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.