Category Archives: Estate Planning

How to Keep Your Family Together During the Probate Process

Financial interests and dealing with the emotional loss of a loved one can combine to create tension, dispute, and destruction in family relationships.  Family members fight.  Siblings feel hurt by the terms of a parent’s will.  Someone feels a strong need for a sentimental personal effect.  Family members feel pressure from their own financial problems and look to their inheritance as a solution.

Probate can be lengthy – in many cases it may last well over a year.  Complex cases may last even longer.  Managing family dynamics during this time period can be difficult.

This article is designed to provide some insight for executors and other family members on how they can avoid and diffuse these issues during the probate process.

Set Expectations Early

This should begin even before you have the will admitted to probate and someone is appointed executor.  Speak to family members and beneficiaries.  They often have expectations for immediate access to money or property.  They may have expectations that are contrary to the terms of the decedent’s will.  Explain the probate process and timeline so that those expectations are realistically tied to the time needed to settle the estate.

Partial early distributions is an area where a dispute often arises.  Expectations should be set regarding whether there will be any early distributions.  It is quite common for beneficiaries who are not in a stable financial situation to request loans or advances.  How will you handle those requests? How will you respond when other beneficiaries find out? Set the expectations – and set them for everyone.

You should also set expectations regarding communication and the exchange of information during the probate process.  How will you communicate? How often? Simple estates may not require frequent updates while more complex matters may dictate frequent, even weekly, updates.

Communicate Frequently

The human mind has an amazing ability to develop conspiracy theories when left with little information and the time to do so.  You should communicate with beneficiaries and family members often.  The more complete and accurate the information they have is, the less likely their mind will wander and fill in any gaps with suspicion.

You set the expectations for the probate process and timeline early on.  You should communicate frequently with other family members about where you are in the process.  If there are any issues that may cause a problem or delay, communicate them as soon as you can.  If the expectations for the timeline change, then update them.

Some family members may have previously had access to estate property that they will not have access to during the probate process.  The executor may need to change the locks, secure the property, or otherwise take possession of assets until the probate process is complete.  Communicate that fact early on so that it is not a surprise to some accustomed to having use or access to the property.

Some family members may have relied upon assistance from the decedent – financial or otherwise.  You should communicate with those family members and determine whether the estate can continue that support and how it might go about doing so.  You should also make sure that other beneficiaries or family members are aware of any arrangements you make so they are not surprised to find out about any support the estate provides.

You should discuss how decisions will be made as well as who is responsible for making which decisions.  The executor is ultimately responsible for all decisions regarding the estate, however, there may be room for input from other family members.  Allowing family members to participate in the decision making process so they have an opportunity to be heard and feel like they have a voice can go a long way in avoiding conflict.

Frequent communication will not only help prevent beneficiaries and family members from negative speculation but it will also allow you to anticipate potential conflict so that you can act to de-escalate it quickly.

Be Aware

You should be aware of the expectations of beneficiaries and family members.  You should also be aware of the family dynamics and how that might play into any disputes that might arise during the probate process.

For example:

  • Is someone expecting to inherit under the will but the decedent left them little or nothing?
  • Was someone promised a personal item but it is not written in the will?
  • Is a family member in a financial bind and likely to request an advance or loan?
  • Are tensions already high between certain beneficiaries from some long simmering dispute?  Is that likely to trigger a fight during probate?
  • Are there established roles or pecking orders within the family that might affect their interaction during the probate process?
  • Are discussions best handled as a group or one on one?
  • Are there any items of particular sentimental value that might “disappear” if you don’t take immediate action?
  • Does a beneficiary or family member have a sentimental attachment to a particular personal effect or household item?

You should also be aware of your power and authority as executor.  What does the will say about how to handle disputes among beneficiaries?  How much discretion were you afforded in distributing personal property under the will?  What factors did the decedent instruct you to consider when making decisions regarding distributions?

Understanding the amount of discretion you are allowed as well as what factors you must consider when making decisions regarding distributions can provide you with a foundation to explain your decisions to family members that might otherwise question those decisions.  Providing a sound, logical, explanation for a decision can help prevent any argument from escalating.

Use Your Advisers Wisely

The professionals advising you during the probate process are there to provide objective advice that is unfettered by the emotion that arises between squabbling family members.  Use this to avoid and diffuse potential conflict.

Do you know there is going to be a delay coming up?  Family members might view the news coming directly from you with suspicion or a lack of understanding.  Having the attorney handling the probate inform the family members and explain the reasons for the delay might be more acceptable to other family members.

Tax issues preventing a closure of the estate?  Have the CPA talk to your family members to explain why there is a delay and the importance of handling the matter appropriately.

These professionals act as an objective authority to explain the basis of the decision that might otherwise cause conflict.  You can and should use them to shield yourself from taking the blame from other family members.

In Conclusion

The stress of dealing with loss of a loved one combined with the desire and expectation of new wealth from settling the estate can make family members act in ways they might nor ordinarily act.  A little thought, a little planning, and a lot of communication can go a long way towards ensuring your family can get through the probate process without irreparably damaging your familial relationships.

Key Estate Planning Documents in Texas

There are numerous documents used when putting together an estate plan.  Each plan is different and focused on the individual client’s needs so one client may have documents in his or her estate plan that are not necessary to address another client’s estate planning objectives.  However, certain documents are common to most estate plans. It is critical that these documents be drafted and reviewed together to ensure consistency among them so that the client’s wishes are accomplished in the planning process.

Below is a list of these common documents with a brief description of their purpose.

Last Will and Testament

The Last Will and Testament is the most well known document and a key part of every estate plan.  Even those planning through the use of trusts such as a Revocable Living Trust need a Last Will and Testament as a just in case catch all to dispose of any property not titled in the trust.  The Last Will and Testament identifies the client’s family and children, sets forth the client’s wishes with regard to the disposition of his or her property, and provides instructions with regard to the creation of any testamentary trusts.

Trusts

Trusts are increasingly used in the estate planning process for a number of reasons.  Many people think trusts are only for the wealthy, but they are not.  There are different types of trusts designed to achieve different estate planning objectives.

For example, some estate plans rely on a Revocable Living Trust as the primary estate planning instrument in an effort to avoid probate entirely.  Other trusts are designed to protect assets for minor children until they are mature enough and responsible enough to manage property on their own.  Special Needs Trusts are used to help make sure that a minor child or disabled adult who receives disability benefits is not disqualified from receiving those benefits by the sudden inheritance of significant assets.

Still other trusts can be setup to protect property from creditors and third parties who could have claims against the assets of a client’s beneficiary.

Durable Power of Attorney

The statutory durable power of attorney is an instrument used to allow someone else to manage the client’s property and make decisions regarding the use and disposition of that property.  The durable power of attorney is only effective so long as the client remains alive, including during any period of time in which the client is incapacitated.

The durable power of attorney is a very powerful tool and care should be taken when drafting to ensure that the client’s agent is trustworthy and any powers of that agent are limited as appropriate.

Medical Power of Attorney

The Medical Power of Attorney allows a client to designate an agent to make decisions regarding the client’s medical care in the event that the client becomes unable to make those decisions his or her self.  This is an important document because it authorizes the agent to make decisions regarding the client’s medical care in accordance with the agent’s knowledge of the client’s wishes, religious beliefs, or in accordance with the agent’s judgment of what is in the client’s best interests.

In addition, clients with minor children will want to execute a Medical Power of Attorney on behalf of their children to designate an agent to make medical decisions regarding the care of their children in the event the client becomes unable to make those decisions.  A need for this designation may arise in the case of children visiting relatives for some period of time or a common accident involving the entire family that leaves the client and other parent incapacitated.

HIPPA Releases

Many clients want to make sure that family members, particularly spouses and children, can receive information about their medical status in the event the client becomes disabled or incapacitated.  Doctors, hospitals, and other medical professionals have become increasingly diligent in complying with their HIPAA obligations which means, absent written authorization, the client’s family members would not be entitled to medical information about the client.

In addition, clients with minor children should consider executing a HIPAA Release on behalf of those children to ensure that appropriate individuals can access the children’s medical records.

Declaration of Guardian

Texas law authorizes individuals to designate a guardian before the need arises.  There are two types of guardians in Texas: (1) guardian of the estate – who manages the ward’s property; and (2) guardian of the person – who manage’s the ward’s person, including his or her residence, clothing, food, and medical care.

Texas law allows a client to designate whom he or she would prefer to serve as both guardian of the client’s person and estate.  The client may designate alternative guardians, and perhaps more importantly, the client may designate whom he or she DOES NOT want to serve as the client’s guardian.

Here is an example of why this is important.  There is a presumption in favor of certain persons serving as guardian – such as a spouse.  However, it is increasingly common for people to separate these days in contemplation of divorce yet never actually get divorced.  In that case, it would be awkward for the client’s separated spouse to be appointed to make decisions regarding the client’s person and property.

Designation of Guardian for Minor Children

In addition to declaring a preferred guardian for the client, a client with minor children will want to designate a guardian of the person and guardian of the estate for their minor children.  Again, Texas allows the client the opportunity to designate a guardian, alternative guardians, as well as those individual the client DOES NOT want to serve as guardian of the client’s children.

Directive to Physicians

The Directive to Physicians and Family or Surrogates (it’s legal name) is more commonly known as an advanced directive.  It allows the client to communicate his or her wishes regarding end of life treatment to a physician to ensure that the client’s wishes are honored in the event that the client cannot communicate them because of their health.

The advanced directive allows the client to choose whether or not the client wishes to remain on life support in the event his or her condition is considered terminal.  In addition, the client can specifically identify treatments he or she does not want the client’s physician to undertake in providing care.

Appointment of Agent to Control Disposition of Remains

This document allows the client to designate an agent to take possession of his or her remains and make decisions with regard to the disposition of those remains.  There is a statutory presumption listing in order of priority the individuals allowed to make these decisions by law, but this written declaration can override those presumptions.

In addition, the appointment may include instructions to the agent regarding such matters as the client’s wishes for his or her remains as well as inscriptions or special wishes for memorial services.  One important consideration – by accepting this appointment, the agent becomes liable for the costs involved in implementing the client’s wishes so the client should make appropriate financial arrangements.

This is just an overview of what documents are common estate planning tools and what each of those documents accomplish.  Follow this link to learn more about why you need these key estate planning documents.

An Estate Planning Solution for Parents Whose Children Have Student Loans

There has been a significant increase in student loan debt as well as default rates by borrowers leading to an increased risk that the estate a borrower’s parent intends to pass to their child could instead end up in the hands of a student loan lender or collection agency.  If your child has significant student loan debt, difficulty repaying their student loan debt, or if you just want to minimize the chance your estate could end up in the wrong pocket, then you should continue reading below to understand how you can protect your child and your assets from these creditors.

Understanding the Scope of the Student Loan Problem

There is over $1.45 TRILLION dollars in student loan debt outstanding in the United States today.  That is over 600 million more than outstanding credit card debt.  Outstanding student loan debt has increased over 170% since 2006!  Even more alarming – according to the New York Federal Reserve, borrowers are making less progress in paying down those student loans even as the amount of student loans issued continues to increase.  Over 42 million Americans now have student loan debt.

This is a recipe for disaster.  Delinquency rates on student loans are in excess of 11% (meaning loans more than 90 days past due).  Default rates are much higher.  The New York Federal Reserve has done significant research over the past year on default rates and some of the results are stunning.  According to the New York Federal Reserve, over 35% of students attending for-profit private colleges have defaulted on their student loans by the age of 33.

Some parents might have children that attended community college and think that defaulting on student loans is a problem that is unique to 4 year universities or private for-profit universities.  It’s true, borrowers attending private for-profit colleges have historically seen some of the highest default rates.  However,  borrowers attending public 2 year colleges (think community colleges) have seen the greatest statistical increase in default rates with borrowers defaulting at rates almost as high as private for-profit colleges.

The impact on the lives of these borrowers is dramatic.  Student loans are one of the few debts that can NOT be discharged in bankruptcy.  This leaves student loan borrowers with little hope of escaping the debt without paying it.  The burden of repaying these loans means that student loan borrowers are less likely to own homes and save for retirement.

Private lenders aggressively pursue collection of delinquent borrowers through collection agencies, law suits, and garnishments (in some states).  If students default on federal loans, then the government has even greater powers to collect on the loans including garnishing the borrower’s social security payments which impacts the borrower’s ability to provide for his or her self during retirement.  When borrowers default, they incur penalties and interest that cause the outstanding debt amount to increase significantly over time.

How Your Child’s Student Loans Affect Your Estate

If you have a child with student loan debt, have you talked to them about the status of their loans?  Are they able to repay them? Have they defaulted on their loans?  Would they be honest in telling you about their troubles if they had them?  What if they run into financial trouble after you have already passed away?

These are difficult conversations that parents often do not have with their children.  But they need to.

Remember – these loans are not dischargeable in bankruptcy and lenders are quite aggressive in collecting these debts.

This means that if you leave any assets to your child, and that child defaults on a student loan, then those assets become subject to a lender’s collection efforts.  Your child may not inherit anything until 10, 15 , or even 20 + years after he or she defaulted on their student loans.  But those debts did not go away.  They just kept growing and accruing penalties, interest, and likely court costs as well as attorneys fees.

A collection agency cannot attach, execute, or garnish the assets of your child.  Collection agencies operate through coercion and guilt.  But the original creditor, or in some cases a collection agency that purchased the loans, can go to court and secure a judgment.  Any attorneys fees and court costs the creditor incurs in trying to collect the outstanding loan balance are added to the judgment and accrue interest as well.

At this point, the creditor has much more significant collection powers including the power to execute a judgment by confiscating assets or potential garnishing bank accounts.  Judgment creditors may, in certain circumstances, have a receiver appointed pursuant to a turnover order to help collect on that judgment.

The net result is this – that estate you worked so hard to grow and pass on to your child could be wiped out by your child’s student loan debt.

Using A Trust to Protect Your Child and Your Assets

What if I told you that there is a solution in Texas? That there is a way to allow your child the benefit of your estate without risking that the assets may be taken by a creditor.  Well, there is.  It’s through the use of a trust.  Trusts are not just an estate planning device for the super wealthy.  Trusts can be used to make sure that your estate is passed on and used according to your wishes and not the wishes of a creditor.

The law is clear – you have the right to choose who receives your estate.  More importantly, when you leave your assets in trust, you have the right to choose how, when, and for what purposes those assets may be used.  You have the right to choose who will manage those assets.  You have the right to prohibit their use to pay off the debts of a beneficiary.  When that trust is properly formed and managed – your child’s creditors cannot touch the assets but your child can still benefit from use of those assets.

Establishing the trust and protecting its assets from a beneficiary’s (your child’s) creditors is highly technical.  But it is perfectly legal.  There are restrictions on who can put assets into the trust and rules for when and how assets are distributed.  The language in the trust agreement is critical.

With a properly drafted and managed trust, your assets are protected for your child’s benefit.  You child and your grandchildren can enjoy the use of the trust assets for such things as healthcare, health insurance, dental and eye care, housing, paying the bills, property taxes, paying educational expenses, as well as general maintenance and support.  And your child’s creditors cannot take those assets.  You can make sure your estate goes to supporting your child and his or her family instead of paying off a debt to a creditor.

If you would like more information about whether a trust is appropriate for your situation, then please complete the contact form below and someone form the Firm will contact you shortly.

Basic Estate Planning Issues for New Parents

The feeling of being a new parent is exhilarating, a little scary, and often very tiring – I know, I did it twice.  I still remember walking out of the hospital when my son was born thinking, “That’s it? They really just let me walk out the door and go home with him?”  Along with… Continue Reading