It is not a very fun discussion to have with your loved ones, but it is essential.  It is particularly important if you want to make sure things are done the way that you want them.  A checklist for your  “talk” should include:

• Last Will and Testament: (that you have one, and where to find it) – If you don’t have one, make one.  It is required in order to pass what is in your estate to the people that you want, with as little expense as possible.

• Medical Power of Attorney: (make sure that your Agents have a copy) – If you don’t have one, make one.  It is required in order to allow someone to make medical decisions for you when you can’t make them yourself, and usually avoids the need for an expensive Guardianship of your Person.

• Statutory Durable Power of Attorney for financial matters: (make sure that your Agents have a copy) – If you don’t have one, make one.  It is required in order to allow someone to handle your financial matters for you, and usually avoids the need for an expensive Guardianship of your Estate.

• Directive to Physicians, also known as a Living Will:  (if you have one, make sure they know where to find it) – This allows you to decide whether you do, or do not, want life support in the event that you have a terminal or irreversible condition.  Often times, spouses are comfortable making that decision for one another, but do you want your adult child or children to have to make that decision for you?  If not, you should prepare one, and discuss with loved ones what you would like in that situation.

• Disposition of Remains: (if you have one, make sure they know where to find it) – This allows you to choose if you want to be buried or cremated so that you do not need permission from a surviving spouse or children.

• Organ Donation: Just signing the back of your driver’s license is not enough.  If you are in that rare 1% situation where you are brain dead and your organs are intact, the hospital is legally obligated to ask your family about donating your organs.  Your license may not be available for family to look at.  Also, your family can override your wishes to donate when you sign the back of your license, so please have that discussion with them while you are healthy, so that they fully understand how you feel, one way or the other.

• Pre-Arranged Funeral Plans: (if you have one, make sure they know where to find it) – This is the contract with the funeral home, and usually requires that you provide the original, especially if it is an older funeral plan.  They usually will not provide a refund, so if you do not use the plan that has been paid for, it will be wasted.  This is also a very good way to make sure that your wishes are followed, and that your family will not feel pressured into doing more than you wanted.

If you need assistance with preparing your documents, please give us a call.  We can help.

The first document that should be prepared or updated is the Last Will and Testament. If a couple no longer wants to be married to each other, they probably do not want to leave their property to each other either.

If there is no Will, and you die before the divorce is final, your spouse may wind up owning all of your property.  If you have minor children that may inherit under your estate, your spouse may wind up being the Trustee of the minor children’s trust and be in control of their money.  If you already have a Will, you will likely want to change the beneficiaries, and may wish to name a non-spouse trustee for any minor children.

You should also update or prepare new medical and financial powers of attorney. This way you can name a non-spouse agent to make medical and financial decisions for you if you become incapable of making them yourself while the divorce is pending.  Chances are that if they no longer wanted to be married to you, or you no longer want to be married to them, you probably do not want them making your medical or financial decisions either.

This leads us to the final and perhaps most important document you should consider preparing in the event you are going through a divorce. It is called a Declaration in Event of Guardianship.

Even if you have powers of attorney, your spouse could file a Guardianship to override any of your powers of attorney if you become incapacitated. Normally, your spouse would be the first person that the judge would name as your guardian. By preparing the Declaration in the Event of Guardianship, you can make sure that person that you are divorcing, or that is divorcing you, will never be named Guardian of your Person or Guardian of your Estate.

If you or a loved one is going through a divorce and has questions about their Will or other estate planning documents, please give our office a call.

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One significant change is that the estate tax exemption may now be shared between spouses.  In other words, if the first spouse to die does not use all of their $5 million exemption, the unused balance may be used by the estate of the surviving spouse.

This increased exemption level is great news for a lot of small businesses and family farms that would otherwise have to sell off much of their land or large pieces of capital equipment required to continue the business in order to pay the death taxes.

Interestingly, the new law setting the estate tax exemption at $5 million at a 35 percent rate is applied retroactively to January 1, 2010.  Heirs of loved ones who have died in 2010 will now have to elect whether they want to proceed under the new $5 million exemption, or pay no estate tax, but a limited step-up in the cost basis of inherited assets.  Choosing the latter may cause some relatively small estates to be subject to capital gains tax on inherited assets.

You might be thinking that your estate is nowhere near $5 million, so you don’t really need to think about possibly doing any estate tax planning down the line.  Don’t be so sure.

If Congress does nothing, in 2013 the estate tax will revert back to a $1 million exemption at a 55 percent tax rate.  Uncle Sam looks at ALL the assets passing on your death, including any life insurance, in determining if your estate owes estate tax.  Many folks have a lot more insurance than other assets in their estate and adding the insurance to their estate will bump many above that $1 million level.

The new law does not change the $13,000 annual exclusion amount for gifts.  Couples can give combined gifts of up to $26,000 per year under the annual exclusion.

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A number of the people have been told that by putting their assets in a Revocable Living Trust that they will have “asset protection”.  If you are the “Settlor” (the one that puts the money or property in the trust), and the “Beneficiary” (the one for whose benefit the trust assets can be used), and the “Trustee” (the one that controls the money in the trust), it does not provide asset protection just by putting it in the trust.  If you could take it out of the trust, then a creditor could reach it too, if it was a non-exempt asset.  If both husband and wife create and fund a Revocable Living Trust, there may be asset protection for some of the assets in the trust when the first spouse dies.  But if both husband and wife are alive, just putting it in a Revocable Living Trust does not give it any special asset protection.

A number of people were also told that they need to put their home in a Revocable Living Trust or creditors could take it.  That is just false.  Under Texas law, we have homestead rights.  Your homestead is a protected asset that is free from attachment by creditors, except in very limited circumstances.  Obviously, if you don’t pay your mortgage, they can take your home, but that would happen whether it was in a trust or not.  The law also allows for some liens to attach to your homestead, such as a materialman’s lien (if properly filed), tax liens, or liens for non-payment of your maintenance or homeowners assessments.  Again, putting it in a trust would not give any special protection.  However, if you have credit card debt, or other general unsecured debt, such as medical bills, they cannot force a sale of your homestead.  It is already a protected asset, just like your retirement accounts, life insurance, Social Security and certain personal property.

Many have also been told that if they don’t put everything in a Revocable Living Trust that they will be paying 50% of their estate in taxes.  Texas does not have a separate estate tax.  If it is a taxable estate, it will depend on Federal law.  Some large estates do require tax planning.  Often times when tax planning is done, Revocable Living Trusts are used.  However, the language used in preparing the documents and how it is structured is what may potentially save on taxes.  There is no tax savings in a tax-planned trust that can’t also be done in a tax-planned Will.  The fact that a trust structure is used, rather than setting up the transfer through a Will, does not give tax benefit.

Revocable Living Trusts are more expensive to set up, fund, and maintain than preparing basic Wills, and still require that you prepare Pour-over Wills for the transfer of any property that wasn’t properly transferred into the trust during your lifetime.  However, given the right circumstances, they can be the best structure, and may even save your estate money in the long run.

The decision whether or not to prepare Revocable Living Trusts or just Wills should be made based on your personal situation with the advice of your attorney, and not made based on fear because of misinformation and half-truths. It should not be a “one size fits all” estate planning tool.

If someone has contacted you to discuss your estate planning needs, be very cautious. You do not know them, or if they are a reliable source of information. We recommend that you initiate the contact with an attorney of your own choosing if you have issues concerning your estate plan.

If you would like to learn more about Living Trusts, please click here.

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