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Houston Estate Planning and Probate Blog

Friday, September 9, 2011

Executors of 2010 Estates Have Until Nov. 15 to Make Estate Tax Decisions

Everyone will remember the “wonderful boon” that was the 2010 estate tax repeal, which (in theory) allowed decedents to pass on their assets free of any estate taxes.  However, the situation was complicated in December of 2010 when, as this article in Bloomberg puts it, “Congress extended the tax retroactively [giving] executors of estates of people who died that year a choice. They could decide to skip the estate tax or pay the tax with a $5 million per-person exemption and a 35 percent top rate, the same as in 2011.”

Executors have had almost a year to consider their options, but now it is just about time to make the decision, because “the Internal Revenue Service is giving executors of estates of people who died in 2010 until Nov. 15 to opt out of the estate tax.” According to the IRS the forms and instructions for 2010 estate tax returns will be made available early this fall.

But executors don’t have to wait until the forms are available to consider which tax option might be the most profitable one. Many financial planners and estate planning attorneys have already done their research, and they’ve found that opting not to pay estate taxes may end up costing you more in the long run. This article in Forbes explains: “Opting out of the estate tax regime means opting out of stepped-up basis (for income tax purposes)… and opting into the modified carryover basis rule…  One of the main plusses about estate tax is that it is paired with a stepped-up income tax basis.  You should not be paying both estate tax and income tax on the same assets.”

Of course, each estate will be different depending on a number of factors, including the size of the estate, the nature of the assets, the preferences of the beneficiaries, and any previous planning the decedent may have done. Executors should consider their options carefully, and consult with an experienced estate planning attorney and CPA before deciding whether opting out of the estate tax is really in their best interest.


Tuesday, August 23, 2011

Unusual Things Happen Every Day…

In a recent article in the Huffington Post financial columnist Don McNay tells the frustrating, sad, and “unusual” story of how the greater part of his mother’s and his sister’s estates ended up in the hands of people they would never have chosen to receive it… all because neither of them had a will or estate plan when they died.

When McNay’s mother died unexpectedly in April 2006 neither he nor his sister really worried about her lack of a will. After all, “her only asset was our childhood home, and my sister and I were her only children. We would split the ownership of the house equally.” McNay paid for the funeral, and “advanced the estate money to pay delinquent property taxes, some outstanding bills, and the mortgage on Mom's house,” and he and his sister worked out an informal deal to even things up financially once the estate was settled and the house was mortgaged.

Tragically, his sister fell down some steps and died in October 2006, also without a will, and this is when the real trouble began. Although his sister had left her husband years before, they had never formally divorced; which meant that McNay’s sister’s share of their mother’s estate now belonged to her ex-husband, her adult son, and her minor daughter—and none of it would be used to reimburse McNay for what he had lent the estate.

McNay writes honestly and persuasively about his experience, and we recommend reading the entire article, but the long and short of it is this: After several rounds in court, after the involvement of several attorneys, and after being forced to sell the family home for less than what it was worth, “the person who got the most money from my mother's estate was my former brother-in-law.”

Unfortunately, McNay’s story is all too common. Situations such as this one could be easily (and inexpensively) avoided simply by consulting an attorney and drawing up a simple will; and yet more than 60 percent of Americans don't have wills. Whether it’s because they’re uncomfortable thinking about their own death, think they’re too young to worry about it, or simply feel they don’t have enough assets to worry about it, more than half of Americans today refuse to take the one simple step that can protect their families from heartache and expense.

We suspect that most people believe (erroneously) that this kind of thing just won’t happen to them.  After all, as McNay writes in his article, “My family's series of events was unusual,” but then again, “unusual things happen every day.”


Thursday, August 11, 2011

Frequently Asked Questions About Probate

What is probate?

Probate is defined as “the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person's property under the valid will. A probate interprets the instructions of the deceased, decides the executor as the personal representative of the estate, and adjudicates the interests of heirs and other parties who may have claims against the estate.”
 The definition doesn’t sound too bad, but probate can be a very trying process. Even in the best of circumstances there are procedures that must be followed to the letter, and the actual process (depending on the size of the estate and the laws of the state in which the deceased lived and where the property is being probated) can take anywhere from a few months to a few years.

Do I need a lawyer to help probate an estate?

This depends on the state in which you live and sometimes on the local rules of the courts within the state. Some courts will not allow a party to probate a will without an attorney and some will. If you have been named as executor, probate can often become an overwhelming maze of deadlines, notifications and potential liabilities, and this is why most executors do choose to hire a probate lawyer to help them through the process.

Lawyers can very helpful under any of the following circumstances:

  • There are a number of beneficiaries who are not on friendly terms, or are receiving varying sizes of inheritance.
  • The decedent had large estate with many different assets, especially if the assets are not commonly held.
  • The decedent was a resident in a different state than your own home state.
  • A large number of creditors are making claims on the estate.
  • There is a disagreement about the will, or if more than one will was found.
  • The will is challenged or contested.

Do Life Insurance or Retirement Benefits Have to Go Through Probate?

The answer to the question above is generally “no”; life insurance and retirement benefits do not have to go through probate if the account has a named beneficiary.  Benefits from life insurance accounts can be paid directly to the named beneficiary, and money from IRAs, Keoghs, and 401(k) accounts transfer automatically to the named beneficiaries of those accounts as well.  The persons named as beneficiary, however, will most likely want to consult with a financial advisor to determine what needs to be done with the proceeds from these accounts. Other types of accounts that may not be subject to probate are survivorship accounts (JTWROS),  pay on death (POD) accounts, or transfer on death (TOD) accounts, the money from which can pass directly to the named joint tenant or beneficiary upon the death of the owner.

Probate is a subject most people don’t want to spend much time considering, not only because the rules and requirements can be convoluted and confusing, but also because of the close association between probate and death. If you have any questions at all about the probate process, please don’t hesitate to contact our office—or your own local attorney who specializes in probate—for more information.

Tuesday, August 2, 2011

After A Tempestuous Life Amy Winehouse Leaves Clear and Certain Will

Following the death of British singer Amy Winehouse there have been a number of news stories and blog posts about her turbulent career and the last few years of her life. In the midst of all this scrutiny, perhaps the most surprising discovery is that it is reported that Winehouse’s affairs were in incredibly good order, with a carefully crafted will leaving all of her sizeable estate to her parents and brother instead of to her incarcerated ex-husband.

This timely article in U.S. News and World Reportremarks that “celebrities and non-celebrities alike often leave their estates in disarray when they die. That lack of awareness and planning can make death more stressful and more costly for family members as they struggle to quickly plan a funeral and think about dividing up family property while grieving.”

All too often our office is contacted by family members who are overwhelmed with the task of probating or administering a poorly planned estate. Sometimes these bereaved relatives are dealing with overwhelming and confusing debt, or terrible family infighting, but more often than not they are simply trying to make their way through the long and arduous process of probating an estate without the benefit of a will or trust.

One of the many things we can learn from the life and death of Amy Winehouse is that even in the midst of troubled times it is possible to think clearly about the future. If you’d like to start planning for your family’s future, please contact our office today.


Wednesday, July 13, 2011

Estate Planning for Beginners Part 3: Healthcare Documents

Thus far our “Estate Planning Basics” series has focused primarily on financial documents, but the documents pertaining to your health care are a vitally important part of any estate plan.

The most important healthcare document in your estate plan will be your healthcare directive – in Texas it is called a Medical Power of Attorney.  Depending on where you live, the documents which name a healthcare agent and detail your wishes for decisions made on your behalf and end of life treatment may also be called a living will, an advance healthcare directive, healthcare power of attorney, directive to physicians and family or surrogates or a personal directive.

Perhaps the most important part of a healthcare directive/medical power of attorney is the nomination of your healthcare agent.  This is the person who will be making decisions (potentially life-and-death decisions) about your medical treatment in the event that you are unable. The person you choose should be trustworthy, sensitive to the concerns of your other loved ones, and have the strength to ensure that your wishes are followed—even if those wishes are difficult or unpopular. Like a financial power of attorney, the healthcare directives can be very general or very specific in its instructions.  

In Texas, a Directive to Physicians and Family or Surrogates, which is commonly referred to as a Living Will, allows you to communicate your wishes now about certain end of life decisions in the future at a time when you are not able to communicate your wishes.

While some people have very specific preferences for medical treatment and end-of-life care, others prefer to leave these decisions in the hands of their loved ones, letting those who care about them make the choices that will bring the most comfort.  Whether you choose to leave detailed instructions for care or leave the decision-making to others, your healthcare directive should reflect your choice. We all know the tale of Terry Schiavo, whose lack of a living will resulted in a seven year court battle between her husband and her parents over her end of life care... Don’t let the same thing happen to you or your family.


Wednesday, July 6, 2011

Estate Planning for Beginners Part 2: Powers of Attorney

Once you are secure in the knowledge that you’ve provided for your family and ensured that your wishes for the distribution of your hard-earned fortune are clear, it’s time to take steps to ensure that YOU will be protected and financially secure during your lifetime. It is not uncommon for seniors to need help with the finer details of their finances as they age, or in rarer circumstances for someone who is injured or incapacitated to require an agent to make financial decisions for them. A Power Of Attorney is the document that gives your chosen agent permission to make choices on your behalf, as well as giving instructions as to how those choices should be made.

Here are some of the most important things you should know about your Power of Attorney:

·         A Power of Attorney is only effective during your lifetime; it gives your agent (or attorney-in-fact) the power to act for you while you are alive.

·         A Power of Attorney can be created to go into effect immediately or only become effective when you become incapacitated.  This latter Power of Attorney is called a Springing Power of Attorney because it “springs” into effect once it is proven that the predetermined conditions (generally incapacity of the principal) have been met.

·         A Power of Attorney can be revokedat any time so long as you have mental capacity.

·         A Power of Attorney is for financial, property and legal issues only, a medical agent or power of attorney is granted in a separate document (to be discussed in our next blog post.)

Because your Power of Attorney grants your agent or attorney-in-fact such broad and sweeping powers it is of the utmost importance to choose an agent who will not only be able to make wise decisions for you but who will also have your best interests at heart. While a Power of Attorney does grant an agent very broad powers, there are ways to build a system of checks and balances into the document; some of these include using restrictive language in the document itself which sets limits on the agent’s power.


Wednesday, June 29, 2011

Estate Planning for Beginners Part 1: Wills and Trusts

Every new project has to begin somewhere, and most newcomers to estate planning choose to begin with a will and a trust. This is because wills and trusts form the foundation for how your property will be distributed, how your beneficiaries will be cared for, and how the probate process and estate taxes will be handled.

A will is the most well-known of all estate planning documents, it is generally the simplest and easiest to create (although some wills can be very lengthy and complex), and in most states a will can contain within it instructions for peripheral topics such as guardianship of minor children or the final disposition of your remains.  Although, there are valid reasons to have those other instructions contained in separate documents.

But everybody knows that the main purpose of a will is usually to dispose of your assets and effects. In its most basic form, a will in Texas should include at the very least, these important parts:

  • The testator’s (creator’s) name and crucial information
  • Nomination of an Independent Executor to carry out the wishes of the testator
  • The naming of the beneficiaries
  • Instructions as to how the estate should be distributed to the beneficiaries
  • Signature of the testator and the date signed
  • Signature of witnesses and the date signed
  • A self proving affidavit

As mentioned above, this is a will in its most basic form, but in fact most wills will also contain instructions for probate, instructions regarding the payment of debts and taxes, the names of any organizations to receive charitable distributions, a mention of relatives who may purposefully NOT have been named, and more.

Because a will can be so basic, many people believe that a will can easily be created on one’s own, without the help of an estate planning professional; in fact, there are plenty of companies who offer “Do It Yourself” will creation software for a fee. However, it is important to understand that while a will itself can be very simple; the federal and state tax and probate laws are rarely so. If you feel your estate is small and your wishes are modest then by all means keep your will short and sweet as well. However, we strongly urge ALL of our readers (even those with small and simple estates) to have an estate planning professional at least review your will and advise you as to its validity before you sign it and tuck it away.

Instead of using a will as your primary dispositive vehicle, many individuals and families choose to create revocable living trusts.  We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or an office worker with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect their assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.

There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. Logically enough, an irrevocable trust cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.

The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to the guardians or others as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.

A trust, much more than a simple will, allows the grantor far greater control over their assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance.  Additionally, revocable living trusts are much better incapacity protection planning tools than are powers of attorney. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.


Wednesday, June 1, 2011

The Importance of Estate Planning for New Parents

News sources such as the Washington Post entertainment sectionpromise that this summer will be flush with celebrity newborns and proud mamas and papas. Some of the stars expecting additions to their families include Natalie Portman, Kate Hudson, Jennifer Connelly and more.  Here at our office we wonder how many of these new parents will remember to update their wills or estate plans after the birth of their child... and how many of our readers have remembered (or will remember, if they are currently expecting a new child or grandchild) to update their own estate plans after an addition to their families.

Every parent knows that the time after the birth of a new baby can be a tired, busy and chaotic transition, and updating their estate plan is probably the last thing on any new parent’s mind. But after the first few months, when things have calmed down and you’ve settled into a routine, updating your estate plan to include and provide for your new little one should take top priority.

Here are a few things new parents will want to consider as they prepare to update their estate plan:

·         Guardians for your child. Who are the people who will raise your child if the unthinkable should happen to you and your spouse? Many people choose close family members, others choose trusted friends.

·         Keep your child’s inheritance in trust. Settling your entire estate on a 5, 10 or 16 year old is never a good idea.  Consider instead creating a trust for your child which will provide for him until he reaches maturity.

·         Trustees of your child’s inheritance. Who do you trust to invest and distribute the estate for your child while she is still a minor? Some parents choose to have the guardians also serve as trustees; others prefer to nominate separate trustees and guardians who will work together, providing a natural system of checks and balances.

·         Providing for your child’s special needs. If your child has special needs he will need special planning to ensure that his needs continue to be provided for. Ask us (or your own local estate planning attorney) about a special needs trust.

Guardians, trustees, trusts and special needs planning are the very basics of estate planning for families with minor children, and should serve as a jumping off point for further discussion with your estate planner.


Tuesday, May 24, 2011

New Portability Provision Should be Considered with Caution

A new “Portability Provision” in The Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 has some couples excited about the financial possibilities.  As explained in this article in the Wall Street Journal, the new portability provision “permits surviving spouses to elect to use the unused portion of the estate tax applicable exclusion amount of their predeceased spouses. This provides the surviving spouse with a larger exclusion amount and allows married couples to transfer a collective $10 million estate.”

The new provision may seem like a boon, but the author of the article advises caution for a few reasons: “First, portability may encourage procrastination rather than planning; second, complications emerge with GST taxes, remarriages, and state exclusions; and third, the temporary nature of the act and the unpredictability of Congress make for uncertainty in estate planning for the future.”

Our readers will know that there are a number of planning tools and opportunities that crop up over the years; this new portability provision is certainly one of them. Our readers will also know that none of these tools will necessarily be the “silver bullet” of estate planning.  The fact is that estate planning is like anything else—to do it right and to do it effectively requires intelligence and research; a dedication of time and resources.  Most families simply don’t have the time or the resources to devote to researching every new “perfect planning tool” that crops up promising to save your family money.

This is why our firm is here; it is our business to research the best planning tools for your family.  We listen to your goals; we take into account your financial history and your current status.  We help you create the plan that works best for you.  If you think that this portability provision—or any other strategy you’ve heard about—might be your “silver bullet”, please call our office for an appointment.  We can give you the resources and information you need to make an educated and effective plan for your family.


Monday, May 16, 2011

How to Protect and Pass On Artwork, Antiques, and Other Valuable Assets

Some assets—such as real property, stocks and savings—are fairly straightforward when it comes to leaving them to your beneficiaries; other assets—such as valuable artwork or antiques—are not always so easy.  How do you will an asset to a loved one when there is no deed or title of ownership?  And just as importantly, how do these paperless assets figure into the size and administration of your “taxable estate”?

According to this article by Bonnie Kraham, how you dispose of these assets can be extremely important to the administration and taxation of your estate.  One particularly dangerous method is referred to as “the empty hook” method, wherein “When the collector dies, the beneficiaries simply remove the artwork (from the hooks) in accordance with name tags on the items for the intended recipients. Thus, the estate is left with "empty hooks" of what may be part of a sizable taxable estate for estate tax purposes.”

The problem that arises with the “empty hook” method is that wealthy families who collect artwork or antiques as investments often have records of their purchases and sales, as well as a list of valuable items for insurance purposes.  Any of these documents and records would be reviewed during probate or administration of the estate. “If you don't fully disclose the value of your art collection, or don't properly plan to gift art in compliance with estate tax rules and regulations, you can pass on tax fraud, instead of art, to your beneficiaries.”

Perhaps the best way to hold and legally dispose of your art or antiques collection upon your death is to transfer ownership of these valuable assets into a trust. “Transferring your art collection to a trust may be the most effective, efficient and transparent way to administer your estate after death . . . Trusts are private documents and, although the tax reporting remains the same for trust assets, trusts protect the privacy of an art collector or artist, which can be an emotional protection for the beneficiaries.” Additionally, keeping valuable artwork in trust can provide an extra layer of protection from divorce or lawsuits during your lifetime.

Contact our office, or your own local estate planning attorney, for more information.


Thursday, April 28, 2011

Protecting Your Children with a Nomination of Guardians

Choosing a guardian for your minor child could be one of the most personal decisions you ever make—it’s also one of the most important, which is why many couples turn to an attorney they trust to not only help them draft their nomination document, but also help advise them in this crucial decision. With such a personal matter the decision-making criteria will stem primarily from the heart, but there are some legal factors and implications that may affect the decision, and this is where an attorney can be helpful.

Forbes online recently published an articleoutlining the specific ways in which an attorney can be indispensable when choosing a guardian for a minor child; these include:

Explaining relevant statutory framework regarding guardianship to parents.  As the article mentions, guardianship laws vary significantly from state to state.  The manner in which you choose to name your guardians will likely be different depending on which state in which you live.  For example, will you name just one guardian for both person and property, or will you need to name specific guardians for each of those two areas?

Discussing factors clients should consider when naming a guardian.There are so many criteria to consider when choosing a guardian that many parents get caught up in how to prioritize essential qualities of potential guardians.  An attorney certainly can’t tell you which of your friends and family may be most fit to care for your child, but an attorney can help you asses the financial ability, emotional willingness, and compatibility of values of your candidates.

Emphasizing economic implications of the client’s decision. Most parents, when considering guardians for their children, think primarily of emotional attachment, family dynamic, and parenting style; but an attorney will remind you that finances should also be a significant part of your decision-making process.  Guardians are not necessarily legally obligated to use their own funds to support their wards, which means that parents will want to discuss with an attorney the best way to provide financial support for their children.

Drafting provisions setting forth client wishes regarding the upbringing of their children.Parenting is an incredibly personal process; hundreds of small choices are made each day which shape the minds and values of our children.  Some parents may want to express their wishes for how their child should be raised, even after their death.  Guardians cannot be required to follow parenting guidelines when they accept guardianship; an attorney, however, can suggest a few ways that parents can encourage guardians to respect their wishes regarding upbringing.

A nomination of guardians may very well be the most important estate planning document you draft, our firm can help ensure that every bit of information has been considered and addressed before you make your final decision.


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