Things You Need to Know About Estate Planning

Want to save yourself 3 hours of a hard-sell at a “free educational seminar” on estate planning?  Here are the short answers to the teaser questions in that unsolicited mailing you received.

Will or Trust?

A will is a writing that does not become binding until after you die and the document is accepted by a judge in a court probate proceeding.  The will disposes of all of the assets that pass through your probate estate.

A trust is a document that is effective upon your signature.  It names a trustee who can hold, invest and disburse assets that have been transferred to the trustee, all per the terms of the written trust.  A trust does not have to be approved by a judge, and can be in effect during your lifetime and after your death.

If you put a trust into your will, then the trust does not become effective until your will is admitted to probate.

Everyone needs a will; most people do not need a trust.

What Happens In Probate Court?

This is a court proceeding to handle your estate after you die.  In Texas, properly prepared documents can lead to a simple probate. To avoid a probate proceeding, most people have a trust or use documents such as beneficiary designations, Transfer on Death Deeds and Survivorship Agreements.

Gifting to Children to Avoid Probate.

Do not do this if the child is a minor, a spendthrift, a druggie, or on government assistance.  Do not do this if you may eventually need the asset or money that is being gifted. In fact, there are very few valid reasons to ever do this.

Next Spouse Protection.

Talk about control beyond the grave.  If you truly want to protect your children’s inheritance from your surviving spouse’s next spouse, the typical plan is to put assets into some type of family partnership, trust, or corporate entity with buy-sell agreement.  Your spouse will have to agree to the plan – otherwise you will only be able to protect your separate property and your share of the community property, and even those could be whittled away by your spouse’s statutory rights.

Asset protection.

Admirable goal.  The less exotic options are insurance, irrevocable trust (from a state that allows it to be asset- protected), marital agreement and Limited Liability Company.

Special Needs.

If leaving money to a disabled person, the traditional solution is a Special Needs Trust.    Simple but effective.

Long Term Care Planning.

Self-fund, buy a Long Term Care Insurance policy, or do some Medicaid planning.

Estate Taxes.

Texas does not tax estates.  The federal government estate tax and gift tax exemption is $11.58 million per person.   If you have more than that, get professional tax advice.

Legacy Planning.

This is squishy terminology used by financial planners, insurance salespeople and lawyers.  Sort of estate planning meets family counseling.

Congratulations!  You just saved yourself 3 hours of a boring power-point presentation, indigestion from a rubber- chicken meal, and thousands of dollars purchasing a one-size-fits-all trust with a pretty binder.