Blogs from 2020

Who will make sure my Executor or Successor Trustee adheres to my final wishes? How can I be certain the instructions I leave behind can be enforced? There are at least 3 ways to make certain that your Executor/Successor Trustee does the right thing.

1. Have a clear plan in place

While there are many factors that can help, having a clearly written, comprehensive plan in place is paramount. An Executor of an estate or the Successor Trustee of a Living Trust has a fiduciary duty to carry out the terms of the plan they are given. To do that with ease, the plan must be clear, and it must address all things necessary. Ambiguity and lack of detail opens the door for confusion and misdirection once you have passed away. A clear and comprehensive plan is easy to execute and even easier to enforce. 

2. Choose the correct Executor/Successor Trustee

Choosing the correct Executor/Successor Trustee for is also important.

You can choose a loved one (family or friend) or go with a professional such as an attorney or bank department, or you can set up Co-Executors/Co-Successor Trustees. There are pros and cons to each option. Choosing a loved one is the most widely used option. It offers your survivors the comfort of having a familiar person complete your estate wrap up, and it costs your estate less money by avoiding professional fees. However, it does place a great deal of responsibility upon your Executor/Successor Trustee.

Choosing a professional Executor/Trustee can ensure fairness, objectivity, and a thorough understanding of what has to be done in order to carry out your wishes. This option is often utilized if there are hints of disagreement or in-fighting among beneficiaries. The con to this option is that it usually costs your estate additional professional fees.

Co-Executors/Co-Trustees operate like a check and balance system. This is an option that can be used to spread the workload between a couple of people and to ensure that a solo Executor/Successor is not stalling the wrap up of the estate. This option does not fit every situation and is usually used sparingly. 

3. Removal of Executor/Successor Trustee

What happens when an Executor/Trustee has strayed away from the clear plan you left behind? Usually, what we see are the beneficiaries not receiving what they are due or simply left wondering what is happening with the estate. The Texas Estates Code lays out the fiduciary duties for Executors/Trustees along with a path for removal. If necessary, we can request that a judge grant an order to remove/replace the Executor/Trustee who is failing to do the job correctly. Of course, this should be avoided, and it can be with proper planning.

With a clear and comprehensive plan in place that addresses each asset in your estate, your Executor/Trustee will know exactly how to carry out your wishes. It is important that you talk to your Executor/Successor Trustee about your assets and your intentions for your legacy. Communication and advanced planning will ensure your estate does not wind up needing the Court to enforce the terms of your plan. 

Planning to leave a legacy for a loved one with a disability demands careful detail. Not only do you want to include that loved one in the distribution of gifts from your estate, you also want to make sure that you continue to contribute to their quality of life even after you die. If a beneficiary is currently receiving, or there is a chance he or she will ever receive, public benefits based on their disability, it is imperative to plan in a special way guaranteeing you do not disqualify that beneficiary from receiving the public benefits they need to live.

ABLE Accounts (529A) and Special (Supplemental) Needs Trusts (SNT) are tools we use to plan for disabled beneficiaries. ABLE Accounts were created by federal legislation through the Achieving a Better Life Experience Act in 2014, and they can be used as an alternative to a Special Needs Trust in some situations. Special Needs Trusts are a type of an Irrevocable Living Trust used to hold assets for the benefit of a disabled loved one while still allowing them to qualify for public benefits.

ABLE Accounts and SNTs are both used to reach the same goal: providing for a disabled beneficiary, while still allowing them to qualify for public benefits. Both tools allow either the disabled beneficiary or a 3^rd party (parent, sibling, loved one) to contribute assets for the benefit of the beneficiary. The owner of an ABLE Account is always the Designated Beneficiary, no matter who is making the contributions to the Account. A Special Needs Trust is held in the name of the disabled beneficiary and the assets are used solely for that person’s benefit.

One major difference between these two tools is that an ABLE Account must be created before the beneficiary reaches 26 years of age. The beneficiary’s disability must be documented prior to this time as well. A Special Needs Trust can be created by the beneficiary or by a 3^rd party at any time during the life of the beneficiary.

ABLE Account contributions are capped currently at $15,000.00 per year in total contributions and cannot reach more than $500,000.00 in total value over the life of the account. The contributions are all made with “after-tax” dollars, and any interest gained is not taxed until the money is withdrawn from the account. A Special Needs Trust can hold any kind of asset. Real Estate or “pre-tax” retirement funds can be held in Special Needs Trust for a disabled beneficiary, and there is no cap to the value of the contributions to a Special Needs Trust.

While both tools allow assets to support a beneficiary while still permitting them to qualify for benefits such as Medicaid, the Special Needs Trust has more flexible options for the secondary beneficiary. An ABLE Account is subject to a “claw-back” or creditor claim from Medicaid after the disabled beneficiary dies. Any funds left in the ABLE Account when the beneficiary dies will likely all go to the State as reimbursement for the Medicaid expenses incurred over the lifetime of the disabled beneficiary. A Special Needs Trust still allows a beneficiary to qualify for Medicaid, but the 3^rd party making the contributions can designate an alternate beneficiary to receive the remainder of the assets when the disabled beneficiary dies. 

ABLE Accounts have little to no start up cost aside from the small initial contribution. They can be used in conjunction with a Special Needs Trust to easily allow cash contributions to be made by caring loved ones or the beneficiary themselves. The simplicity of the ABLE Account makes it a valuable tool in planning for disabled loved ones. 

When leaving varied types of assets, especially real estate or more complex investments, to a disabled beneficiary, the Special Needs Trust is needed to address all assets and who has the control over those assets. While ABLE Accounts have their place and can be useful, the Special Needs Trust is a more customizable and comprehensive planning tool. A Special Needs Trust should be set up by an experienced attorney and should plan, in detail, for each asset it will control. There is more cost involved with the setup of a Special Needs Trust, but as the saying goes…the juice is worth the squeeze. A Special Needs Trust offers increased flexibility and will certainly prove to be a blessing to your beneficiary in the future.

Do you have questions about ABLE Accounts or Special Needs Trusts? Contact us today. 

WHAT IF…most of us have thought about a lot of “what ifs” lately. Some of us have been put in situations that we never thought we would be in until the events of 2020. Indeed, many “what ifs” became reality during the COVID crisis. 

Some of our (now) clients, have experienced the need to care for loved ones, but ran into great difficulties making medical and financial decisions.

Below are a few situations clients have run into over the past few months.

WHAT IF: What if your 18-year-old “child” is in the hospital but his physicians won’t let you make decisions for him? 

You may be surprised to know that even if your young adult child is still on your health insurance, he is an adult and as such is protected by medical privacy laws. Doctors shouldn’t and don’t have to communicate with you (the parent) and often you will not be allowed to make medical decisions on his behalf. 

WHAT IF: 

What if you’re in a strict quarantine and you need mortgage refinancing papers signed ASAP? 

WHAT IF:

What if you’re on a ventilator in the ICU and your loved ones need to talk to your physicians? 

WHAT IF:

What if you can’t travel to authorize construction on your rental property across the country?

All of these (and more!) WHAT IF situations are solved by having properly drafted and executed medical and financial power of attorney documents in place.  

What is a financial power of attorney?

A Statutory Durable (Financial) Power of Attorney can be created very broadly or very narrowly to handle any of your personal business or financial concerns. A carefully crafted power of attorney document can even allow your trusted agent to be able to buy and sell real property for you.

What is a medical power of attorney?

We recommend enacting a Combination Medical Directive/Medical Power of Attorney/HIPPA Release. It is a three-part document that can (1) leave instructions for your agents/physicians if you’re unable to speak for yourself and are in an irreversible, terminal condition, (2) name the loved ones that are authorized to speak to your physicians for you if you’re unable to speak for yourself, and (3) authorize those loved ones to get access to your medical records if you’re unable to.

These simple yet powerful documents alleviate some of the stress encountered during times of medical and financial emergencies. Crain & Wooley’s virtual services are ready and able to help you, your family members or friends get these in place – all without leaving the comfort of your home. 

At Crain & Wooley, we instruct our clients to dust off their estate plan and review it once a year to make sure it correctly reflects their wishes. There are many life changes and scenarios where you will need to revoke your will and get a new plan in place. Here are just a few common ones:

1. Divorce – Although the Texas Estates Code states that any provisions for a spouse that you’d divorced before your death are voided, there are a lot of other considerations. Even if the end result is the same, there will be extra time and expense in getting the judge to “fix” the will’s provisions about your ex-spouse. Additionally, a professional estate planning attorney can ensure that your new wishes are carried out in both estate planning documents and in beneficiary designations of your assets.
2. Wishes change – A best case scenario is that your daughter, Janet, wins the lottery and you want to gracefully disinherit her and give your estate to the local animal shelter instead. (Good for Janet and the puppies!) There are a million other scenarios where your wishes change. Maybe your children were minors when you wrote your will, but they’re all grown up and now they’re ready to handle being your executor instead of your sister. Maybe you bought a lake house and want to make sure it stays in the family. Maybe you want to leave a fund specifically for your grandkids’ education. Whatever your wishes are, you have to make sure it’s clearly stated in writing. The courts can’t take “but what he meant to say was . . .” into consideration.
3. Executor dies or is unqualified – Your will should have someone named who you want to be in charge after you die. It also should have at least one backup in case that person predeceases you or is unqualified to serve. If any or all of the executors named in your will are no longer appropriate to serve for any reason, it will make probate a lot easier, faster, and cheaper if you update your will.
4. Children born or adopted – There are very complicated laws that handle what happens when there are no provisions in your will for one of your children, but your will was written before that child was born. Again, it’s best to update your will for the same reasons stated above regarding not relying on the court to adjust your will after your divorce: there is extra time and expense when making adjustments in the court. Depending on your specific family situation, a professional estate planning attorney can make sure that provisions for your children—or potential future children—are written with multiple scenarios in mind.

The absolute best first step in revoking your existing will is to work with a professional estate planning attorney to create a replacement plan. When your “Last Will and Testament” is executed, it literally means that it’s the last one you’ve written (even if you’ve previously created 20 different wills). A well written will should also have language in it reiterating that any previously written wills are revoked. Once we’ve helped you properly execute your new will or, we’ll also advise you to physically destroy your old documents as a triple-check on ensuring there is no confusion as to which will is correct. “Physically destroy” means throwing your old documents in a fire, putting them in a shredder, chaining them to a cinder block and throwing it in the lake, or whatever other way ensures that no one can present it in court.

Has life changed? Do you need to talk with someone about revoking or adjusting a current will? Contact us for a time to talk with one of our attorneys today. 

In Texas, a will written ENTIRELY in your own handwriting is called a holographic will. It is essential to understand that every single word of this type of Will must be written only in your handwriting. Texas courts have taken an approach that directs that when there is a handwritten Will, the court is to disregard all words not written in the person’s own handwriting. This means that the court would try to determine the Will’s intent by reading and interpreting only the portions of the will that were handwritten by the hand of the person themselves. 

It may not be hard to write down a few thoughts in your own handwriting, but what is difficult is to properly draft a Holographic Will that complies with all of the requirements of the law while also accomplishing your intent. Holographic wills are not recommended because there are many pitfalls to acting as your own attorney. Drafting a will without understanding the legal effect of each word and phrase that you include, or a word or phrase that you may leave out will cause unknown and unintended results. 

When you attempt to write your own Will without understanding the law and how your writing will be interpreted, there is the possibility that what is written may not legally be considered a Last Will and Testament. If the writing is not considered a legal Will, your estate will be distributed according to what the court decides instead of what you intended. There is a possibility that you will leave out important words and phrases such as wording that could shorten the probate process, remove requirements for bond, allow for quick sale of real estate, and much more. It is also possible that words that are used may create requirements for additional steps during the probate process such as proving that a number of specific gifts were distributed, including language that the court determines will require every person named to receive all the required legal notices under the law, or language that creates a requirement for official accountings to be submitted to the court that might not have otherwise been required. At the end of the day, you don’t know what you don’t know.

When you are attempting to accomplish something as crucial as stating your final wishes, hiring a qualified attorney can make the difference between leaving a legacy or leaving a disaster for the loved ones that survive you. Short cuts in estate planning may sound like a good idea at first, but the ramifications of short cut, like a holographic will, end up costing your estate a lot of time and money to correct. 

Spouses who are U.S. citizens can generally give property to each other during life and during death without having to pay any estate tax or gift tax. But what if one spouse is a U.S. citizen and the other spouse is not?

When only one spouse is a U.S. citizen, there are special rules that change how the both gift and estate taxed apply. Gift taxes and estate taxes are not the same tax. However, they do work together in tandem. Some examples of these lessor known rules are:

• A U.S. citizen can gift (during his or her lifetime) up to $157,000 to their non-citizen spouse annually without a gift tax applying. (26 USC 2523)
• If a non-U.S. spouse receives U..S assets at the time of the U.S. citizen’s death, $60,000 of value is excluded from the estate tax. Everything above that amount is taxed. (26 USC 2102)

To illustrate how different rules apply, consider a scenario where a U.S. citizen spouse dies, leaving the surviving, non-citizen spouse as the survivor. The value of the house owned by the U.S. citizen over $60,000 will be subject to the estate tax. Consider a $300,000 house owned in Texas. Each spouse owns 50% as their community property (worth $150,000). When the U.S. citizen dies, they leave their half of the house to their surviving non-citizen spouse (a value of $150,000). $60,000 of that value is excluded from estate tax, leaving a $90,000 value that is taxed at the applicable estate tax rate.

Taxes are complex and unforeseen complications are not uncommon. This is just one of many reasons why a person should make sure that they work with a qualified professional when planning their estate. There is more to planning than simply saying who gets what is yours after you die. The good news is there are solutions for married couples where a non-citizen spouse is involved, such as Qualified Domestic Trusts (QDOT), careful life insurance planning, and other legal tools that can reduce the impact of estate taxes that would apply without proper advance planning.

Are you planning with a non-citizen spouse? Have questions? Contact us today!

With our world becoming more globally connected, it is very possible that you own assets inside and outside of the United States. Some countries may recognize your U.S. Will. This may occur if the rules in your state meet all of the same minimum requirements of the other country in which your assets are located. This scenario is not common and is more often a coincidence than a formally planned coordination between countries. Interestingly, some foreign jurisdictions will not recognize a Will made in the United States even if it technically follows all of their legal requirements for forming a valid Will.

It can be difficult to make one document meet all the requirements of multiple counties and some people will choose to draft and execute Wills and legal documents in each country in which assets are owned. One specific solution could be to create a supplemental Will for the additional countries where foreign property is owned. If properly drafted, this approach could help prevent one Will from revoking another when multiple Wills exist.

Another approach could be to follow Will rules adopted by a few countries in efforts to streamline the distribution of international assets. A convention was held in 1973 by the International Institute for the Unification of Private Law (UNIDROIT) to provide for a uniform law regarding Wills that would allow a Will to be accepted in multiple countries. 21 countries are currently part of the Convention Providing a Uniform Law on the Form of an International Will. If you have assets in countries that are part of this convention, the great news is that with proper planning, you can take advantage of the benefit of a special international will being accepted in multiple jurisdictions.

As you can imagine, planning for the distribution of assets across international borders is rather complex and each situation is extremely unique. The good news is that with proper planning, international assets can be addressed as part of your comprehensive estate plan, and with accurate coordination of international laws and legal tools, you will be able to leave an effective and intentional legacy that includes international assets. 

If you currently have international assets or plan to acquire international assets, contact us ASAP so that we can help you avoid international planning missteps.

Trusts—as opposed to wills—are more like contracts and are designed to not have to be proven in court. If they don’t have to go to court, then they generally don’t have to adhere to a particular state’s laws. However, there are some exceptions, particularly:

1. If you’re moving to a state that has an income tax from a state that doesn’t (or vice versa), you might want to update some of the provisions in your trust.
2. If you’re moving to a state that has inheritance tax from a state that doesn’t (or vice versa), you might want to update some of the provisions in your trust.
3. If you’re moving to a community property state from a state that is not (or vice versa), you might want to update how your property is defined and distributed.

If there are changes that need to be made to a particular provision of your trust, most of the time this can be done with an amendment to your trust, so that you can tweak it without having to throw it all out and start from the beginning. 

You should make sure that any new assets you acquire in the new state (particularly, a new house) are purchased the name of the trust. The same is true for bank accounts. It is best to establish new bank accounts in the name of trust. If you forget title new assets in the name of the trust, make sure that they’re retitled or have the trust as the payable on death beneficiary.

It should also be noted that, often, ancillary documents (like Power of Attorney or Medical Authorizations or guardianship) are created with trust packages. If you have Power of Attorney documents created in a state other than Texas (or created in Texas prior to 2014), you will probably want the new type that was established to be statutorily uniform by the Texas legislature. Other ancillary documents might need to be Texas-specific to avoid confusion while you live here in Texas. If you have any questions as to whether or not your current documents are still working in your best interest, schedule an appointment with one of our attorneys.

In 2015, the Texas Legislature passed a law adopting the Transfer on Death Deed (“TODD”). The TODD was adopted, presumably, as an alternative to probating an estate simply for the purpose of clearing title to real estate. More plainly, if you only own a home, you could avoid probate with this type of deed. While that sounds like a viable option at first, there are many shortcomings and pitfalls to using the TODD. 

Using a TODD is essentially naming a beneficiary to your property. When you die, your property will automatically vest in your beneficiaries. They will still need to show a death certificate and have the records updated with the County Clerk and the Count Appraisal District. 

One of the most common areas of TODD failure is only being able to transfer an equal fractional interest. That limitation can drive property owners to leave their property to one single beneficiary in hopes that they will “do the right thing” when handling the property after the original owner’s death. This rarely works, and families end up in court anyway over disagreements considering what “the right thing is”. Crain & Wooley strongly urges property owners not to try and make their intentions fit into an estate planning shortcut like a TODD. These shortcuts often turn out to cost a lot money to fix when not followed to the “T”.

The use of a TODD can hinder a beneficiary’s ability to sell the property in many ways. First, a TODD has a creditor period attached to the transfer for 24 months. For 2 years, a creditor can place a lien or a claim against the sale of the property. This can and will keep the title of the property from being transferable. Unless your beneficiary plans to keep the property for 2 years after your death, the TODD is not your best option. 

A TODD cannot and does not provide any warranty of title. This will cause other issues making it more difficult for a beneficiary to sell the property. Leaving your property to any person without a warranty of title can be giving them more of a burden than a blessing.

A contradiction in the law establishing the TODD is that a TODD cannot be created by an agent acting under Power of Attorney, but it CAN be revoked by an agent acting under Power of Attorney. If you have a Power of Attorney appointed to act on your behalf during a period of disability or incapacity, that agent would not be able to create a TODD for your property. However, that agent can revoke a TODD that you have put in place, even if that revocation plays into their favor. 

As you can see, a TODD does not offer the same safeguards provided by a more thorough estate plan like a will or trust. What started out as a good idea in theory lacks greatly in practical implementation.