Blogs from November, 2019

The process of getting a divorce touches literally every part of your life – including your estate plan. How would you feel if after your divorce was over and you thought everything had been taken care of, your ex-spouse was still involved with the disbursement of your assets simply because you forgot to update your estate documents? 

Getting divorced is difficult and involves a lot of change in your life. If you want to ensure that an ex-spouse cannot be involved in your life in cases of disability or death, you would be well-advised to create or update legal documents during or as soon after your divorce as possible. 

What documents should be created or updated to reflect your divorce? Consider the following at a minimum:

• New Powers of Attorney and Medical Powers of Attorney (who can sign your name and who can talk to your physician);
• New Declarations of Guardian in Advance;
• If you have minor children, update your Guardian Declarations for Minor Children;
• Update beneficiary designations of all kinds;
• New Last Will and Testament
• New Trust(s)

Despite current law attempting to address the situation where spouses divorce yet fail to update estate documents before death or disability, the enforcement of these legal provisions can be extremely costly, time-consuming and still may not result in your actual wishes being carried out.

Crain and Wooley has assisted in numerous cases in which a spouse was married to one person, named them as beneficiary in multiple documents, divorced spouse number 1 and remarried a second person. However, at death and/or disability the estate was tied up in contested proceedings between current spouses and ex-spouses due to documents never being updating to reflect the updated familial structure and current wishes. 

Start this new chapter of your life off right by updating or creating your estate plan. Contact Crain & Wooley today.

When a person creates a trust, it is important for them to change ownership of assets out of their individual name and into the name of a trust. For example, a home originally owned by John Doe would be changed to show that John Doe, Trustee of the John Doe Revocable Trust, owns the property. The process of changing ownership to a trust sometimes brings up the question, “won’t a revocable trust change my tax status?” Short answer? No. 

When thinking about creating a trust, many Texans become concerned that they might lose their 65 and older exemption or lose their homestead exemption; and others wonder if they might be taxed at a higher tax bracket for their trust assets because they have heard of some type of “trust tax rate”. 

The good news is that when a person creates a trust that they are in charge of (like a revocable living trust) that holds assets that were theirs to begin with, the IRS will disregard their trust for tax purposes. The IRS calls this a Grantor Trust. The IRS defines a Grantor Trust as follows:

 “Grantor trust” is a term used in the Internal Revenue Code to describe any trust over which the grantor or other owner retains the power to control or direct the trust’s income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the grantor, rather than to the trust. (Examples, the power to decide who receives income, the power to vote or to direct the vote of the stock held by the trust or to control the investment of the trust funds, the power to revoke the trust, etc.) All “revocable trusts” are by definition grantor trusts. An “irrevocable trust” can be treated as a grantor trust if any of the grantor trust definitions contained in Internal Code §§ 671, 673, 674, 675, 676, or 677 are met. If a trust is a grantor trust, then the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor.

Even more good news for Texas citizens — assets in this type of trust also retain their property tax exemptions because a revocable trust is a qualifying trust as defined by the Texas Tax Code and the Texas Property Code. 

Bottom line: You can create a revocable living trust while maintaining your real property exemptions and without negatively affecting your tax situation.

Working with estate planning experts like Crain & Wooley makes sure that all of your goals are accomplished, and all tax laws are followed. Contact us with any questions!