ESTATE PLANNING FAQS
HOW TO AVOID GUARDIANSHIP
There are methods outside of guardianship to manage and protect your person and estate while you are sick, injured and incapacitated. Guardianship is a complex, costly, court-supervised process for protecting and managing the assets, debts, and person of someone who is incapacitated. These steps should be taken before “incapacity”.
These choices include: Trusts, powers of attorney, and healthcare power of attorney. Planning can also include the use “convenience” accounts with financial institutions. The use of a convenience account permits a person to spend money from your account without giving an ownership interest in the account to the person. This can be a very dangerous grant of power, as can any of the other documents discussed and should used only after careful thought.
Perhaps the easiest course to take is to grant “power of attorney” to a friend or relative. This power must be granted by a person who is competent. Competence in a very general sense means that the person is aware of what he or she is doing and understands the powers being given. Lack of competence is called “incapacity”. The granting of powers in a power of attorney can be made effective either immediately or only upon actual incapacity. Waiting until you are too sick or injured often means you will be unable to use the simplified methods to avoid guardianship.
A trust is the transfer of control of property by the owner (trustor) to a (trustee) person to manage for the benefit of a person (beneficiary). It is possible to transfer property to oneself for your own benefit if in the future the property will benefit someone else under the terms of the trust. When this is done the trust is called a living trust or revocable trust. These terms mean the trust can be changed or terminated at any time prior to the trustor dying or becoming incapacitated.
After a formal document is properly created, the person granted power under a trust or power of attorney can legally handle financial transactions on the other person’s behalf. It is important to also consider having a durable health care power of attorney so that you have someone you trust to make medical decisions on your behalf. A power of attorney can be revoked at any time while a person is competent.
If the condition of the ailing person is severe and no trust or powers of attorney were created, a guardian for the person and estate may be appointed. All states, provide for the appointment of a guardian if the person is so incapacitated that he or she can no longer handle matters. Friends, family or interested persons may ask the court to be appointed as guardian. You may designate who you do or do not want to serve as your guardian. In Texas family members have the first right to serve. If a long-term disability is expected a living trust may be an appropriate choice.
Trusts and powers of attorney may only be created by a person before being “incapacitated”, i.e. losing competence. If you have any questions about guardianship, trusts or power of attorney, or concerns about your estate, it is important to consult an attorney.
Let an experienced Estate Planning attorney, help you with your all of your life planning legal needs. Mr. Kennedy serves clients in Dallas, Fort Worth, Arlington, Mansfield, Grand Prairie, and all surrounding areas in Tarrant and Dallas Counties.
COMMON ESTATE PLANNING TERMS
Estate plan: the method by which you provide for trustworthy persons to manage for your own care during life and transfer your property to persons of your choice after your death. It can include a plan for providing care for persons unable to care for themselves for whom you want to provide. One element could be asset protection.
An estate plan should include tax considerations, financial planning, healthcare, and insurance of several types: disability, medical, life and long-term care. Most people consult at least one professional in each area. Trust of various types are used more frequently as the complexity of the plan increases to include tax planning, complexity of family relationships or disability issues.
Common tools are: broad form HIPAA releases, health care powers of attorney, physician’s directives (also called living wills), general or statutory durable powers of attorney, Wills, trusts and various other documents.
Obviously, no one should be appointed by you whom you do not trust completely. Some functions to consider:
a) healthcare agent- this personal maker healthcare decisions when you cannot do so.
b) financial transaction agent- this person pays your bills, manages and or sell assets (cars, house, stocks).
c) Trustee- similar role as financial agent, but authority limited to assets placed into the trust. Banks will commonly honor the authority given to a Trustee more than the authority given to an agent in Texas.
Professional trustees, such as banks, often do not like to hold real estate, or operate a business. Banks prefer to invest funds and pay expenses according to standards in your trust agreement.
d) Executor- the person named in your will to manage your estate after your death. The executor must present the will to the probate court and be granted that authority by the court. Executors are given a form called a letter testamentary by the court clerk as proof of their authority.
e) Administrator– a person who performs the same tasks as an Executor, but is appointed by a Court when no person was named in a Will.
f) Guardian: a person appointed by the probate court to handle financial matters for a minor. The Probate Court will only appoint a Guardian for financial transactions when the minor receives property by inheritance or when given property in a poorly planned Will. In a properly planned Will one of several methods is used to hold assets for a minor until he or she reaches majority.
g) Custodian- this is the person you name to care for your minor children. The custodian is a person appointed by a Family Court to have custody and provide care for your minor children. A Family Court judge will usually honor the choice you make in your Will as to who should have custody of your children. However, the judge must follow it best interest test and may decide the person you name is inappropriate.
h) Trust: a written agreement for use of income or assets placed into the Trust. There are three roles (persons) in every trust: grantor, trustee and beneficiary. A Trust can have more than one person filling each role.
i) Settlor, trustor or grantor: a person who creates and funds a trust.
j) Trustee: a person who accepts responsibility to manage trust assets for the benefit of the named beneficiaries.
k) Beneficiaries: the person (s) who have the right to income or use of assets in a trust. Rights can be divided in many ways. Most commonly by time, income or use of principal.
It is very common for a married couple to be the Grantors who picked terms of the trust, and provide the assets, accept management as the first trustees and are the primary beneficiaries while alive. Ultimately, the assets must pass to someone else for the trust to be valid.
l) Revocable Trusts– a trust that can be terminated or changed at anytime while the person creating the trust is both alive and mentally competent.
m) Irrevocable-a trust that cannot be amended. Trust are often made irrevocable in order to make the gifts contained in the Trust final for tax purposes. A gift is not complete for tax purposes until it is final, in that the terms of the gift are stated and the property delivered.
n) Living (Inter vivos) a trust created and funded while the person creating the trust is alive. Frequently the terms revocable, inter vivos or living trust are used to mean the same thing.
o) Testamentary: a trust created and funded pursuant to terms of a Will after the death of the Testator.
p) Testator: person who signs a Will for his or her own estate, as distinguished from a witness or notary.
q) A/B Trust, also called marital/credit shelter trust. A method used to divide assets between the surviving spouse and children or other beneficiaries. This is usually done for estate tax planning purposes, but can also be used to allocate assets due to there being children of multiple marriages or other reasons.
There are many sophisticated (complicated) forms of Trusts used for specific tax and/or charitable purposes including: Grits (Grantor retained interest trusts), Grats, (Grantor retained annuity Trusts) Cruts, (Charitable retained uni-trusts) and Qualified Medicaid Trusts, etc.
WHO SHOULD BE APPOINTED TO FILL THE VARIOUS ROLES?
A book could be written on this issue. Some obvious factors are: cost, your trust of the various persons, convenience of access and the skills of the persons. Most people automatically choose his or her husband or wife as first choice. This is usually a good choice, but not always. Do not name your wife or husband as your end of life care agent if he or she is not actually emotionally able to do what you want. If you want health care stopped in certain situations this is an extremely difficult decision to dump on your spouse or child.
Using a professional as trustee, or health care agent adds to the cost of your plan, but sometimes their education, skill and professional detachment can make a world of difference.
It might seem obvious to name your daughter the nurse as your health care agent, but if she lives in Bangor, Maine it might be better to name someone closer. The health care agent needs to be both willing and able to attend medical appointments. Naming the daughter in Bangor might actually be the best choice. You may not want to move, but if you become physically or mentally disabled your children are likely to move you closer to them. It is easier to find nursing homes than jobs.
Some people just have better tact and understanding of people, they can make better agents. Education and training can make a lot of difference in choosing an agent to handle finances.
WHAT BENEFITS DO REVOCABLE TRUSTS HAVE?
1. Revocable trusts are better for authority to perform financial transactions than Powers of Attorney. Agents on a powers of attorney are commonly denied access to financial accounts unless placed on the account;
2. Use of a trust permits a person to keep complete control of transactions without sharing information about current transactions with successor trustees until the successor trustee assumes authority;
3. A trust is an excellent tool to avoid creation of a Guardianship if an injury or illness causes a person to be unable to handle his or her own affairs;
4. Terms of a Trust are private and not available to the general public;
5. A trust can be used to avoid the probate process required by use of a Will if it is completely and properly funded;
6. When the person creating the Trust dies or becomes incapacitated the trust becomes irrevocable in Texas. At this point the Trust can be used to protect your beneficiaries from their creditors. Proper trust bookkeeping keeps the assets of beneficiaries separate and identifiable; and also avoids confusion as to ownership of assets. This can help keep creditors of your beneficiaries out of the trust assets.
7. A trust is a good means to allow use of marital assets during the life of your surviving spouse, but require distribution of your assets to your children after your spouse's death.
WHO SHOULD BE MY AGENT?
This is not the simple question it sounds like. An agent is a person you give in writing the legal power to do things for you. No one person is best for every situation. The natural answer when you are married and young is different than when both of you are 80 and feeling every year.
Five Qualities of an Excellent Agent
Trustworthy. You trust this person to do right by you no matter what.
Understanding. Your agent know what you think and believe and is willing to make decisions on your beliefs and desires, not their own. Lawyers call this substituted judgment.
Self-starter. Your agent does not require constant supervision and redirection.
Qualified. Your agent has the life experience and basic education to know what needs to be done and how to do it. A financial agent knows how to balance a bank account, how to shop for insurance, how to pay bills on time and develop and keep to a budget. Sometimes the base knowledge is to understand an expert needs to be hired. The agent knows to hire an electrician instead of attempting the job. She knows that a good CPA will save money and worry. He should understand when an attorney is needed instead of trying to Google an answer.
Compatible. The agent enjoys being around you enough to put up with you when you are at your worst.
The duties of an agent vary based on the purpose of the agent and your situation. The skills and knowledge needed to be an effective health care agent are as important as those needed to be an effective agent under a Statutory Durable Power of Attorney who must deal with bankers, insurance appeals, rental agreements, bookkeeping and legal issues. The best agent can handle all the duties of a health care agent and for financial matters. Sometimes you do not have a wife or husband to name as agent. Or there is too much work to be done for one person to serve in both roles.
Your health care agent is probably going to be dealing with much more intimate issues. Tact, patience and fortitude will be necessary. Willingness and ability to work with people is important to listen to the complicated explanations of medical staff of what medical care options are possible and how the care is being done.
The agent must be able to understand the effect of substituted judgment. The agent is supposed to make decisions comparable to your own decisions using the criteria you would use. Agents should not use their personal moral beliefs and personal opinions. When a doctor
recommends the use of a stomach peg as a means of providing nutrition the agent should be able to decide based on your values. Your willingness to tolerate pain may well be different from the person you are naming as health care agent. The agent needs to understand the difference in viewpoint about pain and the ability and willingness to tolerate pain as part of the decision. Your position on the importance of mobility, the desire for privacy versus the willingness to accept living with family members are important criteria in considering care options and living conditions.
Availability is extremely important for a health care agent. Health care agents often must be able to transport you (the principal) to and from medical appointments, attend the appointment while taking notes as to when medications are to be taken. An agent responsible only for financial matters may well be able to function by internet while living 1500 miles away.
Your health care agent needs to be able to deal with you emotionally when you are at your worst. Your financial agent only needs to communicate enough to understand the financial issues. Your health care agent does not need to be trusted not to spend your money on themselves. Your financial agent has to be trusted not to take advantage of you.
Maybe, you should consider the need to pay someone to be able to help you. Being an agent can take a lot of time. Can the person you want to name afford to give you all the time that is needed without being paid? Naming an agent is not a simple decision. This is an important element of preparing an estate plan. If I can help you work through the decision process please call or email me to set up an appointment.
WHAT IS A WILL?
A will is a legal document which may be accepted by a court with probate power and normally states how property is to be distributed after a person’s death. A person, who dies without a will, is “intestate” (in-TEST-ate) which means that person’s property will be distributed according to the state’s determination by statute as to who should receive the property. In Texas the beneficiaries will frequently need to go to court for a judicial determination of who receives the property if title must be established in order to obtain the property. This commonly includes land, bank accounts, stock and similar types of property. Failure to leave a valid will that clearly sets forth your intentions can greatly increase the cost of probate and delay the division of property. It is always advisable to prepare a will.
State laws regarding who gets your property may not be in accordance with your wishes. There are several advantages to a will in Texas. You may name the person or persons you want to manage your estate (executors); you may designate who you want to receive your property after the payment of your debts; you can provide that the Probate Court shall take no action in the administration of your Estate (except for the initial hearing to admit the Will, the filing of an Inventory and the notices to creditors) and you can permit your executor to serve without providing a bond. You can do all this and simplify the hearing by having a well drafted Will with a self-proving affidavit.