There are certain estate planning documents that every Texas resident should have: a Will; a Durable Power of Attorney; a Medical Power of Attorney; and an Advanced Directive to Physicians and Family or Surrogates (also known as a Living Will).
A will is a document which, at a minimum, provides for the distribution of the assets of an estate. Generally, it also appoints an Executor, the person whose role is to oversee the administration of an estate, and may also appoint guardians and trustees, create trusts, provide for certain tax treatments, and include many other provisions. Texas Laws are specific about how a will must be worded and executed. A person who dies in Texas without a will (also called intestate) or a defective will may leave countless problems for those left behind. The following are some of the most obvious:
The Assets. Without a will, a person’s assets are distributed pursuant to Texas law, which rarely reflects what an individual would want. If a person dies leaving a spouse who is the parent of all his or her children, then the spouse will inherit all of the person’s interest in their community property. However, if a deceased person has children from a prior marriage, the surviving spouse then becomes a joint owner along with his or her stepchildren of all community property. Separate property is a different matter. Without a Will, a person’s spouse will inherit only one-third of his or her separate personal property and a life estate in one-third of the separate real property. The deceased person’s children will take the remaining share of the separate property.
Court Supervision. Unless an Independent Executor is named in a Will, a person’s estate may be subject to being supervised by the Probate Court at considerable expense, delay, and inconvenience.
Minor’s share. Specific provisions for minors are routinely included in Wills to avoid complications. If parents have not appointed a guardian for a minor child, the Probate Court will have to determine who the guardian of the minor will be. Furthermore, if a minor’s share of an estate is not payable to a trust established for the minor, then the minor’s share must be the subject of a guardianship. The guardian will have to report to the Probate Court each year and render an accounting of any sums spent for the minor. In addition, the guardian must post a bond to guarantee that he or she will handle the funds properly. When the minor beneficiary reaches legal age (18), he or she has full rights to withdraw and spend his or her inheritance. Most people would prefer their assets be used for the health, maintenance, support, and education of their children up to a particular age before the money is given to them directly.
Estate taxes. If a married couple’s combined estates are valued over the amount that is exempt from estate tax (now at $5,250,000 indexed for inflation), their Wills can be designed to minimize the effect of federal estate tax that is applied to their estates. By failing to take advantage of this legitimate planning tool, significantly greater death taxes will be due at the death of the survivor.
Powers of Attorney
A Power of Attorney is a document authorizing someone to act in the place of the Maker, and for the benefit of the Maker, with regard to financial affairs. By appointing someone to handle his or her affairs in the event of incapacity, the expense and inconvenience of a guardianship can be avoided.
Health Care Documents
There are two documents that can be extremely helpful in situations when a person is ill and unable to make health care decisions. An Advanced Directive to Physicians and Family or Surrogates (also known as a Living Will) is a document in which a person makes decisions while he or she is still able to make decisions about the withholding or withdrawal of life-sustaining procedures in the event of a terminal or irreversible medical condition. Then, once the person can no longer communicate health care decisions, these written decisions become effective.
Medical Power of Attorney. This document allows a person (the principal) to authorize another person or persons (the agent or agents) to make health care decisions for him or her if, that person is unable. We generally include a HIPAA (the federal law, Health Insurance Portability and Accountability Act, which provides, among other things, privacy regarding medical and health care information) release, which allows the agent to talk with the principal’s physicians and to review the principal’s medical records.
A living trust can accomplish the same objectives as a Will and Power of Attorney described above, and in some circumstances can be preferable. Establishing a living trust however, requires more work to set up at the time it is established and ongoing care to see that all assets are properly transferred to the trust. Generally, the legal fees to establish a trust are greater than the cost of preparing a Will and Power of Attorney. Establishing a living trust is sometimes encouraged in order to avoid probate, which in most cases in Texas is not necessary. Texas has a streamlined probate system and as a general rule it is a procedure which does not need to be avoided.