Will / Trust / Estate Planning

Estate planning is used to manage a person’s real or personal property during their lifetime — especially when people become incapacitated or incapable of handling their financial matters themselves — and at their death.

Estate planning is important as it can ensure that your property will pass to the people chosen by you without undue delay and costs. And you can use your estate plan to leave specific instructions on your finances and medical care in case you become incapacitated and unable to make those decisions for yourself. If you have young children, you can also make sure that someone designated by you will take care of them when you are not around. If your estate is over the federal estate tax threshold ($5,120,000 in 2012), including life insurance proceeds your descendants will receive at your death, estate planning will help you reduce a big amount of estate tax, allowing your descendants (and not the government) to receive most of your estate.

WILLS

There are several ways to achieve the above goals and we will briefly introduce them to you.

Some of the main reasons of having a will are that you can:

• Leave property to someone as you desire;
• Name your executor;
• To leave property you don’t currently own but expect to receive, e.g. money from a lawsuit settlement;
• Name a personal guardian for your minor children;
• To disinherit a child or spouse

The basic requirements of a will under Texas law:

• At least 18 years old;
• Of sound mind;
• In writing;
• One substantive provision such as how your property will be distributed when you die;
• At least one executor;
• Date the will;
• Sign the will before at least two witnesses (people who are over 14 and are not the beneficiaries)

It is also advisable to have the witnesses sign a brief statement called a self-proving affidavit before a notary to avoid the need for a witness to testify later at probate proceedings.

Living Trust

It is a mechanism created by you as the grantor/settlor and you, yourself or someone else as the initial trustee with full control of the trust property while you are alive. Since it is created while you are still alive, it is called living trust. You can revise, amend or revoke the trust before your death. That is why it is also called a revocable living trust. But after your death, the living trust can no longer be revoked. One of the main goals of setting up a living trust is that the trust property can be distributed to the beneficiaries without going through time-consuming and expensive probate proceedings. If that is the goal you want to achieve, it is sensible that you place most, if not all, of your property into the living trust. While placing your property into the trust, it is important that you have effectively transferred title of your property into the trustee’s name. If the property, such as a real estate, has an ownership (title) document, it needs to be registered/recorded in the trustee’s name. If the property, such as an antique, does not have an ownership (title) document, you simply list them on a trust schedule.

AB Trust

Married couples can maximize the use of both of their federal exemptions from estate tax by using AB Trusts as part of their estate plan. They can create AB trusts as part of a shared trust. When the first spouse dies (the deceased spouse), that spouse’s trust property goes into an irrevocable trust, Trust A. The surviving spouse’s trust property continues as a revocable trust, Trust B. Upon the death of the surviving spouse, Trust B becomes irrevocable.

The surviving spouse is the life beneficiary of Trust A. He/she can be given the rights to all income from Trust A property but legally he/she never owns the property in Trust A. When the surviving spouse dies, the property in Trust A goes to the final beneficiaries that the deceased spouse named in the trust document. The property in Trust A is part of the deceased spouse’s estate and eligible for that spouse’s estate tax exemption and it will not combine with the surviving spouse’s estate.

Irrevocable Life Insurance Trusts (ILIT)

If the proceeds from an insurance policy are great and are likely to push the value of your estate over the federal estate tax exemption threshold ($5,120,000 in 2012), you may consider setting up an ILIT. Also, you can design it in a special way if you do not want to give the policy to your beneficiary outright because he/she may not be mature enough to be trusted with ownership.

The trust is being set up by you and becomes operational when you are still alive. It will become the owner of the insurance policy and the insurance proceeds will not be part of your estate and therefore not subject to estate tax when you die.

To gain the estate tax savings, the trust must be irrevocable and exist for at least 3 years before your death and you cannot be the trustee. Otherwise, IRS will consider you are still the owner of the insurance policy.

MEDICAL POWER OF ATTORNEY

Medical Power of Attorney is a document, signed by a competent adult, i.e., principal, designating a person who the principal trusts to make health care decisions on the principal’s behalf should the principal be unable to make such decisions. The individual chosen to act on the principal’s behalf is referred to as an agent. It is effective immediately after it is executed and delivered to the agent. It is effective indefinitely unless it contains a specific termination date, it is revoked, or the principal becomes competent. An agent may make health care decisions on the principal’s behalf only if the principal’s attending physician certifies in writing that the principal is incompetent.

FINANCIAL POWER OF ATTORNEY

A Financial Power of Attorney gives another person the authority to make personal and financial decisions on your behalf. This instrument can cover all aspects of your personal and financial affairs, or may be limited to specific situations and activities. There are four instances when a power of attorney ends; it ends if it has an ending date, it ends when you become incapacitated and the power of attorney is not a durable one, it ends when you revoke it, or it ends when you die. A durable power of attorney does not end if you are incapacitated.