There is never a bad time to start planning for the future. Unlike other aspects of your financial plan, such as budgeting, portfolio rebalancing and life insurance, which all play valuable roles in one’s financial strategy, many seem to overlook the importance (and benefits of) a comprehensive estate plan. Estate plans generally work through Texas’ Probate Court system—this court system also administers some family law matters. But the advantages to preparing an estate plan in advance become clear when one considers the significant time and expense that can accompany an unprepared estate. Indeed, probate time lines for Travis County (the county that serves Lakeway) routinely exceed 18 months. This often translates to increased costs and unnecessary time and stress.
Probate does not need to be this way, however. Even small steps in estate planning can have outsized effects on the process’ biggest headaches. It is common people to express discomfort when discussing topics such as death or incapacity. We understand this. However, sometimes we must confront these uncomfortable topics head-on in order to protect the interests of the ones we love.
To learn about some of the estate planning strategies and terms that can help your loved ones, please review our brief estate planning overview below.
Estate planning is really quite simple: it is the preparation for the disposition of one’s property in case of that person’s death or incapacity. Put another way, it is the legal instructions for one’s property after his or her death or incapacitation. An “estate” consists of the entirety of one’s assets and liabilities, including bank accounts, art collections, real estate, debts, mortgages, vehicles, etc. An estate plan allows a person to choose how, when, and to who his or her property is distributed. Property can be split evenly among heirs, gifted to a charity or educational institution – the possibilities are endless. These wishes are collected together into an “estate plan,” which will typically consist of a Last Will and Testament, but can also include a host of other documents and instruments, which we will discuss below.
Similar to an investment strategy, an estate plan may need to be revised as one’s circumstances change over time. Circumstances such as the birth of a new child, a recent marriage, or a divorce, are all good reasons to dust off a prior estate plan to ensure that it conforms to one’s current wishes.
A Power of Attorney is a powerful type of tool the allows one to express their wishes in the event that he or she becomes incapacitated before passing away. Basically, it allows another person to make decisions for you when you cannot make them yourself. Recall the (in)famous case of Terri Schiavo; the absence of a Power of Attorney in her estate plan played a part in the protracted court battle between her husband and her parents concerning her choice of end-of-life care.
Two factors have significantly contributed to the increasing importance of the Power of Attorney in recent years. First, more sophisticated life support systems now allow medical professionals to maintain those who would have otherwise passed away in earlier times. Second, rising incidents of Alzheimer’s and other degenerative diseases mean that a growing number of Texans will lose legal capacity at some point in their lives. When a Power of Attorney is incorporated into an estate plan, the testator (estate owner) can dictate who will be permitted to act as one’s attorney and what, if any, limits will be placed on that individual’s decision-making authority.
Legal instruments related to the Power of Attorney are the Medical Power of Attorney and the Living Trust. These documents generally provide instructions for end-of-life care, medical information disclosure (HIPPA) permissions, or instructions in case the person has fallen into a temporary non-communicative state. A common provision in Living Wills is for certain medical care to occur at a preferred health care facility, or the prohibition on certain types of medical care.
The will is often the backbone of any effective estate plan. A will is a document executed by an individual (the testator) that directs the executor (the will’s manager) to distribute the testator’s property after his or her death. Following the testator’s death, the will enters probate, where the judge will oversee the executor’s distribution of property. When a person dies without having created a will, that person is said to have died intestate. Many of the common issues in probate court result from an individual’s intestate death, which demonstrates the need for a will, especially when significant assets are involved. Additionally, when one dies intestate, the state’s default probate rules will control the distribution of property, which may or may not conform with the intestate’s wishes. For these reasons, we strongly recommend that all estate plans begin with a robust will and Power of Attorney.
Though many think of trusts as a legal document or a company, it is neither. A trust creates a fiduciary relationship between the grantor (the trust’s creator), the trustee (the trust’s manager) and the beneficiaries. The grantor will “fund” the trust with assets and set the terms by which the trustee must manage those assets for the benefit of the beneficiaries. The operation of a trust has a few key differences with that of a will. Principally, a will distributes the property of which the testator has legal title. For example, a will could distribute the testator’s car if he or she has legal title to it. A trust, however, retains legal title to its own property. When the grantor funds the trust, he or she is actually transfer legal title of that property to the trust. Additionally, with trusts, the grantor may simultaneously be the trustee and the beneficiary, which can lead to some tax advantages. These differences may make the inclusion of a trust a good choice for some advanced estate plans.
If you would like to learn more about how an estate plan could help achieve your goals, contact a Lakeway attorney at Kirker | Davis LLP to schedule a meeting with an estate planning attorney today.