The Dean Law Firm Blog

Have you ever considered how you might grow your estate so that it can be a gift to not only your children, but also your grandchildren and beyond? Do you anticipate one or all of your children spending their inheritance without much thought? The vast majority of non-spouse heirs to retirement accounts blow a great opportunity to increase wealth by receiving outright distribution of all their inherited retirement accounts shortly after receiving them. With proper planning, your retirement accounts can be one of the greatest legacies you can leave to your heirs.

A Retirement Inheritance Trust is an effective tool to ensure your retirement assets are not squandered that also gives your heirs the gift of continued tax-free growth based upon their own life expectancy, while allowing you to design how those assets are distributed. The ability to maximize income tax deferral and accumulate wealth is one of the greatest advantages of a Retirement Inheritance Trust. Proper planning can allow your heirs to take advantage of the “stretch-out”, allowing your assets to continue to grow tax-free over time rather than being distributed outright and having to pay income taxes right away.

Another major benefit of Retirement Inheritance Trusts is that they provide protection in many scenarios. These important protections include asset protection from creditors, lawsuits and bankruptcy, and divorce protection. Further, properly drafted retirement trusts can ensure protection for minors, as well as the elderly or disabled. If a beneficiary is entitled to government benefits, the trust can be designed to keep them from being disqualified to receive aid.

A Retirement Inheritance Trust is a separate trust that would accompany your Will or Living Trust to specifically address the unique asset of your retirement accounts. Retirement accounts are subject to many particular governmental requirements and the trust must be designed to address them properly to ensure the accumulation of the wealth over time and to increase the impact of your estate’s legacy.

High costs.  A little can add up fast.  Do these thoughts come to mind when you think about long-term care?  Proper estate planning can truly ease the minds of your loved ones if you get to a place where you are in need of long-term care. 

The financial concerns of long-term care can be addressed by a variety of methods, including long-term care insurance, saving to self-insure, or by setting up a Trust document that protects your assets.  For most people, it is unsettling if you do not know who will be handling your finances in your incapacity and if this person will have your best interests in mind.  You can proactively plan by choosing who this person is beforehand through designating an alternate Trustee in a Living Trust or through the use of a Financial Power of Attorney.  Your Financial Power of Attorney should be customized to address how you wish to be treated if you are in a long-term care situation and to allow your agent to implement some long-term care planning strategies, including the creation of trusts to qualify for certain governmental benefits, if needed.

When considering long-term care, you must consider both the financial and the medical sides of disability.  At a minimum, you need to designate an agent to make medical decisions for you when you cannot in a Medical Power of Attorney.  It is also important to consider Advance Medical Directives.  One of these documents is a Directive to Physicians, also known as a Living Will, which allows your loved ones to have your guidance when making decisions concerning artificial life support and other medical interventions.  While these issues can be uncomfortable to think about, it can greatly ease the burden for your loved ones by guiding them through these difficult decisions.

You may have heard the Benjamin Franklin quote, “In this world nothing can be said to be certain, except death and taxes.”  While death and taxes may be certain, the amount you may pay in taxes is not.  With some strategy and proper planning, you can leverage your assets to pass on a greater financial legacy to your loved ones.  This article will discuss a few of the ways that you can minimize your taxable estate.

The IRS will want to review your estate at death to see if you owe them that one final tax: the federal estate tax.  Whether there will be any tax to pay depends on the size of your estate and how your estate plan works.  There are many effective strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to implement many of these plans.

One way that you can minimize your taxable estate is through the use of certain trusts, such as life insurance trusts, gifting trusts or charitable trusts.  These trusts can also give your beneficiaries the additional benefits of asset and divorce protection.  You can also decrease your taxable estate by making outright gifts during your lifetime.  These gifts will have to stay within a certain amount per year, per person based on the current law ($14,000 per year, per person in 2015) in order not to count against your lifetime exemption amounts.  Using trusts or a gifting strategy will protect your estate and maximize the amount you can give to your loved ones, rather than being counted towards the taxable amount in your estate.   

There are many different tools that can be used to effectively minimize your taxable estate.  One key thing to keep in mind is to be sure to consult an attorney and financial professional to make sure your matters are handled properly and that you are using the best strategy for your particular situation.

You may be curious what the difference is between a Will and a Living Trust.  Depending on your situation and needs, one may be a better fit.  In this article, we will highlight the major differences between the two to help you navigate the Estate Planning options.

A Will allows you to name beneficiaries who will receive your assets upon your death.  You have the opportunity to express your wishes and ensure that your wishes are honored.  Some prefer the simplicity of signing a Will and not having to think about it again.  However, the downsides to a Will are your loved ones must undergo the probate process along with its court expenses, delay and lack of privacy.

Like a Will, a Living Trust is a legal document that provides for the management and distribution of your assets after you pass away.  However, a Living Trust has certain advantages when compared to a Will.  A Living Trust allows for the immediate transfer of assets after death, avoiding probate at a time when your loved ones are grieving.  A Living Trust also allows for better management of your affairs in case of incapacity compared to only powers of attorney, providing immediate access to funds to pay your expenses and avoiding the risk of an intrusive guardianship process if powers of attorney are not honored by your financial institutions.

You may be asking yourself, “How does a Living Trust work?”  A Living Trust is a revocable trust that holds legal title to your assets and provides a mechanism to manage them.  You would serve as the trustee and beneficiary of your trust during your lifetime. You also designate a successor trustee to carry out your instructions concerning how you want your assets managed and distributed in case of death or incapacity.  You remain in control of your assets during your lifetime, have them managed by the person you choose during your incapacity, and then efficiently and privately transfer them to your loved ones at death according to your wishes.

Regardless of the estate planning vehicle you choose, protecting yourself in disability and providing for your loved ones upon your death eases the burden on everyone.

Ignorance is not bliss when it comes to estate planning. If you do not make proper legal arrangements for the management of your assets and affairs after your passing, the state of Texas will come in and write a Will for you, but the result is usually much different than most people desire. You may believe that if you were to die before your spouse and you had no will, Texas law would ensure that everything would go to the spouse first and then upon his or her death, to the children. But that is not necessarily true.

While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of decisions concerning your legacy, your finances and medical matters, it can also spare your loved ones the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.

So, what happens if you neglect to sign a will? The answer depends upon several factors, including: 1) whether all of your children are also the children of your spouse, and 2) the type of property you own: community property or separate property. For example, if you have a blended family, then your community property is split between your children, not your spouse. Not the result most people desire…

Why let these important matters be decided by the State of Texas? The problems created by a lack of a will are easily remedied by having one. By proper planning, you can ensure your legacy is as you want it and your family’s needs are provided for when they need it most.

By Julia Dean

People.  The Essential Component of Your Estate Plan’s Success

Properly drafted estate planning documents are integral to the success of your legacy and end-of-life wishes.  Iron-clad estate planning documents, written by a knowledgeable attorney can make the difference between the success and failure of having your wishes carried out.  However, there’s more to estate planning than paperwork.  For your wishes to have the best chance of being honored, it is important to carefully choose the people who will carry them out.

Your estate plan can assign different responsibilities to different people.  The person who you most trust to raise your children, for example, may not be the person you’d designate to make health care decisions on your behalf, if you are incapacitated.  Before naming individuals to carry out your various estate and incapacity planning wishes, you should carefully consider the requirements of each role and the attributes which each individual has that will allow him or her to perform the duties effectively.

Executor.  You name the executor, (also known as a personal representative), in your will.  This person is responsible for carrying out all the terms of your will and guiding your will through probate, if necessary.  The executor usually works closely with a probate or estate administration attorney, especially in situations where will contests arise and your estate becomes involved in litigation.  You may appoint co-executors, or name a professional – such as a lawyer or accountant – as the co-executor.

Health care proxy.  Your health care proxy is the person you name to make medical decisions for you in the event you are incapacitated and unable to do so yourself.  In addition to naming a health care proxy (sometimes called a health care power of attorney), most people also create a living will (or health care directive), in which they directly state their wishes for medical care and end-of-life care in the event of incapacity.  When choosing a health care proxy, select a person who you know understands your wishes regarding medical care, and who you trust to carry out those wishes, even if other family members disagree.  You should also consider individuals who have close geographic proximity to you as well as persons you believe can make difficult decisions under pressure.

Power of attorney.  A financial power of attorney (or simply power of attorney) is different from a health care power of attorney in that it gives another person the authority to act on your behalf in financial matters including banking, investments and taxes.  You can limit the areas in which the person may act, or you may grant unlimited authority.  A power of attorney may also be limited for a specific time, or it may be a durable power of attorney, in which case it will continue even after the onset of incapacity (until your death).  A power of attorney can take effect immediately or “spring” into effect in the event of incapacity.

Guardians.  If you have minor children or other dependents (disabled adult children or other disabled adults for whom you are the named guardian), then your estate plan should name a person or persons to take over the parental role in the event of your death.  The guardian may also have control over any assets that you leave directly to your minor children or other dependents.  If you create a trust for the benefit of your minor children, then the trust’s trustee(s) will have control over those assets and their distribution.  Important considerations include age of the guardian, compatibility with his or her personality and moral values as well as the extent and quality of the existing relationship with your children.

Trustee.  If you place any assets in trust as part of your estate plan, then you must designate one or more trustees, who will act as the legal owners of the trust.  If you do not wish to appoint someone you know personally, you may appoint a corporate trustee – often a bank – to play this role.  Corporate trustees are often an excellent choice, since they are financial professionals and neutral, objective third parties.  Its important you select individuals who are not only trustworthy but also organized, diligent and detail oriented.

Upcoming Educational Symposium

FREE for Preferred Client Maintenance Program Members

Fort Bend Senior Trust Alliance is hosting “Empowering Caregivers for Today and Tomorrow,” a Symposium sure to benefit present and future caregivers. Each of us will one day be in the position of caregiver for our loved ones and this Symposium will give you the tools necessary to successfully handle the challenges that arise during this time. If you are part of our Preferred Client Maintenance Program, The Dean Law Firm is offering FREE registration for this Symposium as one of your educational benefits.

Julia Dean will be speaking along with other notable professionals related to senior care. Keynote speakers for the event are Dr. Knox and Dr. Jang from The University of Texas MD Anderson Cancer Center. Dr. Knox will be addressing “End of Life Issues in the Emergency Department,” and Dr Jang will be presenting “Exciting New Initiatives and Directives in Alzheimer’s Research.” Breakfast, lunch and snacks will be provided for this event at Houston Methodist Sugar Land Hospital on Saturday, November 16th. Please see the attached brochure for more details.

Space is limited, so register today! You can register online at www.seniortrustalliance.org. 

Advance Planning Can Help Relieve the Worries of Alzheimer’s Disease

The “ostrich syndrome” is part of human nature; it’s unpleasant to observe that which frightens us.  However, pulling our heads from the sand and making preparations for frightening possibilities can provide significant emotional and psychological relief from fear.

When it comes to Alzheimer’s disease and other forms of dementia, more Americans fear being unable to care for themselves and burdening others with their care than they fear the actual loss of memory.  This data comes from an October 2012 study by Home Instead Senior Care, in which 68 percent of 1,200 survey respondents ranked fear of incapacity higher than the fear of lost memories (32 percent).

Advance planning for incapacity is a legal process that can lessen the fear that you may become a burden to your loved ones later in life.

What is advance planning for incapacity?

Under the American legal system, competent adults can make their own legally binding arrangements for future health care and financial decisions.  Adults can also take steps to organize their finances to increase their likelihood of eligibility for federal aid programs in the event they become incapacitated due to Alzheimer’s disease or other forms of dementia.

The individual components of advance incapacity planning interconnect with one another, and most experts recommend seeking advice from a qualified estate planning or elder law attorney.

What are the steps of advance planning for incapacity?

Depending on your unique circumstances, planning for incapacity may include additional steps beyond those listed below.  This is one of the reasons experts recommend consulting a knowledgeable elder law lawyer with experience in your state.

1. Medical Power of Attorney.  A medical power of attorney designates another person to make health care decisions on your behalf should you become incapacitated and unable to make decisions for yourself.  You should consider filing copies of your medical power of attorney with your doctors and hospitals, and give a copy to the person or persons whom you have designated as your agent.  If you are part of our LegalVault program, your healthcare providers can access to all your legal documents concerning medical care via The Dean Law Firm website.
2.  Financial Power of Attorney.  Similar to a medical power of attorney, a financial power of attorney assigns another person the right to make financial decisions on your behalf in the event of incapacity.  The power of attorney can be temporary or permanent, effective immediately or only upon incapacity, depending on your wishes.  Consider filing copies of this form with all your financial institutions and give copies to the people you designate to act on your behalf.
3. Directive to Physicians (or Living Will).  Your directive to physicians (or living will) describes your preferences regarding end of life care, resuscitation, and hospice care.  After you have written and signed the directive, make sure to file copies with your health care providers or provide access via our website using LegalVault.
4. Plan in advance for Medicaid eligibility.  Long-term care payment assistance is among the most important Medicaid benefits.  To qualify for Medicaid, you must have limited assets.  To reduce the likelihood of ineligibility, you may be able to use certain legal procedures, like trusts, to distribute your assets in a way that they will not interfere with your eligibility.  The elder law attorney you consult with regarding Medicaid eligibility planning can also advise you on Medicaid estate recovery planning.

What happens if you are bequeathed a car that no longer exists?  The ABCs of Ademption

If you’re involved in settling a loved one’s estate, you may come across the curious word “ademption”. Ademption describes what happens when something designated in a will no longer exists.  For example, your uncle dies and leaves you in his will an old-school Harley Davidson motorcycle.  However, if your uncle crashed the motorcycle two years before the will was probated and there’s nothing to leave, then that gift would be considered adeemed and you would receive nothing.  This is why certain wills include language that says, “if owned by me at my death.”

However, it is important to realize that certain items cannot be adeemed, such as money.  For example, if your uncle died and left $7,000 for you in his will, but left a zero dollar balance in his accounts, your gift of cash would not be adeemed.  Instead, the estate would be responsible for satisfying that gift, for example, through the sale of the house or other such property.

There are exceptions to ademption, however, so please consult a qualified probate lawyer if you want to learn more about ademption and its exceptions.

7 Events Which May Require a Change in Your Estate Plan

Creating a Will is not a one-time event.  You should review your Will periodically to ensure it is up to date and make necessary changes if your personal situation, or that of your executor or beneficiaries, has changed.  There are a number of life-changing events that require your Will to be revised, including:

Change in Marital Status:  If you have gotten married or divorced, it is imperative that you review and modify your Will. With a new marriage, you must determine which assets you want to pass to your new spouse or step-children, and how that may relate to the beneficiary interest of your own children.  Following a divorce, it is a good practice to revise your Will, to formally remove the ex-spouse as a beneficiary.  While you’re at it, you should also change your beneficiary on any life insurance policies, pensions, or retirement accounts.  Estate planning is complicated when there are children from multiple marriages, and an attorney can help you ensure everyone is protected, which may include establishing a trust in addition to the revised Will.

Change in Beneficiary’s Status:  If one of your Will’s beneficiaries experiences a change in marital status, then that may also trigger a need to revise your Will.

Births:  Upon the birth of a new child, the parents should amend their Wills immediately to include the names of the guardians who will care for the child if both parents die.  Also, parents or grandparents may wish to modify the distribution of assets provided in their Wills, to include the new addition to the family.

Deaths or Incapacitation:  If any of the named executors or beneficiaries of a Will, or the named guardians for your children, pass away or become incapacitated, your Will should be revised accordingly.

Change in Assets:  Your Will may need to be changed if the value of your assets has significantly increased or decreased, or if you dispose of a significant asset.  You may want to modify the distribution of other assets in your estate to account for the changed value or disposition of the asset.

Change in Employment:  A change in the amount and/or source of income means your Will should be examined to see if any changes must be made to that document.  Retirement or changing jobs could entail moving to another state, thus subjecting your estate to the laws of that state when you die.  If the change in income modifies your investing, saving or spending habits, it may be time to review your Will and make sure the distribution to your beneficiaries will be as you intended.

Changes in Probate or Tax Laws:  Wills should be drafted to maximize tax benefits, and to ensure the decedent’s wishes are carried out. If the laws regarding taxation of the estate, distribution of assets, or provisions for minor children have changed, you should have your Will reviewed by an estate planning attorney to ensure your family is fully protected and your wishes will be fully carried out.

Common Estate Planning Myths

Estate planning is a powerful tool that among other things, enables you to direct exactly how your assets will be handled upon your death or disability. A well-crafted estate plan will ensure you and your family avoid the hassles of guardianship, conservatorship, probate or unpleasant estate tax surprises. Unfortunately, many individuals have fallen victim to several persistent myths and misconceptions about estate planning and what happens if you die or become incapacitated.

Some of these misconceptions about living trusts and wills cause people to postpone their estate planning – often until it is too late. Which myths have you heard? Which ones have you believed?

Myth: I’m not rich so I don’t need estate planning.
Fact: Estate planning is not just for the wealthy, and provides many benefits regardless of your income or assets. For example, a good estate plan includes provisions for caring for a minor or disabled child, caring for a surviving spouse, caring for pets, transferring ownership of property or business interests according to your wishes, tax savings, and probate avoidance.

Myth: I’m too young to create an estate plan.
Fact: Accidents happen. None of us knows exactly when we will die or become incapacitated. Even if you have no assets and no family to support, you should have a power of attorney and health care directive in place, in case you ever become disabled or incapacitated.

Myth: Owning property in joint tenancy is an easier, more affordable way to avoid probate than placing it in a revocable living trust.
Fact: It is true that property held in joint tenancy will pass to the other owner(s) outside of the probate process. However, it is a usually a very bad idea. Placing property in joint tenancy constitutes a gift to the joint tenant, and may result in a sizable gift tax being owed. Furthermore, once the deed is executed, the property is legally owned by all joint tenants and may be subject to the claims of any joint tenant’s creditors. Transferring property into joint tenancy is irrevocable, unless all parties consent to a future transfer; whereas, property owned in a living trust remains under your control and the transfer is fully revocable until your death.

Myth: Keeping property out of probate saves money on federal estate taxes.
Fact: Probate, and probate avoidance, are governed by state law and address how property passes upon your death; they have nothing to do with federal estate taxes, which are set forth in the Internal Revenue Code. Estate planning can reduce estate taxes, but that has nothing to do with a discussion regarding probate avoidance.

Myth: I don’t need a living trust if I have a will.
Fact: A properly drafted trust contains provisions addressing what happens to your property if you become incapacitated. On the other hand, a will only becomes effective upon your death and specifies who will inherit the property. Thus, you may still want to consider a living trust.

Myth: With a living trust, a surviving spouse need not take any action after the other spouse’s death.
Fact: Failure to adhere to the proper legal formalities following a death could result in significant administrative and tax implications. While a properly drafted and funded living trust will avoid probate, there are still many tasks that have to be performed. However, the tasks are usually minimized with a living trust.