In Part One of this series, we discussed the importance and main objectives of estate planning, both during life and after death: to ensure that a person’s wishes and directives are clear, that their estate is protected, and property distribution complications are avoided. In Part Two, we will consider two common tools available to further those ends and to minimize the financial burdens of the estate – wills and trusts. (1) We will also discuss powers of attorney and medical directives, which ensure that a decedent’s wishes are carried out and his or her estate is properly managed in the event of untimely illness or incapacitation.
Wills are the most used estate planning tool. A will is the document by which a person details his or her wishes as to the distribution of their estate after death. (2) Wills name beneficiaries, govern distribution, name an executor (or executors) to manage the estate, name trustees and guardians where necessary, including the guardianship of minor children, enumerate the powers of fiduciary parties, and allow persons to direct the payment of estate debts, expenses, or taxes, and even provide for the continued care of their pets. A testator, or the person making the will, can also use the document to disinherit heirs outright, or upon a person’s contest of the will. Wills should cover a person’s entire estate, which is generally accomplished by the inclusion of a residuary clause acting as a catch all for the “residue” of the estate (i.e., all assets not specifically mentioned in the will). When a person dies without a will (i.e., dies intestate), state law dictates the heirship and distribution of their estate. Intestate distribution can be exceedingly complex, depending on the makeup of the decedent’s family tree and the location of his or her property (in some cases the laws of more than one state control distribution). Where a will covers some, but not all, of a decedent’s property, the estate is governed by both the will and intestacy laws – which can create confusing inconsistencies in distribution. Even in such cases, a person’s will is considered by the court as strong evidence of a person’s intent, and the court will give it weight to resolve distribution disputes. (3)
Wills are powerful estate planning tools – and everyone should have one. But who can leave a will, and what makes a will valid? The Texas Estates Code sets forth the following fundamental requirements and provisions relating to will formation:
- Who can make a will? A person of sound mind, who, at the time the will is made, is over 18 years of age, is or has been married, or is a member of the armed forces.
- What are the requirements of a valid will? A valid will must be: (a) in writing, (b) signed by the testator in person or by another person on behalf of the testator (in his or her presence and at his or her direction), and (c) attested to by two or more credible witnesses over 14 years of age who sign the will in the testator’s presence. An exception to the witness requirement exists wills which are entirely in the testator’s handwriting (i.e., holographic wills).
The Texas Estates Code also provides a means by which wills may be self-proving – and admitted to probate without the testimony of subscribing witnesses. The Code requires an affidavit of the attesting witnesses which conforms to the statute to accompany the will. The careful drafting of a will by an attorney familiar with the Estates Code ensures a smooth probate process for those left behind.
Trusts are another common estate planning tool which can be established via a will or independently during a person’s lifetime. A trust does not hold title to property – it establishes a fiduciary relationship by which the trustee of the trust (the holder of legal title) holds and manages the property for the benefit of a beneficiary (or beneficiaries). (4) Trusts created during a person’s life (i.e., living trusts), are either revocable (the grantor can alter or cancel the provisions of the trust) or irrevocable (the trust’s terms cannot be altered or canceled without the permission of the beneficiaries). Upon revocation, all property covered by the revocable trust reverts back into the grantor. (5) Revocable trusts offer the benefit of transferring certain property prior to death – excluding it from probate and avoiding some (but not all) estate taxes. Because a revocable trust can be revoked even at death, the contents of the trust remain in the totality of the estate, unless the power to revoke lies in someone other than the original grantor. (6) This is important because estate taxes are enforced against a person’s total estate, which includes assets over which the decedent retained some control – even if previously transferred into a trust. (7) An irrevocable trust can span generations (subject to Texas Property Code § 112.036), creating significant estate tax savings if the grantor effectively relinquishes any and all control over the assets transferred to the trust. (8) Irrevocable trusts are typically used to protect assets from creditors, establish eligibility for government assistance programs like Medicaid or Social Security, or protect assets from creditors. Trusts which are created via a will (after death) are called testamentary trusts. Testamentary trusts are created when a testator directs the transfer of his or her property to a trustee via his will. Testamentary trusts do not exist prior to death; the creation of these trusts is triggered by the probate of the will. (9)
Trusts also provide benefits for married couples seeking to shelter the estate from some taxation. If a deceased spouse leaves his or her entire estate to the surviving spouse outright, the property will be fully subject estate taxes. As we mentioned in Part One, the marital deduction provides a tax shelter by creating an exemption for any amount of property left to a surviving spouse and the property inherited by the surviving spouse will be taxed at their death as part of their separate estate. However, if a portion of the deceased spouse’s estate is left in a trust, the property is sheltered from estate tax at the death of both spouses. (10)
Powers of attorney and medical are important tools which ensure that your wishes are carried out during your lifetime, even when you are unable to articulate them yourself. A written power of attorney grants a party (an agent) the authority to act on behalf of the granting party (the principal). Powers of attorney can limit an agent’s authority to act – either by limiting the specific powers granted, limiting the power to a specific purpose, or by otherwise limiting effectiveness of the power. A valid power of attorney must be in writing, executed by a principal over 18 years of age and acknowledged by a notary public or other person authorized to administer oaths, and all powers of attorney must specify whether the power of attorney is affected by or becomes effective upon the disability or incapacity of the principal. (11) The Texas Estates Code provides a statutory form for durable powers of attorney. Medical directives, or living wills, provide instructions regarding life-sustaining treatment in the event an incapacitated person is terminally ill or suffering from an irreversible condition, “do not resuscitate” orders (DNRs), and medical powers of attorney, which grant an agent the power to make medical decisions for the principal in the event of incapacitation.
We have discussed a few of the estate planning tools commonly used in Texas to protect a person’s estate, plan for distribution during life and after death, and ensure that his or her wishes are carried out during periods of incapacitation. A competent estate planning attorney can use these tools to provide you and your loved ones with security and peace of mind. In Part Three of this series, we will discuss intestate distribution – what happens when a person dies without a will?
Kuiper Law Firm, PLLC offers comprehensive estate planning services. If you have any questions about how to protect your assets or plan for the future, do not hesitate to contact us.
- 7 Texas Transaction Guide–Legal Forms § 40.20 (2021).
- Black’s Law Dictionary 1735 (9th ed. 2009).
- Grisham v. Lawrence, 298 S.W.3d 826, 832 (Tex. App. – Tyler 2009, no pet. hist.).
- Black’s Law Dictionary 1647-48 (9th ed. 2009).
- 9 Texas Transaction Guide–Legal Forms § 49.21 (2021).
- 9 Texas Transaction Guide–Legal Forms § 49.23 (2021).
- 9 Texas Transaction Guide–Legal Forms § 50.31 (2021).
- 9 Texas Transaction Guide–Legal Forms § 49.22 (2021).
- 1 Texas Estate Planning §1.03 (2020).
- Texas Estates Code § 751.0021(a).