large unexpected tax bill.

Depending on what the rest of the Testator’s financial picture is there could be issues to plan for with partnership capital accounts along with inside and outside basis; transfers of interest by gift, sale, or otherwise; 754 elections in response; possible S Corp qualified shareholder issues with the transfer; Qualified S Corp Trust issues; life insurance issues; buy-sell agreement issues; and other issues specific to the owner of a closely-held business interest.

With Family Limited Partnerships the most common issues are that they are not run as “legitimate” businesses which creates new and additional problems that would not have existed if an alternate vehicle had been chosen.

With Grantor trusts, income is taxed to you. Depending on your bracket this could be a big problem or not such a big problem.

There are too many other issues to say anything more generally than, there are probably income tax consequences related to whatever you are thinking about. Talk to your CPA.

§066: Estate tax

Income taxes focus on tax year to tax year. Meanwhile, estate tax only matters the day you die. The current exemption amount in 2015 is $5,430,000. You only pay estate tax on the assets you own in excess of the $5,430,000.

If you are married, the amount of the exemption that the spouse dying first does not use (more lawyerly called the “deceased spouse’s unused exemption” or “DSUE” for short) goes to the second spouse to utilize in addition to their own exemption amount; this is a concept called portability which was not permanent until 2013. A married couple can exclude $10,860,000 altogether from the estate tax in 2015; the spouse dying first can utilize the unlimited marital deduction though. In addition to spousal transfers, a person married or not can also give away plenty to charity tax free. So the estate tax hits very few Americans at the moment, far fewer than it did when the amount was $600,000 with no portability.

For the average guy walking out on the street the amount of money in his estate on day of death includes life insurance, retirement plans, and all of his other assets are counted at their fair market value. With tax planning, large assets can be removed from the estate with fancy lawyering to get the amount of money in his estate down below $5.43mm so no estate tax will be owed.

The estate tax exclusion amount is a credit that is unified with the gift tax exemption. Estate and gift tax work very close together – since you use lifetime gifts to reduce the size of your estate, and the estate tax captures everything else that you failed to dispose of entirely when you were alive.

§067: Gift tax

The most important thing starting out, is whether the gift is a taxable gift or not. There are some gifts that are nontaxable gifts such as payments incident to divorce or contributions to political organizations; and there is the annual exclusion amount to take into consideration.

The next item of importance is whether the gift is a completed gift or not. A gift is not completed if it is revocable, as one example. There are other circumstances that make a gift incomplete. The gift must also be of a present interest, not a future interest.

Then fair market value of the gift matters. Since some gifts can be harder to determine valuation than cash gifts. The value of the taxable gift, in excess of the annual exclusion amount, matters since it will produce a dollar for dollar reduction in the lifetime credit.

Gift tax applies to the donor, the guy giving away the money or property. The donor pays the gift tax (or reduces the exemption) separately from the transfer of property to the donee, so the donee receives the full value of the gift. But here’s the maybe/it depends … the donee might be liable for gift tax if the donor did not pay it.

Gift tax is combined with estate tax, which is never explained very well to people trying to get their tax advice from googling at 4am. The $5,430,000 estate tax exemption can be utilized solely for gifts during your lifetime but then you have no estate tax exemption left.

In 2015 you can gift $14,000 to anyone (child, mistress, or other) without creating a gift tax problem. This is the annual exclusion amount. If you gift your son $15,000 in a way that does not shield it from gift tax (such as a 2503(e) indirect transfer) then this is what it looks like:

$15,000 gift - $14,000 annual exclusion for this person = $1,000 amount is subject to gift tax.

You claim the $1,000 on a gift tax return so now your combined annual exclusion of $5,430,000 is now reduced to $5,429,000. This is the most basic explanation of the unified credit possible.

If you are married, you can gift someone $14,000 and your spouse can gift that same person $14,000 and it will be gift tax free to you both, which is termed “gift splitting.” So as spouses you can give someone $28,000 in 2015 without creating a gift tax problem.

Annual gifting programs are highly recommended for reducing assets in your estate in a tax advantaged way. Especially if the asset you are gifting is going to significantly appreciate, you do not want it in your estate if it will push you over the limit. You can remove the asset from your estate now and it is fixed with the fair market value on the transfer date, not the large increase in worth it will see over time.

Main advantages of gifting are tax savings (especially if it is a gift that will appreciate in value considerably) and the ability for a child or someone else to enjoy the gift now. But the main disadvantages of gifting are losing control over the assets, potentially exposing the asset to the donee’s creditors, and affecting your eligibility for Medicaid.

§068: GST tax

GST is by far the most confusing of the three horsemen of estate planning taxes. GST was put into service as a response to long term and dynasty trusts that were going to avoid tax altogether.

Basics:

  • GST includes outright gifts and transfers into trust, so it is different than estate tax.
  • GST includes unrelated persons more than 37.5 years younger than the donor and related people more than one generation younger than the donor (grandchildren and great-grandchildren as examples)
  • GST catches transfers that slip through the cracks on estate and gift tax at each generation level
  • The $5,430,000 exemption amount for GST is allocated automatically or by election
  • GST is a major concern for a grandparent or other elder person that is intending on giving away more than $5,430,000 to grandchildren, trusts for grandchildren, or other very young people relative to their own age.

This already sounds confusing so let’s do an example to clear up the basics

James is the grandfather and the donor.

Harry is the only son of James.

Albus is the only son of Harry and the only grandson of James.

James throws a lot of money into a trust for Harry (James’ son) and Harry’s children (James’ grandchildren) with the intention that income-only is distributed to the beneficiaries for their health, support, education, and maintenance (“HSEM”) and when Harry dies, the principal will be distributed outright to Albus. The trust res is likely not going to be included in Harry’s estate (let’s pretend the rare circumstances that could lead to that do not happen) so Harry is effectively skipped – so GST tax would be imposed when Harry dies.

More advanced:

There are three scenarios that will cause GST tax:

  1. Direct skip – a transfer is made to a skip person without an intervening benefit to a nonskip person
  2. Taxable termination – the last nonskip person holding an interest dies
  3. Taxable distribution – a distribution is made from a trust to a skip person where this distribution cannot be classified as a direct skip or taxable termination

And the inclusion ratio determines the portion that reach future distribution or termination will expose to GST tax. An inclusion ratio of zero means total exemption from GST tax all along the spectrum to a ratio of one meaning full exposure to GST tax. To calculate the ratio you look at the portion of the transfer NOT covered by the GST exemption/exclusion, and divide this by the value of the entire transfer being made.

 

 

ARTICLE III topics on LEGENDARY MODE

This section takes a closer look at some of the other advanced topics that arise in Estate Planning.

§069: Tax planned trusts

There are a large number of tax planned trusts, all of which do different things for different reasons. Irrevocable trusts will take the assets you transfer into them out of your estate, which helps your estate stay under the current threshold for the estate tax exemption. Revocable trusts are typically taxed as Grantor trusts which can have some additional impacts to be concerned with – though the offsetting benefit to those tax treatments, are that as a revocable trust you still have control over the assets and you can change your mind about things. With an irrevocable trust, once you transfer something into it you can probably never get it out.

These are a few of the more popular trusts people are talking about, with a very basic explanation about them.

Separate Share Trust

This sort of trust is a trust named as a beneficiary of an IRA that, according to the stated terms, will separate into distinct shares for different beneficiaries upon the death of the Grantor.

2503(c) Trust

This is a minor’s trust to hold assets until the child reaches 21 years old. The trustee can use the trust assets to pay such things as college expenses for the child. The trust can also convert to a Crummey trust once the child turns 21.

Bypass Trust

Much more common when the estate tax exemption was lower, this sort of trust bypasses placing assets into the estate of the second-to-die spouse – instead they just receive the income (and potentially some principal) and the assets pass to the Grantor’s intended children when the second-to-die spouse passes away. This method allows the decedent spouse’s estate planning desires to control for a long time after they pass away, especially important if the surviving spouse remarries or gets a different idea about wealth transfer to children – they only have the power to distribute the assets they actually own at that point.

Qualified Personal Residence Trust

A QPRT holds the personal residence, which is typically a person’s largest single financial asset and one that can be greatly appreciating in value.

Irrevocable Life Insurance Trust

An ILIT is a trust funded by life insurance policies and proceeds. An ILIT potentially has gift, estate, and GST tax consequences. Careful attention must be paid to ownership rules and payment of premiums.

Second to Die Life Insurance Trust

A version of an ILIT, this holds a survivorship policy for you and your spouse.

Qualified Terminable Interest Property Trust

QTIPs are used most often in blended families that have children from prior marriages. The QTIP provides flexibility for the Grantor to look after both the current spouse, and children from a prior marriage in a tax advantaged way.

                                                             

Charitable Remainder Annuity Trust

CRATs provide a fixed income stream during life, and upon death of the Grantor the trust assets remaining pass to the charity and escape the Grantor’s estate.

Charitable Remainder Unitrust 

The difference between the CRAT and the CRUT is that with the CRUT the income is variable since the principal is revalued annually.

Charitable Lead Trust                  

The CLT donates trust income to charities (the “lead”) and then after a period of time has elapsed, the remainder of the trust goes to the Grantor’s intended beneficiaries.

                         

Sprinkle Trust        

Also less popularly called a Spray Trust where the trustee is given broad discretion to distribute trust assets to beneficiaries as their needs arise or fluctuate. This is much more flexible than other arrangements that are rigidly tied to certain dates or completion of certain requirements.

                       

Qualified S Corporation Trusts 

QSSTs have a lot of specific rules to qualify. Failure to properly file timely elections jeopardizes the S status, and including a disqualified shareholder leads to losing the S status which creates the dual taxation problem.    

Grandchildren’s Trusts   

These contemplate GST tax consequences because of the age difference. But the annual exclusion and lifetime credit provide some flexibility in funding these trusts initially.

                       

Grantor Retained Unitrust

The GRUT provides a variable income stream that changes with the annual valuation of the principal. When the GRUT ends the trust assets remaining are transferred to the Grantor’s intended beneficiaries.

Grantor Retained Annuity Trust

The GRAT is best utilized when the expected return on trust assets is likely to exceed the 7520 rate and the Grantor is in relatively good health, likely to survive the term of the trust.

§070: Zeroed out trusts

A casual conversation of tax planned trusts is not without the related historical tensions that tax lawyers (and their clients) have had with the IRS, and Congress intervening to term some estate planning techniques “abusive” as they try to close the loopholes from year to year. One such loophole is the zeroed out GRAT made most-popular by the Walton family (of Wal Mart) and a casino billionaire (of Las Vegas.)

The zeroed out concept comes from the world of Grantor Retained Annuity Trusts (“GRATs”) when the annuity is leveraged to return a value to the Grantor equivalent to the value of the property transferred into the GRAT.

There are hazards though, especially if the Grantor dies before the close of the term; the trust property fails to produce enough income to pay the annuity; or the trust assets don’t outperform the 7520 rate. These are hazards in addition to the obvious of giving up all control over trust assets since the GRAT is irrevocable and cannot be later amended.

§071: Supplemental Needs Trust

Put most essentially, SNTs provide for supplemental and extra care over and above what the government provides.

The SNT is a specialized vehicle required specialized drafting of the trust document by a lawyer – a spendthrift trust or other sorts of trusts will not accidentally do the same thing a SNT will, so it is inappropriate to try and use another trust when a SNT is what is needed.

SNTs are essential for people whose eligibility for means-tested programs (such as SSI and Medicaid) would be jeopardized by receiving even a small inheritance. SNTs are also important for people living with disabilities to supplement other public benefits they are receiving.

The benefit of SNTs is that they allow a person to retain eligibility for public benefits, while also having a pool of assets that can be utilized to improve the quality of their life. An SNT is about quality of life.

Shielding personal injury settlements

SNTs commonly come up in the personal injury arena where a cash settlement will jeopardize benefits, but will not be enough money to actually cover the medical and other living expenses.

Not counted assets

Funds dropped into SNTs are not considered “counted assets” in the same way that cash in their hand is. Since most SNTs are irrevocable, once the money goes in it is not coming back out – so there is no incident of ownership.

Importance of trustee

However the trustee needs to keep careful records and avoid making any disbursements that will jeopardize the beneficiary’s eligibility for benefits. An individual can serve as trustee or a bank’s trust department can.

First party

A SNT funded with first party funds have money coming from the person attempting to remain eligible for means-tested programs – this is their money, so first party funding is also called self-settled. This money is subject to Medicaid payback – any money remaining in the SNT upon death will pay the State back for any Medicaid money spent on their behalf.

Third party

A SNT funded by other people than that person have third party funds. Third party funds are not subject to Medicaid payback. These are typically funded by close family members such as parents or siblings.

Basic support expenses

Basic support includes such things as food and housing. This basic support affects SSI through ISM and PMV.

Supplemental needs

Supplementary needs cover additional things which will typically not affect SSI. A nonexhaustive list of such things covered include: Health and dental treatment and equipment for which there are not funds otherwise available; rehabilitative and occupational therapy services; medical procedures, even though not medically necessary or lifesaving; medical insurance premiums; supplemental nursing care; supplemental dietary needs; eyeglasses; travel; entertainment; companionship; private case management; cultural experiences; expenses associated with bringing relatives or friends to visit with the beneficiary; vacations; movies; telephone service; television and cable equipment and services; radios; stereos; training and education programs; reading and educational materials; and more.

Even with a SNT in place, there are impacts on SSI and Medicaid.

SNT buying a house

There are likely to be impacts on your benefits under the (“PMV”) Presumed Maximum Value rule by the SSA with respect to (“ISM”) In-kind Support & Maintenance (shelter) received in the new house. The month the house is purchased is deemed to result in that ISM, but it is capped by the PMV. If the trust purchases outright with the trust corpus then you only get hit with the PMV that one month. But if there is a mortgage you get the PMV reduction in that first month and every month the trust makes a monthly mortgage payment. Depending on any reductions you might have already on current ISM in your living situation, you might be looking at a further reduction from that amount up to the PMV amount – but in exchange you would be in your own house.

SNTs can create numerous issues that require careful management by trustee, frequent legal advice, and analysis to ensure that the SNT operates as the Settlor intended.

§072: Other trust scenarios for minors, incapacitated people, and elders

Qualified Income Trust   

Also called a “Miller Trust” this relates to Medicaid eligibility. The trust agreement must be irrevocable; provide that the State of Texas will receive any amount remaining in the trust upon the death of the Medicaid applicant; and designate precisely which sources of income will be deposited into this trust each month.

 

142 Trust

This sort of trust arises when there is a minor or incapacitated person that is due to receive funds in a lawsuit. The court that creates the trust retains continuing jurisdiction and supervisory power over the trust – including the power to construe, amend, revoke, modify, or terminate the trust as needed.

Management Trust

A proper court exercising probate jurisdiction may enter an order that creates a trust for the management of the estate of an alleged incapacitated person who does not have a guardian if the court, after a hearing, finds that: (1) the person is an incapacitated person; and (2) the creation of the trust is in the incapacitated person's best interests.

 

This concludes ARTICLE III.

Thank you for reading ARTICLE III in Frye, Oaks, Benavidez & O'Neil, PLLC’s Information Headquarters.

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About the Frye, Oaks, Benavidez & O'Neil, PLLC Information Headquarters:

Frye, Oaks, Benavidez & O'Neil, PLLC has a boutique estate planning practice serving the GLBTI community’s unique needs Post-Obergefell and assisting their allies in the broader Texas community as well with family wealth preservation and transfer during life and at death. We work with all individuals and families of all sorts of backgrounds since we know how important it is that we provide for the beloved family, friends, and/or charitable entities we will leave behind.

DISCLAIMERS:

  • The Frye, Oaks, Benavidez & O'Neil, PLLC Information Headquarters is not legal advice.
  • The Information Headquarters is not a suitable alternative to specific, tailored legal advice from a licensed Texas attorney that is based on the specific facts and circumstances of your case.
  • The Information Headquarters should not be relied upon by any prudent person at any point in time under any circumstances to attempt to ascertain or determine any legal obligation, rights, duties, or other responsibilities.
  • You reading the Information Headquarters does not create an attorney-client relationship or privilege.
  • The Information Headquarters is not an exhaustive resource on the totality of Texas law, trust law, federal law, and the various tax laws; only a few selected topics are covered as part of a broader, general discussion.
  • The Information Headquarters is solely prepared as a general educational resource for entertainment purposes and should not be relied upon by any prudent person at any time under any circumstances.
  • The Information Headquarters may not be used to attempt to evade or defeat any of the tax laws.
  • Please reference this publication explicitly if you quote from any of the content in any commercial, nonprofit, academic, or other context.

Original publish date of 11 January 2016

Prepared by Daniel L. O’Neil, Partner

Schedule an appointment with me to discuss your specific estate planning needs at 713.227.1717

Our other lawyers at the firm handle Family Law, Social Security Disability, Criminal Defense, Guardianship, Transgender (adults and minors) legal name and gender changes, Employment discrimination law for individuals, as well as Employee planning and advice for businesses.

Frye, Oaks, Benavidez & O'Neil, PLLC

www.liberatinglaw.com

We are now on facebook!

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Welcome to the Frye, Oaks, Benavidez & O'Neil, PLLC Information Headquarters!

This is the main table of contents for the Information Headquarters.

 

v  Article I introduces the basic concepts of Estate Planning.

 

Article I: Estate Planning, Generally

 

Listing of topics:

Easy mode

§000:So, what is Estate Planning exactly?

§001:The peace of mind an estate plan brings

§002: What happens without a valid Will (About Intestacy)

§003: Who needs a Will?

§004: What type of Texan especially needs a Will?

§005: Documenting your capacity

§006: A note on lawyers

§007: Types of Wills explained

§008: Nuts and bolts of Wills

§009: Why have a Will?

§010: The nature of your assets

§011: Where should your assets go?

§012: The Estate Planning “Package”

§013: Introducing trusts

§014: Introducing Fiduciaries

§015: Who do you trust?

§016: About the disability planning documents

§017: About guardianship

§018: Vocabulary

§019: Your relationship with a family lawyer rather than just a scrivener

§020: Transition from the Probate Code to the Estates Code

§021: A final word on the basic importance of Estate Planning

Hard mode

§022: Annual review of Estate Plan

§023: Your digital life

§024: Myths of Estate Planning

§025: Frequently Asked Questions of Estate Planning

Legendary mode

§026: Ethical issues for your Estate Planning lawyer


v  Article II stresses the importance of Marital Property Characterization for your assets.

 

Article II: Marital Property Characterization & Yoü

 

Listing of topics:

Easy mode

§027: So, what is a character anyhow?

§028: The interplay of SP and CP

§029: Partition and Exchange

§030: Gifts between spouses

§031: Gifts to strangers of the marriage

§032: Sole management over community funds

§033: Will contracts between spouses

§034: There is no legal “separation” in Texas

§035: Marital torts

§036: Tax returns are not valid marital property agreements

§037: Good faith and fair dealing in marital property agreements

§038: Just and right division

§039: Characterization issues on appeal

Hard mode

§040: Are you really married?

§041: Judge & Jury

§042: Large assets

§043: Divorce lawyers

§044: Texas divorce basics

§045: Discovery

§046: Nonreimbursable claims

§047: Reimbursement claims

§048: Offsets to reimbursement claims

§049: Beginning balance

§050: Commingling

§051: Tracing

Legendary mode

§052: Divorce tax

§053: Mediation for GLBTI family law

§054: False allegations of abuse

§055: But a special note on real family violence


v  Article III addresses planned transfers, trusts, and the taxes associated with Estate Planning.

Article III: Planned Transfers

Listing of topics:

Easy mode

§056: Nonprobate assets

§057: Probate assets

§058: Probate avoidance

§059: Coordination of probate and nonprobate

§060: The basic gifting strategies

§061: Charitable bequest administration

Hard mode

§062: Disclaimer

§063: Power of appointment

§064: Crummey

§065: Income tax considerations

§066: Estate tax

§067: Gift tax

§068: GST tax

Legendary mode

§069: Tax planned trusts

§070: Zeroed out trusts

§071: Supplemental Needs Trust

§072: Other trust scenarios for minors, incapacitated people, and elders


v  Article IV then discusses litigation, alternative dispute resolution, and criminal issues encountered in Estate Planning.

Article IV: To Probate Court and Beyond

Listing of topics:

Easy mode

§073: 30,000 foot overview of the probate process

§074: Heirship proceeding

§075: Small estate affidavit

§076: Muniment of title

§077: Local Rules

§078: Creditors in probate

§079: Independent or Dependent administration

§080: When someone important passes away …

§081: Application

§082: Not eligible to serve as Executor

Hard mode

§083: Litigation

§084: Mediation

Legendary mode

§085: The Unauthorized Practice of Law (“UPL”) in the State of Texas

§086: Elder financial abuse

§087: State criminal prosecution

§088: Federal criminal prosecution

§089: Tax crimes

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iHQ: Article I

About the Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters:

Frye, Oaks, Benavidez & O'Neil, PLLC has a boutique estate planning practice serving the GLBTI community’s unique needs Post-Obergefell and assisting their allies in the broader Texas community as well with family wealth preservation and transfer during life and at death. We work with all individuals and families of all sorts of backgrounds since we know how important it is that we provide for the beloved family, friends, and/or charitable entities we will leave behind.

DISCLAIMERS:

  • The Frye, Oaks, Benavidez & O’Neil, PLLC Information Headquarters is not legal advice.
  • The Information Headquarters is not a suitable alternative to specific, tailored legal advice from a licensed Texas attorney that is based on the specific facts and circumstances of your case.
  • The Information Headquarters should not be relied upon by any prudent person at any point in time under any circumstances to attempt to ascertain or determine any legal obligation, rights, duties, or other responsibilities.
  • You reading the Information Headquarters does not create an attorney-client relationship or privilege.
  • The Information Headquarters is not an exhaustive resource on the totality of Texas law, trust law, federal law, and the various tax laws; only a few selected topics are covered as part of a broader, general discussion.
  • The Information Headquarters is solely prepared as a general educational resource for entertainment purposes and should not be relied upon by any prudent person at any time under any circumstances.
  • The Information Headquarters may not be used to attempt to evade or defeat any of the tax laws.
  • Please reference this publication explicitly if you quote from any of the content in any commercial, nonprofit, academic, or other context.

Original publish date of 11 January 2016

Prepared by Daniel L. O’Neil, Partner

Schedule an appointment with me to discuss your specific estate planning needs at 713.227.1717

Our other lawyers at the firm handle Family Law, Social Security Disability, Criminal Defense, Guardianship, Transgender (adults and minors) legal name and gender changes, Employment discrimination law for individuals, as well as Employee planning and advice for businesses.

Frye, Oaks, Benavidez & O'Neil, PLLC

www.liberatinglaw.com

We are now on facebook!

Visit us at www.facebook.com/liberatinglaw

 

 

Article I: Estate Planning, Generally

 

Listing of topics:

Easy mode

§000:So, what is Estate Planning exactly?

§001:The peace of mind an estate plan brings

§002: What happens without a valid Will (About Intestacy)

§003: Who needs a Will?

§004: What type of Texan especially needs a Will?

§005: Documenting your capacity

§006: A note on lawyers

§007: Types of Wills explained

§008: Nuts and bolts of Wills

§009: Why have a Will?

§010: The nature of your assets

§011: Where should your assets go?

§012: The Estate Planning “Package”

§013: Introducing trusts

§014: Introducing Fiduciaries

§015: Who do you trust?

§016: About the disability planning documents

§017: About guardianship

§018: Vocabulary

§019: Your relationship with a family lawyer rather than just a scrivener

§020: Transition from the Probate Code to the Estates Code

§021: A final word on the basic importance of Estate Planning

Hard mode

§022: Annual review of Estate Plan

§023: Your digital life

§024: Myths of Estate Planning

§025: Frequently Asked Questions of Estate Planning

Legendary mode

§026: Ethical issues for your Estate Planning lawyer

 

ARTICLE I

ESTATE PLANNING, GENERALLY

 

ARTICLE I topics on EASY MODE

This section is a gentle introduction to the high-level concept of Estate Planning in the State of Texas.

§000: So, what is Estate Planning exactly?

Estate Planning is a thoughtful consideration of numerous things. This is certainly not an exhaustive list of things to be thinking about as you contemplate your estate plan, but these are extremely important things to be thinking about:

v  what you own;

v  what people are in your life;

v  how you feel about those people;

v  which people you trust to make difficult decisions for you if you no longer can;

v  which people you want to provide for financially after you pass away;

v  which people are you concerned about challenging your estate plan after you pass away;

v  what charitable entities you would like to financially support after you pass away;

v  which pet(s) you would like to financially provide for after you pass away;

v  which law firm is right for you;

v  which lawyer is right for you;

v  what cost is reasonable for that lawyer to prepare your estate plan;

v  how much money and frustration will you save the cherished family, friends, and charitable entities you leave behind if you have a valid Will rather than passing away intestate;

v  your current health (and mental health) situation; and

v  appreciating that you might not always have testamentary capacity in the future due to injury, disease, or other incapacity.

§001: The peace of mind that an estate plan brings

The best way I can describe an estate plan to a prospective client is that these documents (once executed) provide peace of mind. If you wake up in the middle of the night and feel like these documents (or the lack of documents!) are not giving you peace of mind, this is very easy to remedy with the assistance of an estate planning lawyer.

An estate plan is fluid and we can always update them as long as you have capacity. It is just human nature that sometimes we will have a “falling out” with a family member or a friend that we appointed as Executor or Trustee – and we can no longer trust them to handle our financial affairs. Also, unfortunately, the favorite people in our life do succumb to their own illnesses, injuries, or other incapacities that makes them ineligible to serve as our Executor or Trustee, so we need to appoint someone else that is still alive and capable.

§002: What happens without a valid Texas Will? (Alternative title: “About Intestacy”)

If you pass away in Texas without a valid Will then in legal parlance you have died intestate. This is what happens if you die intestate:

Article I section2

Article I section 2 include Intestate Distribution Charts2

Article I section 2 include Intestate Distribution Charts 3

 

This estate plan is called the law of intestacy, which is sometimes referred to by people as a “harsh mistress” because this does not work for everyone and throughout the modern era it has led to some unintended transfers of property that could have been prevented by having a Will.

The law of intestacy is the default provided to you by the State of Texas. You need to opt-out of this default estate plan by planning for and then executing a Will that makes different distributions. Even if you like the laws of intestacy, you still need a Will to appoint your preferred fiduciaries and to avoid costly heirship proceedings that could be avoided with a Will. Even if you don’t have that much money, most lawyers (my firm included) do offer a sliding scale of fees taking that into consideration. No two clients or married couples are the same, so there is no “one size fits all” in pricing, outside of the consideration of what is appropriate for the work being done offset by what the client feels comfortable with paying. 

§003:  Who needs a Will?

Everyone. This is an easy question with an easy answer, unlike nearly every other question you can ask a lawyer where they have to respond with a “It depends … “ because of reasons.

In the past we have heard numerous reasons from people on why they can’t justify the expense of an estate planning package. Chief among them is the thought that they are paying money now for a document that will collect dust for 50 years and they will never think about again.

But the investment today is protection for your family and friends tomorrow.

  • A Will ensures that your property goes where you want it to go.
  • A Will ensures that the people you trust will be responsible for handling the financial affairs of your estate.
  • A Will removes the frustration, expense, and chaos of a family struggling with an intestate administration while they are still grieving over the loss of their loved one.
  • A Will protects your property and the people that are going to get it.
  • The law of intestacy is rigid and uncompromising.
  • Category 01: You do not now, nor have you ever had a Will
  • Category 02: You were recently married and need to update your Will
  • Category 03: You were recently divorced and need to update your Will
  • Category 04: You have a new child (birth or adoption) that you want to provide for and need to update your Will to reflect that new child or children
  • Category 05: You lose faith in your previously trusted friends or family and you need to update your Will to appoint new fiduciaries that you trust more
  • Category 06: You bought your Will online from a document assembly shop and you are concerned it is not actually a valid Texas Will since it was drafted by a non-lawyer outside of the State of Texas
  • Category 07: You have a holographic Will and are worried you are missing important provisions that traditional Wills contain
  • Category 08: You are an unmarried millionaire concerned about estate tax
  • Category 09: You are a married multimillionaire concerned about estate tax
  • Category 10: You are a Texan reading this line right now and you did not find yourself listed above in Categories 01-09

§004: What type of Texan especially needs a Will?

The categories of Texans that most urgently need a Will:

§005: Documenting your capacity

If you are elderly, in poor health, have a drink/drug problem, or have made other decisions that have annoyed your family members and caused strained relationships with them, there are additional steps we can take to fully document (in preparation of litigation) your capacity on the specific time period in days where we discuss and craft the estate plan to your desires, and especially on the day you come into our office and you execute the Will in our Formal Will Execution Ceremony. Each situation is different, but we can find an appropriate technological solution if one exists.

If you are expecting there to be a Will Contest it is essential that you have this conversation with us so we can take the necessary steps to begin protecting the estate plan you want.

§006: A note on lawyers

As discussed, every Texan needs a valid Will. Every Will is not going to look the same. But the one thing that matters is that it is a valid Will. An invalid Will is not worth the paper it is printed on, so be wary of being things on the internet from non-lawyers that don’t have an office in Texas.

Verify your lawyer is licensed to practice in Texas and currently in good standing with the State Bar here: https://www.texasbar.com/AM/Template.cfm?Section=Find_A_Lawyer&Template=/CustomSource/MemberDirectory/Search_Form_Client_Main.cfm

You can also use review sites and other online resources to research your lawyer before you schedule an initial consultation with them. This is not an exhaustive list but some of the most popular online resources include:

BNI - http://www.bnihouston.com/find_a_member.php

Yelp - http://www.yelp.com/

Facebook – http://www.facebook.com/

LinkedIn – http://www.linkedin.com/

Findlaw - http://lawyers.findlaw.com/lawyer/lawyer_dir/search/jsp/name_search.jsp

Lawyers - http://www.lawyers.com/find-a-lawyer

Avvo - http://www.avvo.com/find-a-lawyer

§007: Types of Wills explained

Simple Wills

Simple Wills are not simple in that they are a crayon drawing on a napkin; but in legal jargon it essentially means that there is no tax planning included in the estate plan. Tax planned Wills are problems for the 1% but not the 99%.

Tax Planned Wills

Tax Planned Wills are complicated to avoid estate tax altogether, and typically to minimize gift and/or GST tax if not to avoid them altogether.

Living Trust with Pourover Will

There are also many misconceptions about living trusts. The usefulness of this estate plan has limited utility in Texas compared to other jurisdictions. However, the pourover Will is an essential aspect of estate planning for those Texans with a living trust, to ensure that any later acquired assets and other estate assets find their way to the living trust rather than get swallowed up by the law of intestacy which could lead to unexpected and unwanted transfers of property that could have been easily prevented.

When a person with a living trust dies their assets contained in that living trust will be disposed of under the terms of that Trust Document.

As a Settlor acquires assets throughout their lifetime after settling the Trust, they need to transfer all of those assets into the name of the Trust. Everything from real estate to bank accounts, stocks, and everything else needs to be retitled in the name of the trust. If the Settlor forgets to retitle something, it is exposed to the law of intestacy if they do not also have the pourover Will in place to catch all of the other assets.

The main difference between a Will and living trust is when it takes effect – a Will only matters and takes effect when you die. So you can update it or revoke it at any point up until the day you die so long as you have capacity and intent. Meanwhile a living trust takes effect immediately when you execute it and it is notarized – there will be specific provisions that govern when, how, and under what circumstances the Trust Document can be amended. In addition to that, you still need the pourover Will on top of the living trust to catch any remaining assets you forget to retitle.

The most common misconception people have about a living trust is that it has huge tax advantages. It actually does not. It can have its own tax planning mechanisms, but all advantages contained in a living trust are just as easily included in a Tax Planned Will.

If a Texan has opted for a living trust over a Will solely for the perceived tax advantages, they have been misled and have relied on bad information – perhaps by one of the many unscrupulous non-lawyers that make money selling living trusts to seniors, and frequently run afoul of the Unauthorized Practice of Law in the State of Texas.

Holographic Wills

When you handwrite your own Will it is called a holographic Will. There are some basic requirements to follow for a holographic Will to be potentially considered a valid Will in an application for probate. This is where the huge caution comes in – holographic Wills are easy to do, but they are just as easy to cause more problems than they solve.

There are many ways a Texan can die without a valid Will: including, but not limited to, the Testator revoking the Will intentionally or accidentally. Revoking a Will accidentally is an important concern for a Texan with a holographic Will, especially if they have not had formal legal training in the Texas laws of Wills, Trusts, and Estates. The laws in California and Louisiana are much different than Texas, so even a lawyer licensed in another U.S. jurisdiction may not know how to draft a valid Texas Will or how to properly execute one.

The popularity of holographic Wills stem from the old frontier days when a person might need to ride a horse for 100 miles (a week or longer each way) into town to find a lawyer who could take care of drafting a formal Will with their fancy college boy talk. That was extremely inconvenient; dangerous with rattlesnakes, notorious brigands, and known horse thieves all along the frontier; and took them away from being economically productive farming or ranching the frontier for an extended period of time.

So this is why the basic requirements for a holographic Will are extremely basic: so any person can do it without instituting strict educational requirements, which honors the traditions of the hardy frontier settlers at that time. The world, and by necessity the legal system, became more complex in the intervening years. So the requirements are basic enough that it is an easy bar to step over, but also basic enough that they are not required to be good Wills in terms of the provisions they include and the protections that are in place to demonstrate there was sound mind, lack of undue influence, and the estate plan they are executing is actually the one they intended.

The four main concerns with holographic Wills:

  1. They are likely going to be missing important provisions that a Will drafted by a Texas lawyer is going to include, which will be important things to have in Probate Court and can create costly problems that could have been easily avoided. Ambiguity is a huge problem, as well as over-explaining and under-explaining things, which will require litigating what was actually meant out of all the possible ways the provision could be interpreted. A poorly drafted Will (holographic or not) usually causes a lot of unintended consequences such as requiring additional court proceedings, and possibly even leading to an extremely expensive dependent administration of the estate which is usually not what anyone intends with their estate planning.
  1. They are not going to create sensible, appropriate trusts that might be extremely necessary (in the case of Supplemental Needs Trusts) or highly recommended by a Texas lawyer if you are giving large amounts of cash to a person with a drink, drug, or gambling problem that should go into a spendthrift trust rather than to them outright. Holographic Wills are not going to get the basic trusts done, so it seems unnecessary to mention except out of thoroughness that they will absolutely not get the more advanced tax planned trusts (such as the ILIT, QPRT, Sprinkle, or CRAT) done right either.
  1. They are not going to have much evidence of testamentary capacity and intent, so they can be a lot easier to challenge in a Will contest than the precautions undertaken and evidence a Texas lawyer amasses in preparation for potential litigation. There is a lot of importance placed on capacity and intent, so most Texans will usually want the best evidence – which in some cases includes us taking video of the formal Will execution ceremony in our office if we know with a certainty that a family member is going to contest the Will just because that is who they are and they are willing to commit large financial resources to that end in probate litigation. Additionally, all property might not be disposed of in intended ways if the estate plan did not contemplate all major assets. Which would further increase the likelihood of a Will contest from a family member that did not receive what they considered to be their fair share and was looking for any reason to complain.
  1. They can be easily revoked, especially if the holographic Testator has not heard the various and numerous cautions a Texas lawyer will give them on things to do and things not to do with their executed Will and other estate planning documents. As things in our life change it is very common that we need to update our Wills – marriage, divorce, new children, or someone falls out of our favor. Clients of Texas lawyers have heard the details about what not to do. But Texans with holographic Wills that want to update their Will, in most circumstances, will take out a red pen and start “updating” their Will, in a way that might revoke the Will entirely at the worst, or render any “update” completely ineffective at the best.

Holographic Wills are the best and typically only option in emergency circumstances. They have plenty of pitfalls though – ambiguity, omitting important provisions, tax consequences, and laying fertile ground for a Will contest that could have been avoided by going to a lawyer.

If you are not pinned underneath a tractor without any hope of rescue besides carving your holographic Will into the tractor fender; or you are not drawing your last breath from an unexpected last illness as you scratch your holographic Will into the wall above your death bed, a holographic Will is probably not going to be appropriate to cover all of the angles of your estate planning needs.

Codicils

If your prior Will is mostly good but needs some minor updates, a Codicil may be appropriate rather than starting over from scratch with a new Will. A Codicil is going to republish the old Will with the minor updates – such as adding new gifts of later acquired property, or changing other items such as converting a basic spendthrift trust now into a Supplemental Needs Trust for your adult disabled child.

§008: Nuts and bolts of Wills

Formalities of Will execution

There are some basic formalities required to execute a valid Texas Will. Not following these basic formalities can lead to the same outcome as never having made a Will in the first place.

Composition of the Will

Integration: that all components are meant to give rise to the Will. This essentially means that no pages have been slipped in after the fact. Wills that are not doing well on the integration aspect look like: (a) loose pages without a staple, (b) no page numbers, (c) no cohesiveness from page to page, (d) pages in different fonts, (e) holes from removed staples and a new staple in place, or (f) one page looking years older or newer than all of the other pages. The most obvious case of this would be a Will that was printed on our formal, fancy thick bond paper (ivory) in the Times New Roman font and finding a cheap Walmart quality printer paper page on page 5 written in the Comic Sans font – we would never endorse Comic Sans as a font choice in a Will. That is a Will that has been altered after the formal Execution ceremony. That is a Will whose integration could be easily challenged in litigation.

Republication: that you really mean (most of) what you said earlier in a prior Will execution. Republication arises mainly in connection with executing a Codicil to your Will. Some Wills get it mostly right, but need a few updates. Rather than going back to the drawing board on the entire Will some people prefer just to update addresses of property, add Trust provisions, or make other changes. It depends entirely on the structure of the Will and the drafting that went into it. Some Wills I see are so bad while we could theoretically just do a Codicil, I recommend putting the old one in the trash and starting over with sensible and ordered articles and sections that will be much easier to update by Codicil later. Republication also arises when there is a concern about the validity of the Will execution ceremony that took place on the initial Will. We see this most often from lawyers that do not have an estate planning practice, but still sold a $1,000 Will to their personal injury client that just received a large settlement. As long as a Codicil to that Will is validly executed and attended to by an actual estate planning lawyer, any defects existing with the Will execution before can be cured. This is important when the Testator is pretty certain the Will is going to be contested – and the prior lawyer did not document anything on capacity or intent.

§009: Why have a Will?

  • Direct your assets to go where you want them to go.
  • Appoint the people you trust to handle the financial affairs of the estate so your intended beneficiaries are not robbed blind.
  • Save your family, friends, other loved ones the additional time, expense, and frustration of dealing with an intestate estate (which is more complicated than a testate estate.)
  • In nearly every situation, the cost of a Will is a drop in the bucket of the large expense (plus time plus frustration) that an intestate administration will ultimately end up costing. In most cases you could easily spend at least 10x more money (plus the time plus the frustration!) on an intestate administration than you would on a sensibly priced Will. In terms of family wealth protection and facilitating transfer of that wealth (whether it is $1,000 or $1,000,000,000) a Will is the single best investment a person can make – and going without a Will is a very risky financial decision akin to going to Vegas and putting all of the family’s wealth on red.

§010: The nature of your assets

IMPORTANT NOTE: You will need to see Article II if you are married; and/or Article III if you are concerned about tax consequences for a more complete picture of the overall nature of your assets. Article I is just the most basic introduction to the topic of “what stuff do you own?”

The starting point in an estate plan begins with an analysis of the nature of the assets that you own. Cash, stocks, bonds, house(s), land out in East Texas, oil & gas royalties, the beach house, the lake house, the prized art collection, a signed Mickey Mantle baseball, a jar of buttons, your ceramics, your vinyl record collection, an interest in a closely held corporation … no two people own the same stuff of course; every individual and family’s financial situation is going to look different from the next one.

But, it’s a legal requirement that you know the nature and extent of your bounty; if you don’t know this you don’t have testamentary capacity. This is why the starting point is about what you own, and why that features so prominently in our (and other firms’) initial client consultation’s estate planning questionnaire. Whether you have $500 or $5,000,000,000 to your name, it is extremely important that you know what you have – and you tell us what you have, so we can assist with tax planning if needed, or discuss ancillary services or a possible referral to a trusted referral partner in the life insurance industry if you do not have a life insurance policy in place.

We will discuss this more later, but your relationship with your Estate Planning lawyer should be one where you consider that person to be a “family lawyer” rather than a person that just types out a form how you tell them. A “family lawyer” is someone that you make a part of your family, as much as they make you a part of their firm’s client family. In estate planning you need to discuss all of the sordid, relevant details of your life along with your family and marital situation in a judgment free zone, and your lawyer can help with a variety of things that are related to the estate plan, but are not necessarily going to actually be in the Will. For instance, at our firm we assist clients preparing an external memorandum to certain family members or friends to explain in full detail why they have been put in the estate plan, or more importantly, why they have been kept out. We also assist with marital property agreements for couples that are arguing over money, but are not ready to have the divorce conversation. We also handle deeds, assist in funding trusts, and a wide variety of other services that are required, recommended, or might be helpful to a person executing a Will or trust document.

§011: Where should your assets go?

Once you know what you have, the next step is figuring out where it should go based on your family situation. If you are single with no children then that estate plan is likely going to look a lot different for a married person with six minor children. If you are married with grown adult children that have their own professional careers, your estate plan might focus more on your charitable interests.

The importance of figuring out where your things should go feeds into preparing for a possible Will Contest if you are greatly favoring one child over another, or making other distributions that have a good chance of being challenged by a family member that you know is already quite litigious.

There also might be external considerations on where your assets should go, such as the various tax laws or concerns about the specific beneficiaries which might necessitate placing their testamentary gift inside a spendthrift trust so it’s not frittered away on drink, drug, or gambling.

§012: The Estate Planning “Package”

The typical estate planning package that takes care of 99.9% of Texas residents looks like the following:

ü  Will

ü  Memoranda external to the Will that tell people what you think of them

ü  Disability planning documents for your health & medical needs

ü  Disability planning documents for your financial needs

ü  Disability planning documents to take care of your minor children

ü  Important notices and helpful memoranda we prepare as a reference for you to consult

ü  Phone number of your lawyer to ask follow-up questions to, as needed

More complex plans require more provisions in the Will and additional documents, depending on the structure, such as with a Living Trust.

§013: Introducing trusts

Trusts are a very important part of estate planning. You can think of a trust as the strings that support, and control, the marionette puppet. Depending on the beneficiary’s unique situation in life the facts determine how much support is needed relative to how control and oversight is needed. As we leave money to friends, family, and others we want to make sure they use it well to live a good life. We want to make sure that, if they cannot handle the responsibility, they do not take the inheritance or gift and put it up their arm. Trusts prevent that from happening; trusts also protect their inheritance from divorce or other creditors in the event they lead a complicated lifestyle.

§014: Introducing fiduciaries

The two most important duties for a fiduciary involve the duty of prudent administration and the duty to administer the trust for the benefit of the beneficiary. There are a number of other “sub-duties” but they all relate back to prudent administration and for the benefit of the beneficiary.

Trusts are not piggy-banks. Trustees risk fiduciary litigation over most of their actions and their omissions. Not every action or omission is going to lead to fiduciary litigation but it is always a risk. In addition to costly civil litigation, depending on the actions or omissions that are alleged, Trustees also risk criminal prosecution under all flavors of white collar crime under the sun – this involves state and the far more menacing federal (including tax crimes) prosecution.

Undivided loyalty to the beneficiary issues usually involve the Trustee self-dealing (selling valuable trust property out of the trust to himself outright for $1) or a conflict between the fiduciary and the personal interests (whether the Trustee should purchase severely undervalued real estate, make a modest investment, and flip it for himself personally, or for the trust.) In the real world most self-dealing and conflicted transactions are less “outrageous” examples and can require extensive discovery to figure out the nuts and bolts of what really happened and how bad it was.

Prudent administration issues involve the objective standard of care. This is where the “prudent person” comes in to determine how reasonable a Trustee’s actions really were. Betting all trust assets on red at the Roulette wheel is probably not how a prudent person would conduct financial affairs. Nor would a prudent person necessarily build a time machine, travel back in time, and invest all trust assets in Yahoo at a point in time when that would result in a large financial gain. 

§015: Who do you trust?

Financial affairs

In the worst case scenario, you will not be able to continue taking care of your own financial affairs but you will not be dead yet so your Will still does not come into play.

If you have planned ahead, you have found someone now that you trust enough to collect rent, pay your bills, and otherwise handle your financial affairs. You appoint this person in the Statutory Durable Power of Attorney that takes effect upon your disability or incapacity but not before then.

Throughout history there are plenty of stories about how this has not ended well. But there are just as many stories of where things have worked as planned – someone you trusted was able to seamlessly step into your shoes and handle your affairs as you would have.

These are the potential responsibilities you will be giving someone to handle your financial affairs:

  • Real property transactions;
  • Tangible personal property transactions;
  • Stock and bond transactions;
  • Commodity and option transactions;
  • Banking and other financial institution transactions;
  • Business operating transactions;
  • Insurance and annuity transactions (provided that my agent shall specifically not have the power to designate or change the beneficiary of any annuity or contract of insurance on my life);
  • Estate, trust and other beneficiary transactions;
  • Claims and litigation;
  • Personal and family maintenance;
  • Benefits from social security, Medicare, Medicaid, or other governmental programs or civil or military service;
  • Retirement plan transactions (provided that my agent shall specifically not have the power to designate or change the beneficiary of any of my retirement plans or IRAs);
  • Tax matters.
  • Specific gift: “My lightsaber collection to George.” If the Testator gifted the property to someone else (or for whatever reason it is no longer in their estate when they die) it is an irrebuttable presumption that they knew what they were doing and intended to revoke the specific gift mentioned in the Will. Ademption applies regardless of Testator’s actual intent regarding the gift.
  • Demonstrative gift: “$500 to be paid out of the proceeds of selling my unique twitter account username on ebay.” Ademption may not apply since money is money.
  • General gift: “$500 to Larry.” $500 is $500 since money is just money. Ademption may not apply.
  • Avoidance doctrine: “$500 from my account at Bank A to Bob.” A gift of money at Bank of A (zero balance) might be substituted for funds at Bank of B ($50,000 balance) since money is money, it’s a rather general transfer of money
  • You have two deceased children: Abel and Baker
  • Abel left behind one kid: Tiberius
  • Baker left behind two kids: John and Jackson
  • Tiberius takes 1/2
  • John and Jackson split the other half:
    • John takes 1/4
    • Jackson takes 1/4
    • You have three kids that are all still alive: Ron, Fred, and George
    • Ron has one kid: Harry.
    • Ron dies before you.
    • Fred has three kids: Regina, Cady, and Damian
    • Fred dies before you.
    • George has no kids but is still alive.
    • George takes 1/3
    • The remaining grandchildren take the remaining 2/3 in equal shares:
      • Harry takes 1/6
      • Regina takes 1/6
      • Cady takes 1/6
      • Damian takes 1/6
      • You have two deceased children: Apache and Beta.
      • Apache left behind two kids: Charlie and Darnell.
      • Beta left behind one kid: Erev.
      • Charlie, Darnell, and Erev all take 1/3 equally
      • Spouse 1 dies. Their Will utilized the unlimited marital deduction to give everything to Spouse 2 tax free. Say this amount was $5,430,000 which is the current threshold for estate tax.
      • Spouse 1 wasted their entire estate tax exclusion, it is gone like a wisp in the air.
      • Spouse 2 has separate property of $5,100,000 and receives the $5,430,000. Spouse 2’s separate property appreciates to $5,430,000 at time of death. So Spouse 2 has $10,860,000 in their estate.
      • Spouse 2 gets the $5,430,000 estate tax exclusion and then is paying estate tax on the entire remaining $5,430,000 which is a very big tax bill for the estate.
      • So that was how it worked before portability.
      • Spouse 1 utilizes the unlimited marital deduction at death on their $5,430,000, so no tax due.
      • Spouse 1’s entire estate tax exclusion is transferred to Spouse 2.
      • Spouse 2 dies. Spouse 2 can exclude $10,860,000 from the estate tax with both estate tax exclusions joined together. No estate tax due.
      • Communication
      • Discussing available alternatives
      • Plainly explaining benefits and burdens
      • Listening to client input discussing alternatives
      • Consequences on family relationships with certain estate planning decisions
      • Completing work timely for clients in poor health or who are otherwise at risk of losing capacity
      • Avoiding conflicts of interest.

Health/Medical affairs

In the event you require medical treatment but cannot voice your desires, someone needs to make those difficult decisions for you in a way that would most closely match the choices you would make for yourself if you could still voice your desires.

If you have planned ahead you have found someone now that you trust enough to make those decisions and otherwise handle your health and medical affairs. You appoint this person in the Medical Power of Attorney. You can also authorize more people to receive news of your medical situation with the HIPAA Release, though if they are not your appointed agent in the Medical Power of Attorney, they will only receive information and will not be able to make decisions for you.

Taking care of your children

In the event you are a single parent, you need to plan for what happens to your children if something should happen to you. This is done through the Declaration of Guardianship for Minor in the Event of your own incapacity. The main importance of this document is not just who you want to take control of your children; but you can also expressly exclude people you do not want involved with your children. This is a powerful document if you do not get along with some members of your family and would not want them anywhere near your child – you can make those desires clear now, while you still have the ability to execute a document such as this.

§016: About the Disability planning documents

Statutory Durable Power of Attorney

A Will only takes effect on death. When a person is still alive there is another document that will control management of their financial affairs if they are unable to do so for themselves.

The “Durable” means that while you execute it today, it does not take effect until later on when you are disabled or incapacitated – through a traumatic brain injury, the onset of Alzheimer’s, or another scenario such as those.

This document allows another person to financially step into their shoes to sell stocks, collect rents, pay your taxes, and otherwise manage financial resources and properties.

Executed in conjunction with a Medical Power of Attorney, this is a least restrictive alternative to Guardianship.

Medical Power of Attorney

In the event you are unable to speak for yourself, this document appoints someone you trust to make your medical decisions for you. The document does not take effect when you execute it – since you need capacity to execute it – but rather it only springs into effectiveness when you can no longer speak for yourself and need medical treatment.

The importance of this document cannot be overstated when you know you are going in for surgery; and also for all of the other things that can happen in life. We strongly urge you to give copies of the document to everyone listed in succession from the primary to the fourth alternate (if you name that many) so they are aware of their responsibilities should the time ever come – because that time will be stressful for them, and you are placing a lot of power in their hands, and hoping they also remember about your Living Will.

Executed in conjunction with a Statutory Durable Power of Attorney, this is a least restrictive alternative to Guardianship.

Directive to Physicians

If you are suffering from an illness or serious injury that you will likely not survive, and you are unable to communicate your wishes, this document directs that you will either (1) be given life sustaining treatment, or (2) be allowed to die naturally while being kept comfortable. This directive allows you to make this choice for yourself right now rather than placing the burden of such a serious decision on a loved one later in the hospital room.

This document works in conjunction with the Medical Power of Attorney, and the agent you appoint in that document.

Most hospitalizations are not planned in advance, so your Living Will desires should be communicated to your Medical Power of Attorney primary agent and all of the alternates in advance. If they do not know you have a Living Will they are (a) not going to have a copy of it and (b) are not going to tell the doctor about it either. If nobody knows about it, it is a useless document.

While it was over a decade ago, the memory of the Terri Schiavo case is enough to compel most people to get their affairs in order with a Living Will. Nobody wants to get their 15 minutes of fame in the way that she and her family did.

HIPAA Release

When you are unable to speak for yourself, this document allows your physician to speak freely about your medical condition, but only with the person you have designated in this document. This is especially important if you designate an unrelated person or unmarried romantic partner.

Declaration of Guardian in the Event of Later Incapacity or Need of Guardian

If you are ever challenged by continuing diminished mental capacity due to a serious injury or illness such as Alzheimer’s, you can give strong authority to a loved one so he or she can step into your shoes and act on your behalf as your legal guardian in financial matters and with regard to your physical care.

Appointment of Agent to Control the Disposition of Remains

This document will ensure that what happened to Leelah Alcorn will not happen to you. When you pass away this appointed agent will ensure your funeral arrangements are taken care of the way you desired when you were alive. For our trans* friends in the community this document is of the utmost importance to ensure that you are buried in the clothes you prefer and that your life receives the fullest amount of respect in the funereal process.

§017: About Guardianship

Guardianship is a relatively unpopular concept for a lot of reasons. The legendary Groucho Marx guardianship fiasco is an example on the tip of every tongue when the ‘G’ word is mentioned.

The disability planning documents such as the Powers of Attorney are least restrictive means – which means you need to try them first anyway before attempting to secure a guardianship over a proposed ward. Also, for most people and most situations the least restrictive means are probably going to work well enough that they will be all that is needed. Meanwhile guardianship is an extremely expensive and time consuming process that is bound to be frustrating and stressful for nearly all parties going through it.

Guardianship is serious for a lot of reasons. EC § 1201.003 provides that “A judge is liable on the judge’s bond to those damaged if damage or loss results to a guardianship or ward because of the gross neglect of the judge to use reasonable diligence in the performance of the judge’s duty under this subchapter.” So judges overseeing these cases place the highest importance on guardians timely accounting and having ad litems assist the court. These are some of the best defenses today against the darkened history of guardianships

Proposed Ward

Guardianship starts with a proposed ward – someone that is allegedly incapable of taking care of their daily affairs. This includes their financial affairs (guardianship of the estate) and/or their personal affairs.

There are two types: minors and incapacitated people.

Minors

Under the age of 18, never married, and never had the disability of minority removed by judicial confirmation.

Incapacitated Person

An adult (not a minor) that has a physical and/or mental condition leaving them substantially unable to take care of their own needs such as food, clothing, and shelter; to care for their own physical health; or to manage their own financial affairs.

An additional type of incapacitated person is someone that is required to have a guardian appointed to receive funds from a governmental source indirectly, rather than receiving those funds directly from the governmental source.

Interested Party

An interested party (usually a family member but sometimes it is not a family member) files an application, most often where the proposed ward resides. The application needs to include documentation of recent medical exam by a licensed Texas physician. There is additional paperwork required if the incapacity results from intellectual disability, MHMR is typically involved with this proposed ward.

Guardian of the Person

A guardian with limited powers in this aspect, or full power, addresses care of the physical well-being of a ward.

Guardian of the Estate

A guardian with limited powers in this aspect, or full power, addresses the property and finances of a ward.

Least Restrictive Measure

Once filed, the initial investigation (court investigator) takes place to determine if the application was inappropriate and should be withdrawn since less restrictive measures could protect the proposed ward. Otherwise an Attorney Ad Litem (“AAL”) is appointed.

Attorney Ad Litem

The AAL further investigates and advocates for the proposed ward.

Jury trial

The proposed ward is entitled, on request, to a jury trial.

Contest

The proposed ward can contest the guardianship; as can anyone without an adverse interest. The court is interested in hearing about the ability of the proposed ward to feed, clothe, and adequately shelter themselves; to care for their own physical health; and to manage their own property and financial affairs.

Clear and convincing evidence

The court must find by clear and convincing evidence (a high standard in civil cases) that (1) the proposed ward is an incapacitated person; (2) it is in the best interest of the proposed ward to appoint a guardian; and (3) the rights of the proposed ward or the proposed ward’s property will be protected by the appointment of a guardian.

Preponderance

The court must find by a preponderance of the evidence (a much lower standard) that (1) the court has venue or that this court is the proper court to make the determination of necessity of guardianship; (2) the person to be appointed as guardian is eligible and qualified to serve as guardian; (3) the guardianship of a minor is not solely to determine or change school districts, and (4) the proposed ward is totally incapacitated or is partially incapacitated and can perform some (but not all) of the tasks necessary to care themselves and manage their individual’s property.

Limited powers

If the ward is able to care for themselves or manage their property, a guardian receives only the limited powers necessary to assist in the other areas. As many decisions as possible are intended to be left to the ward.

Elder abuse

Financial exploitation of elders and physical abuse are serious issues and require reporting immediately.

Here is a link on elder financial abuse:

http://www.preventelderabuse.org/elderabuse/fin_abuse.html and another one on elder abuse: https://www.texasattorneygeneral.gov/seniors/elder-abuse

§018: Estate Planning vocabulary and phrasing you might see

Moiety

One of two approximately equal parts.

Executor

The person you appoint in this role has the duty to settle the financial affairs of your estate. Their numerous duties will include (but are not limited to) filing your final individual tax return, the estate tax return, and income tax returns for your estate; dealing with creditors and claims against the estate; and distributing property to the beneficiaries named in your Will. In your Will you can direct that the Executor be paid for their services, or that they not be paid. You can appoint a family member, a trusted friend, or a bank entity/trust company. If you have a particularly complex estate we will need to discuss the education and experience of the people you are appointing as Primary and First/Second Alternates. For more straightforward estates, most people usually appoint their Spouse (if there is one) or the most trusted family members or the longest-term friends. You may name two or more people to act together as Co-Executors if you so desire.

Trustee

The person you appoint in this role will manage the trust for the benefit of your spouse or other named beneficiaries. Depending on the trust assets involved, a business management or investment familiarity is recommended. However in certain family circumstances it is more important to appoint someone that will be sensitive to the needs of the beneficiaries. As with the Executor, you may name two or more people to act together (and specify they only act unanimously or by super-majority, or otherwise) as Co-Trustees if you so desire.

Guardian

Guardians need to make difficult decisions that can have profound impacts directly on the person the decision affects, as well as indirectly affecting a number of other people with the shockwaves of that decision. A guardian should be a person you completely trust around your children.

Spendthrift

The beneficiary of the trust has restrictions placed on them in terms of the money in the trust. The trust funds can’t be gambled away or reached by creditors prior to the beneficiary’s actual receipt of the property. These trusts are typically put in place by parents who feel that their child is unable to control their spending at this point in their life, and an independent trustee should have authority to determine how trust funds may be used for the benefit of the beneficiary.

Integration

That all pages are meant to go together, and that they flow together sensibly as one document. Pages in different fonts, paragraphs “continuing onto the next page” but not actually continuing onto the next page, and pieces of paper in the Will that look 20 years older than other pages are typically going to make a Will look like it is not very well integrated – which means that there might have been shenanigans involved which need to be litigated in Probate court; or potentially prosecuted in the criminal courts.

Republication

In the case of a codicil, it republishes the prior Will and doubles down on how good of a Will it was and how validly it was executed. Republication means they are super serious about the Will but are making new, minor changes in the Codicil. A validly executed Codicil can cure defects (and provide additional evidence for testamentary capacity and intent) with the execution of the underlying Will.

Acquittance

A document evidencing a discharge from an obligation. This is the “receipt” typically mentioned in the Executor & Trustee powers article in a Will regarding distributions to beneficiaries.

In terrorem clause

“Don’t contest this Will please” – this threatens people not to challenge the Will. If the Will is found to be invalid, then the in terrorem clause goes into the trashcan with it. So it is a gamble you may win or lose on.

Unlimited marital deduction

You can leave everything to your spouse estate tax free when you die. This used to be a bigger deal before portability that you would waste your entire estate tax exemption (and your surviving spouse could not use your unused exemption) but now if you give everything to your spouse utilizing the unlimited marital deduction, the surviving spouse only needs to worry about the amount of the estate that rises above the joint credit amount (or whatever of the credit you did not use added to whatever they have not otherwise used.)

Lapsed gifts

The beneficiary predeceases Testator. A Will cannot make a gift to a dead person. But there is a major asterisk: the anti-lapse statute.

Anti-lapse statute

If the beneficiary was in specified degree of relationship to the Testator (e.g. the son) and left descendants that survived the Testator, then the beneficiary’s descendants take by substitution. The anti-lapse statute can save gifts for certain people that would have failed under the general rule of lapsed gifts to “legal” strangers of the family. But the main asterisk here is that a contrary intention must not appear in the Will – e.g. “To my son only if he does not predecease me” is probably not going to be saved by the anti-lapse statute to divert the gift to the son’s descendants that survive the Testator.

Void gift

When you execute your Will, unbenknownst to you factually (but not due to a mental incapacity rendering you unable to understand that), your sister has passed away already. The gift is technically void, but if the sister left descendants that survive you, the gift will go to those descendants of hers through the anti-lapse statute.

Abatement

A decedent’s property is liable for debts and expenses of administration. So bequests abate (go to pay the debts/expenses rather than gifts) in the following order: (1) property not disposed of by will, but passing by intestacy; (2) personal property of the residuary estate; (3) real property of the residuary estate; (4) general bequests of personal property; (5) general devises of real property; (6) specific bequests of personal property; and (7) specific devises of real property. A decedent's intent, as expressed in a Will, controls over the abatement of bequests just listed.

Ademption

What happens when specific property mentioned in a Will no longer exists.

Advancement

If a parent lends you money and puts in writing that this is an advancement of their estate, that counts later on if they die intestate your “share” will be reduced by that advancement relative to your other siblings that did not receive an advancement.

Memorandum of Personal Belongings

This is an unrelated document that is not going to be probated. In it you can express your private desires and explanations about things. This can be a very nice handwritten legacy and historical document you can leave behind to your family. Or you can explain why you are cutting your kids out of your Will. They can go both ways. The important thing is that it’s not in the Will which will be part of the public record when it is filed with the Probate court. We give you a form for this if you get your estate planning services through our firm.

Per stirpes (Option ‘A’)

The distribution to your descendants will begin with an equal division into shares at the child level, whether or not a child is living.  One share will be allocated to each surviving child, and one share will be allocated to each deceased child who left surviving descendants. Each share for a deceased child who left surviving descendants is divided in the same manner, with subdivision repeating at each succeeding generation until the property is fully allocated.

Example:

Per capita (Option ‘B’)

The distribution to your descendants will begin with an equal division at the nearest generation to you that has a living member.  One share will be distributed to each such living member, and the share or shares passing to the deceased members will be combined and then divided and allocated among the surviving descendants of the deceased descendant(s) as if the surviving descendants who are allocated a share had died without descendants. 

Example:

Hybrid per stirpes (Option ‘C’)

The distribution to your descendants will begin with an equal division at the nearest generation to you that has a living member.  One share will be distributed to each such living member, and the share for each deceased member will be further divided in the same manner. 

Example:

§019: Your relationship with a family lawyer rather than just a scrivener

Open communication, listening, and feedback

The main duty of an estate planning lawyer is to listen to what you want in your estate plan and why you want it. The lawyer then tells you the various impacts (tax, state law, otherwise) of those decisions and discusses potential alternatives with the pros and cons of each option. Listening to why you want things a certain way is the most important stuff you can tell the lawyer about, so they understand where you are coming from and your desires. There are usually a variety of ways to structure things, but understanding your intentions helps make it clear which option is likely to be the best – and then a discussion on alternatives can take place in a way to compare and contrast the alternatives to what seems to be the preferred method.

In terms of fiduciaries, it is important to have a discussion about who they are, how well you know them, what they are like, and other important things like their age and overall health. For our elder clients an unfortunate reality, but an important discussion we need to have, is that if their preferred person to appoint as a fiduciary is in the early stages of Alzheimer’s, they are not going to be a suitable person to appoint. This is why an open and honest conversation with the lawyer is important because all of these external factors matter – and you are paying your lawyer for advice and to protect you, you are not just paying your lawyer to type up the words you say. The lawyer gives you feedback and constructive criticism when it is necessary so that you are as best protected as possible.

A judgment-free safe space

It is important to understand the lawyer is not judging you or judging your decisions. The feedback is necessary so you don’t shoot yourself in the foot down the line by making a bad decision today. That is what separates a scrivener (and online document assembly shop) that just copy and pastes words from an estate planning questionnaire into a document, from a great estate planning lawyer that has an earnest conversation with you about your family, friends, and your overall intention for the estate plan.

You can easily find someone to just type up what you say. But that’s not sensible estate planning – that is the “extreme sports” version where you just hope everything works out for the best, and it rarely if ever does.

Long term relationship

Things happen over time. As a part of your annual review of your estate planning documents, your life situation may require some updates. The benefit of having a long term relationship with a “family lawyer” rather than just a scrivener, is that they already know you and your family situation. They know the details and you don’t need to start over every time you need a minor update, or a major update year to year. There is not only the price break (typically no charge for small changes) but also the understanding that comes from years of a long term relationship. Lawyers are not fungible and sometimes there are unexpected benefits of returning to the same one time and time again.

The relationship as a networking resource

I represent many entrepreneurs that have big ideas and like starting new companies. We have relationships with trusted referral partners outside of the firm that can help someone start up a new business – everything from a commercial real estate agent to an accounting firm to an energy consultant and beyond. As a law firm with longstanding ties to the community and a brick and mortar location in Houston, we don’t just type up documents. We help our clients in every way we can to make their life and their business life easier, which includes our referrals to service providers outside of the. This is one of the many ways we continue to be a part of the community we all decided to live and work in, and will continue to do so for a long time here in Houston.

§020: The transition from the Probate Code to the Estates Code

Back in the day when things were kinder and gentler, in the simple times of the past, we had the Probate Code. It had been around forever, nearly 60 years. It was old and it was predictable. That’s what was around when I was in law school, working during my 1L and 2L summers, and then for the first few years of my practice. And then that went away, leaving us with the Estates Code.

There were several changes that took place besides the cites changing. Sections were consolidated, re-ordered, and certain ambiguous sections received a slight facelift to be a little less ambiguous.

Here is a derivation table from the Probate Code to the Estates Code, if you are still seeing references to the Probate Code in your googling:

Article I section 020 include derivation table to estates code 1

Article I section 020 include derivation table to estates code 2

Article I section 020 include derivation table to estates code 3

Article I section 020 include derivation table to estates code 4

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Article I section 020 include derivation table to estates code 6Article I section 020 include derivation table to estates code 7

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§021: A final word on the basic importance of Estate Planning

Estate Planning is a necessary component of your life. This online resource is intended to take some of the mystery out of the estate planning process, and to better explain why an estate plan should be prepared by a licensed Texas lawyer with a physical office in the State of Texas, rather than one of the online document assembly shops which have documents that are drafted by non-lawyers that are outside of the State of Texas.

 

 

ARTICLE I topics on HARD MODE

This section discusses the various potential circumstances that arise in the course of life that necessitate an annual review of your estate plan; and furthers discussion of some of the basic topics covered earlier.

 
   

 

§022: Reasons that justify the need for an annual review of your estate plan

Issues with your intended beneficiaries

Things happen. The people that we name in our Will to receive our property might die, become disabled or incapacitated, or they might say or do something that causes them to fall out of our good graces, such as divorcing you if you were married when you executed an “everything to my spouse” Will a few years ago. When these things happen you know about them; but the Will you executed ten years ago doesn’t know about it, and the Probate Court certainly doesn’t know about it either. That is why when these unfortunate things happen, you need to go back to the drawing board on your Will provisions and ultimately the orderly disposition of your property with the new information you have.

If there was a specific reason why you were giving property to an intended beneficiary and they passed away, that plan has failed and it is time to figure out what to do with that art collection, the collection of cars, or whatever else was contained in the specific bequest.

If your intended beneficiary has become disabled, incapacitated, or has otherwise fallen on hard times (such as drink, drug, or gambling-related) it might be inappropriate to gift them money outright. So that plan needs to be revisited to think about trust options, or to find another beneficiary.

If you are recently divorced you definitely need to update your Will and your disability planning documents to reflect that there is no longer a valid marital relationship with that person. And it is certainly time to find a new intended beneficiary that is not an ex-spouse, outside of the court mandated requirements (such as life insurance) contained in your decree.

Just as many “bad” things can happen, sometimes the good things happen to your intended beneficiaries. If they win the lottery, their software company goes public, or they otherwise have accumulated great wealth and no longer need the financial gift that you were going to leave them, it is time to reassess who might better use the money or property, such as a charitable entity or perhaps another family member that is not a millionaire.

There are many other aspects of a beneficiary’s life that you might think important to consider and reconsider on an annual basis. I strongly urge all people with validly executed Wills to just think it over once a year on their birthday as they are receiving nice gifts and enjoying the pleasant company of those closest to them, to just ensure that the estate plan they have in place is going to reciprocate in the same way. If people have fallen out of favor, or their financial situation has drastically changed, that is the year to make the proper changes to the Will.

Issues with your intended fiduciaries

The people closest to us have earned our trust over time. But things happen that might prevent them from serving as a fiduciary when the time comes in our life to need them. Sometimes they have no control over it in the event they die from natural causes. Other times they pick up a drug habit. Or they make a series of bad decisions and end up serving time in the custody of the State. Or they say something hurtful that destroys the bond of trust we once had in them.

No matter the actual circumstances that led to this re-evaluation of our relationship with this person, it is important to remove them from our estate planning documents as soon as possible. In the event of their service as Trustee or Executor they could be making very bad decisions they should not have been allowed to make, had you only updated your Will in time. Or in the event of a Statutory Durable Power of Attorney taking effect only upon your disability or incapacity, they could essentially start robbing you blind if you didn’t update that document in time.

The world of estate planning has a number of horror stories that all stem from appointing “the wrong person” and not removing them from that intended position of power soon enough. There are certainly valid causes of action against them down the line, but that is akin to letting the bull loose in the china shop and then getting angry about it a few years later – the damage is already done and it’s a long road to walk before you finally get the chance to start unringing the bell.

Appoint the people you completely trust when you execute your documents. And be willing to update your documents as soon as possible once the necessity arises to change them. Do not let this be the thing on your “to-do” list that always remains on the bottom of the list.

Issues with your marital relationship

Divorce happens. So does remarriage. While technically you are going to be dead when it becomes an issue so it might not actually matter that much, but it would seem to be some kind of existentially embarrassing to have never updated your Will that you executed during the marriage of Spouse #1 when that divorce happened 20 years ago, your remarriage was 15 years ago, and your Will still mentions Spouse #1, not Spouse #2. Wills admitted to probate become public record so everyone else can see what you did. This is why your documents should be updated timely to reflect your new marital relationship status – divorced/single and then married again once that happens. Remove your ex-spouse from your documents, they no longer have a place there for them.

Issues with a new child, either through birth or adoption

Whether by birth or adoption, a new child is a happy thing and one worth celebrating. One way to celebrate their existence is to update your Will to provide for them. Just like a Will that was never updated to reflect a current spouse, it also must be a bit existentially embarrassing to have identified Children #1-4 but to have never updated it to reflect Child #5 and Child #6. As part of the public record, they will remember that for the rest of their lives that they were not important enough to actually get identified in the Will unlike their siblings. It is easy to avoid these kinds of things by remembering: new child, new update to Will. In the event the child grows up to be mean and you do not like them, we can also update your Will to reflect that situation as well.

Issues with increased wealth

Estate tax, gift tax, and GST tax considerations along with tax planned Wills are important for the 1%. If you are the 1% you know that this is not a DIY project. If you are new to the 1% as a self-made, first generation high net worth individual then your plans are going to look a little different than the Robber Baron families’ plans that have been in place and have been evolving for generations now. These are what we call “Champagne Problems” though, because they are good problems to have. Depending on family structure, there are a variety of options to minimize or eliminate tax. It is definitely not a DIY project with a holographic Will or something that would be appropriate from an online document assembly shop though. Find a “family lawyer” and stick with them!

Issues with changes in the tax laws

A big change in the tax laws was the concept of portability. Before portability what could happen was this scenario:

Now with portability this is what it looks like:

This is not the only change in the tax laws and there will always be more. An annual review of your plan and a discussion of “what’s new” can help you determine if the plan you have in place is the one that is most appropriate given new law and their impacts.

Issues with changes in state law

Typically affecting more people than the changes in the tax laws, state law can change too. For instance on September 1, 2015 Texas joined the wave of other states that allow for a “Transfer on Death Deed” as an estate planning mechanism. However, unlike in a lot of other states, there are definitely some potential pitfalls and concerns that need to be addressed before advising that it is a correct course of action to pursue in lieu of a joint tenancy with right of survivorship (“JTWROS,”) gift deed, transfer into a trust, or other mechanism. This is not the only change in the law and there will always be more. An annual review of your plan and a discussion of “what’s new” can help you determine if the plan you have in place is the one that is most appropriate given new law and their impacts.

§023: Your digital life

With our increasing reliance on digital life to store everything from photos to other good memories, a new wrinkle has developed in estate planning world on how to handle digital accounts. Some lawyers ignore the topic altogether. Others will make it the main focus. It depends on the client and how active they are on the internet with curated accounts, blogs, and other resources.

Appointing someone to take over your accounts (to close them down, like with a facebook – or perhaps to take over management, like with a flickr of family photos) is a careful consideration since they are not exactly a fiduciary, but they are not exactly not a fiduciary. There are not the restrictions for Executors (no felonies etc.) but we typically want some of the same good judgment.

We have a variety of ways to include transition of your digital accounts at death the same as we would help transfer real estate or make other conveyances at life, or in death. It all depends on what you think is important and we will help you get to where you want to go with your digital life, just as much as with more “old school” financial assets.

§024: Myths of Estate Planning

Misunderstandings about Estate Planning create costly mistakes for your family that you can easily avoid. These misunderstandings can wreck the plan you have for your family’s money and the direction the family is going in.

There are innumerable myths of Estate Planning. These are some of the more common myths of Estate Planning we have heard about:

Myth #1: Estate Planning is only for college boys and rich people.

Reality: This is completely wrong. Your default estate plan that the State of Texas has put in place is the law of intestacy, which can make some unintended (and unwanted) transfers of your property to people you don’t even like. This doesn’t matter whether it is your $500 or your $50,000,000 because it is your money, and you have the power to direct where it goes if you have a proper estate plan in place – for most Texans the law of intestacy is NOT a proper estate plan.

Myth #2: I’m too young for estate planning, I am only 50 years old.

Reality: You never know when the end is coming. You also never know when a disability might come that will remove your capacity to plan for and execute the Will. Putting it off too long can have disastrous results, especially if you have a complex family situation or want to leave your money to charity rather than family – that is not included in the law of intestacy you will be stuck with if you do not execute a valid Will while you still have capacity.

Myth #3: I don’t need a lawyer to draft a Will.

Reality: If your Will isn’t done right, it won’t be a valid Will. If your Will is done badly, it might be valid but it will create huge expenses and create new problems if, for example, it didn’t have the correct provisions for an independent administration. If you have no legal training the odds of you getting the Will even close to the ballpark of being a valid Will are relatively low – the odds are even worse that you will include all necessary provisions for it to be a “good” Will and it is an improbable reality you will have necessary trusts put into place as well. The expense of an estate planning lawyer is extremely minimal compared to the huge costs of not having a Will, or having a bad Will.

Myth #4: If I have a living trust there are no taxes ever again.

Reality: That’s not even close to true. A living trust is revocable. A revocable trust is not the same thing as an irrevocable trust. Living trusts can have tax planning built into them, but it is no better (and no different) than the tax planning that can also go into a Will.

Myth #5: Probate is terrible.

Reality: For some people, yes. For others not so much. No two situations are going to be exactly the same.

Myth #6: I have a Will and that is all I need.

Reality: This is extremely wrong. The disability planning documents are a bare essential in addition to the Will; and certain situations require additional documents and planning. Your Estate Planning package protects you, so it should protect you from as many different worries and concerns as your family situation and finances warrant. No two estate plans are going to look the same.

Myth #6: Now that my estate plan is done, I am done, right?

Reality: Wrong. There can be changes in the laws or changes in your personal life, or the lives of your fiduciaries and beneficiaries. All of these possibilities require at the very least an annual review of the estate plan to make sure the plan is still intact and doing what you want it to do. If you want to cut someone out of the Will because they said something mean to you, that doesn’t just happen magically – your Will needs to be updated, they need to be removed from a possible appointment as fiduciary if they had been named in any of those documents, and you might want a new Memorandum of Personal Belongings to make your exact feelings known about this person outside of the four corners of the Will. Once a year on your birthday or at the end of the year take a look at everything and make sure the plan is still doing what you want it to do – your plan just covers literally all of your assets and all of the money you have worked had for over the years. So you want to make sure that the plan is still working hard for you and will do the right thing when the time comes.

§025: Frequently Asked Questions of Estate Planning

There is no such thing as a stupid question in Estate Planning. If you don’t understand something, you should ask your lawyer about it and receive a dignified, plain English answer that you understand and can incorporate the information (or not) into your intentions for your overall estate plan. These are some of the more common questions we have heard.

Question #1: How do I get started?

Answer: Ask me for an estate planning questionnaire. That starts the conversation between us and lets me know more about you, your family, and your estate planning needs and desires.

Question #2: Why is there a fee for the initial consultation?

Answer: I will give you legal advice during our consultation. This is a loss leader for both of us to determine if we work well together. If there was no fee and no legal advice, it would just be a polite conversation about baseball and the weather – and that will not help you with your legal needs. However, if you hire us to prepare your estate planning documents then the entire consultation fee is applied toward the cost of the document or package of documents.

Question #3: What should I think about before meeting with an estate planning lawyer?

Answer: The most important questions at the outset include: (1) to whom do you want to leave your assets? and (2) who do you want to name in various positions of responsibility? Depending on family structure, marital status, occupation, plans for the future, and many other factors you might have some very specific questions and concerns we can address in more detail after I learn more about you and your objectives.

Question #4: In your estate planning questionnaire you are asking for extremely personal information, why?

Answer: We realize that the information we are requesting is your most personal and intimate information. But to analyze your unique situation to craft a proper estate plan, identify and discuss alternative structuring, and help you achieve your goals, we need this information rather than discussing vague generalities. Any information provided to us is held strictly confidential.

 

 

ARTICLE I topics on LEGENDARY MODE

This section discusses some of the more important ethical issues that arise in the context of Estate Planning.

 

§026: Ethical issues for your Estate Planning lawyer

Estate Planning is not adversarial in the way criminal defense, family law, or personal injury litigation is. The relationship between the estate planning lawyer and the client is much more conversational and intimate since advising on the estate plan requires knowing the details of your friends, family, charitable interests, and all of the other important and relevant information about your life.

Attorney competence

Competent representation in estate planning involves such things as

Confidential

Confidential information is important in estate planning, especially with the sometimes appropriate interaction of life insurance, retirement, other investment, CPA, business, and other financial advisors. A thorough discussion needs to take place and boundaries need to be set if they are allowing you to interact with their other financial types of advisers, or if they do not wish you discussing their confidential information. If you do not explicitly authorize us to disclose anything, we do not disclose anything. We do not identify our clients publicly. You remain as private as you want to be for as long as you want to be as an estate planning client.

Client capacity

The client needs to have mental faculties in place to participate in crafting the estate plan and to determine that the estate plan they will be executing in front of witnesses and Texas notary is what they actually intended to execute.

Testamentary capacity is a relatively low threshold, but not documenting it has created problems throughout history. Essentially the Testator needs to understand what they are doing by executing the Will, their place in the world, identify who is in their family or who their friends are, and have a decent idea of what property they own.

Competency and capacity are more of an art than a science, but family members or other people that could coach a client definitely need to removed from the premises and a full conversation in front of witnesses and notary need to take place to get a better handle on competency and capacity concerns. This is why we use our own witnesses here at the firm so they are independent and completely financially disinterested (unrelated to your estate plan, not uninterested in the proceedings) so they can evaluate your condition without bias. If you brought your drinking buddies over from Catbird’s, they might not be the best judge of your capacity, so we cut those issues off at the pass by using our own witnesses so long as you will not object to them.

Videotaping the formal Will execution ceremony is a major judgment call. Everyone but the most seasoned actresses and divas gets a little nervous in front of a camera. This can exacerbate nervousness which makes us say stupid things or forget other things all together. If taping is going to fluster a person, it will not help us to document their capacity as they take five minutes to remember what year it is. Videotaping every formal Will execution ceremony is not appropriate; it is a judgment call on what the best course of action will be, if we know that a Will contest is coming.

Client incapacity

Sometimes the client will become incapacitated during the Estate Planning process. If the client loses the capacity to continue participating in the crafting of the estate plan and will not have capacity to execute the documents, there is no point to continue with the Estate Planning process. This is an important issue for lawyers with fee agreements such as hourly agreements, where they could continue to bill the client for services that are absolutely not necessary. Our fees are clearly understandable and all work stops when we are either told to stop, or it is clear by the circumstances that no further work is required – if they are dead, or otherwise incapacitated.

Joint representation

Joint representation can cause issues in some, but definitely not in all situations. Sometimes one spouse chooses not to follow through with planning their estate; other times there is clear disagreement between the spouses about property and it seems like the estate planning consultation is quickly turning into a divorce consultation. There are other circumstances that arise. Most important is to have a fee agreement that addresses joint representation issues, honesty, and candor among the individuals. That is, they will discuss all of their assets in the joint representation rather than secreting some from their spouse, which will greatly frustrate the estate plan they thought they were creating which was too clever by half.

If one spouse is trying to keep relevant information secret from the other, a joint representation is no longer appropriate and the lawyer probably needs to withdraw.

Familiarity

When we have a long term client that is recently remarried, sometimes it is a concern for the new spouse that has not known us for years whether we can be impartial. In situations like these a longer initial consultation is required, and we usually recommend that the couple meet with other estate planning lawyers in other initial consultations. They need to feel comfortable with the joint representation or it is not appropriate, and we will not pursue it because of the conflict. At that point they can each hire they own separate lawyer from different law firms, doubling their cost. Or one person can have the lawyer and one can handwrite their own Will; or neither spouse can hire a lawyer and they can both handwrite their own Wills.

Fee agreements

Fee agreements that are the size of a David Foster Wallace book and have plenty of pointless boilerplate provisions that are not even necessary are just not a good idea. Estate Planning lawyers sometimes more than other lawyers in other practice areas need to make their client feel comfortable and build trust.  This is done with transparency and actually having fee agreements specifically for estate planning matters, rather than ‘litigation’ fee agreements that had some quick edits.

Scope of representation

The scope of representation is also important. Estate planning fee agreements do not cover probate. They do not cover personal injury. They do not cover divorce. They cover estate planning – the documents listed that we have discussed what they do, and what they cost. There are no hidden charges beyond what we have discussed. For some clients part of the estate planning package will include additional items that are not part of a standard estate planning package – such as business succession or entity formation. These are always discussed well in advanced and are included with the fee agreement. However for most people it will list the Will (whether it is tax planned, Simple, or a pourover) along with the necessary disability planning documents (if they do not have children it will be less documents than if they did have children.)

Client participation

It is important for the client to participate in crafting the estate plan. We typically have many options in how to do things – so we discuss the different options and their benefits and burdens. Then we might recommend that one is clearly better than the rest, but it is the client that asks follow-up questions and ultimately decides how to proceed. These issues arise frequently when a non-client (included by the client at the client’s insistence) takes a dominant role in the estate planning discussion, or appears to be taking a dominant role in the decision making process behind the scene. There are various ways to address this and document private conversations with the client away from the non-client. Summarizing the meetings in a letter is one approach that details the issues discussed, the alternatives debated, and the pitfalls or the benefits. No two situations are the same, but demonstrating that no decision was rushed into willy-nilly is important.

Closing out representation

Closing out the representation at the close of the formal Will execution ceremony has some key steps. The client will always leave the office with the executed originals. We make copies so you can distribute to people named in your documents. We do not retain originals of documents as a general rule. Any fees not earned are immediately refunded. We discuss how to store the documents and what not to do with the documents. We discuss annual review of the estate plan and potential costs of updating the documents a year from now (minimal fees or no fees for some clients.)

Property distribution issues

Some of the main conflicts are about just the property. Spouses don’t always agree on who is the favorite kid. Divorces, remarriages, and complicated family situations can place additional stress on giving money or property to someone that is not related to them by blood.

Fiduciary appointment issues

Additional issues arise in determining who is a suitable fiduciary, especially if one spouse hates that person or has a complicated relationship with that person.

Clients’ differing views on their children’s maturity

Heated conversations between spouses arise when discussing whether to give money outright to children or to set up a trust. One spouse might consider the child to be a perfect angel; while the other will list off all of the things they have said or done while drunk, and then an argument ensues.

Family secrets

Secrets also come out. Hidden bank accounts, biological children they have never mentioned before, or affairs with the pool boy are all things that are all things that might come out in the estate planning process.

Marital property agreements and their impacts

Another important item to discuss in the estate planning consultation is whether this couple has a valid premarital or marital property agreement. These agreements will affect their marital property situation and thus their estate planning.

Non-clients paying fees

Non-clients sometimes wish to pay the attorney fees for an estate planning client. Such as a wealthy parent paying for their adult child’s first Will after college; or an affluent child paying for their elder parent’s updates to their Will as they are on a fixed income at that point in their life. In these circumstances there is always the risk of the person holding the power of the purse overwhelmingly influencing the person that is trying to craft their estate plan, or update it. Some important decisions along the path include the client’s informed consent to the payment arrangement; the lawyer themselves determining that there will be no interference with the attorney-client relationship or the professional judgment required in advising the client; and that the client’s confidential information is protected. For instance, even though it is the father or child (a close family member) of the client it is not a certainty that they know all of the skeletons in the closet that might come out during estate planning – so it is never appropriate to repeat any of it, unless the client explicitly authorizes us in writing to do so.

 

This concludes ARTICLE I.

Thank you for reading ARTICLE I in Frye, Oaks, Benavidez & O'Neil, PLLC’s Information Headquarters.

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