Blogs from March, 2020

Dear Crain & Wooley Family,

We are so thankful for each of you and hope that y’all stay healthy during this time of uncertainty.

Crain & Wooley remains open to serve your estate planning needs. We are fully functional virtually and are having limited in-person meetings as necessary. If you have an in-person meeting scheduled, we can easily transition into a video or conference call – just email joy@crainwooley.law with this request.

Our office hours remain the same Monday – Friday 9:00am – 5:30pm.

Feel free to 972-560-6288 or email joy@crainwooley.law with any questions you may have.

P.S. If anyone you know needs our services during this time, just give them our phone number. We know how important it is to have up-to-date documents in a time like this.

Why is an estate planning firm discussing COVID-19? I mean give it a break already, right?

I have read many updates from the CDC, local and national agencies as well as medical professionals guiding us on how best to “flatten-the-curve” so that our medical infrastructure is not overwhelmed. One interview provided by an Emergency Department doctor mentioned very practical things like: washing hands, maintaining social distance, staying home, calling your doctor before heading to the emergency room and many other practical tips including the creation of a Medical Power of Attorney and Medical Directive. Why?

Medical Power of Attorney (MPOA) and Medical Directive (aka Living Will) documents provide your family and loved ones with the appropriate legal authority to make medical decisions on your behalf should you need assistance. Our firm is not given to flights of fancy or panic, but we do strongly agree that having these documents in place is key to being prepared and avoiding panic.

We at Crain & Wooley believe in proactive planning so that emergency situations are not compounded by bureaucratic red tape. Through April 30, 2020, we will be providing VIRTUAL, expedited and 25% discounted service for anyone who needs a Medical Power of Attorney or Medical Directive as our way of supporting our neighbors and community through this time of crisis. 

Every week, we encounter many different types of wills from those created using an online self-help product to those hastily scribbled on the back of a napkin before a medical procedure. The family and friends of the testator (the will’s author) are often surprised that wills, in general, don’t avoid the probate process, and wills written without the assistance of a licensed attorney often times complicate the situation thereby making the probate process cost more and last longer than necessary. 

So, what are best-and-worst-case scenarios when faced with a will to probate?

BEST CASE SCENARIO

The decedent left a perfectly executed, ORIGINAL will, in an easy to find location, and all parties (family, beneficiaries and creditors) agree on EVERY, SINGLE item. If this is the case, you’ll have a relatively SHORT relationship with the Texas courts. On average, a perfectly executed will can be probated in about 6 months.

WORST CASE SCENARIOS

There are many mistakes that make up the worst case will scenarios. Let’s just talk about a few of the most common:

1. The will is not self-proved. For a will to be self-proved, the “testator” (the person making the will) must sign the will at the same time as two witnesses and a notary public. If the will has not been properly notarized, then one of the witnesses to the will has to testify in court that the will was properly executed. The witness has to testify to things such as the fact that both of the witnesses were over age 14, that the testator was of sound mind, that the testator knew what he/she was doing at the time, and that the testator was at least 18. This presents a few potential problems. When a will isn’t properly executed, the testator is playing the odds that the witnesses (a) will outlive him/her, (b) can be located, and (c) will be available to testify at the court hearing.
2. You can’t find the original will. Under Texas law, if an original will can’t be found, it is assumed to have been destroyed and, therefore, revoked. A copy of a will can be offered for probate. However, it can only be done after there are heirship proceedings to determine who the heirs of the estate would be without a will. Then those people must be notified and given a chance to dispute the proposed copy of the will. 
3. The will is holographic. A holographic will is one that is done completely in the testator’s handwriting. If a holographic will has all the proper elements of a will (which it rarely does), additional witnesses will be required to attend a court hearing. These witnesses will have to testify that they have good reason to know what the testator’s handwriting normally looked like and that the holographic will matches it.
4. Parties disagree. This is a can of worms that can explode in a lot of different, messy ways. Even if a will is perfectly written and properly self-proved, disgruntled parties can cause lengthy delays. Parties can claim that the testator didn’t have full mental capacity to make the will. They can claim that there was undue influence and the testator didn’t really mean to make the bequests in the will. They can claim there were children that the testator didn’t know about. They can claim that the named executor isn’t really qualified. They can claim that the property isn’t worth what the inventory process asserts. They can claim that the testator owed debts that hadn’t previously been reported….and on…and on…and on. Problems like this can cause a probate to last as long as people continue to disagree or until the money runs out.

If a loved one (or you!) has a will in place but are unsure if it meets the requirements for the BEST-CASE scenario, we would be happy to review the existing will. We can also explore different estate planning options that avoid the probate process altogether – like a revocable living trust. Unlike a will, a revocable living trust doesn’t have to be proven in court. Because it doesn’t have to be proven in court, it isn’t public record. Because it isn’t public record, it doesn’t invite things that can go wrong.

To schedule a time to review a will or talk about a trust, call us today!

Generosity is a wonderful attribute, yet there is some confusion regarding the “Gift Tax”. Have you heard that you could donate or give $15,000 (it used to be $10,000) each year without tax consequences? Many people are confused by this rule.

Unless you have gifted an extraordinarily large amount, it is unlikely that you will have to be concerned about paying any gift tax. As of 2020, you would have to gift more than $11,580,000 before any gift tax payment would be due.

What you may not know is that the $15,000 exclusion that many people have heard of is officially called the “Annual Gift Tax Exclusion.” This means that you can give up to $15,000 per year (per person you gift to) and not have to report the gift to the IRS – that gift is the maximum gift amount you can give per person per year excluded from gift tax. However, there is also a “Lifetime Gift Tax Exemption.” The Lifetime Gift Tax exemption is $11,580,000 for the year 2020. This means that if you gift more than $15,000 per year (per person you gift to), you have to report that amount over $15,000 to the IRS as a gift. Then, the total gifts reported in your lifetime is added up to see if you have gifted more than the Lifetime Gift Tax Exemption. If you have not gifted more than the Lifetime Gift Tax Exemption, there is no gift tax due!

It is also important to understand that currently, the Lifetime Gift Tax Exemption of $11,580,000 is part of the same total amount you can exempt from Estate Tax (what many people informally call the death tax). Restated, this means that to determine if there is a tax on gifts you make during your life, all of the gifts you made over $15,000 in one year (per person you gifted to) has to be added up and if that total amount is less than $11,580,000 during your life – no gift tax is due. THEN, after you have died, the value of everything being left to your survivors has to be added up. You combine the total gifts made during your life along with the total left after your death, and if that total is less than $11,580,000 – there is no estate tax due. The combination of Gift Tax and Estate Tax exclusion amounts is called “Unified Credit” in tax law (simply meaning they combined the life gifts and death gift totals against one exclusion amount). Simply stated, it means that no Gift or Estate Tax is due until a person gives away more than the total exemption amount, which is $11,580,000. If you are married, you can both claim the $11,580,000 for a total of $23,160,000. 

WHAT DOES THIS LOOK LIKE IN REAL LIFE? HERE IS AN EXAMPLE:

Greg gifts $20,000 to each of his five children and to each of his ten grandchildren for Christmas in 2020 totaling $300,000. The law in 2020 says that you don’t have to report gifts of $15,000 or less (per individual person you’ve gifted to). So, for each child and grandchild receiving $20,000 – only $5,000 must be reported to the IRS. The amount over $15,000 that needs to be reported on IRS Form 709 for fifteen people (15*$5,000) is $75,000. 

Reporting those gifts, however, does not automatically mean that Greg has to pay any tax. How can that be?! It is because the Lifetime Gift Tax Exemption amount in the year 2020 is $11,580,000. Greg, in this example, has only used $75,000 of his total $11,580,000 exemption which means that he can still gift $11,505,000 during his life before having to pay any Gift Tax!

How does this relate to the Estate T(death tax) that we often worry about? When Greg dies, the total amount of gifts made during his life is required to be added together with the gifts made after his death. If his lifetime gifts plus his gifts in death total $11,580,000 or less, there will be no Estate Tax. This means that if Greg dies after the gifts he made Christmas of 2020 without having ever given any more gifts, and his total estate remaining at his death was worth $1,000,000; his total estate value plus the lifetime gifts he made would total $1,075,000 – no leveraging of an Estate Tax necessary. Technically, Greg could have given away $10,505,000 more before any Gift or Estate Tax would have been owed.

Generosity never goes out of style. Want to leave a legacy of generosity or have Estate Tax or Gift Tax questions? Comment below or contact us.