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Many people are concerned about the best method to protect themselves, and their loved ones, in the event of future injury, illness, or incapacity. Everyone has known or heard of a family that was torn apart by disagreements about how best to care for loved ones who were no longer able to make medical decisions for themselves.
The Texas Legislature has created a variety of statutory methods for handling such matters. For example, Texas recognizes the “living will,” which is more formally known as a “Directive to Physicians,” that allows a person to describe their own wishes concerning medical intervention and care in a legally binding document. Under a living will, you describe, in advance, the types of life-saving treatment that should be provided to you, as well as the circumstances under which medical professionals should stop using life-saving measures and simply provide treatment that will allow you to remain as comfortable as possible. By expressing your desires in advance, in the statutory form, you can provide your medical providers and family with clear guidelines and avoid potential conflict.
A will is a set of written instructions drafted under legal formalities that express how an individual’s personal property will be disposed of when he or she dies. The term “Last will and Testament” is the legal term often used for a will. This is an old term, which means, “I dispose of my personal property and estate assets.”
People often ask if it is okay for them to prepare their own will without the assistance of an attorney. Anyone can prepare their own will as long as they know the correct language to use, follow certain legal formalities required under the law and execute the will in a fashion required by the Texas Probate Code. Some individuals may be able to handle this without any problems, but many others would be better served having an attorney prepare the document.
Wills are a unique creation of society. The law surrounding wills is full of technicalities and very formal procedures. In many instances, a homemade will excludes certain formalities, signatures, etc. that are required by law, causing the will to be invalid. In other cases, there is a valid will, but it fails to distribute the estate as the testator intended.
A knowledgeable attorney can draft a will that will follow all legal formalities and will ensure that the estate is distributed the way the testator intends.
In Texas, the administration of an estate, known as Probate, is a relatively trouble-free process if you have all of your documents and follow the proper procedures.
Probate is a Latin term which means “to prove”, so to probate a Will simply means to prove that the Will is valid. Once the Will is offered and admitted as a valid Will, the executor named in the Will must be approved by the Court. The executor then files an oath and initiates the process of administering the estate.
Texas has an administration process that is one of the simplest in the nation. This process is known as “independent administration”. With this independent administration, there is no court involvement other than proving the Will is valid, appointing an executor, and filing with the court, an inventory of the assets that pass under the Will. The executor handles all matters independent of court supervision, and does not need Court permission to sell property, distribute assets, pay expenses, or do anything that might come up in a regular administration of an estate. The ability to avoid asking the Court for approval of anything the executor needs to get done saves a lot of time and money.
This executor still have to follow some guidelines set by the Court. The executor must adhere to the laws of the State of Texas and the terms of the Will. The executor must exercise due care in the administration of the estate or could result in be liable for his or her negligence. Assuming the executor receives good legal advice, and does not try to personally benefit from the role overseeing the estate, there should not be any problems with the administration.
The length of time to administer an estate can vary depending upon the specific facts surrounding each estate. Problems between beneficiaries, title or tax issues on real property, missing assets, etc. can all lead to an increase in the time it takes to administer an estate. An estate without any problems, which is very clean as far as title and tax issues go, and with no issues between beneficiaries can typically be finalized in one to four months after the Will is admitted and the executor appointed. As always, there are no guarantees and what may appear to be a simple estate may quickly become complicated.
For most people, probate is much simpler in Texas than in most states. Feel free to contact me to discuss your particular probate situation.
In most cases, a will should be probated as soon as possible. Section 73 of the Texas Probate Code requires that a will be offered for probate within four years of the date the Decedent dies. Under limited circumstances, a will can be offered for probate if the person offering it is not at fault for failing to present it within the four year period. After the four year period, most individuals attempting to probate a decedent’s will are going to rely on muniment of title, rather than letters testamentary.
If you have questions about probating a will or how the length of time that has elapsed since your loved one passed may affect probate, please contact me and we will discuss your situation.
A question occasionally comes up regarding whether an executor or trustee must be paid for services provided.
Texas has no law in place requiring that an executor or trustee be compensated for their work, but if you are not going to pay them, you must say so in the will or trust agreement. If you do not make any reference to compensation, the Texas Probate Code (for executors) or Texas Property Code (for trustees) provides for compensation.
Executors:
Section 241 of the Texas Probate Code provides that Executors are entitled to a commission of 5% on all sums that actually receive in cash, and 5% on all sums they pay out in cash. This seems simple enough, but on further examination of Section 241, you will find that “sums received” does not include cash received that was on deposit in a financial institution, life insurance proceeds, certificates of deposit and similar items. In addition, “sums paid out” does not include distributions to beneficiaries of the estate.
If the executor holds a sale of the property of the estate, the 5% will apply unless a broker was used who is also being paid a commission. Thus, on the sale of a home where a broker was used and was paid a commission, the executor is not entitled to a commission as well. Where publicly-traded stock is sold in a brokerage account, and the broker receives a commission on the transaction, the executor receives no compensation.
The general rule is that compensation will be 5% of the income and 5% of the expenses of the estate. Sometimes this is adequate compensation, and sometimes it is not. If the executor feels that the compensation is too low, he or she can always petition the probate court to consider additional compensation to be paid under Probate Code Section 241.
Trustees:
Compensation is provided under Section 114.061 of the Texas Property Code (also known as the Texas Trust Code); however, the compensation provided here is very vague. It provides that the trustee is entitled to “reasonable compensation” from the trust for acting as a trustee. “Reasonable” can have various meanings, depending on the circumstances surrounding the trust and its assets. Typically “reasonable” is taken to mean the amount that would normally be charged for like services by a corporate trustee in the area where the trust is administered. This can be anywhere from 1% to 1 ½ % of the market value of the assets on an annualized basis. Depending on the size of the trust, this could be a significant amount.
Of course, you can state very clearly that you want the executor or trustee to be paid and the terms of compensation, whether it is a percentage of the overall estate (for estate administration), a lump sum, or an annualized percentage of the market value of the assets (for trustees), or a set amount each year. Consider the size of your assets, the amount of income and expenses you might be expecting for your estate, and whether there are any unusual assets that the executor might be dealing with. Then consider whether the resulting compensation would be adequately compensating the person handling these matters.
In some cases, it is not necessary to compensate the executor or trustee. For example, it does not make much sense to compensate a spouse or child who is serving as the executor and who is receiving all the assets of the estate. Where there are multiple beneficiaries, however, and a difficult administration of the estate or trust is faced, it is perfectly fine to pay the compensation.
Finally, the person serving as executor or trustee should remember that any compensation he or she actually receives is taxable income. Consequently, the person serving may consider declining compensation, but should avoid doing so without first consulting with their accountant or attorney to determine the resulting tax ramifications of accepting or declining the compensation.
Section 78 of the Texas Probate Code states:
No person is qualified to serve as an executor or administrator who is:
(a) An incapacitated person;
(b) A convicted felon, under the laws either of the United States or of any state or territory of the United States, or of the District of Columbia, unless such person has been duly pardoned, or his civil rights restored, in accordance with law;
(c) A non-resident (natural person or corporation) of this State who has not appointed a resident agent to accept service of process in all actions or proceedings with respect to the estate, and caused such appointment to be filed with the court;
(d) A corporation not authorized to act as a fiduciary in this State; or
(e) A person whom the court finds unsuitable.
This is pretty straight forward with the exception of the catch-all “unsuitable” provision in subpart (e).
If you have questions about serving as an executor of an estate, please contact me and we will discuss your situation.
Many people own life insurance policies, either through their employer or as supplements to their employer-funded policies, or have individual retirement plans (IRAs) or employee benefit plans (usually 401(k) plans), but unfortunately, not much thought is given to the beneficiary designations for those policies or retirement plans. The typical designation will go something like this:
Primary Beneficiary: My surviving spouse
Secondary Beneficiary: My children
The problem with simple designations such as the above is that if you have a substantial estate or if you have minor children, you can be creating complicated situations for them in the future. For example, let’s say husband and wife are killed in a car accident. They each have insurance policies naming the other spouse as the primary beneficiary. They have two young children, who are 4 and 2 years old, listed as the secondary beneficiaries. The insurance company will not pay out the proceeds to the minor children because they do not have the legal capacity to accept the money. Because of the way the designation is made, the company’s only alternative is to pay the funds to a guardian of the estate for the minor children. A guardianship is a costly and time-consuming process that severely constricts the use and investment of the funds and requires that all of the minor child’s proceeds must be given to the child when they turn 18, a time when they are usually typically still financially irresponsible.
In addition, if you have a large enough estate, and you have prepared trusts under your Will to protect your exemption against estate tax (known as a “bypass” trust or “credit shelter” trust) or to provide trusts for your children for their future protection, and you planned on funding these trusts with the proceeds from the life insurance, you should be aware that for the tax and other planning contemplated by your Wills to work effectively, much of your property, other than qualified plans and individual retirement accounts (designations for these plans will be discussed in a future post), should pass under your Wills at your deaths. To the extent that you use “probate avoidance” methods of transferring your property at your deaths, some of your property may pass outside the provisions of your Wills (such property is referred to as non-probate property), and you could be circumventing the tax and other planning accomplished under your Wills. Some common types of non-probate properties are those that pass by beneficiary designation (insurance, annuities, individual retirement accounts, etc.) payable on death accounts (also known as “POD” accounts), joint tenancy with rights of survivorship accounts (also known as “JTWROS” accounts), revocable trusts and community property survivorship agreements. Accounts with payable on death beneficiaries or accounts which are held as joint tenancy with rights of survivorship can be convenient ways to dispose of small bank balances if properly handled, but if large amounts are involved, your estate plan could be seriously disrupted. Unless you have non-tax reasons for establishing survivorship accounts, survivorship agreements or payable on death accounts, as a general rule, you should avoid doing so, and you should change any such accounts that you may have previously established to joint accounts held as tenants in common (sometimes referred to as accounts with “No Survivorship”). This will help to ensure that such property does pass under your Will and to the beneficiaries named in your Will or into trusts created under the Will.
The importance of making sure that the death beneficiary designation on your life insurance and similar products like annuities is properly coordinated with your estate plan cannot be overemphasized. One way for you to designate the beneficiary on life insurance policies and annuities is as follows:
Primary Beneficiary: 100% Insured’s spouse
First Contingent Beneficiary: 100% Testamentary Trustee designated in the Insured’s last will and testament
By having it paid to the surviving spouse, the spouse has the right to either accept the assets outright, or if there is a trust created under the Will to protect against the possibility of estate taxes, the spouse can disclaim any or all of the proceeds, and let the proceeds pass to the bypass trust, of which the spouse is usually the beneficiary. The benefit is that while the spouse still can benefit from the policy proceeds, the proceeds will not be counted as part of his or her estate for estate tax purposes when the surviving spouse dies.
If the husband and wife die simultaneously, then the proceeds would automatically be paid to the contingent beneficiary—the Trustee for any trusts created under the Will for descendants of the husband and wife.
If all the children are adults, you can name them as contingent beneficiaries (or if you are unmarried, as the primary beneficiaries). But what if a child predeceases you? Do you want his share to pass to his children, or to your surviving children only? If you want it to go to your surviving children only, then the following designation (or something similar) should be used:
“In equal shares to my children who survive me”
If you want children of any deceased child to receive that child’s share, then you could use the following designation instead:
“To my descendants then living per stirpes”
Per stirpes is a term that essentially means that a deceased child’s share will pass in equal shares to his children. For example, let’s say you have three children. Each child, if they survived you, would receive a 1/3rd share of the proceeds. However, if one child predeceased you leaving two children, then those two children would get ½ of the deceased child’s 1/3rd share (or 1/6th each). The two surviving children would still receive their 1/3rd share.
The danger, of course, in using the above designations is that you might wind up with some minor beneficiaries and have the guardianship issue arise again. In such a situation, where you have trusts created under your Will for your descendants, the better choice may be to name your estate as the contingent beneficiary. In that scenario, the minor descendants’ share will be held in trust without the necessity of a guardianship.
The beneficiary designations listed above are by no means exclusive. You may have a list of persons you want to name as beneficiaries of your life insurance other than just your children. Further, you should be aware that naming your estate (as opposed to the Trustee under your Will) as the beneficiary of your life insurance can expose those assets to the creditors of your estate, if any creditors exist upon your death. For most people, this is not a concern, but because the above designations may not always be appropriate in every situation, before executing any new beneficiary designations you should check with your attorney or financial planner about the best way to style the designations. Spend some extra time making sure that the designations you use don’t conflict with the estate plan that you have in mind. You may create problems that you can easily avoid.
I recently had a client come to me with a question about a very small estate. His father died with no debts, had a little money in the bank and owned a home, that was it. What are his option in a case like this?
There are times when the full administration of an estate does not make much sense. Like the previous example, what if there are only a couple of assets in the estate, such as a home and a single bank account, both of which were solely in the name of the Decedent? The bank account only has $1,000 in it. Do you still have to open an administration of the estate for the sole purpose of collecting the bank account and transferring title to the homestead?
In Texas, there are two alternatives to the administration process; one where the Decedent left a Will, and one where the Decedent died intestate (i.e., without a Will). The first alternative is known as the collection of small estates upon affidavit, provided for in Texas Probate Code Sections 137 and 138.
If the Decedent had no Will, and the total value of the estate, not counting the value of the house and other exempt property, was less than $50,000, then you can file an affidavit with the probate court of proper jurisdiction (i.e., in the county where the Decedent was a resident), stating who the proper heirs of the estate would be, using the heirship rules of Texas Probate Code Section 38. Two disinterested witnesses have to swear to the heirship information contained in the affidavit. The small estate affidavit rout is very inexpensive (the filing cost in most counties is less than $75) and in many cases can be done without the involvement of an attorney.
Upon approval of the affidavit by the probate court, all persons or entities dealing with distributees of assets from the small estate are released to the same extent as if they dealt with a personal representative of the estate. Distributees can bring action to force delivery of the estate property and the distributees will be liable to any creditors or anyone else having a prior right to the property. You should note that this procedure does not transfer title to real property, except for a homestead. Thus, if the Decedent owned real property other than the homestead, and had no Will, probably your only alternative is to proceed with a determination of heirship proceeding. If the Decedent left only real estate, you may be able to transfer the real estate through filing an affidavit of heirship in the county where the real estate is located.
A small estate affidavit usually works well with some assets, such as bank accounts, titles to automobiles, savings bonds and the homestead, but it is usually difficult, if not impossible, to use the affidavit to transfer title to publicly traded stocks and bonds, partnership accounts or brokerage accounts in general. Why? Because most publicly traded stocks and bonds are handled by transfer agents who are located in New York or Chicago, and the people working for these transfer agents rarely deal with small estate affidavits for the transfer of title. They are much more comfortable working with letters testamentary and usually will demand letters before they will transfer the title. With all the trouble it takes to get an order from the court ordering the transfer agent to transfer the stock or bond, you might be better off just going through the administration process to begin with.
What if the Decedent had a Will but few assets, or assets that do not require a lot of work in transferring—all the holder of the asset needs is an order from the court and perhaps a copy of the Will? If there is no need for an administration of the estate, then the Will can be probated as a muniment of title only, as provided in Texas Probate Code Sections 89A through 89C.
This procedure will only be allowed by the court when the applicant can show that (1) the estate has no unpaid debts, excluding debts secured by liens on real estate, and (2) there is no necessity for administration. The will must still be proved valid at a hearing before the court; however, no executor will be appointed. In probating a Will as a muniment of title, it is suggested you utilize an attorney because it is more complex than the simple filing of the small estate affidavit.
The effect of an order admitting a will to probate as a muniment of title is strong in that it is legal authority to all persons (1) owing any money to the deceased; (2) having custody of any property of the deceased; (3) acting as registrar or transfer agent of any evidence of interest, indebtedness, property, or right belonging to the estate; or (4) purchasing from or otherwise dealing with the estate, for payment or transfer to the person named in the will as entitled to receive the particular asset, without any administration. In other words, after the will is admitted to probate as a muniment of title, the beneficiaries of the decedent’s estate become the owners of the property outright.
Again, if you are dealing with stocks and bonds, and a transfer agent will only accept letters testamentary rather than an order from a court certified that the beneficiaries in the Will are the only distributees of the estate, then you may not be able to utilize the muniment of title process. In addition, if there are numerous debts of the estate, an administration is the only alternative.
In any event, it is not necessary to create an administration in every instance in Texas, and for those estates with simple assets, the small estate affidavit or muniment of title route may be the way to go. Before pursuing those particular avenues, you should obviously consult with a reputable attorney who practices in this area to determine whether either of these options would be suitable for your situation.
Many pet owners think of their pets as part of their family. Legally, pets are considered personal property like a car or jewelry. If you are sick, injured, or unable to care for your pet and have not planned ahead, your pets may not be taken care of by the person you want. They may be managed like your other personal property. Upon your death, your pet will pass as residual property under your will or the Texas intestate laws.
It is important to make specific provisions in your will, trust, other estate planning documents to provide for your pet. If not, you pet may end up like many others, in an animal shelter or on the street.
In Texas, animals are now allowed to be the beneficiaries of a special trust that is created to take care of them. These are often referred to as a Texas Pet Trust. A pet may only receive the benefit of a Texas Pet Trust while the animal is alive. Being the beneficiary of a trust is not the same as inheriting part of an estate. In fact, a gift to a pet which is not in the form of a Texas Pet Trust would be void in Texas and most states.
A Pet trust give you the ability to control your pets care if you are unable to. You can also add additional pets to the trust during your life. The trust can go into effect as soon as you create it.
Other less expensive methods of taking care of your pets include provisions in a will to create a pet trust if a pet survives you and conditional gifts in the will. Although a gift in the will does not require that the funds be used for the benefit of the pet the funds are given with the instructions to be used for the purpose your request.
To create a valid Texas Pet Trust please contact an Austin estate planning lawyer.
This day and age, everyone should have some form of estate planning in place. Many avoid estate planning because it brings up uncomfortable thoughts about death and how property will be distributed. This article will discuss several reasons why everyone should have a will or trust in place.
First, let us talk about children. You want to ensure that your children will be taken care of by a loving, responsible person if tragedy strikes. In most cases, the surviving parent will assume responsibility of the child. If both parents pass away, and neither parent leaves a will naming a guardian, the child may be placed with a guardian you do not approve of. Failure to name a guardian, will result in the court making the decision of appointing a suitable guardian for the child. You can avoid that issue now by electing a person or persons in your will who will become the guardians of your child if you pass away.
A will or trust can also ensure that your property will be left to those dearest to you, rather than being divided up by a court appointed executor in a manner set out by the laws of your state. You may have a collection of artwork that is of no monetary value, but carries extreme sentimental value between you and a loved one. With a will, you can ensure that the artwork goes to that special person. You may also have money that you want to set aside for the education of your grandchildren. You can make this happen by setting up a trust for the grandchildren in your will. In addition to leaving property or money to loved ones, you also have the ability to specifically exclude a person from your estate. A will can ensure that all of these wishes are carried out.
Due to advances in medical care and longer life expectancy, medical decisions are becoming a more serious issue that must be addressed. An advance medical directive to physicians, also known as a “living will”, lays out exactly what types of treatment you do or do not want if you are in critical condition. Do you want to be kept alive by artificial means, or do you want to limit your treatment to medication for comfort? Without an advance medical directive in place, you may be unable to express your desires, and left to the mercy of others to make very personal decisions for you.
In addition to an advance medical directive, a financial and medical power of attorney can be put in place, allowing another person to address your financial and medical issues if you become incapacitated. A financial power of attorney allows the person access to your financial accounts, and allows him or her to carry on your business dealings in your absence. A medical power of attorney allows the person access to your medical records and allows him or her to speak to your doctors, make appointments, and possibly make medical decisions if necessary.
This article covers only a few of the reasons why having a will or trust is so important . Having a valid will or trust in place, with powers of attorney and advance directives to physicians, is vital this day in age. To many, these documents are just paperwork, and there will be plenty of time to address these issues in the future. When tragedy strikes and no estate planning instruments have been put in place, it is always the loved ones who suffer. Don’t put them in that position.
Randall Slagle
www.randallslagle.com
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