Estate Planning:
Frequently Asked Questions

1. What lifetime planning documents are essential or helpful?

2. Why have a Will at all?

3. Why not do your own will?

4. What are the requirements of a formal written will?

5. What is a Codicil?

6. What are some of the features a Texas will should contain?

7. What is a self-proving affidavit?

8. What are some features a Will should NOT contain?

9. How do I give instructions that are inappropriate for inclusion in a Will?

10. What is the definition of a trust?

11. What are the types of trusts that relate to wills and estate planning?

12. Why are trusts used in estate planning?

13. When should a trust be used to avoid probate?

14. What are the basic provisions a protective trust should contain?

15. How do I express my general intentions if I do not include them in the trust provisions?

16. What other matters which should be considered?

 

---

Estate Planning:
Frequently Asked Questions

1. What lifetime planning documents are essential or helpful?

• A Durable Power of Attorney lets a designated person (or designated alternate) act on your behalf to manage property, even if you are legally incapacitated or absent. It may be "general," allowing the designated person to do anything you could do, or "limited" or "special," allowing the designated person to take only specified actions (such as funding a trust). Every person should have a Durable Power of Attorney to avoid the need for a court supervised Guardianship in the case of incapacity.
• A Medical Power of Attorney lets a designated person (or designated alternate) act on your behalf to make health care treatment decisions while you are incapable of doing so.
• A Directive to Physicians under the Texas Natural Death Act (a "Living Will") expresses your intention that your life not be artificially prolonged if there is no chance of recovery.
• A Designation of Guardian allows you to determine who would manage your affairs in the event of the need for a Guardianship. It also allows you to prevent someone from becoming your Guardian.

2. Why have a Will at all?

• Lets you decide who gets your property, instead of relying on state law of descent and distribution
• Disposes of particular items
• Disposes of residue
• Prevents hassling survivors at a time of emotional vulnerability
• Helps prevent family wars
• Lets you indicate who you want to be Guardian of your children
• Lessen expense by avoiding expensive dependent administration and forced guardianship for minor children or others not able to manage property
• Protects survivors through appropriate trust planning

3. Why not do your own will?

• The requirements for a holographic wills in Texas consist only of that the Will be entirely in handwriting of the Testator and signed by the Testator. No witnesses are required.
• Why you should avoid holographic wills:
  • Ambiguity
  • Incompleteness
  • Additional administrative expense in the course of settling your estate

4. What are the requirements of a formal written will?

• Testator (the person making a Will) must be:
  • Of sound and disposing mind (have "testamentary capacity")
  • 18 years or over, once married, or have had military or maritime service
• Will must:
  • Be writing
  • Which disposes of property at death
  • Be signed by the testator
  • Be witnessed by two credible witnesses over the age of fourteen, and signed by them

5. What is a Codicil?

• A change to a Will with same requirements as Will. When it contradicts the Will, the latest Codicil governs.
• When a Codicil and Will are read together in court, they together make one Will.

6. What are some of the features a Texas will should contain?

• Independent Executor
  • Be sure denominated "Independent"; use magic words to prevent court supervision of administration and settlement of estate
  • Allow payment of a fee to prevent later disinterest or hardship if unanticipated demands arise in the course of administration and settlement of the estate
  • Require no bond
• Guardian of Estate of Minor Children
  • Person who will handle kids' money and other property, under court supervision
  • Allow a fee
  • Required no bond
• Guardian of Person of Minor Children
  • Person who will take care of kids
  • Does not have to be same person as Guardian of Estate
  • Allow a fee
  • Require no bond
• A residuary clause, which disposes of property not specifically devised
• Contingent (or alternate) beneficiaries
• Directions as to which share will pay debts and be charged with taxes
• Protective trusts for minor or disabled beneficiaries, if needed; almost every will should have such a trust if "descendants" or "issue" are contingent beneficiaries
• Tax planning trusts, if needed

7. What is a self-proving affidavit?

• A self-proving affidavit is a document which allows a notary to, in effect, take the testimony of the witnesses at the time of the signing of a Will, ordinarily precluding the need to have them testify after the death of the person making the Will. It is usually attached as the last page of the Will. Every Will should be self-proved.

8. What are some features a Will should NOT contain?

• Appointment of your probate lawyer (You may decide to change lawyers but not want to change your will, and it's probably not binding anyway.)
• Instructions or precatory (pleading) language stating only your intention
  • Examples:
    • "I hope my son will go to college, so I give him $20,000 to pay for his college education." (He doesn't get it unless he goes to college.)
    • "I instruct Jane to keep my shares of AT&T forever."
  • Times and situations change
  • This type of direction often isn't legally binding, but the heirs may feel morally bound to follow instructions, perhaps even when they need to ignore them in making a sound business decision.

9. How do I give instructions that are inappropriate for inclusion in a Will?

• Write a secret side letter to be opened by spouse in event of your death and put it with the Will. It should contain all the non-binding guidance information you want him or her to have, for example:
• The people you think may be trusted:
  • Insurance agent
  • Lawyer
  • Real estate agent
  • Banker
  • Accountant
  • Stock broker
  • Business advisors, etc.
• The people never to trust
• The location of all records and valuables, including tax records, bank records, safety deposit boxes, insurance policies, stocks and bonds, legal papers, jewelry, collections and any other items of special value, etc.
• Which assets to keep, which to sell (but say clearly to disregard your opinion if in view of the current situation, he or she thinks differently)
• How you feel about religious attendance, funeral arrangements, and disposition of your body
• All pertinent information about the family business
• If you want your spouse to remarry or not

10. What is the definition of a trust?

• When one person holds legal title to personal or real property for the benefit of another, i.e., legal title and beneficial title are separate, so that one person manages the property for the benefit of himself, herself, or another

11. What are the types of trusts that relate to wills and estate planning?

• An intervivos trust (also known as "during life" or "living" trust) is one where the trust is created by a person during her or his lifetime. An intervivos trust may be either revocable or irrevocable.
• A testamentary trust arises by operation of the a person’s Will at the time the person dies, when legal title passes to the Trustee, and beneficial title is vested in the beneficiaries.
• A revocable trust is an intervivos trust in which the person creating the trust (called "Grantor," "Settlor," or "Trustor"; all mean the same thing) reserves the right to amend or revoke the trust. Under Texas law (and that of Oklahoma and California, but no other jurisdiction) any trust is revocable unless expressly made irrevocable.
• An irrevocable trust is any trust for which the Grantor has no power to amend or revoke. All testamentary trusts are irrevocable since the person creating the trust has died. In jurisdictions other than Texas, Oklahoma, and California, a trust is irrevocable unless expressly made revocable.

12. Why are trusts used in estate planning?

• To distribute benefits over a chosen interval or to multiple beneficiaries
• To protect survivors from others or themselves
• To avoid problems in managing property by minors, those who are disabled, or others without legal capacity to act, avoiding court supervised guardianship of property
• To avoid or minimize transfer taxes
• To avoid probate

13. When should a trust be used by a Texas resident to avoid probate?

• When lifetime management is required on a long-term basis prior to death
• When real property is owned in a jurisdiction other than Texas
• When privacy is essential to achieve planning goals

14. What are the basic provisions a protective trust should contain?

• Flexible powers and broad authority for the Trustee in management of assets, including the power to sell or rearrange assets, to disburse or withhold income and corpus
• Discretion by the Trustee to make appropriate distributions
• Designation of at least one alternate or successor Trustee
• Waiver of a bond by the Trustee
• Authorization for the Trustee to be paid
• A spendthrift clause, which can prevent creditors of a beneficiary from obtaining the trust property prior to distribution to the beneficiary
• Provisions providing for flexibility in distribution of Trust assets as unforeseen events arise after death
• Authorization to receive property from other sources
• Authorization to merge with other similar trusts to cut administrative fees
• Termination provisions that let each beneficiary’s trust end only when that beneficiary is ready

15. How do I express my general intentions if I do not include them in the trust provisions?

• Write a side letter to Trustee which includes a set of non-binding general instructions designed to inform him about your preferences and intentions regarding such things as:
  • Financial experiments
  • Car expenses for children
  • Discretionary distributions for travel, business start-up, and major personal expenditures
  • The factors you feel should affect the decision to end the trust

16. What other matters which should be considered?

• Coordination of life insurance beneficiary designations with will and intervivos and testamentary trusts so as to avoid giving minor children or other beneficiaries under legal disability proceeds outright, with resulting guardianship
• Need for transfer tax planning:
  • Does the total fair market value of property owned by an individual or a married couple, including life insurance at face value, exceed approximately $3,500,000.00 (returning to $1,000,000 beginning in 2011)? If so, serious consideration should be given to whether transfer tax planning is needed.
  • Probable disposition of property by older generation family members—will transfers likely to be received from older family members increase the value of property owned to more than approximately $3,500,000.00 (returning to $1,000,000 beginning in 2011)? If so, serious consideration should be given to whether multi-generation transfer tax planning is appropriate.
• Coordination of retirement plan beneficiary designations
• Need for planning for orderly transfer or disposition of business interests
• Need for special dispositive planning arising from complex asset structure, special assets (such as the family ranch or cabin) which the planning client desires to stay in the family, special or disparate personal needs of intended beneficiaries, or the need for asset protection planning on the part of an intended beneficiary
• Desires to make charitable gifts during life or at death