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Archive for July, 2011

Besides being female celebrities, what do the late Jacqueline Kennedy Onassis and Amy Winehouse have in common?  They both could be commended for their estate planning.

Why should Jackie O be commended for her estate planning?  As an article in the NY Times (HERE) points out, her will, especially its use of the “charitable lead trust” stands tall in the world of estate planning.
A charitable lead trust distributes money to some charity annually for a set number of years (Jackie O’s charitable lead trust will last a total of 24 years, ending in 2018).  As time goes along, the trust’s principal also accumulates income.  So, at the end of the trust’s term, there may be leftover money to distribute to heirs.
Therein resides the beauty of a charitable lead trust.  You get to give a lot of money to some charity that you love AND to your loved ones.  AND, if structured properly, this can all be accomplished with no estate tax consequence.
So, how does money in the charitable lead trust make it to your loved ones tax free?  Each year, the IRS sets a “hurdle” rate.  The hurdle rate is the percentage at which the IRS expects assets to grow.  Anything over the hurdle rate can generally be passed to heirs tax-free.  Right now, because the economy is not doing so well, the IRS has set the hurdle rate exceptionally low, which means there’s great potential for giving a sizable tax-free gift to your hers.
All trusts have pros and cons.  The charitable lead trust is no exception.  The biggest problem with the charitable lead trust is that it is irrevocable.  Generally speaking, every trust is either revocable or irrevocable.  With a revocable trust, the person creating the trust (the “grantor”) can amend the trust while he/she is alive.  Conversely, irrevocable trust’s can’t be altered.  This can be a problem for many grantors because, as life goes on, you may want to change the trust beneficiaries, etc.
Another problem with the charitable lead trust is that they are very complex, so it can be difficult to get your charitable lead trust to do exactly what you want it to do.

Why should Amy Winehouse be commended for her estate plan?  Because she had one!  She was only 27 years old when she died in London, and she had a will.  Amy’s will splits her $16 million estate among her mother, father, and brother.  Click HERE for more information on Amy Winehouse’s will.
Most Americans die without a will.  And, of those individuals who are wise enough to get a will before passing away, many would tell you that they should have gotten one much sooner.  You will sleep better with a will because you don’t know exactly how long you’ll live.  Getting a will is probably easier and less expensive than you think.  You’ll probably live for years to come, so why not live out all those years sleeping better at night?

Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC.  Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com.  You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter.  Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.  Please consider the Shutt Law Firm if you’re looking for a Richardson probate lawyer, Richardson wills lawyer, Richardson estate planning attorney, or Richardson guardianship lawyer.
DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.
http://www.ShuttLawFirm.com

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What is a letter of final of instruction?  Should you have a letter of final instruction as part attached to your will?

A letter of final instruction is kind of an extension to your will, and they’re a great idea.  The letter is a list of detailed instructions to the person in charge of handling your estate (your “executor” or “executrix”).  These instructions are not legally binding, but that doesn’t mean they’re worthless.  Just because a court can’t uphold these instructions doesn’t mean they’re not incredibly helpful to your executor.

In fact, the letter of instruction–if you do it correctly–may end up being the document your executor refers to the most.  It may even be a good thing that letters of instruction aren’t legally enforceable.  For example, if you give one daughter the fine China, and this upsets your other daughter–they can work it out on their own because the gift wasn’t legally enforceable.

So, what should you include in your letter of instruction to the get the most out of it?  Here are some suggestions, though you should feel free to add any other information your executor will find helpful:

– list of bank accounts along with PIN numbers
– location of safety deposit box
– list of where you’d like specific pieces of person property to go (for example, “I’d like my niece, Jenny Jenson, to take all the porcelain figurines in the living room display cabinet,” etc.)
– location of your important documents, including:  marriage certificates, deeds, life insurance policies, retirement policy info, etc.
– details on funeral arrangements.  By the way, if you haven’t thought of a pre-paid funeral, please consider it.
– anything else you can possibly think of that would assist your loved ones

There’s no set guideline for this letter of instruction.  The more information and instruction you provide, the more stress you’ll alleviate for your family.

To read more about letters of instruction and even download a template for a letter of instruction, refer to an online Smart Money article written by Catey Hill  HERE.  http://blogs.smartmoney.com/encore/2011/06/09/the-%E2%80%9Cmissing-link%E2%80%9D-in-your-estate-plan-may-leave-heirs-in-the-dark/?link=SM_hp_featStory
Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC.  Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com.  You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter.  Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.  Please consider the Shutt Law Firm if you’re looking for a Richardson probate lawyer, Richardson wills lawyer, Richardson estate planning attorney, or Richardson guardianship lawyer.

DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.

http://www.ShuttLawFirm.com

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What’s better, a POD account or a will?

I hate to do it, but I have to give you the lawyer’s answer:  it depends.  A POD account, a will, or a combination of both may be the best for your heirs.  Which is best will depend on your heirs and how much assets you have.  Speaking very, very generally–a POD account may be best when you have very little assets, whereas a will is better when you may need a little more flexibility.

What is a POD account, anyway?

POD stands for “payable on death.”  POD accounts are also sometimes referred to as “Joint Tenants with Right of Survivorship” (“JTWROS”) accounts.  If it’s a brokerage account that holds investments, the account will probably be referred to as a “Transfer on Death” (“TOD”) account.

Regardless of the name, this is a kind of account in which its contents transfer AUTOMATICALLY to the named beneficiaries upon your death.  When you die, your beneficiary (or beneficiaries) will march down to the bank with death certificate in hand.  Once the bank gets the death certificate, it automatically gives the money (or stocks, etc.) to the beneficiary.

The POD designation you make on the account is basically a contract whereby you agree that the property in the account will go directly to the beneficiary.  And, because you have a contract with the bank, the probate court is completely separate from this.  Yes, that means a POD account is an effective way of giving money to your heirs outside the probate process… which can be a good thing or a bad thing, depending on your situation.

Using a  POD account to bypass the probate court may actually be counterproductive if you  want to have your will determine where your money goes.  For example, let’s say you have a bank account with $24,000 in it.  If you have a POD account that names three beneficiaries, each will take 1/3 ($8,000 each).  What if you wanted two of the beneficiaries to take $10,000 each and the third beneficiary to only take $4,000?  Well, then, the POD account wouldn’t work.  If you wanted an unequal distribution, you would need to have a non-POD account and have your will explain how you’d like the money distributed.

Your will doesn’t affect a POD account.  So, if you have a will drawn up that says where you want all the money in your bank account to go, but you only have a POD account–the POD beneficiary designation trumps your will.  Your will loses that battle, and the named POD beneficiary will take the money.

There are lots of reasons not to have POD accounts, but many banks push POD accounts on their customers.  The banks like POD accounts because they’re easy for them to do and probably also because the bank knows your beneficiary is likely to just leave the POD account monies at that bank after you die.  Some banks will even tell you that you must make the account a POD account, which, by law is incorrect.

If your account is not POD (or “JTWROS” or “TOD”), that doesn’t mean your heirs are going to have a tough time getting their inheritance.  The executor will be in charge of distributing the property in accordance with your will.  To get access to a non-POD account, your executor will likely have to show the bank the letters testamentary (the papers the probate court gives you when it accepts your will as valid in the state of Texas).

Bottom line:  find out whether your accounts are POD or not.  Then, decide if you want to change them.  If the bank tells you that you can’t change your POD account, educate them.  The Texas Probate Code sections 439 and 440 say that you can demand your account be made non-POD upon written request.

If you’re really unsure what to do, contact a Dallas wills lawyer / Richardson wills attorney.  If your loved one has already passed away and you’re an heir, executor, or POD beneficiary, you should consider contacting a Dallas probate lawyer / Richardson probate lawyer.

 

Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC.  Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com.  You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter.  Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.  Please consider the Shutt Law Firm if you’re looking for a Richardson probate lawyer, Richardson wills lawyer, Richardson estate planning attorney, or Richardson guardianship lawyer.

DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.

http://www.ShuttLawFirm.com

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What is the best way to make changes to your will?  You need to make a “codicil” in order to change a will.  A codicil is an amendment to your will; essentially, the codicil can add new sections to your will, delete sections you no longer desire, and amend or update sections.  After you sign your codicil, it becomes incorporated into your preexisting will.  It’s as if you replaced your will with a new, freshened up version.

What are the wrong ways to change your will?  Crossing things out on your will.  Writing new things directly on your will.  Drafting a new will from scratch while leaving an previous version of your will floating around somewhere.  Also, if you make a codicil, you need to make sure that you execute it with all the same formalities you should use when executing your will.  That is, it should be signed by you, signed by two witnesses, and include a self-proving affidavit.

What happens if you amend your will the wrong way?  It may very well cause your loved ones increased hassle and financial expenditure after you pass away.  For example, law firm clients come into the office with wills that have handwritten amendments all over them (and even handwritten amendments to the handwritten amendments).  These clients were wise to have an estate planning attorney look everything over and help them get their wills into a form that Texas probate courts will accept.  If you die with a will that has handwritten amendments smattered all over it, the handwritten amendments will probably be discarded… So, not only were your handwritten amendments ineffective, but, even worse, now your will may be probated with provisions in it you no longer wanted!

Visit a Texas estate planning lawyer to draft a codicil to your will for you.  Having an attorney draft a codicil to your will is even simpler than having a will made.  In fact, depending on how extensive the changes are, a codicil may only be a page or two long.  Therefore, the attorney’s fees for making a codicil should be very reasonable, especially when you factor in how much hassle you’ll be saving your loved ones.

Texas probate courts and Texas probate lawyers are accustomed to seeing codicils to wills, so don’t feel like adding a codicil is complicating matters.  A valid codicil is infinitely better than a messy will.

It is a good idea to look over your will every so often.  I recommend that you review your will every year, or at least every few years.  It will only take a few minutes, and you may surprised at how many amendments you’d like made over time.  That is, beneficiaries may pass away before you do, you may want to change who you name executor, your financial situation may change greatly, etc.  If you want changes made to your will, contact a Texas probate lawyer or Texas estate planning attorney to have them perform a will review (which some attorneys will even do for free) and to draft a codicil to your will.  You will sleep better at night knowing that your will is valid and that the changes you want to your will won’t be discarded.

With wills, as with many things, there are huge differences between doing things the right way and doing things the wrong way.  Except, when it comes to amending your will, it will be your loved ones who face the consequences if you do things the wrong way.

Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC.  Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com.  You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter.  Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.  Please consider the Shutt Law Firm if you’re looking for a Richardson probate lawyer, Richardson wills lawyer, Richardson estate planning attorney, or Richardson guardianship lawyer.

DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.

http://www.ShuttLawFirm.com

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A will is the most important component of any estate plan.  Generally speaking, this document names beneficiaries, names the executor, makes specific bequests, describes how administration of the estate should occur, sets up trusts, and names the guardian for minor children.

Names Beneficiaries.  A beneficiary is a person who should receive a share of the decedent’s estate.  After the cost of the funeral service, estate administration, taxes, specific bequests, and paying off the estate’s debts, each beneficiary will take a share of the remaining estate.  Typical beneficiaries include spouses and/or children, though it is important to name alternate beneficiaries.

Names the Executor.  The executor is person charged with administering the estate, which generally includes handling the probate process, paying debts and taxes, and distributing estate assets in accordance to the will.  Care should be taken in naming the executor.  It is imperative that the executor be much younger than the testator, trustworthy, good with money, knowledgeable about the testator and the testator’s assets, and free of felony conviction.  Alternative executor(s) must also be named.

Makes Specific Bequests.  A specific bequest is a gift to a specific person of a specific piece of property.  This is the usual mechanism for making sure the right person inherits that heirloom furniture or classic car.  Specific bequests need not necessarily be made in the will.  In fact, in some situations, it is advisable not to make such specific bequests in the will; instead, the preferred method of making specific bequests is the letter to the executor that accompanies the will.

Describes Estate Administration.  The will should specify how the testator would like the estate to be administered.  For instance, the will should indicate whether the estate should be administered by the executor independent of court supervision and whether bond should be required of the executor.  The will should also indicate how the debts and taxes should be paid.

Sets Up Trusts.  For estates requiring trusts after death, the will generally creates those trusts.  Post-mortem trusts are used for tax planning and/or to provide for younger children.  Tax planning trusts are discussed in further detail below.  As to trusts for children, a trust is often preferable over an outright gift of cash to children.  Although a child cannot actually receive and control an outright gift of cash until age 18, many testators prefer that their children not have control of cash until even after age 18.  That is, a trust that lasts until the child reaches age 25 assures that the child will have money for college education instead of that Corvette the child always wanted.

Names the Guardian for Minor Children.  The will names the testator’s preference of guardian, and alternates, for minor children in the event the testator and the children’s other parent die before the children reach age 18.  There are actually two kinds of guardian to name for minor children: guardian of the person and guardian of the estate (money).  A single guardian can—and generally does—fulfill both roles for the minor children.

Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC. Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com. You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter. Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.

DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.

http://www.ShuttLawFirm.com

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Is it possible to avoid probate in Texas?  Yes.  Should you try to avoid probate?  Maybe.

There are several alternatives to formal probate in Texas.  This blog post discusses five common ways of avoiding probate in Texas:  the small estate administration, the affidavit of heirship, the judicial determination of heirship, the probate of a will only as a “muniment of title,” and the use of trusts to transfer assets outside the probate process.

In future posts, I will go into more detail about each of these alternatives.  Here is a brief overview of the formal probate alternatives:

Small Estates Administration

The Small Estate Administration, often called the “Small Estate Affidavit,” is a process that avoids formal probate of a will but still requires a trip to the probate court.  Within 30 days of the decedent’s death, an heir must file the small estate affidavit with the probate court clerk.  After the court accepts the affidavit and files it, the affidavit can be used to administer the estate.

Even though this process is more efficient than probate, heirs must still properly execute the affidavit, get the affidavit filed with the court, and the estate must be eligible for the small estate administration process.  As the name would imply, to be eligible, the estate must be… small.  The Texas Probate Code says that an estate is small enough for this process if, not including real estate property, the value of the estate assets equals $50,000 or less.

For more on this process, consult the Texas Probate Code §§137 and 138, or contact a probate attorney.

Affidavit of Heirship

This is only available when there was no will and when the decedent only left behind real estate.  Here, instead of going to probate court, the heirs need only fill out the Affidavit of Heirship form and file it with the county clerk of the county in which the property exists.  The form can be found at  §52A of the Texas Probate Code.  Of course, the affidavit must be executed with the appropriate formalities in order to be valid.  For example, two “disinterested” witnesses must swear to a specific oath as required by the Probate Code.

Judicial Determination of Heirship

This process is only available when there is no will.  At the outset, I should note that this alternative process can be both expensive and lengthy.  The process requires at least one hearing in front of the judge.  Basically, a party will file an application with the court to start the process.  Then, the court will hire an independent attorney to essentially track down and represent any unknown heirs.  After the independent attorney conducts the investigation, the court will require a hearing at which two disinterested witnesses must testify as to the information in the application.  The pro to this process is that when it’s complete, the court’s declaration will give some finality as to who is entitled to a share of the decedent’s estate.  The biggest con, as I mentioned, is that the process can be costly and time-consuming.

Muniment of Title

The Muniment of Title procedure is best used when (a) there was a will, and (b)  the estate has few assets.  This procedure avoids full-blown probate but still requires interaction with the probate court.  That is, in this process, a will is actually filed as a public record.  However, the will is admitted as muniment of title only.  Also, this is primarily used when there are no debts owing by the estate (other than debts secured by liens on real estate) and no other reason to have a full administration of the estate.

This process provides the applicant with the legal paperwork necessary to disburse the estate’s assets without all the formal requirements of full probate.  For more information, refer to the Texas Probate Code § 89C.

Using Trusts to Avoid Probate

It is possible for an individual to create trusts during his or her lifetime for the purpose of transferring property to beneficiaries outside of the probate process.  Trusts created during the individual’s life are called living trusts or inter vivos trusts.  In states with more arduous probate processes, inter vivos trusts can be a good way to get property to heirs while minimizing hassle.  However, in Texas, it is generally not advisable to use trusts to try to transfer property outside of the probate process.

This is for a couple of reasons.  First, the probate process in Texas is relatively hassle-free and inexpensive.  Probate in Texas is simply not the dreaded ordeal it is for many other states.  Second, even if an individual uses inter vivos trusts, the individual should absolutely still have a will.  That is, it is almost impossible to get ALL of the individual’s property into the trust; he may have forgotten about some property, etc.  Plus, the individual still needs to name an executor, describe how he wants the estate’s debts to be paid, name guardians for his minor children (if applicable), make specific bequests, and so on.  So, since the individual will need a will regardless of the existence of inter vivos trusts, the inter vivos trust just adds a layer of work and expense.

Inter vivos trusts can be useful for other estate planning purposes, but, in Texas, the primary reason for an inter vivos trust should not be to avoid the transfer of property through the probate process.

Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC.  Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com.  You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter.  Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.  Please consider the Shutt Law Firm if you’re looking for a Richardson probate lawyer, Richardson wills lawyer, Richardson estate planning attorney, or Richardson guardianship lawyer.

DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.

http://www.ShuttLawFirm.com

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No, Texas does not have an estate tax, for the time being, anyway.  Does Texas have an inheritance tax?  No, there is currently also no inheritance tax in Texas for individuals who died on or after January 1, 2005.  For individuals who passed away between September 1, 1983 and January 1, 2005, a Texas Inheritance Tax Return must be filed.

In December, 2010, President Obama signed the Taxpayer Relief Act of 2010 (“TRA 2010”).  Though there is no guarantee, this new tax law makes it unlikely that Texas will have an estate/inheritance tax in 2011 or 2012.  Texas used to collect an estate tax equal to a credit on an individual’s federal estate tax.  This was called a “pick up tax.”  The pick up tax has been phased out, and no estate tax is likely for the next two years because TRA 2010 did not reinstate the pick up tax.

I realize this is a short post, but there’s not much information to report.  Of course, estate and tax laws are constantly in flux, so it’s best to consult an attorney if you’re the executor of an estate.  If you’re not an executor, but are curious about tax and tax rates, visit the Texas Comptroller’s website – http://window.state.tx.us/ – for more up-to-date information on Texas tax laws.

Isaac Shutt is the Attorney/Owner at Shutt Law Firm PLLC.  Visit http://www.shuttlawfirm.com or email ishutt@shuttlawfirm.com.  You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter.  Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC.  Please consider the Shutt Law Firm if you’re looking for a Richardson probate lawyer, Richardson wills lawyer, Richardson estate planning attorney, or Richardson guardianship lawyer.

DISCLAIMER:  Nothing in this blog post constitutes legal advice.  If you have a legal question, you should consult an attorney.   Further, nothing in this blog shall be construed to have started an attorney-client relationship.  No such relationship exists until you sign an engagement letter with the Firm.

http://www.ShuttLawFirm.com

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