There are five tools that you can use to create a great estate plan for yourself. Those tools are wills, trusts, powers of attorney, living wills, and life insurance. Each of these tools has its unique attributes that can be used to contribute to your estate planning process. Whether you use each, a few, or just one of these tools depends on your specific circumstances. If you have any questions about the material contained in today's blog post, please do not hesitate to contact the Law Office of Bryan Fagan for a free-of-charge consultation. We can answer your questions and discuss each of these tools with you that can be utilized to prepare your estate as well as possible.
Whatever you own at the time of your death will need to be passed on somehow to someone. Either you can leave it to the state to do it for you or you can create a will that can handle it for you with the help of an executor. There are types of property that can be passed down to others without a will- examples include insurance policies and retirement policies. If you die without a will the intestacy laws of Texas will go into effect and a probate court judge will oversee paying debts and distributing property according to those laws. If this doesn’t leave you feeling a bit queasy, I don’t know what will.
To draft a valid will, you must be competent to create a document like this. That means that you must be of sound mind and understand the consequences of what you are creating. Going further, this means that you need to understand the property that you own as far as assets, and the relationship that you have to the property and then understand that by creating a will you are disposing of that property in a specific way. You have probably seen a movie or television show that involved a will being drafted and then challenged due to the testator (person who created the will) not being of sound mind.
If you create a trust, then you are agreeing with your trustee that he or she should hold legal title to various assets of yours on behalf of beneficiaries that you designate ahead of time. A trust is a way for you to avoid paying taxes in certain situations (legally) and avoid the probate process when your heirs or spouse may otherwise need to follow through and file probate after you pass away. In Texas, there are multiple kinds of trusts that you should be aware of. Here is an overview of trusts and how each may be able to assist you in your estate planning.
A living trust is created during your life. This is as opposed to a testamentary trust that is created inside of your will and would only go into effect after you pass away. A testamentary trust would only go into existence after your death as established in your will or through actual trust documents itself. The thing that you need to consider is that if you create trust through your will then there is no going back. If the trust comes into being after you pass away, then you obviously cannot revoke the trust or the will itself. You need to be very sure that what you create as far as trust inside of your will reflects your actual desires and wishes.
On the other hand, a revocable trust can be pulled back during your life. You can also update or change these types of trusts so long as you are alive and determined competent to do so. One of the main factors that drive people to create trusts like these is that you can avoid probate if done correctly. Trusts are also utilized in some situations to insulate property from creditors coming after them either while you are alive or after you pass away. Let’s examine a few types of trusts that may be helpful for you.
A revocable trust can be changed, revoked, or terminated by you. This is as opposed to an irrevocable trust that cannot be altered or changed in any way due to the nature of how and where it is created. Probate can be a lengthy and expensive process depending upon the circumstances of your estate. Probate involves the executor of your will, a potential heir, or a beneficiary filing a legal case with a probate court in the county where you resided to have a judge oversee the process of paying creditors and distributing property. It requires a time and money commitment that can be burdensome not only to you but also to your family and beneficiaries. Here is an example of why that is the case.
Imagine being a beneficiary of yours who would stand to benefit a great deal from the property that you had promised him or her in your will. For example, if you left a significant amount of money to a person that you knew had issues holding down a job due to a disability then the sum of money that would be going to him or she could be lifesaving in many ways. However, if your will gets wrapped up in the probate process for months then lifesaving or at least life-altering amounts of money may be kept from here as a result. All the while, the money may not be invested but rather it could just park in a bank account and make very little interest. For this reason, many people think long and hard about probate and how to avoid going through the process at all. When it comes to estate planning you need to be strategic and intentional about what you do on many levels, not the least of which is due to wanting to avoid probate and save your beneficiary's time and money themselves in addition to your estate.
A revocable trust can help you avoid probate and for that reason, it is extremely popular among Texans who want to engage in sensible and results-oriented estate planning. In fact, as a substitute for a will, a revocable trust can perform many of the same maneuvers as a will while also insulating you from creditors during your lifetime. This can be important if you are a high net-worth individual and you may be in danger of losing property in a lawsuit. Working with an experienced estate planning attorney regarding these possibilities and situations is crucial. You want a trust that can stand up to scrutiny before a judge and accomplishes what you want it to for the benefit of the people in your life.
A trust can help you best when you name a person as trustee that can exercise sound judgment when it comes to distributing property at their discretion. If you need to update or change a trust during your lifetime it is difficult to do so. However, there are certain circumstances under which an irrevocable trust can be amended. However, it will likely take a court order to do so. Let's walk through a few of those situations right now where you can update a trust.
The one situation that I would like to cover in this regard has to do with what is known as a special needs trust. When you are creating trust with a specific person in mind, namely a person who has a disability or impairment of some sort, then you want to protect him or her by having the property contained in the trust managed deliberately and intentionally. This helps the disabled person by making sure that the property promised to him or her under the trust is being managed well. We also talked earlier about how important it is for the trustee of your trust to be able to use sound judgment when it comes to making distributions under the trust at certain points in the life of your beneficiary or at other junctures where it becomes obvious that the person needs some money for any reason.
Another key point to this discussion is that many times a disabled person needs to pay special attention to their government benefits regarding property left to them by a well-meaning friend or family member. In most cases, government aid is based upon requirements that the person not earn over a certain threshold or own property more than a certain dollar figure. If you are trying to estate plan for a person like this, then it is useful to become familiar with the specific government benefits that the person has and what needs to be protected. If he or she is capable of it then it may pay for you to speak to them about the situation and what you can do to help while not jeopardizing their benefits. There may be a requirement that you were unaware of or a potential planning instrument that we discuss today which could be more or less advantageous as a result.
A special needs trustee needs to be able to exercise especially good judgment, therefore, when it comes to handling matters related to the trust. If the trustee of your trust distributes money in an excessive way or without proper planning, then their good intentions may inadvertently cause the beneficiary to lose eligibility for a government health insurance plan like Medicaid. In many cases, the relatively small amount of money that would be going to them in a trust distribution would pale in comparison to the financial benefit of having health insurance. This is especially true if the person has a surgery planned, and receives medication through Medicaid or a range of other possibilities that may be an issue. What the trustee can do to avoid situations like this is to pay money directly to those people or entities, like a doctor, creditor, or landlord, that may need money from the disabled person rather than pay the beneficiary directly.
Keep in mind that Medicaid has a process where it “looks back” up to five years to determine eligibility. The beneficiary would then be liable to have their circumstances viewed under this lens and it could be unfavorable to have large amounts of money distributed to them under any circumstances. Even if the person is crafty and intentional about how the money was received, spent, and held it can still harm them from a government benefits perspective to have a trustee release funds in a way that was not fully thought out.
Power of attorney
There are two types of power of attorney that can be helpful to a Texan while performing basic estate planning functions. We won't get too far into any one topic, but I at least wanted to spend some time with you today here on our blog to help familiarize you with their names. The first is a financial power of attorney which allows the person named with power of attorney to manage financial areas of your life if you become unable to do so. This could happen, for example, if you become incapacitated. The other type of power of attorney is about healthcare circumstances and is known as a healthcare power of attorney. This power of attorney can be especially important if you need medical care at the end of your life but cannot necessarily be expected to exercise sound judgment about that type of situation.
How to use life insurance to plan your estate
Life insurance is a simple step to take to provide for your loved ones after you pass away. It is also unique in the world of estate planning in that life insurance can immediately get named beneficiary money after you pass away without first having to go through probate or any other process for that matter. When we spoke earlier of the impoverished individual in your life who could need a cash infusion after you pass away, a life insurance policy where he or she is the named beneficiary could do wonders to help this person out of an undesirable situation. Paying rent, buying groceries, paying medical bills and similar expenditures are all good examples of ways that a person can utilize funds left to them under a life insurance policy in ways that are advantageous to them.
Do you need a will?
Of course, the most widely used estate planning vehicle is simple (or not so simple in some cases) will. A will is a document that can protect your property from the government deciding where it goes after you pass away. This warning is not intended to be any kind of political statement or partisan comment on the state of our government. Simply put, by having a will you can determine where your property goes away you pass away. Even if you understand the laws in Texas as far as where your property would go after you pass away this is not a substitute for intentional estate planning. The foundation of this estate planning can be the creation of a will in your case.
If you are an adult, you should have a will. I say this without reservation because there are multiple reasons why you should think about creating a will today even if you are not wealthy. There are some preconceived notions in our society about wills and the people that create wills. However, it is not only wealthy people who create wills. Rather, people of all different stripes create wills each day. Most of these folks are not wealthy and are not trying to do anything overly creative with their estate. Rather, drafting a will is an exercise that anyone can and should perform to exert control over an important area of their life.
A will can direct property to certain places and people. This would include tangible assets like your house or other pieces of the property contained in your home but also intangible property like a bank account and investment proceeds. The person who oversees how your will is handled after your passing is known as an executor. The executor can be anyone, essentially, so you should think through your options when it comes to naming this person. Many people select their spouse to serve in this capacity, but he or she doesn't need to do so. There may be other people in your life who are better at activities like this, and you should consider that person, as a result. Additionally, you may not want your spouse to have to serve in this capacity immediately after you pass away due to the emotion and grief tied up in everything.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today's blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning but can also help you fine-tune your own estate planning goals as well as the methods you employ to help achieve those goals.