Avoiding probate is a very good idea in many, if not, most states. This is particularly true in the birthplace of the living trust -- California. Probate is extremely expensive and time-consuming in California. California probate statutes provide for a mandatory cost to probate a will based on the value of the estate. Worse, in a California probate, the court supervises and approves virtually every transaction involving the estate, so the executor is always in the courtroom asking for approval to handle the estate's business. An estate of even a modest size can cost tens of thousand dollars and take several months of court supervision. Given that situation, it's no wonder that Californians are eager to avoid probate or that Californians developed the revocable living trust to do so.
Texas tends to do things a little differently from California, and probate proceedings are no exception. Texas has developed what's called independent administration, a process that greatly reduces both the cost of probate and the time spent in the probate court. With independent administration, most probates are relatively inexpensive and only require the executor to appear in court a single time for a very short hearing. Most states don't have an independent administration option, but, for Texans, a revocable living trust will usually involve more time and expense than a simple probate does.
As for those tax benefits . . . there are certain trusts that can provide estate or income tax benefits, but a revocable living trust is usually not one of them. That's because a revocable living trust is usually controlled by the settlor -- the person who created the trust -- and therefore remains in the settlor's taxable estate. For the same reason, a revocable living trust does not provide protection from creditors. If you have free access to the assets inside the trust, then your creditors can probably get to those assets as well.
That doesn't mean that you should never have a revocable living trust. What are some situations where you might want one?
Revocable living trusts are not necessarily a bad idea, but, in Texas, they usually are a bad idea if your goal in setting one up is to "avoid probate." If you are considering setting up a revocable living trust, or think you may need another kind of trust or estate-planning document, I would love to discuss that with you!
]]>I wish everyone a blessed and prosperous year. Hopefully all the good seeds you planted in 2014 will bear bountiful fruit in 2015.
]]>There's a scene in Dickens's A Christmas Carol that comes to mind: During the visit from the Ghost of Christmas Yet to Come, Scrooge gets to see how the world reacts the morning after he dies which, rather conveniently, falls on Christmas. His former maid and butler are rummaging through his things, dividing his bedclothes between them while his body cools in the next room. The idea is that Scrooge was so thoroughly detested that he is not given even the basic courtesy of deciding how his possessions will be divided.
We have a strong and visceral sense that, whether you've lived as miserly as Scrooge in the beginning of his story, or as generously as Scrooge at the end of his story, you deserve the dignity of having your last wishes concerning your property honored. None of us want to be like Scrooge and have strangers haggling over our property when we die. And, with a properly drafted will, you don't have to worry about that.
The easy answer is everyone, but a more accurate answer would be anyone who has property or minor children. These are the most important jobs of a will: to dispose of your property after you die, and to appoint a guardian for your minor children.
A will provides you a lot of flexibility in dividing up your property. You can simply give it to someone outright, or you can place it in trust for one or more beneficiaries. And, as long as you don't violate the rule against perpetuities, you can control your property for one or more generations after you die.
One of the most important things you do in your will is to appoint an executor to handle your estate. You can also appoint trustees for any trusts created under the will. And, you can provide for the care of a beloved pet or leave instructions for your physical remains.
In Texas, one of the main benefits of having a will is that it makes the probate process very quick and inexpensive. It usually involves about five minutes in court and filing a few documents to discharge your legal duties as executor in the courthouse. Without a will, your heirs may have to pay about twice as much to probate your estate.
A will must be in writing, must demonstrate testamentary intent, and must be signed by two witnesses. Testamentary intent just means that the document needs to show that the signer intends it to take effect upon his or her death. If there are no witnesses available, you can prepare a "holographic" will entirely in your own handwriting, but this is not recommended.
You can have your witnesses sign a self-proving affidavit before a notary and attach it to the end of your will. The benefit of this is that your witnesses will not have to appear in court and testify when your will is probated.
In my experience, this is a very bad idea. There are a number of formal and technical requirements to ensure that a will is properly drafted and executed, and if you do not meet them all, your will may not be admitted to probate, meaning that your property will not be disposed of according to your wishes. It is well worth the modest expense of having a capable estate-planning attorney draft a proper will for you.
]]>There are a couple of simple estate-planning documents that, though they seem rather benign, can give you the power to either do tremendous good for someone or wreak utter havoc on their estate. These documents are the medical power of attorney and the statutory durable power of attorney.
The medical power of attorney gives an agent the power to make medical decisions for someone when he or she can no longer make those decisions for him or herself. Similarly, the statutory durable power of attorney gives an agent the power to control someone's property -- including real property, personal property, and financial assets. The statutory power of attorney can either take effect when the principal (the one who signs the power of attorney) becomes incapacitated, or it can take effect immediately.
Your agent may consent to surgery, treatment, therapy, or medication for you if you are unable to do so yourself. Likewise, your agent may refuse to consent to a recommended course of treatment if he or she believes you would have refused.
The agent has the right to review your medical records before making a decision and has the right to seek a second opinion before making a decision. Basically, the agent steps in the principal's shoes and has all rights and powers that the principal would have.
If you know you will be travelling but want someone to have power to take care of your property, you may want to have a power of attorney that's effective immediately so that your agent can take care of your property while you are out of town.
Yes. Your agent owes you a fiduciary duty, and, if he or she does something that is against your interest, you may be able to sue them for damages. Of course, rogue agents tend to spend the money that they steal, so you might not be able to get much back from them. That's why it's very important to appoint an agent who will be loyal to you.
It immediately terminates. Don't rely on a statutory power of attorney to allow someone to handle your estate. That's why you need a will.
Under either power of attorney, a divorce terminates the appointment of the former spouse. If you want your former spouse to serve as your agent, you'll need to sign a new power of attorney.
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