Wills & Trusts
Every person needs a basic estate plan to ensure their assets are distributed to his or her beneficiaries in the way they choose when they pass away. The basic estate planning documents include a will to control the allocation of your assets to your beneficiaries, a power of attorney appointing an agent for your person or financial affairs if you became incapacitated, a medical power of attorney that gives a trusted family member or friend the power to make medical decisions for you when you can’t make them yourself, a directive to physicians outlining how you want to be medically treated if you have an incurable illness, and a HIPAA release that allows selected family members access to your private medical records.
If you are concerned about financial privacy, are part of a blended family, or want to protect your assets from potential creditors, you should consider establishing a living trust in addition to the basic estate planning documents. A living trust offers several advantages over a will alone. A trust is a private document that is never filed with any court so your financial assets are protected from public view. Additionally, if you plan to leave the bulk of your estate to your spouse but have children from a prior marriage whom you want to benefit after the death of your spouse, a living trust that becomes irrevocable at your death will guarantee your plans are followed. Finally, a living trust places a substantial layer of legal protection between your assets and potential creditors who may want to attach your wealth. By placing assets in a trust, potential creditors cannot generally access them until the asset is distributed to a beneficiary from the trust.
Finally, for complex estates that may face estate tax issues, you should consider establishing a family limited partnership with trusts serving as the managing and limited partners. This arrangement can create an estate tax discount for each trust because family limited partnerships generally limit the transferability of assets and each trust holds an undivided minority interest in the family limited partnership assets. The estate tax discount can save or eliminate expensive tax burdens at the death of a family member. In addition, the family limited partnership places another layer of protection between your assets and potential creditors. Please call my office if you want more information about any of these estate options.
“Applying Collaborative Procedures to Will, Probate, Trust, and Guardianship Disputes,” Dr. Munsinger’s award-winning article describing the benefits of using the collaborative process outside of family law.
Wills and Probate
1. Do I need a will?
Yes, because almost everyone dies owning property so you need a will to make certain your assets are distributed in the way you wish. It’s best to have your will drafted without delay because the future in uncertain.
2. Can my will be changed?
Yes, you can change your will at any time by adding a codicil or having your attorney draft a new will.
3. What happens if I die without a will?
The State of Texas has laws that govern who will get your property if you don’t have a will. Generally your spouse and children will inherit your property. However, you may not be happy with how state law allocates your assets, so it is generally smart to have a will.
4. What is a personal representative?
Your personal representative handles the affairs of your estate after you are gone. He is responsible for collecting assets, paying debts, and distributing your estate to your beneficiaries according to the will.
5. Can I give my property to anyone I want?
Yes, but only within certain legal limits. Texas law protects spouses and children, and half your community property belongs to your spouse by law.
6. What are the requirements of a valid will?
In Texas a valid will must be in writing and signed by the person making the will before two witnesses and a notary. The person making a will must be 18 years of age or emancipated, and the will must be dated. The witnesses must be uninterested persons who take nothing from the will. A self-proving affidavit can be added to allow the will to be probated without bringing a witness into court to attest to its validity.
7. Who should draft my will?
Only an attorney can legally draft a will unless you write your own will. However, personally written wills are often incomplete and may be invalid. It is best to have a qualified attorney draft a will for you.
1. What is a living trust?
A living trust is an agreement between two parties (the trustor and the trustee). The trustor creates and funds the trust and the trustee manages the trust property. The trust may be established for the benefit of the trustor who created it or it can be for the benefit of the trustor and his family.
2. Who needs a trust?
Not everyone needs a trust, but many people would benefit from having one. For example, if you value privacy, a trust will allow you to keep your assets out of probate and public view when you pass away. Moreover, a trust offers extra protection against potential creditors and may offer estate tax advantages for complex estates. In addition, a trust can be made irrevocable so you are certain your wishes are followed after you are gone.
3. Is a will or trust best?
Many people need both for complete protection. Having a trust allows most of the assets in your estate to avoid probate and public view. However, you should also have a will to make certain any property you own that was not transferred to the trust goes to your proper beneficiaries.
4. Who drafts trusts?
Only attorneys are permitted by law to draft trusts. It is not a good idea for a person to write his own trust because it may be incomplete or invalid.
5. Should I put my house in my trust?
The answer is complex in Texas because of local property tax laws. If you are claiming a homestead exemption on your property taxes or if you are claiming an over 65 property tax exemption, you should not place your home in your trust because you will lose those tax exemptions when the house is owned by a trust.
6. Can I be my own trustee?
Yes, you can establish a living trust where you (and your spouse if you are married) act as trustee(s) and you and your spouse can be the beneficiaries as well.
7. Can I have access to my money in the trust?
Yes, an attorney can draft a trust where you and your spouse are the beneficiaries of the trust and can receive regular or discretionary distributions from the income and even the principal of the trust if you wish.
Family Limited Partnerships
1. What is a family limited partnership (FLP)?
An FLP is a type of business organization where management rights are held by a general partner, and ownership interests in assets are held by a group of limited partners. An FLP is a flow-through entity which means the income is passed to the limited partners and they pay taxes on it. A family limited partnership is a business entity where the limited partners are all members of the same family.
2. What is the purpose of a family limited partnership?
One purpose of an FLP is to allow members of a family to own an asset in common and manage it centrally. For example, if the family owns a ranch or a business, the parents can place the asset in an FLP and pass on part ownership of the ranch or business to their children as an undivided interest. At the same time, the parents can act as general managers of the FLP. In addition, the FLP can facilitate management succession of the ranch or business when the parents want to retire or when they pass away.
3. Are there estate tax advantages of a family limited partnership?
Yes, there generally are. Assets are valued for estate and gift tax purposes at their fair market value. Generally, transfer of an asset in an FLP may be prohibited unless all the family members agree. In addition, since each family member owns only a minority interest in the ranch or business, the individual limited partner’s asset is not as valuable as a controlling interest would be, so the minority asset interest is eligible for a minority interest discount from the IRS. This minority interest discount can save significant estate taxes at the death of a parent.
4. What are the benefits of a family limited partnership?
An FLP permits centralized management through the general manger and at the same time allows fractional ownership interests in the asset among family limited partner members. Another benefit is that transfer or reallocation of ownership interests among family members is easier with an FLP. Finally, because the ownership interests are clearly documented in the FLP agreement, it helps avoid family disagreements in the future.
5. Who can set up a family limited partnership?
Only an attorney may legally draft an FLP. Generally, families that want to own an asset in common or families with potential estate tax issues are good candidates for an FLP. The FLP allows the family flexibility in dividing the percentage ownership of a common asset, such as family business or a ranch and can offer a discount from the IRS at estate tax time.
6. What type of assets can I place in a family limited partnership?
Any type of property, business, or investment asset can be held in an FLP. A family-owned business, family-owned ranch, or an investment account all work well in an FLP. On the other hand, retirement accounts such as IRAs or 401k plans don’t usually work well in an FLP.
7. How do I know if a family limited partnership is right for me?
The best way to answer this question is to talk with an attorney qualified to draft FLPs. If your family owns a business, ranch, or investment portfolio, you are a likely candidate for an FLP.