Monday, December 29, 2008

Life Insurance & Divorce

Changing beneficiary designations on life insurance polices after major life events, like divorce or re-marriage, is often overlooked or forgotten. What happens if you forget to change your beneficiary after a divorce and your first spouse is still listed when you die? Will your ex-spouse receive the life insurance proceeds? In short, the answer is no. After divorce, the designation naming your ex-spouse is no longer effective. If you have an alternate beneficiary named in the policy, the life insurance proceeds will be paid to the alternate. If no alternate was named, the insurance proceeds are payable to your estate and will be distributed according to your will or the statutory intestacy rules depending on whether or not you have a will.

What if you want your ex-spouse to receive the insurance proceeds upon your death? This can be specified in the divorce decree or you can re-designate your ex-spouse as beneficiary after the divorce is final.

Texas Family Code § 9.301

Monday, December 15, 2008

Travis County Probate Court Website

There is lots of helpful information about the probate process on the Travis County Probate Court website.

Thursday, September 4, 2008

Living Trust Scams

Beware of Living Trust Scams

Many con artists are targeting older Texans with a variety of false claims to sell unnecessary Living Trusts. Not only do these Living Trusts fail to accomplish the goals being advertised, they can often result in increased costs and exposure of your assets to creditors or taxes.

Some of their false claims are:

• Living Trusts will avoid estate/inheritance taxes. Unless you and your spouse’s combined assets are greater than $1 Million, your property will NOT be subject to federal or state inheritance or estate taxes. If they are within the taxable range, a well-prepared estate plan (including a tax-planned will), can achieve the same effect as a Living Trust, for a lower costs without unintended consequences mentioned below.
• Living Trusts will protect your assets from creditors. Actually, this claim is simply a lie. Assets in a Living Trusts are subject to the claims of your creditors before and after your death. There are several legitimate ways to maximize the protections afforded under Texas law to debtors, but these should always be discussed with a licensed attorney and/or a certified public accountant.
• Living Trusts will avoid the excessive time and expense of probate. There are a variety of ways to reduce the necessity for probate and simplify the probate process in Texas. It cannot be repeated enough – probate is NOT an “evil” process; probate is the legal method for passing clear title to your heirs by discharging your existing debts in an orderly fashion and providing your heirs with legal exceptions designed to protect your exempt assets from certain creditors. In fact, the failure to probate your estate through one of Texas’ simplified methods could result in increased costs to your heirs, because it can lead to conflicting claims to your property, often years after you have passed.
• Living Trusts help you qualify for public benefits. Again, this claim is simply wrong. Assets in a Living Trust are included in calculating your ability to qualify for public assistance, including nursing home Medicaid benefits.

Although most do not need one, certain people can benefit from a Living Trust; however, that Living Trust must be tailored to meet the requirements of Texas law. Before responding to an advertisement or salesperson concerning any Living Trust, ALWAYS consult with a licensed attorney with experience in estate planning and probate law, as well as an accountant, banker or financial advisor whom you trust. Don’t make an immediate decision. Any legitimate company or salesperson will understand that you need to take some time and seek professional advice before making important decisions concerning your finances. If you feel pressured, it’s probably a scam!!

Saturday, March 29, 2008


Many people ask us, “What is a trust and why would I want to have one?” A Trust is simply a method by which one or more persons (the “trustee”) holds property for the benefit of another person or group of persons (the “beneficiary”). To establish a trust, someone (the “settlor”) must transfer property, with the specific intent to create a trust, to the trustee who manages and administers that property for the benefit of the beneficiary. In Texas, unless the instrument creating the trust sets out specific instructions, statutes will govern the trustee’s duties and liabilities toward the trust property and the beneficiary.

People often create trusts to manage their property for the benefit of a minor, an incapacitated person, or other persons whom the settlor believes are not yet ready to manage their own financial affairs effectively, such as younger adults. In addition, a trust can be used to aid the beneficiary while protecting the trust property from claims by persons that the settlor does not intend to benefit – such as the beneficiary’s spouse or creditors.

Trusts can be created during the settlor’s lifetime, and the settlor can name himself or herself as a beneficiary of the trust. In addition, the settlor can name himself or herself as the trustee. The only thing a settlor cannot do is be the only settlor, the only trustee, and the only beneficiary. As a result, trusts can be very effective mechanisms for planning one’s financial affairs prior to death, severe illness, or incapacity.

What is a “Declaration of Guardian?”

Another method for people to address potential injury, illness, or incapacity is by creating a “declaration of guardian” in advance, to ensure that a trusted individual will be appointed to make medical and financial decisions in the event that you are no longer able to make them for yourself. Texas law also permits people to designate the future guardian of their children.

You can designate separate guardians over your estate (i.e., the guardian who will handle your property and manage your financial affairs) and over your person (i.e., the guardian who will make medical decisions for you and oversee day-to-day decisions about your personal care, including living arrangements).

If you have not executed a declaration of guardian or a power of attorney before you become incapacitated, a court may need to appoint a guardian to make medical and/or financial decisions for you. This can be an expensive process, and often leads to (or results from) family disagreements about how best to care for their loved one; attorneys often recommend executing a declaration or power of attorney in order to resolve these potential issues before the need arises. However, care should be taken when you execute both a declaration of guardian and a power of attorney. You do not want to inadvertently give multiple persons the same legal rights to manage your affairs as a result of conflicting documents.

What is a “Living Will?”

Many people are concerned about the best method to protect themselves, and their loved ones, in the event of future injury, illness, or incapacity. Everyone has known or heard of a family that was torn apart by disagreements about how best to care for loved ones who were no longer able to make medical decisions for themselves.

The Texas Legislature has created a variety of statutory methods for handling such matters. For example, Texas recognizes the “living will,” which is more formally known as a “Directive to Physicians,” that allows a person to describe their own wishes concerning medical intervention and care in a legally binding document. Under a living will, you describe, in advance, the types of life-saving treatment that should be provided to you, as well as the circumstances under which medical professionals should stop using life-saving measures and simply provide treatment that will allow you to remain as comfortable as possible. By expressing your desires in advance, in the statutory form, you can provide your medical providers and family with clear guidelines and avoid potential conflict.

What is a “Power of Attorney?”

Texas law allows a person (known as the “principal”) to create various types of “Power of Attorney,” which can take effect immediately or only upon the principal’s injury, illness or incapacity. Using a “power of attorney,” the principal names another individual (known as the “agent” or “attorney in fact”) who will be authorized to handle the principal’s financial affairs or make medical decisions for the principal. These powers of attorney can be as broad, or as limited, as needed in anticipation of future events.

Powers of attorney are one method to protect yourself, and your loved ones, in the event of future injury, illness, or incapacity; in particular, making these decisions in advance can greatly aid you and your family in seeking assistance through Medicare, Medicaid and similar programs.

Careful thought and planning are recommended when making such decisions, however. An agent under a general power of attorney can alter the principal’s existing estate plan in a number of ways, including for example: (a) changing beneficiary designations on insurance policies, bank and brokerage accounts, or retirement plans; (b) selling or transferring the principal’s property without the principal’s prior knowledge; or (c) withdrawing money held in the principal’s accounts without the principal’s prior knowledge. Because of the potential for “abuse” by an agent, many financial institutions and other businesses are often reluctant to recognize a general power of attorney except under very specific circumstances.

What is “Probate?”

“Probate” is the set of legal procedures by which a deceased person’s property passes to others following his or her death. It applies to persons who died with a will (“testate”) or without a will (“intestate”).

By way of a partial summary, Probate allows the court to identify whether someone needs to be appointed to manage the deceased’s affairs – not every estate requires such “administration.” For example, if the deceased had no debts (other than a real estate mortgage, car note, or similar secured debts), his estate likely does not require administration, and Probate would only require entry of orders that identify his heirs and distribute his property.

Although many people will advise you to takes steps during your lifetime to “avoid probate,” Probate is an essential and very important process. It clears title to real estate and other property. It settles legitimate debts and wipes out others. It establishes a new income tax basis for the deceased’s property. By careful estate planning during your lifetime, and consultation with an attorney following your loved one’s death, the process of probate administration can be carefully managed to provide for closure of almost every estate as quickly and economically as possible.

What is “Estate Planning?”

“Estate Planning” is the method by which people provide for disposition or distribution of their assets once they are no longer capable of handling them. Generally, this means preparing a Will and related documents to describe how assets should be handled after a person dies. Sometimes, it means preparing powers of attorney and related documents to describe who will be in charge of a person’s assets in the event that he or she becomes mentally or physically incapacitated.

The lack of a comprehensive estate plan often means that provisions have not been made in the event of a lengthy illness or incapacity prior to death, resulting in the depletion of your assets before they can pass to your spouse or children. Furthermore, dying without a will can result in unintended, and expensive, consequences.


Most people assume that, even without a will, their property will pass to their spouse or children when they die. Although this is often true, there are many unintended and unwanted consequences of dying without a will, including:

1. Lengthy delay in your spouse or children receiving your assets;

2. Unnecessary costs associated with probate as an “intestate” (person without a will), including the costs of appointing an attorney to try to locate any other potential heirs (required by law, even if everyone agrees that there are no other heirs);

3. Sale of your property in order to divide it between multiple heirs;

4. Increase in tax liability to your estate or your remaining spouse or children;

5. Property passing to persons that you did not intend to benefit from your estate; and

6. Inheritance of certain property by children from a prior marriage, rather than everything passing to one’s current spouse.

Therefore, we recommend that almost everyone consult with an attorney about preparing a simple will and related documents.