Estate Planning For You and Your Family In Austin

1. Who gets your stuff? If you don’t leave a will, state law will determine how your assets are divided upon your death. See FAQ #2 to determine if the Texas law divides your assets as you would like. You may have assumed that your spouse would inherit everything, but if you have surviving children and no will, the kids will inherit most of your separate property (stuff you owned before marriage or acquired by inheritance, gift, bequest). If you don’t have children, your spouse could lose ½ of your separate property to your parents, siblings or nieces and nephews. Even community property that you and your spouse built up over many years may have to be divided with children from a previous relationship. There is no needs based test, there is no question of what you would have wanted. Your assets will be divided according to the law if you don’t have a will.

2. WHO WILL RAISE YOUR KIDS? Usually your will names the person you want to act as guardian of your minor children. Alternatively, you can sign a separate designation of guardian. If you do neither, Texas law will step in and decide who will act as your children’s guardian (the guardian of their person). If their other biological parent survives and is able and willing to serve, then they will be appointed. If not, then the grandparents are next in line, followed by the nearest of kin. So the step-parent that has helped raise them for the last eight years will not be appointed, nor will their godparent or the close friend who agreed to take care of your kids if something happened to you. The court chooses among those who seek the appointment at the same level of relationship according to circumstances and the minor’s best interest. If the kids are at least twelve years old, their wishes are given great weight.

3. Who will manage any money you left for your minor kids? If you don’t set up a trust in your will to provide for the management of the retirement money, IRA, sales proceeds from house, and all the other assets you leave behind, a court will have to appoint a guardian for your minor children’s estate. This is separate from the guardian for their person, although the same person may be appointed. If you are not married to the kids’ other parent, he or she will likely be appointed. This may be fine if the other parent is good at managing money and investments and shares your values about how money should best be used for your children’s future. It may not be okay with you if their other parent is no longer your spouse and you don’t want him or her in control of your money. Also, a guardian appointed by the court will have to post a bond, provide annual accounts to the court, obtain consent from the court in order to sell, invest or take other actions with respect to the property. If your minor child dies, the assets you left to him will be distributed to his or her heirs, not yours – so your retirement money and other assets might end up divided among your ex-spouse, your child’s half-siblings, and your other surviving children. Setting up a trust also allows you to provide guidance as to how the money is to be distributed and what kinds of investments you find acceptable.

4. Your kids take control of money at 18. If you don’t provide otherwise in a will or separate trust document, any kids who are 18 or older when you die will inherit any money and other assets outright and the younger kids will get their share as they turn 18. This may be fine if your kids are financially responsible or you aren’t leaving enough money for them to make it worth setting up a trust. But eighteen year olds aren’t known for their budgeting skill. They may think they can buy a new Mustang and rent that really nice apartment near campus and take trips with their friends each summer and still have plenty left to pay for four years of college. If you want to be sure they use the money for college or starting a business, then you may want to set up a trust to provide for a trusted adult to oversee how they use the money you leave to them until they are a little more mature.

5. Increased expense and hassle. The probate process becomes more cumbersome and expensive if you don’t have a will. In a will, you can name the person you want to be in charge of administering your estate and provide that he does not have to post a bond. The independent executor that you name will have to go to court to be appointed and later to file an inventory, appraisement and list of claims. There is very little court participation. But if you don’t have a will, then dependent administration is usually required. Someone – usually your spouse or kids – has to apply to the court to be appointed as administrator and post a bond, which will be paid for by your estate. The court has to appoint attorney ad litem to represent unknown heirs, which is paid for out of the estate. The administrator will have to get consent of court to sell assets, distribute funds, and take just about any actions. The extra expense of going to court will be charged to your estate.

6. Estate taxes. Your estate must pay taxes of 35-40% on all amounts by which your gross estate (including insurance proceeds and retirement accounts) exceeds the current exclusion amount - $11.7 million in 2021. You might have been able to take steps to reduce the taxes on the excess amount – such as lifetime gifting or providing for a bypass trust if you had planned ahead. 

If you die without a will, you are said to die “intestate” and state law will determine how your property will be divided. The division may or may not be how you would like your estate divided. The Texas Estates Code provides for the following distributions:

(Note: Separate property is property acquired by a spouse prior to marriage or acquired after marriage by gift or inheritance. All other property acquired during marriage is presumed to be community property, absent a written agreement between the spouses.)

Married and have children (or their descendants)

Separate personal property

• 1/3 to surviving spouse
• 2/3 to kids, divided equally

Separate real property

• Life estate in 1/3 to spouse
• 100% divided equally between kids, subject to spouse’s life estate

Community property

• Spouse retains his or her ½ of the community property
• If all kids are also children of spouse then spouse gets 100% of decedent’s ½ of community property
• If some kids are not also children of surviving spouse, then decedent’s ½ of the community property is divided equally among all of the decedent’s kids (or the descendents of any kid who doesn’t survive the parent).

Married, no kids or descendants

Separate personal property – 100% to surviving spouse

Separate real property

• ½ to surviving spouse
• ¼ to each surviving parent
• If either parent does not survive – then that parent’s ¼ goes to your siblings or their descendants.
• If neither parent survives, ½ goes to siblings/descendants.
• If one parents survives but no siblings/descendants survive – ½ to the surviving parent
• If no parents, siblings or descendants of siblings survive – 100% to surviving spouse

Community property – 100% to surviving spouse

Unmarried with kids or their descendants

• 100% to the kids, divided equally (if any kid doesn’t survive the parent, his share is divided among his descendants).

Unmarried, no kids or descendants: 

• Both parents survive – ½ to each
• One parent and siblings or their descendants survive – ½ to parent, ½ to siblings
• One parent survives, no siblings or descendants – 100% to parent
• No parent survives, siblings/descendents survive – all to siblings or descendants
• If no parents, siblings, descendants of siblings survive – goes up to grandparents

These distributions may be exactly what you would choose if you prepared a will, but they may not. 

Jointly owned accounts. You may assume that since you and your spouse jointly own stocks, brokerage accounts, bank accounts, and other assets, that the survivor will inherit. But that is only true if you have designated them as the beneficiary or pay-on-death recipient or you have followed the rules for establishing joint ownership with right of survivorship. This form of ownership does not result merely from owning property jointly and is not common in Texas. If you have not designated a beneficiary, these accounts and assets will probably pass as community property under the laws of intestacy. 

Children with someone other than your spouse. Say you have two adult children from a prior marriage and one from your current marriage. If your home was your separate property, then your surviving spouse will be entitled to remain in the house during his or her life, but then your kids will divide it three ways. If the home was community property, then your wife will retain only one-half and the three kids will divide the other half. In either case, your surviving spouse won’t be able to sell the house if she needs to take the equity out to support herself or if she needs to downsize to reduce expenses or if the house is too much for her to maintain – unless all of the kids consent. They can refuse to do so unless they are paid their share of the proceeds. It doesn’t matter that you and your spouse have been married for over 30 years and acquired the property together. It doesn’t matter that your spouse needs the money and the kids don’t.

Unmarried. Say you are unmarried and have no kids, and you die without a will. One half of your estate will go to each of your parents. This may not be what you wanted if your parents divorced when you were five and your mother raised you, Dad’s fine financially and Mom’s just getting by on social security. If you want to provide for a different outcome, you need to have a will.

Although you name someone as executor in your will, he doesn’t become the executor until appointed by the probate court. So he will need to find your will, and then hire an attorney and file an application to probate your will. He will attend a hearing, at which he will be appointed. Then he will take the necessary steps to administer your estate as your will directs, which will depend on what assets you own but will include most of the following:

Obtaining death certificates. 

Handling your funeral if you didn’t make arrangements.

Obtaining an EIN and setting up an estate bank account into which he will deposit all funds received for the estate. He must keep estate monies separate and so can’t deposit them into his own account.

Finding, collecting and protecting estate assets.

• Contacting banks, stock brokers, investment companies, insurance companies etc. to collect funds.
• Getting items back from family and friends that you loaned to them.
• Changing the locks on your home if necessary to keep assets from disappearing.
• Collecting rents from tenants and payments on loans you made to others.
• Operating your business or finding someone to do so.
• Obtaining or maintaining insurance on your house and valuable assets.

If administration will take awhile or there are significant assets, investing estate assets until distribution.

Providing notices to the beneficiaries, creditors, and governmental agencies.

Preparing an inventory, appraisal, and list of claims – which must be filed with the court.

Selling real property, businesses, and other assets if necessary. 

Paying legal debts, rejecting others, and paying administrative and funeral expenses.

Distributing remaining assets to the beneficiaries.

Filing a final personal income tax return and one for the estate if necessary, which may include making certain elections for tax purposes.

Keeping accurate records of all money collected and all expenses paid on behalf of the estate.

Texas law does not allow you to appoint a minor, someone who is incapacitatated or a convicted felon. The court can also reject someone it deems to be unsuitable. If you choose someone who does not live in Texas, they will have to appoint a resident for service or process. Other than that, you can appoint whoever you want.

You should choose someone you trust to take all of the actions described above, who will follow your wishes and be fair to all of the beneficiaries, who is strong enough to deal with family members who might be demanding or uncooperative and yet can be sensitive when needed. The process can take a few months, so you also want someone who will communicate with beneficiaries who might want to know why it is taking so long.

You should choose someone who is willing to serve, has the time to spend, and is able to deal with financial institutions, attorneys, and (possibly belligerent) family members.

You do not want to name someone who is so domineering that the other beneficiaries may just go along to avoid any hassle. You don’t want to name someone who may try to reinterpret your will because he knows what you “really” wanted, who may ignore a side letter setting out personal bequests because she knows you really wanted her daughter to have the diamond ring or the china collection, who might try to settle old scores, who will favor himself or his children over other beneficiaries, or who tends to be dismissive of others’ concerns. 

• If you are leaving everything to one person, then that person is the obvious choice, assuming he or she is not a minor or too elderly to want the hassle or someone for whose benefit you plan to set up a trust. Most married people choose their spouse, and name an adult child as successor executor if the spouse cannot serve. Single people with adult children usually choose one of those adult children. Often more than one adult child wants to be named – or you aren’t sure which one to name, but you probably know who will end up doing all of the work. Assuming he is trustworthy, responsible and fair, this is usually the person you should name. Common choices for those with no spouse or adult children are siblings or parents.

Co-executors 

Often people with more than one adult child think they should name them all as co-executors. Generally it is not a good idea to name two or more executors to serve together. They will have to all go to the hearing to be appointed and take the oath. They will all have to sign on the bank account, purchase and sale contracts, deeds, tax returns, etc. They will have to agree on investment decisions. They may disagree as to whether to sell real estate or as to what a reasonable price is. They may disagree on which realtor to hire. This can make the process much more cumbersome – and much slower. They may also disagree as to how quickly to begin the probate process. One may feel it is disrespectful to start it too soon and another may want to take care of matters as quickly and efficiently as possible. If your adult children can’t agree on who should serve as executor, then that is probably a sign that they won’t be able to agree when acting as executors. 

However, if you are concerned that one won’t deal fairly with the others – even if they won’t see it that way – then you should either require that person to post a bond, name someone else as executor or name co-executors to provide oversight. If your children really don’t get along or can’t be trusted to treat each other fairly, then you might want to name a neutral third party – preferably someone all of the beneficiaries will trust to be honest and fair.

Potential Liability of an Executor

The executor can be held liable for damages that result from his or her failure to take certain actions within the time period set out in the Texas Estates Code. For example, if the executor fails to publish notice in the newspaper or send notice to secured creditors timely, he or she may be liable for damages that result. He can also be held liable if he fails to use ordinary diligence to collect amounts due to the estate or recover property of the estate. The executor can also be held liable for breach of fiduciary duties to the beneficiaries. In each case, someone has to suffer damages and sue to recover damages.

Fiduciary Duties of the Executor:

The executor has a fiduciary duty to the beneficiaries of your estate, which means he owes them a duty of loyalty. He must manage the assets of the estate solely in their interests - even at the expense of his own interests. He must also exercise reasonable care and skill in managing the estate, taking the same care with the assets of your estate as he would with his own and investing estate assets as a prudent investor would. He is not permitted to benefit at the expense of the beneficiaries, and cannot commingle his own funds or assets with those of the estate. He also cannot self-deal, which means he can’t borrow from, lend to, buy assets from or sell assets to the estate. Even if a will explicitly permits the executor to take some or all of these actions, which wills often do, the executor should exercise extreme caution when doing so. The executor also has a duty of impartiality when there are multiple beneficiaries, meaning that he cannot favor one beneficiary over another. He must maintain accurate accounts of all assets received and all amounts paid out from the estate and be prepared to provide access to those records to the beneficiaries.

If the executor breaches his fiduciary duties to the beneficiaries, he can be held liable for the damages that result.

The trustee manages and disburses the trust assets to the beneficiaries according to the guidelines you set out in your will or trust documents. This includes:

1. Finding and collecting trust assets if you have not already put them into the trust and making sure they are all registered in the trust name. This includes finding and collecting proceeds of insurance policies and retirement accounts that name the trust as beneficiary, setting up a trust bank account, obtaining a trust EIN, etc.
2. Managing trust assets according to guidelines you provided in your will or trust instrument– which includes: - Developing and carrying out an investment strategy that maximizes income to income beneficiaries while balancing the need to grow the principal for any residuary beneficiaries.            
   - Buying and selling stocks, bonds, real property and other investment vehicles.     - Hiring and working with professional service providers – investment advisors or financial planners, accountants, lawyers, insurance agents, property managers.   - Managing a business or properties if owned by the trust. Balancing interests of multiple beneficiaries. 
3. Disbursing income (and principal if the trust documents provide) to the beneficiaries according the standards you have set forth. This can involve trying to reason with beneficiaries who demand disbursements that do not fall within the guidelines you set.
4. Providing an annual accounting (or more frequent) to the beneficiaries, which requires keeping accurate and detailed records of investments, income, expenses, and taxes. He must allow beneficiaries access to trust records while also maintaining the privacy of other beneficiaries.
5. Preparing and filing trust tax returns.
6. Enforcing and defending claims against the trust.
7. Trustees of special needs trusts will need to make sure payments from the trust won’t disqualify or reduce government benefits – such as SSI, Medicaid and housing subsidies - that the beneficiary receives.

Fiduciary Duties of a Trustee;

The trustee, like your executor, has a fiduciary duty to the beneficiaries of the trust. This means he owes them a duty of loyalty. He must invest and manage the assets of the trust solely in the interests of the beneficiaries - even at the expense of his own interests, taking the same care with the assets of your estate as he would with his own. If he is a professional with special skills, he will be held to a higher standard. He is potentially liable to beneficiaries if he or she breaches that duty. He is not permitted to benefit at the expense of the beneficiaries and cannot commingle his own funds or assets with those of the trust. He also cannot self-deal, which means he cannot borrow from, lend to, buy assets from or sell assets to the trust. Even if your will or trust document permits him to take some or all of these actions, which they often do, the trustee should exercise extreme caution when doing so. The trustee also has a duty of impartiality when there are multiple beneficiaries, meaning he cannot favor one over the other. There is a potential for conflict if he or his kids are named beneficiaries, even contingent or residual beneficiaries. He must maintain accurate accounts of all assets and investments and all amounts paid out from the estate and be prepared to provide access to those records to the beneficiaries. 

If the trustee breaches his fiduciary duty to the beneficiaries, they can sue him and obtain a judgment against him personally.

1. Someone you trust, both to be scrupulously honest and to carry out your wishes. This would preferably also be someone the beneficiaries know and trust.
2. Someone who cares about your beneficiaries and understands their needs.
3. Someone who shares your values or at least understands your values and will be willing to carry them out. Most trusts provide for the trustee to distribute for the health, education, maintenance and support of the beneficiaries. You can provide some guidance about what those mean to you, but you can’t to account for all situations that may arise in the future. You want someone who will interpret health, education, maintenance and support the same way you would. Someone who doesn’t travel may not approve trips that you would consider educational. Someone who went to a public college may not approve tuition at a private institution, while you would have. 
4. Someone who is willing to serve as trustee.  Even if your trust estate is not complex, the trustee still has to invest the assets and keep careful records. If your trust is complicated or your beneficiaries are difficult to deal with, it may be difficult to find someone who has or wants to spend the time required to handle all of the responsibilities. 
5. Someone you expect to be around for as long as the trust will last. The obligations can go on for years – until minor children reach 18 or a later age that you specify, or can last for a generation or more if you set up a legacy trust. This may mean a parent or older sibling is not the best choice.
6. Someone with financial skills or the ability and desire to hire and work with people who has financial skills.
7. If the trust is for the benefit of your minor children, you may choose the same person you named as guardian of their person. But someone who is great with the emotional aspects of raising a child may not want, or be the best choice, to manage investments and other financial decisions required of a trustee. 
8. If the trust will own a business, then you may want someone with experience in running that kind of business.
9. Is the beneficiary unreasonable, demanding or litigious? If there is more than one beneficiary, is there likely to be conflict among them? If so, then you want someone that will be able to calmly handle the drama. You probably also want to appoint someone who won’t just give in to beneficiary demands but can deal with issues without creating animosity. If the beneficiary is potentially litigious, you may want to name a corporate trustee – you don’t want to throw a family member under the bus.

Corporate trustees are usually only cost effective [make sense] if the trust estate is large. Many corporate trustees won’t handle estates worth less than $1 million and, if they do, may provide less attention to the smaller trust accounts. Banks with investment arms may favor investments offered by their own institution. However, corporate trustees have the financial, record keeping, tax and legal expertise to manage trust estates and can be more objective in dealing with troublesome beneficiaries than a family member. Corporate trustees are generally paid a percentage of the value of the trust estate each year.

Co-Trustees – They can provide oversight and provide continuity – if one ceases to serve, the other can carry on. You may choose to name two or more family members or you may prefer to name a family member to provide the personal relationship to your beneficiaries and an institutional trustee to provide financial expertise and experience. However, you will need to provide a means for determining how decisions will be made if they don’t agree.

Successor Trustees: You need to provide for replacement and successor trustees or a means for their selection in the event your first choices become unable or unwilling to act. 

Most parents will consider this the most important decision they make in the estate planning process. If you don’t set up a trust in your will or by a separate trust document, then you will need to name a guardian for the person (who will raise your kids) and a guardian for the estate (who will manage the money you leave for your kids). Choosing a trustee covers what to consider when choosing who should manage the assets you leave to your kids. When choosing a guardian of their person, you should choose:

1. Someone who will be willing to serve. You should confirm with the person you want to appoint that they feel comfortable being named. Raising someone else’s children is a great responsibility and expense. The person you would choose may love your children but not feel comfortable taking on this responsibility. They may not feel financially able to do so for reasons you are not aware of – especially if you won’t be leaving sufficient insurance or other assets to provide for your children’s support. 
2. Someone your children know and love, so they will be comfortable with the person.
3. Someone who shares your values and views on education, religion, money, family, and other matters to the extent each of these is important to you.
4. You do not have to name the same person to serve as the guardian of their person and as trustee of any money you leave to them. If you do not, you may want to discuss with them both the reason for this choice. Otherwise, you may offend the person you name as guardian of their person, who might wonder why they are “good enough” to raise your kids but not to handle the money. Also, they may feel it will be a big inconvenience if they have to go to a trustee any time they need money for soccer camp or private school or medical bills, and other expenses. It may be that you feel the person will be great with the emotional and personal aspects of raising children may not be great at managing and investing money. They may be intimidated by the prospect, especially considering that a trustee has a fiduciary duty to invest and protect the estate. They can’t just put the money in a savings account earning 0.01% interest; but they also can’t put the money into risky investments unless you expressly authorize them to do so. You can provide guidance by setting out in a trust how the money is to be used and limitations on investments. 
5. If your child has special needs, you will want someone who understands those needs and is willing to take the responsibility. Special needs children often required a larger commitment of time, so you will want to be sure to name someone who will be able to make that commitment. A guardianship for all children end when they turn 18. If you believe your child will be unable to make care for himself after reaching age 18, you may want to appoint someone who will be willing to go to court to have themselves appointed guardian at that time.

Yes. If you do so, you should name them in your will along with any children you are not disinheriting to show that you didn’t just forget about them. You might note that you are deliberately not leaving anything to them. You may want to add a short statement of why you are disinheriting them – you have already given them money, they are provided for by someone else, you haven’t seen them in thirty years, etc. You probably don’t want to say it’s because they are a drug addict or include any other potentially libelous statement.

Disinheriting a child is often the cause of will challenges. Even if your will has a clause stating that anyone who challenges it will get nothing – a disinherited child has nothing to lose by challenging. It may make sense to leave some amount to that child that will be put at risk if he or she challenges your will.

If one of your children is irresponsible or has drug or alcohol problems, you may want to consider leaving money for them in a trust rather than disinheriting them.

You may want to think carefully before you disinherit one of your children. It’s your money and you are entitled to do whatever you want with it. But disinheriting a child is likely to cause on-going hard feelings and even conflict among your children if some are disinherited and some are not. Your will is often your last statement to your heirs. Disinheriting a child, even if they know the reasons, can feel like you reached out from the grave to give them one last rebuke.

At a minimum, you should review your estate planning documents every five years to make sure they still reflect your wishes. But it’s really a good idea to get into the habit of reviewing your estate planning documents once a year. When major changes occur in your life, you may remember to update your will and other documents but you might not even think of it when major changes occur in other people’s lives. The close friend that you named as executor may have moved to New York or Qatar for a new job and no longer be the best choice. The brother you named as guardian of your minor children may have recently divorced, so he and his wife and children will no longer provide the stable, loving family unit you imaged your kids dropping into. As your parents grow older, they may no longer want the hassle of dealing with banks and insurance companies and disgruntled family members as the executor of your estate. Or they may not be able to say “No” to their grandkids and so may no longer be the best choice as trustee. Reviewing your estate planning documents regularly will encourage you to think through the changes that have occurred and their possible impact on your family.

In addition to a regular – preferably annual – review, you should also review your will and other estate planning documents when big life changes occur:

1. If you marry, separate, divorce, or reconcile. In each of these cases, you may want to change the executor, trustee, and beneficiaries named in your will and the beneficiaries of any life insurance policies, retirement plans, IRA accounts, brokerage accounts and any other account that names your spouse as a beneficiary or Pay-on-Death recipient. While Texas law may treat your divorced spouse as having pre-deceased you for some purposes, he or she will not be treated that way while your divorce is pending. Additionally, if they are listed as a joint owner rather than a beneficiary of bank or brokerage accounts, they may still have a claim against those accounts. Finally, the law of another state may govern some of the contracts, which could potentially leave your ex-spouse as a beneficiary despite a divorce.
2. If you have a child. If you don’t modify your will after the birth or adoption of a child, it can effect the distribution you planned in your carefully drafted may be modified by law. If it is your first child, then your will probably didn’t name a guardian for your minor children or provide for a trust. If you take responsibility for a child without legally adopting them, you may want to amend your will to provide for them. 
3. If a loved one dies. If they are named as a beneficiary, executor or trustee, or as your agent under a power of attorney, then it is suddenly important who you named as their successor. When originally drafting these documents, you may have considered the need for a successor very unlikely and named someone without serious consideration. 
4. If you move out of state. Generally, the law of the state where you were living at the time of your death governs the administration of your estate. If you move to a non-community property estate, there may be different rules governing what you and your spouse are entitled to receive from each other’s estates. You should consult an attorney in your new state of residence to determine whether your will still meets your needs. Also, if you move to a state with a more complicated and expensive probate process, then a living revocable trust may become a better alternative for you. If someone you have named as executor, trustee or guardian moves out of state, you may want to review whether they remain the best choice. Fax, email, ease of travel, and a local attorney can make it work, but they will probably become less involved in your life. After a couple of years, someone else may seem a better choice.
5. If your financial situation changes significantly. If you come into a lot of money either by inheritance, employment, lotto or some other way, you may want to consider setting up trusts either to avoid estate taxes or to provide for your spouse and children. If your financial situation declines, you may want to revise some financial gifts in your will. Often people give specific amounts to various people and then leave whatever is left to the most important people. When you have a large estate, this works. But if your estate decreases, the specific gifts may take most of your estate, leaving little for the people you expected to receive the bulk of your estate.
6. If there are major health changes for yourself or someone who is dependent on you. If your health declines, you will want to be sure to have powers of attorney for healthcare and financial matters in place. If a child or other family member experiences a serious medical issue or becomes disabled, you may want to consider setting up a special needs trust and plan for future Medicaid qualification.
7. If you start or sell a business – or your business grows or declines. You may have based your estate plan on one kid getting the family business and others getting something else of equal value. If you sell the business or it becomes worth much less, you may need to revise your will to balance things out - if that’s your intent. If the business is worth a lot more than when you prepared your estate plan, again, you may need to adjust to balance things out. You also need to consider what happens to the business if you become incapacitated. If you have insurance to allow a partner to buy your estate out and the business has dropped in value, you may need to reconsider who gets the insurance proceeds above the amount necessary to buy the business
8. If you open new accounts or acquire new assets. You should have an inventory that lists all of your major assets and their locations – including every bank account, IRA, brokerage account, safe deposit box, life insurance, piece of real estate, and anything else that your family might not find by just looking around your house. Whenever you open a new account or buy something new, just add the new items to the inventory by hand. The purpose of the inventory is to make finding your assets as easy as possible for your family and to make sure they get everything they are entitled to receive. If you have a brokerage account with eTrade but don’t leave a paper trail, how are they supposed to find it? You should also mark out accounts that you’ve closed or assets that you’ve sold so your executor won’t spend time contacting banks, etc. to try to collect assets that you no longer own. At a minimum you should review your inventory annually, just in case you forgot to add something when you acquired it.

Statutory Durable Power of Attorney: I have heard reports that some financial institutions and title companies won’t accept these – or really fight accepting these – if they are over three years old. So you may want to sign a new one every three years or so. Additionally, if your power of attorney authorizes your agent to sell real estate, title companies want a legal description of the property set out in the power of attorney. So if you buy new property, you may want to execute a new power of attorney with the new property description included.

Letter to Executor. Many people prepare a letter to their executor that provides instructions as to how they would like specific items of personal property to be distributed. It is easier to draft a new letter to revise the distributions than to execute a new will, and you should also check the letter annually to make sure it still reflects your wishes. However, if the letter is not executed in the same manner as a will, it will probably not be binding on your executor.

You cannot sign a durable power of attorney after you have become incompetent. Some Alzheimer’s and dementia patients have lucid intervals in which they may be competent to sign, but that will require a doctor to confirm that you were competent. If you don’t have a power of attorney, somebody is going to have to go to court, which means hiring a lawyer, appearing in court, possibly posting a bond and paying for an attorney ad litem, a guardian ad litem, court fees, and possibly trustee fees. Texas courts prefer a less restrictive alternative to guardianship if one is available.

Possible options when you don’t have a power of attorney:

Community Administrator

If you are married, your spouse can go to court to have you declared judicially incompetent so he or she can administer the full community estate, including your sole management community property. This involves attorney’s fees and court appearances and the appointment of an attorney ad litem, etc. If you own any separate property (owned before your marriage or acquired afterward by inheritance or gift), a court will have to appoint a guardian to administer your separate property. The spouse is entitled to be appointed if eligible. If you are not married, appointment of your spouse as community administrator is not available.

Management Trusts 

(Formerly sometimes called “867 Trusts.”) Someone may apply to the court on your behalf after you are incapacitated to have your funds placed in a management trust to be used for your health, education, maintenance and support. The court will appoint an attorney ad litem and possibly a guardian ad litem, who will be paid from your assets. The funds placed in trust will be held and managed by a professional trust company unless the person applying to have the trust established can’t find a financial institution willing to serve. Annual accountings must be filed with the court.

Declaration of Guardian

If you didn’t sign a power of attorney, you probably didn’t sign one of these either. This allows you to name the person you want to be appointed as your guardian in the event of your incapacity. That person will still have to go to court to be appointed and the court will give great weight to your wishes as long as the person qualifies. You can also name a person that you absolutely do not want to be appointed as your guardian should the need arise. If you are going to go to the trouble of signing this form, why not sign a power of attorney and avoid the need to involve the courts?

Appointment of a Guardian

If there is no less restrictive alternative available, your family will have to go to court to have a guardian of your estate appointed. Again, this involves attorney’s fees and court appearances and the appointment of an attorney ad litem, etc. The guardian will have to post a bond and will have to obtain consent from the court for most actions. He or she will also have to maintain careful records and file an annual accounting with the court, which will demand receipts for every expense. If you are married, then your spouse is entitled to be appointed if he or she is eligible. If he or she is not, then your “nearest of kin” will be appointed, which may or may not be who you would choose.

A power of attorney is no longer effective after the person who signed it dies – that’s when the will or living revocable trust takes over.

If you do not have a heathcare power of attorney, your family may have to seek to have a guardian appointed for your person to enable the guardian to make health care decisions on your behalf. Texas courts prefer a less restrictive alternative to guardianship if one is available.

Section 313.004 of the Texas Health and Safety Code provides that if you are an adult patient of a home and community support services agency or are in a hospital or nursing home, and are comatose, incapacitated, or otherwise mentally or physically incapable of communication, an adult surrogate in the following order of priority may consent to medical treatment on your behalf:

1. your spouse;
2. an adult child who has the waiver and consent of all other qualified adult children to act as sole decision maker;
3. a majority of your reasonably available children;
4. your parents;
5. the individual you clearly identified to act for you before you became incapacitated, your nearest living relative, or a member of the clergy.

If someone is at home and not receiving services – only family is providing care - then this doesn’t apply and a guardian will have to be appointed. However, if someone is so incapacitated that they can’t make health care decisions, they are probably receiving some kind of services.

You would probably follow the same list of priorities given above - your spouse as your first choice and one of your adult children as your second choice. But do you want your adult child to have to contact all of your other kids and get them to sign a consent form? And what if these people disagree? What if your parents are divorced and disagree? Any dispute has to be settled by the courts. Think of the Terry Schiavo case. Her husband and parents disagreed about what she would have wanted and incurred huge legal fees over fifteen years - I hope because they really disagreed about what she would have wanted and not because they wanted a cut of the personal injury award held in trust. Maybe they would have fought even if she had named her husband as her healthcare agent – but the courts probably wouldn’t have let the dispute continue for fifteen years through multiple appeals. Congress would probably not have intervened. Wouldn’t you prefer to name someone who you believe will follow your wishes to make these decisions? 

It is important once you sign a healthcare power of attorney to talk to the person, and any alternatives, about your wishes. You may think they know that you don’t want to end up on a respirator for years after doctors have declared you brain dead. You may think that they know that if you have Alzheimers, you wouldn’t want to undergo extensive treatment for cancer. But when people are uncertain, they hesitate to make such hard decisions for someone else.

Setting up a revocable living trust is usually much more expensive than having a will prepared, and it is probably an unnecessary expense if you live in Texas. They are more popular in states that have more complicated and expensive probate procedures than we have in Texas. Revocable living trusts can also be a hassle – you have to transfer all of your assets into the trust. If you buy new property or a new car, open new accounts, or inherit property, they all need to be placed in the name of the trust if your goal is to avoid probate. Most people fail to transfer all of their assets into the trust and any assets not in the trust will have to be distributed through probate, so you will still need a will.

A living revocable trust might make sense if you own real estate in another state and want to avoid the probate process there or you expect someone to fight your will and believe having an established trust will dissuade them. If you are on your second or third marriage and have children from a prior marriage, a revocable living trust can also be the clearest way to provide for your spouse during her lifetime and for your children after her death.

If your original signed and notarized will can’t be found, there is a presumption that you revoked it – possibly by ripping it into teeny tiny pieces. This presumption can be rebutted, but why make things more complicated? Make sure your family will be able to find your will. Wherever you put it, tell your family where it is.

Executor: A good choice may be to give your original signed will to the person you have named as executor - assuming he or she is the organized type who will remember where he or she put it. Then tell the primary beneficiaries the name of the person who has your original will. If your executor moves away, no one may remember who has your original will – and he or she may not be able to find it after the chaos of a move. (This is one reason to review your estate planning documents annually.) 

Someplace Obvious: If you keep the original, then you need to put it somewhere that you know your family will look when trying to find it. And then tell them where it is. Maybe put it in a bright blue folder and tell your executor and a family member or two that it’s in the bright blue folder in my desk in my home office. If you move it, tell them the new location. A fire proof safe or fire proof filing cabinet in your home is a good choice – if you have one.

County Clerk’s Office: You can file your original will with the county clerk’s office in the county where you reside. There is a $5 charge and you will receive a certificate of deposit. The will is enclosed in a sealed wrapper until your death and you can replace it if you wish to make changes. However, if you do this, be sure to tell your family.

Safe Deposit Box: A safe deposit box in your bank is not the best choice because banks often refuse access to your family members unless they are appointed your executor by a probate court. Banks are authorized by Texas statute to allow your spouse, parent, a descendant who is at least 15 years of age, and the person named as executor in a copy of your will to access the box to examine the contents in the presence of a bank representative but they often refuse to cooperate. If you do choose to keep your will in a safe deposit box, but be sure to tell your executor and/or family that your will is in a safe deposit box, the bank and branch in which it is located, and where you keep the key. If you name a friend or sibling as executor, they will need to have a copy of the will to get into the box if the bank is cooperative. If your will is found in the box, the bank representative can deliver it to the named executor or to the clerk of the probate court in the county where you resided. You may want to make someone a co-signor on the safe deposit box to make it more likely they can access the contents.

No. You need to execute a new will or a codicil with the same formalities as the will - in front of witnesses and a notary. Marking up your will may lead to confusion as to whether you intended to revoke your will and a court may find that you died intestate (without a will).