Estate Planning FAQs

What is estate planning?

When someone passes away, his or her property must somehow pass to another person. In the United States, any competent adult has the right to choose the manner in which his or her assets are distributed after his or her passing. (The main exception to this general rule is the the right of the surviving spouse to elect to take against the will, which prevents the complete disinheritance of the surviving spouse.)

A proper estate plan should minimize potential estate taxes and settlement costs and provide for a coordinated, efficient handling or disposition of your assets, including your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event of your incapacity or death. On the personal side, a good estate plan should include directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you know and trust can do that for you.

Why is it important to establish an estate plan?

Many individuals don’t engage in formal estate planning either because they don’t think that they have “a lot of assets” or they mistakenly believe that their assets will be automatically shared among their children upon their passing.

If you don’t make proper legal arrangements for the management of your affairs and distribution of your assets after your passing, Texas’ intestacy laws will determine who receives your assets, which often results in the wrong people getting your assets. Also, your estate and its assets will not be handled using the streamlined procedures of independent administration. Instead, dependent administration will be required. Dependent administration is a court-supervised proceeding, which can be expensive and tie up your assets for a prolonged period before the beneficiaries (as determined under Texas’ intestacy statutes) can receive them. Even worse, your failure to outline your intentions through proper estate planning can tear apart your family as each person maneuvers to be appointed to manage your affairs. Further, it is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom.

What does my estate include?

Your estate for estate tax purposes is simply everything that you own, anywhere in the world, including:

  •     Your home or any other real estate that you own
  •     Your business
  •     Your share of any joint accounts
  •     The full value of your retirement accounts
  •     Any life insurance policies that you own
  •     Any property owned by a trust, over which you have significant control

However, in determining your estate for estate tax purposes, it is always important to remember that Texas is a community property state, which greatly affects the amount of the estate for estate tax purposes and estate planning. Any estate plan in Texas must take into account the community property interests of the spouses.

It also be must remembered that not all items included in your estate for estate tax puposes are part of your probate estate. Some assets (such as retirement accounts and the proceeds of life insurance policies) are “non-probate assets”, and the disposition of these assets is not determined by your will. Instead, the ownership of these assets (or the proceeds of these assets) after your death is usually controlled by beneficiary designations.

How do I name a guardian for my children?

If you have children under the age of eighteen, you should designate a person in your will to be appointed as guardian over their person. You should name at least one successor guardian in case the primary guardian cannot serve or is not appointed by the court.

Of course, if a surviving parent lives with the minor children (and has custody over them) he or she automatically continues to remain their sole guardian. This is true despite the fact that others may be named as the guardian in your estate planning documents.

Whenever minor children are receiving property, it is usually advisable to place such property in a trust formed as part of your will.

What estate planning documents should I have?

All estate plans should include the following documents:

(1)  A Will, also referred to as a Last Will and Testament, disposing of your property according to your wishes upon your death. A Will also typically names someone to be your Executor, who is the person you designate to carry out your instructions in the Will. If you have minor children, you should also name a Guardian as well as a successor Guardian in case your first choice is unable or unwilling to serve. A Will only becomes effective upon your death, and after it is admitted to probate by a probate court (or if applicable, by the appropriate county court at law).

If you have “non-probate assets” (such as retirement plans and proceeds of life insurance policies), in addition to your Will, you will need beneficiary designations to properly dispose of these “non-probate assets”.

(2)  A Durable Power of Attorney allows you to carry on your financial affairs in the event that you become disabled. Signing a durable power of attorney assures that your wishes are carried out exactly as you want them and allows you to decide who will make decisions for you. Without a properly drafted durable power of attorney, it may be necessary to apply to a court to have a guardian appointed to make decisions for you during a period of incapacitation. This guardianship process is time-consuming, expensive, emotionally draining and often costs thousands of dollars.

There are generally two types of durable powers of attorney: a present durable power of attorney that immediately transfers authority to your agent (also known as your attorney in fact); and a springing or future durable power of attorney that only comes into effect upon your subsequent disability as determined by your doctor. Anyone can be designated, but most commonly, the agent is your spouse or domestic partner, a trusted family member or friend.

(3)  A Medical Power of Attorney allows you to appoint someone you trust to decide about medical treatment options if you lose the ability to decide for yourself. Hospitals, doctors and other health care providers must follow your agent’s decisions as if they were your own.

You can allow your health care agent to decide about all health care or only about certain treatments. You may also give your agent instructions that he or she has to follow. Your agent can then ensure that health care professionals follow your wishes.

Some medical providers have refused to release information, even to spouses and adult children authorized by medical powers of attorney, on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases. Consequently, you should also sign a HIPAA authorization form that allows the release of medical information to your agents, your successor trustees, your family and other people whom you designate.

(4)  A Living Will informs others of your desire not to be placed on life-support in the event you are diagnosed as terminally ill. In conjunction with other estate planning tools, it can bring peace of mind and security while avoiding unnecessary expense and delay in the event of future incapacity.

A Living Trust should always be considered when developing a plan for larger and more complex estates. A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You (and your spouse) are the Trustee(s) and beneficiaries of your trust during your lifetime. You also designate successor Trustees to carry out your instructions in case of death or incapacity. Unlike a will, a trust usually becomes effective as soon as assets are transferred to the trust. Your Living Trust is “revocable” which allows you to make changes and even to terminate it. One of the great benefits of a properly funded Living Trust is the fact that it will avoid or minimize the expense, delays and publicity associated with probate.

If you have a Living Trust-based estate plan, you need a pour-over will that allows the executor to transfer any assets owned by the decedent into the decedent’s trust so that they are distributed according to the terms of the trust. For those with minor children, the nomination of a guardian must be set forth in the pour-over will.