FAQ

Q. What happens if I die without a Will?

A. If you fail to plan your estate, the law will create a plan for you. The entire system (which is set forth by statute) is too complex for a discussion here. However, some surprising and frequently undesirable results can occur.

Q. Is a handwritten Will legal?

A. A holographic (or solely in the maker's handwriting) Will can be quite valid if it meets the other requirements for a Will. However, holographic Wills are a frequent source of litigation, usually because they have been composed by someone who did not have the proper legal training.

Q. Who will raise my minor children after my death?

A. The other parent. But if the other parent is not living, this becomes a selection you can make in your Will (or in a separate Declaration of Guardian) by the designation of a guardian. If you fail to do so, the court will make the choice for you. Needless to say, you should assume the responsibility of this important decision and not leave it up to a judge.

Q. How will my estate be taxed at my death?

A. Your estate may be subject to at least two taxes: the federal estate tax and a state inheritance tax. Currently in Texas, a state inheritance tax will be due only if federal estate taxes are due, but recent changes in the federal estate tax laws may lead to modifications of our state inheritance tax. An advisor who knows the extent of your estate, can estimate your potential estate tax liability and hopefully suggest some ways of reducing it.

Q. What is community property and what is separate property?

A. Texas (along with a few other states) has a community property system as its basic property law. Texas law -- somewhat awkwardly -- defines community property as that which is not separate property. For the most part, separate property is that which was owned by a spouse before the marriage, as well as property received after marriage by gift or inheritance. Everything else then, is community property (property owned by both spouses). For example, the earnings of both spouses are community property. Income from separate property is also community property. However, with a proper agreement, spouses may change the way their property is characterized.

Q. What other kinds of planning should I do?

A. Thorough estate planning takes into consideration the possibility that an individual may become seriously disabled and not be able to make certain important decisions. Upon the disability of an individual, either through illness, accident or the process of aging, management of his property becomes a critical issue. Determinations as to who will pay the bills, collect the income, ensure safety of the assets and make personal decisions for a disabled person can be made ahead of time through the use of durable powers of attorney. Statutory durable powers of attorney, medical powers of attorney and directives to physicians, are a traditional means of providing protection against the problems of disability. Additional protection is available using living trusts.

Q. What is a Durable Power of Attorney?

A. A "power of attorney" authorizes an agent to act on behalf of the maker and to exercise those powers granted to the agent named therein. A "durable" power of attorney specifically provides that the agent's powers will continue after the maker has become disabled or incapacitated. With this type of power, the agent can be authorized to manage property of the disabled, pay debts and generally perform such acts that the individual would do for himself if it were not for his disability.

Q. What is a Medical Power of Attorney?

A. Medical Powers of Attorney allow the maker to designate a person to make health care decisions after the maker is found to lack capacity to make such decisions. Such a power of attorney lasts indefinitely from the date of execution unless: (i) the patient regains capacity to make health care decisions; (ii) the power expires on its own terms at a certain time; or (iii) the power is revoked by the maker.

Some of the health care decisions that may be delegated are consent, refusal to consent, or withdrawal of consent to any health care treatment, service, or procedure to maintain, diagnose, or treat an individual's mental or physical condition. Decisions regarding some procedures may not be delegated, including voluntary inpatient mental health services, convulsive treatment, psychosurgery, abortion or omission of care primarily intended for the comfort of the maker.

Q. What is a Directive to Physicians?

A. Directives to Physicians, also known as "Living Wills", provide an alternative method for dealing with health care decisions for individuals who are in a terminal condition. No specific agent needs to be designated; instead all physicians providing care must follow the directives of the individual.

Q. What is a Living Trust?

A. Technically, any trust created while the Grantor is alive is a "living trust", also known as an inter vivos trust. An inter vivos trust can be either revocable or irrevocable, funded or unfunded, depending upon the Grantor's desires and tax considerations.

The "living trust" often mentioned in estate and financial planning usually refers to a trust that is funded and that is revocable by the Grantor, acting alone. As such, it ordinarily does not achieve any federal tax advantage and is usually created for reasons having nothing to do with taxes, including: (i) to maintain secrecy and confidentiality; (ii) to anticipate and provide for the Grantor's incapacity; (iii) to avoid interruption and delay in the management and/or distribution of assets at the time of Grantor's death; (iv) to minimize fees, such as attorneys, executors, and guardians, in states where such fees are based upon the size of the probate estate; (v) to choose as the governing state law, that of a state other than the Grantor's domicile; (vi) to avoid the creation of a guardianship or a court supervised trust.

Q. What is a Trustee?

A. A trustee is one to whom property is transferred under the terms of a written contract or Will for the benefit of someone else (the beneficiary or beneficiaries). If a trust appears suitable for your estate plan, you will want to be careful in your selection of a trustee. A corporate trustee may be a better choice than a family member.

Q. How frequently should I review Will and my estate plan?

A. Once you have completed an important task, it is human nature to feel a sense of relief. But that is the last thing you should do after you have worked out plans for distributing and conserving your estate. From the day your Will is signed to the day it is probated in the Court, much can happen to impair both its effectiveness and its validity. Fortunately, your Will is never final until it takes effect (at the time of your death). Therefore your Will can and should be periodically reviewed. We recommend that this review be automatic every three to five years. In addition, your estate plan should be reviewed at the occurrence of each important event. For example: a marriage or divorce, yours or that of a child; the birth of a child, either to you or one of your children; the adoption of a child; a change of residence; an acquisition of property in another state; improved economic status; a significant inheritance; change in business interest, the death of a partner, your retirement; and changes in the tax laws.

Q. How much will it cost to prepare a Will (or a Trust), etc?

A. We are asked this question often; a similar question would be to ask "How much will it cost to buy a new car?" As you know the answer depends upon the type of car you want or need. The planning in which you are interested depends upon the size of the family, the size of the financial estate, the ages of the family members, the special needs (if any) of the family, any special desires to be considered, and the tax consequences of the plan. Many other factors may need consideration before a final recommendation can be made as to your needs. All of these must be weighed against the ultimate cost to you and your willingness to pay the amount required. In other words, many people settle for a less expensive alternative. (You may want to drive a Mercedes, but you choose to drive something less costly.)