Texas Probate and Estate Planning Law Blog

Dallas Court of Appeals Goes Against Arbitration Trend

2012-01-23T08:26:00.000-08:00

Over the past few years, Texas courts have been busily encouraging parties to avoid litigation in favor of binding arbitration. Enforcement of arbitration clauses against parties who did not enter into a written agreement is sometimes possible. In some contexts, arbitration has also been required of third parties who were the “intended beneficiaries” of another party’s contract.

But in Rachal v. Reitz, 347 S.W.3d 305 (Tex. App.—Dallas 2011, pet. filed), the Dallas appellate court found that a clause in the settlor’s trust instrument requiring arbitration of disputes between the trustee and the beneficiaries was not enforceable. The panel of judges took the position that the trust’s beneficiaries were not parties to the trust instrument; as a result, they had not agreed to waive their right to litigation and could not be required to arbitrate their claims.

The case has been submitted for review by the Texas Supreme Court. Stay tuned for future updates.

Article by Cynthia W. Veidt, Attorney

Closing an Estate under Independent Administration

2011-12-02T14:26:00.000-08:00

Although it is not strictly required that an independent executor take action to close the estate, some executors may prefer that the record reflect that at least from the executor’s perspective, he or she has completed their administration and will not be taking further action.

The Probate Code offers a few options for those wishing to close the estate. Arguably the simplest and most cost effective way to accomplish this is to file a “Notice of Closing Estate” with the court as authorized by Section 151(b) of the Probate Code.

The Notice of Estate Closing is essentially an affidavit executed by the independent executor and filed with the court that asserts that independent executor has discharged his or her duties.

The Notice of Estate Closing must state (1) that all debts known to exist against the estate have been paid or have been paid to the extent the assets of the estate allowed and (2) must list each distributee to whom assets of the estate had been distributed, including the address of each distributee.

The Notice of Estate Closing must also assert that each distributee has been provided a copy of the Notice prior to filing, and must include any proofs necessary to establish such delivery. Therefore, the Notice should be executed and mailed to each distributee by a method that allows tracking (certified mail return receipt, fax, etc.), and the executor should be prepared to attach such tracking as an attachment to the Notice of Estate Closing.

Given the requirement that the Notice be fully executed and delivered to the distributees prior to filing, the Notice must anticipate that proofs of delivery will be attached when filed with the Court, and language to that effect must therefore be anticipated and included in the Notice prior to delivery to the distrbutees.

If the Independent Executor is delivering a copy of the Notice to a distributee represented by counsel, where that attorney has not actually made an appearance before the Court, it is also advisable to attach documentation with the Notice that demonstrates why the Independent Executor believes that such distributee is represented by counsel such that the delivery of the Notice by and through that counsel would be effective (for example, correspondence from that counsel asserting representation of the distrbutee).

Once the Notice has been delivered to the distributees and the proofs of such delivery have been gathered and attached, the Notice of Estate Closing may then be filed with the Court. Upon filing of the Notice of Closing of Estate with the Court, the estate will be considered “closed” after 30 days.

It is important to note that the closing of an estate by way of a Notice of Closing Estate does not relieve the Independent Executor of any potential liability in discharging his or her duties while administering the estate. However, the Notice of Estate Closing can nevertheless be a valuable tool for ensuring the record reflects the Independent Executor’s belief that no further administration is necessary. This record notice can prompt distributees to bring forward any potential claims so that they can be dealt with in a timely fashion while evidence is still fresh and while damages that might stem from any potential liability may be limited. Additionally, filing the Notice may also set up a potential equitable defense based on laches in the event a distributee asserts a claim against the Independent Executor years later after having received notice that the estate was closing. The Notice may also be helpful in establishing the maximum timeframe for when the clock should be running for purposes of calculating the statute of limitations that may run on potential liability claims arising out of the administration of the estate by the Independent Executor.

How to Revoke Your Will in Texas

2011-08-22T16:48:00.000-07:00

In Texas, a testator can revoke a will either by (1) a subsequent writing, or (2) by a physical act. Texas Probate Code § 63.

A subsequent writing can be a new will, a codicil, or a declaration in writing. New wills contain a clause that the revoke all prior wills and codicils. A codicil is a formal supplement or amendment to your original will.

It is important to note that document revoking a will must be in writing and executed under the same formalities required for the will. Simply writing a letter or a note will not suffice.

A will can also be destroyed by physical act such as tearing or burning. The physical act has to be done by the testator or at the testator’s instruction in his or her presence. The physical act also has to be coupled with the intent to revoke the will. So accidentally tearing a will does not revoke it and a third party destroying a will without being instructed to does not revoke it.

Requirements for revoking a holographic (handwritten) will differ slightly and will be discussed in a later post.

If you wish to update or revoke a will, you should contact an attorney to determine the best solution for your particular needs and situation.

Article by Sarah F. Berry.

What if my Will says something different than my Beneficiary Designation?

2011-08-08T15:55:00.000-07:00

People often make “beneficiary designations” when they open bank accounts, investment accounts, retirement accounts and similar types of accounts, or when they obtain life insurance policies or similar contractual agreements. But what if your account or policy identifies a different beneficiary than under your last will and testament? If you are an estate representative or account manager faced with such a conflict, what happens?

All other things being equal, if your will and your beneficiary designation are in conflict, Texas courts will enforce the beneficiary designation rather than your will. To understand why this is the case, it helps to realize what makes wills and beneficiary designations different. Both serve to transfer assets or property after death, but wills only affect “probate assets” and do not affect “non-probate assets.”

Determining what is and what is not a “probate asset” is a topic for another blog entry, but essentially your accounts and life insurance policies are considered to be a contract between you and the broker/entity who manages that asset. Your contractual agreements concerning a beneficiary designation make that account or policy a “non-probate asset” – unless you have designated your own estate as the beneficiary, or you have named someone who is incapable of receiving the benefit (such as someone who died before you, a spouse you have divorced, or a minor child).

Take, for example, a life insurance policy where Husband names Wife as his beneficiary during their marriage, but then divorces Wife. If Husband marries New Wife (and creates a will bequeathing “everything I have” to her), the policy will be paid to New Wife as the beneficiary identified in his will upon Husband’s death. Although the beneficiary designation would normally obligate the insurance company to pay the Ex-Wife, and the funds would automatically pass directly to her under the insurance contract, Texas has passed statutes which typically render that beneficiary designation invalid since most people would not have wanted that result to occur (Ex-Wife benefiting over New Wife). However, Texas courts have held that if the insurance company did not receive notice of the divorce before it paid the policy proceeds to Ex-Wife, New Wife will be stuck trying to recover the funds from Ex-Wife and has no recourse against the insurance company.

End result: everyone is going to be fighting (probably in court) over who gets the insurance proceeds, making the transfer of Husband’s insurance proceeds to his intended beneficiary (New Wife) much more expensive and time-consuming – and hopefully, Ex-Wife hasn’t spent all the money by the time New Wife gets a judgment awarding her the policy proceeds.

To avoid this problem, check your beneficiary designations periodically and make sure that they are up to date and do not conflict with the terms of your will or your overall estate plan.

Blog prepared by Matt Lloyd.
Blog edited by Cynthia W. Veidt. http://www.carylippincott.com/Attorney_CindyVeidt.php

Do Adopted Children and Stepchildren Inherit Property in Texas when there is No Will?

2011-03-16T10:35:00.000-07:00

When a person dies without a will in Texas, inheritance and distribution of that person’s property is determined by Texas law. Generally, property is inherited by relatives and depends on how closely the relative was related. Families with adopted and/or stepchildren need to consider who will inherit if a family member dies without a will.

A stepchild that is not legally adopted by the stepparent will not inherit from the stepparent if that stepparent dies without a will. This is because an un-adopted stepchild is not considered to be legally related to that stepparent. This result is often not what was wished or intended by a stepparent who raised a stepchild. For a stepchild to inherit from a stepparent, the stepparent should either adopt the child, or prepare a will with instructions that the stepchild should inherit.

An adopted child can inherit property when an adoptive parent dies without a will. An adopted child is treated the same as a natural born child. A child who is adopted as a minor can also inherit property from his or her natural parents, but an adult who is adopted may not inherit from his or her natural parents.

Natural parents cannot inherit from an adopted child or adult if the adopted person dies without a will. This can be important if an adopted child seeks out the identity of his or her natural parents and rekindles the relationship.

Blog by Sarah F. Berry http://www.carylippincott.com/Attorney_SarahBerry.php

Do I need to "file" my will? If so, where?

2010-04-14T09:24:00.000-07:00

In Texas, you are not required to “file” your will anywhere before you die. Upon your death, the custodian of your will, the person named as the executor, or any persons interested in the estate can admit your will to probate. Interested persons are those that have a property right in, or claim against, the estate.

Although you are not required to “file” your will, you can choose to do so and it may be a good idea for some people. Filing your will gives you a place to store your will, removing potential confusion upon your death as to where your will is located or who should file it. You can file your will with the county clerk of the county in which you reside. You can also include names and addresses of the people you want to be notified of the deposit of the will after your death. Upon your death, the clerk will notify these people that the will is on deposit. If you do not list anyone to be notified, the clerk will notify the executor, if one is named. If there is no executor named or the executor fails to take the will, the clerk will notify the other individuals named in the will. Upon request, the clerk will deliver the will to the individuals notified. Subsequently, one of these individuals will admit your will to probate.

There is no legal significance to choosing to file your will with the county during your lifetime. Your will, for purposes of probate, will be treated the same whether or not you file it with the county clerk during your lifetime. If you choose to file your will with the county but create a more recent will, the more recent document will be admitted to probate in lieu of the will that you originally filed as long as it proves to be your last will and testament.

This article was prepared by Sarah Raley and edited by Sarah Berry.

What’s the First Thing an Executor under the Will Must Do?

2009-08-21T13:19:00.001-07:00

Your relative has passed away and you’ve found her Will. After reading it, you realize that you’ve been named as the executor of her estate. What do you do now?

First, you need to realize that simply being named in the Will does not give you any legal authority to act on behalf of her estate. In order to obtain authority to act on behalf of the estate, you will need to file an application with the appropriate probate court. After notice has been given concerning your application, the probate court will hold a hearing and determine whether you qualify for appointment as executor of the estate. If you meet the qualifications, the court will then sign an order appointing you as the executor and authorizing the issuance of a document called “letters testamentary.”

You will also need to take an oath to uphold your legal obligations as executor of the estate. Now you have the legal authority necessary to gather the deceased’s property and begin the process of contacting banks, savings & loans, mortgage companies, credit card companies, tenants, government agencies, and all other persons to whom the estate owed money or who owed money to the estate. You also have the legal authority to transfer title, sell or otherwise dispose of the deceased’s property, at least to the extent that you are authorized by law and under the Will to do so.

You also have “fiduciary obligations” as a result of being appointed executor of the estate. These are important duties and obligations, which should not be taken lightly. Most probate courts will provide you with some guidance concerning your duties as executor, and explaining the consequence of undertaking those obligations. An example of the type of instructions provided by the Travis County Probate Court can be found at http://www.co.travis.tx.us/probate/pdfs/Independent_Executor.pdf.

As we’ve mentioned in other entries in this Blog, there are a large number of different probate procedures available in Texas. Because of the complexity in determining the correct procedure, and to ensure that you are provided with guidance in meeting your duties as an executor, we strongly recommend seeking the advice of an attorney who is familiar with probate proceedings prior to taking any action on your own. A good probate attorney can help you save time and money, as well as avoid confusion or conflicts related to your duties as executor. The probate attorney’s fees are paid out of any property in the deceased’s estate, not by the executor. It’s advice well worth seeking.

What Happens When the Deceased Had Filed for Bankruptcy?

2009-07-22T07:14:00.000-07:00

Bankruptcy is pretty common these days, given the current state of our economy. Most people are aware that a person who had sought protection from the Bankruptcy Courts is generally not subject to suit in any other court while the bankruptcy case is active. Using an overly simplified generalization (which has a number of exceptions), the Bankruptcy Court has exclusive jurisdiction over most matters affecting the debtor and his property. Death of the debtor does not, perhaps surprisingly, automatically result in discharge or dismissal of the bankruptcy case.

Probate Courts also have exclusive jurisdiction over matters affecting a deceased’s estate (property) in most circumstances. So, what happens when the debtor in bankruptcy dies while his bankruptcy case is pending? Which court should have control over the deceased’s property?

The matter is complex. First, the Probate Court will have jurisdiction to admit the deceased’s will to probate and appoint any executors, trustees or other fiduciaries named under the will. If the debtor dies without a will (intestate), the Probate Court has the ability to appoint an administrator to handle the deceased’s estate. Essentially, the Bankruptcy Court has no jurisdiction to determine the validity of the deceased’s will or make decisions about administration of the probate estate. However, it may be prudent to file a motion to lift the “automatic stay” imposed by the Bankruptcy Code to seek permission to initiate probate proceedings.

A second concern is determining which court controls the deceased’s property. Most cases interpreting the Texas Probate Code and the U.S. Bankruptcy Code have determined that “exempt property” – in other words, property that would be exempt from execution to collect a civil judgment under Texas law – is within the jurisdiction of the Probate Court and can be administered by the estate’s executor without interference from the Bankruptcy Court. Similarly, any property that has been abandoned by the Bankruptcy trustee would be within the control of the probate estate.

“Non-exempt property” – in other words, property that would otherwise be subject to execution to satisfy a civil judgment under Texas law – remains within the control of the Bankruptcy Court.

Additionally, the executor of the probate estate does not automatically step into the debtor’s shoes. The Bankruptcy Court will look to its own rules (in particular, Bankruptcy Rule 1016) to decide how to proceed if the debtor has died while the case is pending. The Bankruptcy Court may decide to appoint a trustee, convert the case to another type of bankruptcy, or dismiss the case entirely.

These matters are complex. If the deceased was involved in bankruptcy proceedings prior to his or her death, you should take the precaution of advising the debtor’s bankruptcy counsel, as well as seeking advice from a probate attorney, to determine the best way to proceed with handling the deceased’s property.

The Most Important Words in Your Will

2009-06-02T14:50:00.000-07:00

There are two fairly simple things that you can do before you die to help ease the financial burden of your passing on your family. One is to buy a good amount of life insurance. The other is to prepare a simple Will that uses the phrase, “I appoint Mary Smith as my independent executor, to serve without bond.” (Of course, replacing “Mary Smith” with your own choice.)

This very simple phrase will allow your family to probate your estate using the process known in Texas as an “independent administration,” and will further allow your executor to avoid the necessity of obtaining a substantial cash or surety bond before the court can legally recognize his or her authority to act on behalf of your estate. Both matters will help save a substantial amount of administrative costs and attorneys’ fees, which would otherwise be deducted from your estate before it is passed to your beneficiaries, while helping to expedite the transfer of title to your property from your estate to your beneficiaries. (See our related BLOG topic briefly describing an “independent administration.”)

If, for whatever reason, the deceased’s Will does not contain this phrase or words of similar effect, or if the deceased failed to prepare a Will, all is not lost. So long as all of the deceased’s heirs agree, the probate court can appoint an executor or administrator to act independently of the court and/or can waive the requirement for the executor or administrator to post a bond. Obviously, however, it will not always be possible to obtain the agreement of every single heir, perhaps due to family disagreements or difficulty in locating or communicating with an heir. For this reason, we recommend that you review your current Will to ensure that you are taking full advantage of this important phrase or, if you do not have a Will, that you consider preparing a simple Will in the near future.

Simpler Probate for Certain Estates in Texas

2009-05-01T08:33:00.000-07:00

What can you do to avoid expensive probate costs when there are very few assets or very little money in the deceased person’s estate? In Texas, there are a variety of methods to help these “small estates.”

The Texas Probate Code recognizes an expedited probate process called “Small Estate Administration,” when the deceased died without a Will, a condition lawyers call “intestate.” This procedure is available when the total value of the deceased’s assets, excluding the value of his or her residence and other exempt property, does not exceed $50,000.00. (For a discussion of exempt and non-exempt property under Texas law, please see Cary & Lippincott’s Collection Blog – http://carylippincott.blogspot.com/). For most individuals, the residence is their most valuable asset. By taking the residence (and a few other fairly common items, such as a motor vehicle, IRAs, and 401(k)s out of these calculations, many persons in the middle income class bracket will qualify to probate their estate as a small estate affidavit. However, a small estate affidavit may not be the best method for transferring title of certain types of assets from the deceased to his or her heirs. These assets typically include items such as stocks in publicly-traded companies, brokerage accounts, and partnership interests. You should always contact the person or entity acting as transfer agent for such assets to determine whether they will accept a small estate affidavit before initiating this type of probate procedure.

Additionally, if the deceased dies with a Will, but owned few assets, the Texas Probate Code recognizes a procedure known as the “Muniment of Title.” In essence, the Will is filed in connection with the affidavits of persons with knowledge of the deceased’s financial affairs and family relationships. Once approved by the Probate Court, the Will itself is filed as a public record and acts as the instrument authorizing the transfer of title from the deceased to his or her beneficiaries.

Finally, Texas permits a procedure known as the “Affidavit of Heirship.” This process does not involve filing anything in the Probate Court, but merely filing certain affidavits in the public records of any counties in which the deceased owned property. Extreme caution should be used when considering this process, however, because it does not pass title to the deceased’s property “free and clear” of alleged debts or encumbrances, will likely not be recognized as a valid transfer of title for most assets by entities such as banks and title companies, and may lead to future problems which actually increase the costs of probate or other methods to obtain clear title. Always consult with a probate lawyer before considering the use of an Affidavit of Heirship.

When should I probate a will?

2009-04-20T14:20:00.000-07:00

Generally, a will should be probated as soon as possible. In Texas, the law requires that a will be offered for probate within four years of the date of death. (Texas Probate Code § 73). Under limited circumstances, a will can be offered for probate if the person offering it is not at fault for failing to present it within the four year period.

Texas Probate Administration and the Estate Inventory

2009-01-27T15:02:00.000-08:00

In part, the probate administration of an estate involves gathering the assets of the person who died. Part of this process includes preparing an “Inventory, Appraisement, and List of Claims” to be filed by the estate’s representative (also called the “executor” or “administrator”) no later than the 90th day after the court has entered the order appointing that representative.

The “inventory” portion must list all items of property that belonged to the person who died (called the “Decedent”). It must identify all real estate located in the State of Texas, oil & gas leases, bank accounts, brokerage accounts, stocks/bonds, retirement accounts, life insurance policies (but only if made payable to the estate, rather than a specific beneficiary), cars, boats and other vehicles, fine jewelry, fine art, antiques, household furnishings, and every other item of personal property – including clothing and personal effects. Some categories can be grouped together for ease of reference, but it is best to identify each item of significant value separately. Finally, the list should describe whether the item was part of the Decedent’s separate property or community property (which may be hard to understand without legal advice).

The “appraisement” portion means that the estate’s representative must assign a value to each item of property listed in the inventory. Although the representative is not required to hire professional appraisers (unless ordered to do so by the Court), he or she must try to ascertain the fair value of each item and not merely make a wild guess. He should review property tax appraisals, vehicle buyers’ guide (such as Kelly Blue Book or Edmund’s), invoices or receipts from recent purchases, and similar references. For particularly difficult-to-value items, such as fine art or an ownership interest in a business, he should consider hiring an accountant or appraiser. The fees for these consultants may be paid from the estate (as “administrative costs”).

The “list of claims” portion of this document does not mean the claims that creditors, heirs or beneficiaries may have against the Decedent’s property. Instead, it is a list of claims that the Decedent may have had against others for debts owed or property kept by third parties. For example, if the Decedent died in an accident, his estate may have a “claim” against an insurance carrier or another person for medical expenses or wrongful death.

The Inventory, Appraisement and List of Claims is one of the most important documents filed in any probate proceeding. Because few people have had experience with preparing such legal documents, because the method for apportioning property between separate and community can be difficult to grasp, and because the method for valuation may be complex, the representative should always work with an attorney (and may wish to work with other professionals) in preparing this document.

Notices to Beneficiaries By Executors Under Texas Wills

2009-01-27T14:24:00.000-08:00

When someone dies with a will (the “Decedent”) in the State of Texas, the representative of his estate (also called the “executor” or “administrator”) must give notice of the probate proceeding to every beneficiary under that will, which includes the following information:

• The name and address of the beneficiary to whom the notice is given;
• The Decedent's name;
• That the Decedent's will has been admitted to probate;
• That the beneficiary to whom the notice is given has been named as a beneficiary in the will;
• The estate representative's name and contact information; and
• Attach a copy of the will admitted to probate, as well as the court’s order admitting the will to probate.

A beneficiary is any “person, entity, state, governmental agency of the state, charitable organization, or trust entitled to receive real or personal property under the terms of a Decedent's will.”

The notice is required by Texas Probate Code § 128A. It must be sent by registered or certified mail, return receipt requested, no later than the 60th day after the order admitting the Decedent’s will to probate, unless: (a) the beneficiary has signed a “waiver” that acknowledges receipt of a copy of the Decedent’s will and specifically waives the right to receive notice under Section 128A; or (b) the beneficiary has entered an appearance in the probate action prior to the date of the order admitting the Decedent’s will to probate. However, most Texas courts will not require this statutory notice when there is only one beneficiary under the Decedent’s will and that beneficiary is also the estate’s representatives.

Notice under Section 128A is required in all proceedings related to a Decedent’s will, including actions admitting the will to probate only as a “muniment of title.”

The estate’s representative must also file an affidavit with the probate court no later than the 90th day after the Decedent’s will is admitted to probate which states that he or she complied with the provisions of Section 128A.

Life Insurance & Divorce

2008-12-29T08:38:00.000-08:00

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

Travis County Probate Court Website

2008-12-15T08:40:00.000-08:00

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

http://www.co.travis.tx.us/probate/default.asp

Living Trust Scams

2008-09-04T14:38:00.000-07:00

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!!

TRUSTS

2008-03-29T16:40:00.000-07:00

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?”

2008-03-29T16:39:00.000-07:00

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?”

2008-03-29T16:37:00.000-07:00

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?”

2008-03-29T16:36:00.000-07:00

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?”

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“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?”

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“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.

DOESN’T EVERYTHING GO TO MY SPOUSE & KIDS?

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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.