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Estate Planning

Estate planning involves the preparation of documents to carry out a client's wishes as to how the client and the client's loved ones should be cared for and how the client's property should be protected and distributed in the event of incapacity or death; includes minimizing the taxes and expenses associated with incapacity or death. Estate Planning services also include the preparation of marital property agreements to help clients before and during marriage to make their own determination as to whether they want their property to be considered both spouses' community property or each spouse's separate property. This is often a concern for couples in a second marriage who want to make sure that children from a previous marriage are protected in terms of their inheritance.

During the free one-hour initial consultation, we will review your estate planning needs and will propose an estate plan to fit those needs. The estate planning package proposed will include all documents necessary to carry out your estate plan. The flat fee for the estate plan will be quoted at the end of the initial meeting. You are under no obligation for any payments before or after the free one-hour initial consultation. If you decide to proceed with your estate plan, we will ask for one-half of the fee at that time. The balance of the fee will be due when you sign your documents.

Basic Consideration in Estate Planning

  • [+]Why A Will or a Funded Revocable Living Trust?

    Dying without a will or a fully funded revocable living trust (referred to as living trust) has many disadvantages. Unless all of the decedent's heirs agree to apply to the court for an independent administration, the administration of the estate of a person dying intestate (meaning without a will) will be supervised by a judge who will appoint an administrator answerable to the judge. Often the administrator will have to post a bond. In addition, the administrator will have to request the court's permission almost every time the administrator wishes to deal with an asset of the estate. There will be no opportunity for tax planning to minimize death tax liability. The heirs of the estate will be determined under Texas law, which may or may not reflect the decedent's wishes. Before the property of the estate may be distributed, there will have to be an heirship proceeding for which the court will appoint an independent attorney (other than the estate's attorney) to represent the decedent's unknown heirs, minor heirs, and heirs who may be incapacitated and unable to enforce their own rights to the estate. This independent attorney, known as an attorney ad litem, will investigate the decedent's background and will make a report to the court. The fees for the attorney ad litem will come out of the decedent's estate. During the heirship proceeding, two witnesses who are not heirs of the decedent must appear in court and testify as to the decedent's family background. If property from the estate is to be distributed to a minor child or an incapacitated person, another court proceeding may be necessary for a guardian of the estate of the minor child or incapacitated person to be appointed to accept the property.

    When you make a Will or a fully funded trust, it is you, and not the State of Texas, who decides how your property should pass. You also end up saving your family the time and expense of dealing with a court supervised estate administration. (Most people want their estate to go to their loved ones without being reduced by the unnecessary legal fees involved when a person dies without a will.) In addition, if you have a taxable estate (more on that later), with the appropriate estate planning, you minimize the death taxes applicable to your estate, thus allowing more of your assets to pass as you wish them to pass.

  • [+]What Should A Will or Living Trust Accomplish?

    At the very least, your will or living trust agreement should provide for the distribution of your assets, name one or more executors (in the case of a will) to act independently of the court in administering your estate, include a trust arrangement in the event a minor or incapacitated person is a beneficiary of your estate, name a trustee for any trusts that are established under your will or living trust, and appoint a guardian who will raise your minor children in the event there is no parent surviving. In addition, your will or living trust may include provisions to minimize death taxes. It is best to consult your attorney to determine whether a will or a living trust suits your particular situation. If you decide that a living trust is the best estate planning vehicle for your needs, it is still prudent to make a will so that any assets not transferred to the trust during your lifetime pass to the trust at your death.

  • [+]What is an Independent Executor?

    An Independent Executor is charged with the responsibility of gathering and identifying your assets, paying your debts and distributing your property as you specify in your will (which may be to the trust you created during your lifetime). You may appoint one or more Independent Executors. An Independent Executor may be an individual or a bank or trust company with trust powers. It is prudent to name at least two backups in case your first choice is unable to act as Independent Executor.

  • [+]What is a Trustee?

    A trustee is one to whom property is transferred for the benefit of the beneficiary. In a revocable trust, the creator of the trust, the trustee and the beneficiary are often one and the same while such person is alive. The revocable trust document should name a successor trustee to manage the assets after the creator of the trust dies or is otherwise no longer able to act as trustee. A trustee named in a will is responsible for receiving certain estate assets from the Independent Executor, carrying out the provisions of the trust established under the will, and investing and managing the assets and determining distributions to the beneficiary. As with the Independent Executor, more that one trustee may be appointed. The trustee may be an individual or a trust company or bank with trust powers. It is prudent to name one or two backups in the event the originally named trustee is unable to act.

  • [+]What is a guardian of the person for my minor children?

    The guardian of a child's person has the responsibility for making sure that the child's physical needs are met. You may designate in your will an individual to be the guardian of your child's (or children's) person and to assume the care of your minor child or children upon the death or incapacity of the last of the child's parents to die or become incapacitated. The guardian of a child's person and the trustee holding the portion of your estate passing to your minor child may be the same person. On the other hand, you may prefer to have the guardian of the person and the trustee be different persons. It is contemplated that the trustee would make distributions to the child's guardian to take care of the child's physical needs. Again, it is suggested that you name a backup in the event the first guardian is unable to act.

  • [+]What is death tax planning?

    The federal government levies a tax on the transfer of wealth (not resulting from a sale; in other words, a gift) if the amount transferred exceeds certain limits. The tax on this transfer of wealth is based upon the value of the property when it is transferred. If the transfer is made during a person's lifetime, the tax is a gift tax. If the transfer is made upon a person's death, the tax is an estate tax. The tax is levied on the transferor and the transferee takes the property without being liable for the tax.

  • [+]Federal Estate Tax Changes

    On June 7, 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRAA) into law.

    Under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), the amounts which may be transferred free of estate tax and the estate tax rates are as follows:

    Year In Which Death Occurs Amount Which Can Be Transferred Free of Federal Estate Tax (The "Applicable Amount") Highest Estate and Gift Tax Rates (Gift tax exemption remains at $1,000,000)
    2001 $675,000 55%
    2002 $1,000,000 50%
    2003 $1,000,000 49%
    2004 $1,500,000 48%
    2005 $1,500,000 47%
    2006 $2,000,000 46%
    2007 $2,000,000 45%
    2008 $2,000,000 45%
    2009 $3,500,000 45%
    2010 Federal estate tax and generation skipping tax fully repealed. Gift tax is the top individual income tax rate.

    Notice that, in the year 2010, the federal estate tax is actually repealed. However, under EGTRRA, repeal is ONLY FOR THE YEAR 2010. As of January 1, 2011, without future legislation to make extensions, THE ENTIRE LAW EXPIRES and we revert to the law existing prior to passage of EGTRRA. This provision was created because of a legislative rule which requires 60 votes in the Senate to alter revenue beyond a 10 year period. By including the "sunset" provision which causes the legislation to expire in less than 10 years, this 60 vote requirement was bypassed, making it easier to pass the new law.

    The effect of the possible reversion to old law will be to potentially create federal estate tax on estates exceeding $1,000,000 in 2011 and beyond, since the prior law would have escalated the exemptions to that level. Although, even if federal estate tax is not repealed long term, the $1,000,000 exclusion will protect the vast majority of people from federal estate tax. Do consider inflation and growth when deciding whether federal estate tax planning is necessary for you. All assets you own are included for purposes of calculating federal estate tax, including life insurance death benefits, retirement assets, real estate, etc. Many people don't realize that they have a federal estate tax issue, and therefore don't plan for it, creating huge amounts of unnecessary tax. It is important that federal estate tax planning included in current plans be reviewed with the new law in mind, to be certain that language protects assets as necessary, yet is not now more restrictive than necessary to minimize or eliminate tax.

    It should be noted, though, that the transfer of all of one's property to a surviving spouse does not take advantage of the right of the first spouse to die to transfer the applicable exclusion amount free of estate tax. Worse, this kind of transfer increases the surviving spouse's estate leaving only the surviving spouse's credit to offset the estate tax liability ultimately imposed on both estates. This may not be an issue if the combined estates of both spouses is less than the applicable exclusion amount for one person. If the combined estates are over the applicable exclusion amount, without tax planning, the credit allowed the first spouse to die may be wasted.

  • [+]Basis Adjustments to Forgive Capital Gain on Death

    For the year 2010 when federal estate tax is repealed (for that year only under EGTRRA), the federal treasury balances that benefit to taxpayers by eliminating a current tax benefit. Currently and through 2009, when the owner of appreciated assets dies, all capital gain on that asset is eliminated, so the asset could be sold for the date of death value with no capital gains tax due. For the year 2010, this benefit will be eliminated except that capital gain on up to $1.3 million of assets will still be forgiven at death, plus an additional $3 million of capital gain on assets transferred to a surviving spouse will be forgiven. For many estates with capital gain of less than $1.3 million, this rule will have no effect, but for those with significant amounts of appreciated assets, or who have depreciated assets for income tax purposes during lifetime, this could be a very important change. The manner in which assets are titled is very important in making sure that each person receives all forgiveness of capital gain for which he or she is eligible.

  • [+]Gift Tax Provisions

    On January 1, 2002, the exemption amount for gift tax was increased to $1,000,000 and will remain at that level. Previously, the gift tax exemption was equal to the federal estate tax exemption, but legislators were concerned that taxpayers would gift large amounts of assets to those in lower tax brackets so income generated by those assets would be subject to less income tax. For 2009, gifts may be made in the amount of $13,000 per person per year without gift tax ramifications, as long as rules are met in structuring those gifts.

  • [+]Generation Skipping Tax (GST) Provisions

    As of 2004, the GST exemption will be equal to the federal estate tax exemption shown in the chart above. This tax applies only to transfers which skip a generation (so an individual can't gift to a grandchild or other person in a younger generation and thereby avoid federal estate in the child or next generation's estate).

  • [+]What is a Statutory Durable Power of Attorney?

    The Statutory Durable Power of Attorney is a document in which you name an agent to make financial and property decisions for you. The power of attorney may be effective immediately or when a doctor certifies that you are not able to handle your financial affairs. The Statutory Durable Power of Attorney helps to avoid a court appointed guardian if you ever become incapacitated. If you wish to grant your agent the power to make gifts, this must be specifically provided for in the power of attorney. (Sometimes it is advantageous for estate tax reasons to allow the agent this power.)

  • [+]What is a Medical Power of Attorney?

    The Medical Power of Attorney is a document in which you name an agent to make health care decisions for you in the event you are unable to do so yourself. Like the Statutory Durable Power of Attorney, the Medical Power of Attorney helps to avoid a court appointed guardian in the event you are not able to make health care decisions for yourself.

  • [+]What is a Directive to Physicians?

    The Directive to Physicians (sometimes referred to as a living will) states that if you are ever certified to have a terminal condition, you do not want your life prolonged by artificial means. This is a very personal decision and that is why this document is optional.