Wills and Estates

Wills and Estate Planning

YOU CAN'T TAKE IT WITH YOU -

Death affects people in many ways. It never is timely. Death confronts families with bereavement, with the need to readjust emotionally and financially and often with an unknown future. Death is not only a personal issue but a legal one as well. A death certificate must be issued, and the estate of the deceased individual must pass to others.

Your estate consists of the property, both real and personal, which you own at the time of your death. Real property includes land and improvements located on the land. Real property also includes oil, gas and other mineral interests. Personal property is all other property, including cash, bank accounts, clothing, personal effects, household furnishings, vehicles, stocks, bonds, life insurance policies and retirement benefits.

Upon death, title to your property passes immediately to the beneficiaries named in your Will or to your heirs-at-law if you die without a Will. First, however, your debts and other claims on your estate must be paid. The remaining assets are distributed according to the provisions in your Will. If you died without a Will, then your estate is distributed to your heirs as determined by Texas law. In this latter case, your heirs under Texas law may not be the ones you would have chosen.

Disadvantages of Dying Without a Will -

If a person dies without a Will, the law determines who receives your property. The law does not play favorites, so distribution is determined by degree of kinship, not by how close or wonderful someone was to you. In Texas, no matter how remotely a person is related to you, he or she may be an heir-at-law. If you have no heirs, your estate may pass to the State of Texas. So, dying without a Will may trigger undesirable results along with unexpected costs and delays.

Undesired Results -

Because you usually have an idea of how you want your property to pass to others, undesired results can occur when you die without a Will. Dying without a Will creates the risk that your property may not be distributed as you wish.

For example, very often one spouse may prefer to leave everything to the surviving spouse to provide for and take care of the children. But, this may not happen if there is no Will. If a person dies without a Will and is survived by spouse and children, including one or more children who are not also children of the surviving spouse, the surviving spouse receives only his or her one-half share of the community property, perhaps including the family home. Further, the surviving spouse inherits only one-third of any separate personal property and only a life interest in one-third of any separate real property in this example. If there is any animosity between the surviving spouse and the deceased spouse’s children by a prior marriage, conflicts or disputes may arise. Surely, this is not what you would want.

If a person is not an heir-at-law, then they cannot share in the estate if you died without a Will. If an unmarried person dies without a Will, friends and roommates inherit nothing. Nor would a devoted friend who cared for your well-being, no matter how unfair it may seem unless the friend is provided for in your Will. Also, without a Will, property cannot pass to a charitable organization no matter how firmly you believe in the cause.

In Texas, there is no forced heirship. In other words, a parent is not required to leave property to his or her children. However, one cannot disinherit heirs if you die without a Will. Under the intestate distribution statutes, property may pass to undesired heirs instead of those you would have chosen.

Costs and delays -

Dying without a Will can tie up assets for an undetermined period of time. Court proceedings often are required to determine who are the heirs. An administrator, who may be responsible to the court for settling the estate, may have to be appointed. The administrator may be required to post a bond to ensure that the duties are performed properly. The administrator’s duties include locating the heirs, inventorying the assets, paying off debts of and claims against the estate and distributing the property to the heirs.

Transfer of ownership of some of the assets by legal documents, such as deeds and certificates of titles, may be necessary. If the estate cannot be settled amicably, the court will resolve these disputes. Because of congested dockets, court proceedings often are slow. Legal fees and court costs may begin to mount. Depending on how difficult it is to divide the property and whether the heirs agree on the value assigned to it, court proceedings could be so lengthy and costly that the estate is depleted. The bottom line is that dying without a Will cost time and money and causes frustration for your family.

What a Will can do -

A Will avoids many the problems just discussed. First, it allows you to leave property to the people that you desire. In addition to naming the recipients of your estate, a Will also designates the individuals who manage your property and care for any minor children. For larger estates, a Will often contains provisions that minimize estate taxes.

A Will can also set up a trust. To establish a trust, you transfer property to a trustee who manages and administers the property for the benefit of people that you name. A trust is an effective way of managing property for the benefit of minor or incapacitated persons or for persons who are incapable of managing their own financial affairs.

Non-Probate Assets -

Not all assets that you own at death can be governed by your Will. Some of your estate may be “non-probate assets” or assets that pass at death by means other than by a Will or intestacy. The principal types of non-probate assets include assets passing by contract, property passing by survivorship and property held in trust.

Property passing by contract includes life insurance proceeds, IRAs and employee benefit plan proceeds. These assets pass outside the Will to beneficiaries named in the contracts. Thus, it is important to review the beneficiary designations made in these contracts.

Property held by you and another person as joint tenants with right of survivorship also passes outside the Will directly to the survivor. Survivorship property usually includes certain types of bank accounts, certificates of deposit and brokerage accounts.

Another category of property that is a non-probate asset is property held in trust. You may be the beneficiary of the trust during your lifetime. Or, you may create a trust and transfer assets into the name of that trust. In either case, the trust assets pass under the terms of the trust rather than under the terms contained in your Will.

It is important to determine the extent of your non-probate assets when planning for your estate. If a significant portion of your assets is comprised of non-probate assets, then even a well-drafted Will may not be sufficient to carry out your wishes.

Tax Considerations -

Depending upon the size of your estate, a Will may be necessary to avoid, minimize or defer federal estate taxes. Under current law, estate taxes are scheduled to be repealed in 2010 but reinstated in 2011 with a unified credit of $1,000,000.

Life insurance and other non-probate assets are considered in determining the value of your estate. Estate planning can prevent such assets from being subject to estate taxes, such as placing life insurance in a trust.

Currently, there highest tax bracket is 35% which is scheduled to expire at the end of 2010. If Congress does not pass a new law, the highest tax brackets will then become 39.6%.

PHYSICIAN’S DIRECTIVE -

Additionally, Texas law allows you to instruct your physician to withhold or withdrawal artificial life-sustaining procedures in the event of the terminal condition. A Physician’s Directive takes effect only after your physician determines that you are terminally ill and that death is expected within six months without the application of artificial life-sustaining procedures.

Texas law prescribes the language in the Physician’s Directive. You must sign the directive along with two witnesses. The directive may also include a designation of another person to make a treatment decision for you if you become comatose, incompetent or otherwise mentally or physically incapable of communicating.

If you desire that your life not be artificially prolonged in the event of the terminal illness, then you should have a Physician’s Directive prepared for you. It may also be desirable to inform your physician of your wishes and to provide him or her with a copy of this directive. Failure to execute a properly drafted directive may result in difficulties for your family in caring out your wishes with respect to terminating artificial life-such training procedures.

POWERS OF ATTORNEY -

The power of attorney is an instrument by which one person (the principal) grants to another (the agent) the power to perform certain tasks on his or her behalf. Two types of powers of attorney are common in the estate planning field, namely the power of attorney for healthcare and the durable power of attorney.

The power of attorney for healthcare grants the agent the power to make healthcare decisions for the principal if he or she is unable to make them. The agent may exercise his or her authority only if the principle’s attending physician certifies that, in the physician’s opinion, the principal lacks the capacity to make healthcare decisions. The principal can revoke the power of attorney at any time, orally or in writing, and regardless of the principal’s mental state.

The second type of power of attorney is a durable power of attorney. This instrument grants authority to the designated agent to manage the principal’s property on his or her behalf. It can be distinguished from the power of attorney for healthcare that relates to healthcare decisions rather than does decisions concerning the management of property. The principal can either grant the agent one or more specific powers or grant the agent all of the powers listed in the power of attorney form. In addition, the principal can elect to have the power of attorney become effect immediately upon signing it or upon the principal’s future disability or incapacity.

Things to Think About -

If you die without leaving a Will, you risk that your property may not be distributed as you desire. Even when the heirs at law are the same as you would have selected yourself, there is no advantage to letting the law take its own course. The advantage lies in dying with the Will. With a well-drafted Will, you can avoid legal pitfalls, name an executor of your estate, name a guardian for your children, establish trusts and minimize probate-related costs by providing for independent administration. Although a Will can be challenged in court, the grounds for contesting the Will in Texas are few, and the law favors carrying out your expressed intent.