John O. Brentin and Associates L.L.P.
Attorneys at Law
3700 Buffalo Speedway
Houston, Texas 77098-3705
Phone: 713-627-3320 FAX: 713-627-3370
This information is intended to be an overview of the law
in Texas. The answers to these questions
are not intended to be legal advice
, but are
provided in the spirit of education. You
should consult with an attorney for legal advice based on your unique set
of facts and circumstances. BRENTIN
LAW HOME PAGE
What is estate planning?
Estate planning is a written expression of how you want your assets to be owned, managed and preserved during your lifetime as well as how you want those assets distributed upon your death.
Estate planning can involve the use of several different
documents to achieve your goals, including Powers of Attorney for
Property and Health Care, Trust
Agreements, Marital Property Agreements, and a Will. These documents are explained further
in other FAQs.
Estate planning may cover many areas including
financial planning, insurance, accounting, business continuation, and estate,
gift and income taxes. Often ,
the needed skills and knowledge are available by bringing together an “Estate
Planning Team”. The various members of
your chosen team can then work closely with you to preserve your estate and
pass it on to your heirs with the least amount of expense and aggravation.
Meet the Estate Planning Team
(link – copy
immediately below) (or a separate question?)
Members of the estate planning team might include:
Most attorneys can draft a basic
will . However, one
who specializes in estate planning (such as a board certified estate planning & probate lawyer) will
be more familiar with the various tools and techniques available to save you
and your heirs thousands of dollars in taxes, probate and
Life insurance contracts differ greatly and are issued by companies with varying degrees of financial strength.
A professional life underwriter will help you choose a financially strong company, the correct type of policy for your situation and the correct type of insurance. Determining who will be the owner of a life insurance policy is a key question. The answer can add or avoid hundreds of thousands of dollars in estate taxes.
Federal and state laws require that a
income and estate tax returns be filed
after your death.
Even in the simplest of situations, properly completing these tax
returns can be a complex and confusing process .
These returns will be even more involved if you own a business or rental real
If you select a corporate fiduciary (a bank or trust
company) as executor of your
will or trustee of your trust, you should
consider involving them in the development of your estate plan.
they have important provisions which should be
added to the will or trust document to help them administer
Charitable organizations often have planned-giving specialists who are well versed in methods of making lifetime gifts or bequests at the time of death, which can benefit you and your heirs.
the life agent, accountant or other member of the estate planning team may have
special training in financial planning.
Other times, a person who specializes in financial planning may be part
of your team. If so, he or she will
often take a very active part in directing the formation of the overall estate
and financial plan.
You are the captain of the team. The final decisions must be made by you after carefully reviewing the recommendations of the other members of your estate planning team.
Why do I need estate planning?
At a person’s death, there are certain typical problems that, if not planned for, create a burden on those who are left behind.
· Estate settlement costs can be high. These costs consist primarily of probate fees and death taxes. Estates that exceed certain amounts may be subject to both state and federal taxes.
Estate assets may be improperly arranged. There may not be enough liquid (cash type)
assets to pay estate settlement costs or there may not be enough income to care
for loved ones left behind
; e.g., spouse and minor
Estate assets may be subject to probate delays and
Assets transferred to minors may
be in cumbersome guardianship accounts until they
attain age 18 and are then distributed
outright to the children.
· Additional death taxes may be paid because there was no pre-death planning.
Failure to nominate a guardian for minor children in a
If the wrong persons are chosen
to manage the assets left for the minors, the assets may be lost or
unnecessarily reduced .
Rarely, in either the
choice of a guardian or asset management, would
your wishes be carried out.
Proper estate planning can eliminate or reduce these problems.
· Effective estate planning can reduce or avoid taxes and administrative expenses.
· In the event of disability, you can make choices for your own lifetime, avoiding the need for a guardianship for financial and health care maintenance.
provisions for other persons with disabilities or
allow special provisions for persons
outside the family and charities.
· You decide when and how your beneficiaries will inherit.
· You decide who will manage your estate.
· You can name a guardian to care for your minor children and their property.
What is a
will is a written expression of how you want
your individually owned property and assets to be distributed after your
death. You can also use your will to appoint
guardians for your minor children and trustees to manage their property.
In Texas, a well drafted
will can make
probate a relatively simple and inexpensive process.
will has no effect on joint tenancy property (unless
you are the sole surviving joint tenant) or on property as to
which you have signed a beneficiary designation, such as life insurance, IRAs
or other retirement benefits. A will does not
affect property held in a trust, although it may be used in conjunction
with trust planning to make sure that property passing under the will is added
to the trust.
What happens if I die without a
If you fail to prepare a
will or some
other legal method, such as one of the estate planning methods described in other
FAQs, to transfer your property when you die,
then state law will determine what happens to your property.
See FAQs regarding community vs. separate property and
distribution of property without a
Also, in the absence of a
will, a court
will determine who will care for your young children and their property if the
other parent is unavailable or unfit.
The results are almost never what you would have intended and can cause significant financial and emotional turmoil for your heirs.
How is my property distributed
if I die without a will in Texas?
The explanation and distribution of property described in this section is based on Texas laws effective September 1, 1993.
In Texas, all property, including cash, is classified as community or separate property based on when and how it is acquired. To determine whether an asset is community or separate property, see FAQ, What is the difference between community and separate property?
If you die without a
will in Texas,
then your property is distributed based on its classification as follows:
The spouse will inherit all of the community property. 2/3 of your separate property goes to your children. The remaining 1/3 goes to your spouse. However, if the asset is real estate, it returns to your children upon the death of the surviving spouse.
Your children will inherit all of your half of the community property. The surviving spouse will keep her one half of the community property. Your separate property will be distributed the same way as in the previous paragraph.
Your surviving spouse will inherit all of your community property. Your separate property that is not real estate goes to your spouse. Separate real estate property goes half to your spouse, one-fourth to your mother, one-fourth to your father. If either parent predeceases you, that parent’s share will go to your siblings if they survive you. If none of your parents or siblings (or their descendants) is living, then your spouse inherits all of your separate real estate as well.
All of your property is distributed equally to your
children. If any child does not survive
you, then his share will go to his children.
If he or she does not have any children, then his or her share will go
to your surviving children. If the child of a deceased child has died, but has
left a child of his own, then that great-grandchild inherits
its parent’s share of
your estate, and so on.
Half your property will go to your father and half to your mother. If either parent is deceased, then your siblings inherit that parent’s share. If a sibling has died, but has left a child, that child (your niece or nephew) will inherit its parent’s share, and so on. If a sibling has died and has left no children, then your surviving siblings will inherit that sibling’s share. If neither of your parents nor any of their descendants survives you, your property will go equally to your grandparents. If either grandparent is deceased, then their descendants (your aunts, uncles and cousins) will inherit your property.
What is probate?
In Texas, probate can be a relatively simple process, if proper planning is done.
Probate is the court proceeding whereby your will
is recorded and it is determined that it meets all the legal requirements of
Probate is designed to protect the rights of heirs and creditors. It ensures that debts and taxes are paid and
that any remaining property is distributed and titled in the names of rightful
heirs. Without proper planning, it can
be a lengthy, complex and expensive process.
Texas law allows you to name an “independent” executor who may operate virtually free of court supervision. An independent executor does not need to seek court approval for most actions, while a “dependent” executor must seek court approval for all actions in administering the estate.
For various reasons
, that include
time, financial and privacy, many people
attempt to avoid probate administration.
While Texas probate is not the “nightmare” many fear or experience in
other states, there are legitimate concerns and reasons that one might consider
in avoiding probate or keeping some assets out of the probate process. Some of the methods of avoidance are
addressed elsewhere in other FAQs.
What is a trust?
A trust is a written expression of your estate planning
wishes expressed in a contract form. It is a private document and property
held in the trust does not
have to go through probate.
Advanced planning techniques allow for the creation of
trusts during your lifetime that are designed to make gifts of property,
both personal and real estate.
Basically, trusts are designed to provide flexibility and
privacy. You decide how much
want over your property and for how
Various types of trusts are described in other FAQs.
What is a “living trust”?
Do I need one?
A revocable intervivos trust, also called a “living trust”
is signed by you and declares yourself as the trustee and primary beneficiary
of the property held in the trust. The
trust would describe your power and
authority over the trust during your lifetime.
It would name a successor trustee to carry out your wishes if you become
disabled or after your death. You transfer your assets to the
trust, so that when you die, you own nothing that is subject to probate. (need to discuss a
pour- over will is generally used in conjunction with a
living trust. It picks up any assets
that were not transferred to the trust during the person’s lifetime and pours
them into the trust upon death. The
assets will generally be subject to probate
After your death, the trust continues on, but the
the persons you name. You can make elaborate
provisions for beneficiaries lasting for generations or you can provide for
distribution of the property outright upon your death.
Contrary to myths, this type of trust will generally not
produce any significant estate tax savings
. whatsoever on income taxes.
Moreover, the costs to establish a living trust may well exceed
the combined costs of
probate and a will in some circumstances.
As addressed in the FAQ, What is probate? Texas probate is not necessarily something to fear or avoid. Texas has a simplified procedure called “independent administration” that can be achieved simply by using proper language in a well-drafted Will.
What is a bypass
credit shelter trust?
referred to as a credit shelter trust
, avoids probate and also makes certain that both spouses use
their applicable credit amount. In 2003, estates
of $2,000,000 can be passed to children or other heirs, without probate
expense or death tax, by a married couple using this type of
trust. The value allowed is two times
the current applicable exclusion amount for an individual.
The applicable exclusion amount ($1,000,000 in 2002 and
2003) is the dollar value of the assets protected from federal estate tax
an individual’s applicable credit amount. It is scheduled to change as follows: $1,500,000 for 2004 and 2005; $2,000,000 for
2006-2008; $3,500,00 for 2009, zero federal estate tax for the year 2010; and
$1,000,000 for 2011 and thereafter (unless permanently repealed or otherwise
In practice, a bypass trust can
flexible and useful. However, the IRS
sets forth certain rules to follow in order to effectively save taxes with a
bypass trust. The IRS
precise language that may be used in a bypass trust so
that the trust is excluded from tax in the second estate. It is very important that you engage the
services of an attorney knowledgeable about federal tax law and your particular
set of facts and circumstances when drafting a bypass trust.
The QTIP trust allows the first spouse
die to specify who will receive his or her assets after the
surviving spouse dies. Use of the QTIP
trust also permits the deferral of death taxes on the assets until the death of
the surviving spouse.
QTIP stands for “qualified terminable interest
property”. The income earned on assets
in a QTIP trust must be given to the surviving spouse for her
her lifetime. After the
death of the surviving spouse, however, the assets then pass to beneficiaries
chosen by the first spouse to die , frequently
children of a prior marriage.
Even if there are no children of a prior marriage, some
use this type of trust to prevent a subsequent spouse of the survivor from
diverting or wasting estate assets. A
can only hold certain qualifying property
established by the IRS. For this
reason, it is often used in tandem with a bypass or credit shelter
What is a life insurance trust?
A life insurance trust is set up for the purpose of owning a
life insurance policy. The proceeds of
life insurance are rarely subject to probate, unless the insured’s estate is
the beneficiary or all of the named beneficiaries pre-decease the insured. If the insured is the owner of the policy, it will be
subject to estate tax when he dies. By
transferring ownership to a life insurance trust,
it is exempt from
estate tax. Either way, the proceeds
from income tax.
The IRS sets forth several restrictions on life insurance
trusts. You should consult an estate
or professional to determine if this
arrangement is desired in your estate planning.
What is a Crummey trust?
A Crummey trust allows
to make lifetime gifts to their children in order to save estate taxes. Thus, you may give a child up to $11,000 each year and the gift is entirely excluded from gift or
estate taxes. The limit increases
regularly to keep up with inflation.
Under the Uniform Transfers to Minors Act, you can make
these gifts to your minor children under a custodial arrangement. The child would have access to all of the
money at age
18, or in some states, 21.
To keep the child from having access to the money until he
or she is older, you must set up a formal trust. Your gifts are made to the Trust, with the Trustee (you can even
appoint yourself as Trustee) managing the investments. The Trust documents set
s forth how and
when the funds are to be distributed to the child. Some people elect to have the funds distributed in
steps instead of all at once.
As you might imagine, the IRS places restrictions on these
annual gifts in order to qualify for the exclusion from gift or estate
taxes. You must give the child
right that qualifies as a “present interest”.
In order to qualify as a present interest, the child has to have the
right to take the funds and spend them immediately. However, you can still maintain the exclusion while placing
significant restrictions on this right to spend the funds. The Crummey Trust is a common method of
doing this . A Crummy Trust gives the child the right to
withdraw the amount of each g ift for up to 30 days after it is made. The child has no rights to the income from that gift. This withdrawal right is considered a
If the child does not withdraw the gift within the 30 days, the right
lapses and the funds remain in the trust until the age you designate as the
The child can only withdraw the amount of the most
recent gift, not the entire trust. The
parent has the option not to make future gifts, if the child elects to withdraw
any funds during the 30-day period. The
other funds in the trust would remain protected and invested until they are
ready to be distributed.
One popular IRA strategy to maximize tax savings and preserve wealth for future generations is the “stretch out” IRA.
In simple terms, the IRA allows you to make tax-deductible contributions to a retirement account that is not taxed until you withdraw the funds. Extraordinary growth as well as the lure of a tax deduction for contributions and tax-deferment on growth has motivated many to take the smallest allowable distribution during a lifetime, especially if the funds are not needed for retirement.
At death, the IRA becomes subject to both income and estate taxation. However, with careful planning your beneficiaries can use the concept of a “stretch out” IRA by keeping his or her share in a tax-deferred environment for as long as possible while retaining the ability to take lifetime distributions.
It is especially critical that when setting up a “stretch out” IRA that it be coordinated with your estate planning. The wrong choices can defeat the entire stretch out IRA strategy. Critical issues include liquidity to pay federal estate taxes, the type of retirement accounts in your estate plan and beneficiary designations. However, these issues can be addressed with careful planning by an estate-planning attorney.
What is a power of attorney?
A Durable Power of Attorney allows someone to carry on your financial affairs if you are unable to do so, without the need for a guardianship proceeding.
A Power of Attorney for Health Care allows someone to make your medical decisions if you are unable to do so, without the need for a guardianship proceeding.
What is the difference between community and separate property?
In Texas, all property, including cash, is classified as
community or separate property based on when and how it is acquired. If you die without a
will, then your
property is distributed according to this classification. See FAQ entitled What happens if I die
without a will?
Community property includes:
· Earned income from the work of either spouse during the marriage.
· Dividends, interest, and capital gain earned on community property.
· Dividends and interest earned on either spouse’s separate property during the marriage.
Separate property includes:
· Earned income from the work of either spouse before marriage.
· Capital gain on separate property.
· Gifts and inheritances received by either spouse during the marriage, including joint gifts.
The classification of property is not affected, even if a particular asset is converted during marriage. The acquisition of an asset or the proceeds of a later sale (and anything later purchased with those proceeds) remains separate property. For example, you use $5000 of separate property to purchase a boat. The boat remains separate property whether it is purchased before or during the marriage. Later you sell the boat. The proceeds remain separate property.
However, you must be able to trace the proceeds to prove that it is separate property. This can be very difficult if you do not keep excellent records. In most marriages, spouses co-mingle separate and community property assets over a period of time and the separate property becomes “lost” in the community. Texas law then presumes all the property to be community, unless one spouse is able to trace the nature of the funds to establish it is separate property.
A particular asset can be a mixture of community property and separate property. For example, you use separate property to make a 10% down payment of $10,000.00 on a house worth $100,000.00 (either before or during marriage), but use community property during marriage to make mortgage payments. The value of the home then grows to be worth $200,000.00. 10% or $20,000.00 of that increased value is separate property, while the remaining 90% is community property. Again, Texas law presumes it is all community property, unless one spouse is able to trace the funds to establish its character as separate property.
The determination of whether an asset is community or separate property can affect both the distribution of your property when you die as well as estate and inheritance taxes. In addition, other laws such as IRS and insurance regulations can sometimes impact and override community property laws. You should consult with an attorney to discuss your particular set of facts.
What is joint tenancy property? Should I use a right of survivorship account?
Joint tenancy is a way of owning property (personal property
or real estate) in the name of two or more people.
Titl e or ownership
automatically passes to the surviving joint tenant(s) when one person
dies. Joint tenant property is not subject to
probate. Generally, one only has to
produce a death certificate in order to have control of the property. (One example is a joint bank account, with
right of survivorship)
There may be
income tax disadvantages to this
arrangement and the
joint tenancy is dissolved after one tenant dies. Creditors of either joint tenant can attach
the asset. It may also frustrate estate
tax savings that are anticipated from carefully drafted wills and trusts. Placing property in joint tenancy may
disinherit children or others since property held in joint tenancy passes to
the survivor regardless of what the will directs or who would inherit property
under state law.
What if I recently moved to Texas or plan to move from Texas?
Probate in many other states may not be as simple as in
Texas, as many other states do not allow for independent administration. For this reason alone, when moving to or
from Texas, you may need to re-write or amend your
Likewise, if you are moving from a common law property state
to Texas, which is a community property state or vice versa, you will want to have your
will and estate planning
documents reviewed. See FAQs, What
is the difference between community and separate property? What happens
if I die without a Will, and Who will get my property if I die without a
will in Texas?
What is the significance of beneficiary designations in retirement plans, insurance policies and financial accounts?
Coordinating the beneficiary designations for your various assets with your estate planning documents and correctly titling your financial accounts are very important. Failure to do this could void many of the desires you might express for the disposition of your property and conflict with what you want to happen.
Some assets are not
controlled by your
will, but are subject to the beneficiary
designations on record. These assets
include retirement plans and IRA ’s, life insurance policies, and
financial accounts that are held in joint tenancy with right of
survivorship. Examples of financial
accounts that might be held in joint tenancy with right of survivorship are
bank accounts, certificates of deposit, money market accounts and stock
These matters can easily become overwhelming. Failure to properly coordinate your beneficiary designations can result in unanticipated death taxes at your death as well as property passing in a way other than as you intend and as provided for in your Will.
For the same reasons that
it is important to review and update your Will and Estate Planning documents
from time to time, it is important to review your beneficiary
designations. Events that might
trigger a need for changing your beneficiary designations are addressed in
the FAQ When should I review
or update my
will or estate planning documents?
When should I review or update my
will or estate planning
You should review and update your
will and estate planning
documents periodically and at the minimum every 3 to 5 years, or
whenever one of the events mentioned below occurs. Often estate plans make allowances for potential changes in
business, economic or personal circumstances.
However, you cannot predict all the possible changes that might affect
your estate plan.
Here are some events that should prompt you to consider
will or estate planning documents and
reviewing beneficiary designations you have made for insurance policies, bank
accounts and retirement accounts.
· You change your mind about who you want to inherit specific property.
· You change your mind about who you want to manage your property if you are disabled or die.
· You get married.
· You get divorced.
· You have a new baby or grandchild.
· You have new stepchildren.
· A child has recently married or is newly divorced.
· You have a dependent with “special needs”.
· Your spouse, close family member or other beneficiary has died or becomes disabled.
· You acquire or dispose of significant assets, such as a home.
· You move to or from Texas.
· You, or your spouse, inherit valuable property, or receive a substantial gift.
A fiduciary named in your current
estate plan documents has died.
· You have made significant gifts to family members or charity, or are considering making such gifts.
· You have purchased or are thinking of purchasing life insurance.
· You have recently purchased joint tenancy property or created a joint tenancy bank account.
· You or your spouse retires.
· You start a new business, change jobs or careers.
· You form a business partnership, incorporate your business or think of changing the form and nature of your business.
· A partner, company officer or key employee has died or become disabled.
a buy-sell agreement that provides for the sale of your business interest when
you die or if you become disabled, or you are considering entering into such an
· You have implemented or terminated a pension or profit sharing plan for your business or consider doing this.
Even if none of these events happen you should still
reevaluate your estate plan on a regular basis to make sure your
will and estate planning
documents are current with changing tax laws and to ensure they are meeting
your needs based on your particular set of facts and circumstances.
Likewise, you should make sure that beneficiary designations in retirement plans, insurance policies and financial accounts are current and coordinated with what is expressed in your Will. See FAQ, What is the significance of beneficiary designations in retirement plans, life insurance policies and financial accounts?
You can make the most of the initial meeting if you begin to prepare in advance for the estate planning process by gathering information and considering the issues about which you will have to make decisions. Our firm provides prospective clients with a data gathering form, which addresses the information needed for an initial meeting. In the alternative, we suggest the following:
How do I prepare for an initial meeting regarding probate, estate or trust administration?
The death of a loved one, family member, or a close friend can be devastating. It is easy to put things off because dealing with them is too painful; however, it is important that certain actions be taken as soon as reasonably possible after a person’s death to secure all the assets of his or her estate. Proper and prompt notification to parties helps to ensure the integrity of the decedent’s estate.
We provide our clients with a very detailed list of items to be considered and actions to be taken upon a person’s death; however, some of the most basic items that an attorney will need in order to commence the probate are: