What is estate planning?

When one thinks about estate planning, what usually comes to mind is the process of arranging for the disposal of your estate according to your wishes.  However, it can be much more than just that.  Planning your estate can eliminate uncertainties that exist when a person dies without planning on how their estate should be distributed upon death, and can minimize conflict within your family.  It can also be used to designate who will take care of you and your finances should you ever need help, who will take care of any minor children after an accident or death, and who will be allowed to make medical decisions for you if you are not able to.  For those with larger estates, estate planning can also help minimize or eliminate possible estate taxes.

Who needs estate planning?

In short, everybody needs to plan for their future.  Estate planning is about caring for your family and friends, and providing a set of instructions that they can follow if you become incapacitated or pass away. 

Here are a few benefits of having a sound estate plan: 

• Those with significant assets can benefit from putting together an estate plan so that the wealth that they have created can pass to their beneficiaries protected from estate tax depletion, frivolous spending, and creditors.
• Those with minor children can leave instructions on who should take care of their children if they are not able to.
• If you own a business, you need to think about what will happen to it after you die.  Putting together an estate plan that addresses your business succession wishes can ensure that it will continue to run smoothly if you are no longer around.
• The requirement that your executors have to post bond can be waived.
• Court supervision over the distribution of your estate can be minimized, saving your heirs time, money, and protecting your family’s privacy.
• You can make sure that a parent, child, grandchild or any other person with special needs that you are taking care of will continue to receive care if something happens to you.
• If you ever become disabled or incapacitated, your family and doctors will have a set of instructions helping them as they make decisions for you.  They will have the legal power and authority to handle your finances, make medical decisions, and receive medical information that otherwise would be confidential.
• You can give to a cause or charity that you care about.
• You can continue to be a positive influence in someone’s life, even after you are gone, through the use of special trusts.
• Family conflict after your death will be minimized.

What happens if you don’t have an estate plan?

The courts have the power decide what happens to your property and family.  In doing so, the courts look to the Texas Probate Code and the law of intestacy, which provides a set of instructions on how your property should be distributed if you did not leave any legal instructions to the contrary.  The courts will also have the job of appointing guardians to take care of any minors, or disabled family members who rely on your care.  There are many reasons for dying intestate (without a will) ranging from procrastination, to having made a will that turns out to be legally defective.  Regardless of the reason, you may not wish for your estate to be distributed in the manner provided for in the Texas Probate Code, and should talk to a lawyer about putting together an airtight plan.

When should you think about planning your estate?

The sooner, the better.  We can’t predict accidents or death, and it’s often too late to start thinking about planning your estate if there are questions about whether or not you have the legal capacity to do so.

Here’s a list of times when you should think about putting together an estate plan:

• When you have children or grandchildren
• When you get married
• After you have gone through a divorce
• If you are planning to travel soon
• If you are scheduled for surgery
• When you face a serious medical condition
• If you are starting, or own a business
• If you recently came into a large amount of money
• If you are planning for retirement
• If you own property out of state, or just moved to Texas

This list is by no means exhaustive, but it gives you a good idea of the types of situations that may call for sitting down with an attorney and talking about your estate planning options.

Estate planning documents and tools:

Some of the different documents and planning tools that can be drafted or used as part of your estate plan include: wills, trusts, beneficiary designations, methods of property ownership, durable powers of attorney, medical powers of attorney, HIPAA authorizations, directives to physicians (living wills), designations of guardian before need arises, declarations of appointment of guardian for minor children, premarital agreements, and marital agreements.

Below are short explanations of these various estate planning devices:

Wills

Wills range from being very simple documents merely distributing your property outright to one beneficiary, to being very complex documents that create multiple trusts upon your death to avoid taxes and protect your family’s inheritance.  With a will you can leave instructions concerning who you want your property to pass to, you can create trusts for the benefit of others and to save taxes, you can waive the requirement that your executor or executors post a bond, and you can designate guardians for your children or anyone else who relies upon your care. 

Trusts

There are many different kinds of trusts that are used in estate planning, each of them accomplishing different goals.  Some trusts are formed during your lifetime (inter vivos or living trusts), and others are formed upon your death (testamentary or will trusts).        

Some of the things that trusts can accomplish:

• A trust can help you protect assets from creditors
• If you should ever become incapacitated, a trust can facilitate both your medical and financial care.
• A trust can aid in the conservation of assets and guard against frivolous spending by those who benefit from the trust.
• Disbursements of trust property can be conditional.  For example: A trust can be drafted in such a way that a child may not receive any money or property if they are dependent on drugs.
• Trusts can help you save taxes.
• By forming a trust you can make sure that any pets or animals that you own will be taken care of if you are not able to any more.
• A trust can be formed for privacy reasons.  A will becomes public while a trust remains private.
• A trust can help you avoid probate in other states where you may own property.

Beneficiary Designations

Beneficiary designations on things such as your retirement accounts, financial accounts, and life insurance policies, should not be overlooked when putting together an estate plan.  It’s very important that all of your beneficiary designations are correct and up to date because they control who receives the accounts, even if you have executed a will or trust that says differently.

Method of Property Ownership

The way in which you hold title to property is an extremely important issue to consider when putting together an estate plan.

Here are some different ways that you can own property:

• Sole ownership
• Tenancy in common
• Joint tenancy

If you are married, there are additional issues related to estate planning and whether property is held as separate or community property.

A lawyer can help you determine whether your current choice concerning the way in which you hold real property is in line with your estate planning goals, and can help you convert your ownership to another form if needed.

Durable Power of Attorney

A durable power of attorney is an instrument that allows you to name an “agent” that can act on your behalf.  A durable power of attorney derives the “durable” part of its name from the fact that it will continue to remain in effect upon the event that you become incapacitated.

The execution of a durable power of attorney normally empowers an agent to act on your behalf in the following situations:

• Real property transactions;
• Tangible personal property transactions;
• Stock and bond transactions;
• Commodity and option transactions;
• Banking and other financial institution transactions;
• Business operating transactions;
• Insurance and annuity transactions;
• Estate, trust, and other beneficiary transactions;
• Claims and litigation;
• Personal and family maintenance;
• Benefits from social security, Medicare, Medicaid, or other governmental programs or civil or military service;
• Retirement plan transactions;
• Tax matters.

When completing a durable power of attorney, you can limit the powers that are granted to your agent by not including them, or you can even add additional special powers that might be beneficial to your specific needs.

Your power of attorney becomes effective immediately upon signing, unless you specifically elect to have the power of attorney become active upon your disability, or upon another event or future date.

Medical Power of Attorney

A medical power of attorney allows others to make any and all health care decisions for you if you are not able to, and only takes effect if a physician certifies that you are not able to do so on your own. 

Should you fall seriously ill, it’s very possible that your loved ones may disagree as to what medical decisions should be made on your behalf.  By executing a medical power of attorney, you can authorize someone to make medical decisions for you, and provide them guidance so that they can make informed decisions concerning the medical care that you wish to receive.

HIPAA Authorizations

HIPAA stands for “Health Insurance and Portability and Accountability Act.”  This act was enacted by Congress in 1996, and contains provisions which took effect in April of 2003 which help people maintain privacy in regards to their health records.

Hospitals, doctors, and medical personnel who violate HIPAA can face severe penalties for doing so.  Therefore, it is often crucial to have completed a HIPAA authorization granting hospitals, doctors, and medical personnel permission to share medical information with the persons named in your document. 

A HIPAA authorization should be completed by every adult no matter their age.  Imagine a situation involving an adult child of yours who has been involved in an accident, and the hospital treating them will not let you see them or even update you as to their status.  A properly drafted and executed HIPAA authorization will allow the hospital to keep you informed.

Directives to Physicians

Commonly known as a living will, this document allows you to state what kind of life saving or life sustaining treatments should or should not be employed if you are facing a terminal or irreversible medical condition, and are not able to communicate your wishes.

Like a medical power of attorney, a directive to physicians can help limit disagreements within your family concerning life sustaining treatments that should or should not be undertaken if you are terminally ill. 

A living will differs from a medical power of attorney in that it lets your wishes be known concerning decisions relating to terminal or irreversible conditions, while a medical power of attorney allows another to authorize any treatment, service or procedure to maintain, diagnose, or treat your physical or mental condition.

Designation of Guardian Before Need Arises

A declaration of guardian in the event of later incapacity or need of guardian allows you to designate who it is that you wish to serve as guardian of your person or property in the event that a guardianship is required.

This document is beneficial in that you can name a person or persons in advance so that the courts will know who you wish to serve as a guardian over your person and finances should a guardianship ever be necessary.  You may also use a designation of guardian to disqualify someone who you do not wish to serve as a guardian.

It’s also possible to waive the requirement that any future guardians must post bond in order to serve as guardian.

Declaration of Appointment of Guardian for Minor Child

Easily one of the most important estate planning documents that those with minor children should have, is a declaration of appointment of guardian for minor child. Upon your death or incapacity, the courts will have to decide who will take care of your children.  With a properly executed declaration of appointment of guardian for minor child, their decision can be one that is informed and will be one that conforms to your wishes. 

As with a Designation of Guardian Before Need Arises, it’s possible to waive the requirement that any future guardians of your children must post bond in order to serve as guardian.

Premarital Agreements (prenuptial agreements)

A premarital agreement is in effect a contract between future spouses.  A premarital agreement must be completed before marriage, and the requirements for such an agreement to be enforceable are extremely strict.  If you’re about to enter into a new marriage, and have pre-existing property or children from a previous relationship, you should especially consider a premarital agreement in order to protect both you and your children’s property rights.    

Premarital agreements can limit disputes during a future divorce, protect separate personal assets, outline how property will be held during the marriage, and provide for or limit the rights of each spouse should the other die.  Done properly, a premarital agreement can be a very powerful document, ensuring that in the event of unforeseen future turmoil, both spouses will be protected and an agreed-to fair outcome will be honored. 

Such agreements can also provide for the protection of a spouse who has financially limited means during the marriage, during dissolution of the marriage, and upon the death of a spouse with significant separate property.

Marital Agreements (postnuptial agreements)

Like premarital agreements, marital agreements can be used to protect assets, and address issues which may arise in a divorce, upon separation, or upon death.  However, a marital agreement, which can only be executed during a marriage, can also convert community property to separate property and vice versa.  Converting property from one form to another can be used to satisfy both tax and asset protection goals.

If you have significant separate property, you or your spouse work in a high risk profession, or you have children from a previous relationship, a marital agreement may be something that should be discussed with a lawyer.