Texas Estate Planning

Annuities: Watch Out!

A lot of our clients have Annuities among their assets.  An annuity is a relatively low-risk investment product, where the insured (usually, an individual) pays a life insurance company a lump-sum premium at the start of the contract. That money plus a return is paid back to the insured in fixed, incremental amounts, over some future period (predetermined by the insured). The insurer invests the premium; the resulting profit funds the payments received by the insured and compensate the insurer. Conventional annuity contracts provide a predictable, guaranteed stream of future income for retirement, etc. until the death of the beneficiaries named in the contract, or, until a future termination date, whichever occurs first.

Annuities are different animals.  Buyers of annuities are often faced with hefty penalties when they try to get all or some of their money out of their annuity in advance of its regular, agreed payment schedule.

What makes them even more unusual is that they have their own set of rules when it comes to qualifying for Texas Long Term Care Medicaid. The following is an analysis of several scenarios involving annuities and their treatment under Medicaid law.

Deferred Annuities. A deferred annuity is an annuity where the income is not paid to the insured (buyer) until some future date.  Deferred annuities have no place in Medicaid planning. Example: Mom has $85,000 in his savings account and $1,500 in her checking account. Mom has been admitted to the nursing home, and her family wants to protect the assets and qualify for Medicaid. Mom uses the $85,000 and purchases an $85,000 deferred annuity.  (The plan was to get the money out of their hands, i.e. convert it to a non-countable resource, so that they could qualify under Medicaid’s Asset Test, but keep the income for themselves by having it paid back in the future, presumably after Mom had passed away….bad idea.)  Mom then applies for Medicaid because she has less than $2,000 in her bank account. Mom is denied Medicaid eligibility because she owns the deferred annuity. The result will be that Mom has to surrender the annuity and pay significant surrender penalties, and then “spends-down” all of the money she received from the annuity less the penalties. Then, after she spends all of the remaining funds she would be eligible for Medicaid.

Single Person with Immediate Annuity. An immediate annuity is annuity where the income is paid to the insured (buyer) almost immediately.  John has $101,000 of savings and is about to enter a nursing home. He spends $100,000 and purchases an immediate annuity which pays John $1,000 per month for his lifetime. The immediate annuity is not considered a countable resource. John then applies for Medicaid because he has less than $2,000 of Countable Resources. John will pass Medicaid’s Asset test, but he must assign all of his income to the nursing home.  John's $1,000 monthly income from the annuity will go straight to the nursing home.  John has qualified for Medicaid by converting the cash into a non-countable resource, but, John’s family will not get any benefit from John owning an immediate annuity.

Married Couple with Immediate Annuity and Both Spouses in the Nursing Home. Same thing as the second scenario above. A married couple with both spouses in the nursing home will qualify for Medicaid if their combined assets are less than $3,000, but they must assign all of their income to the nursing home. They will qualify for Medicaid, but they will not receive the income from the annuity.

Married Couple with Immediate Annuity and Only One Spouse in the Nursing Home.  Mom is in nursing home. Dad stays in their residence. Mom and Dad have $215,000 of Countable Resources. The annuity salesman sells Dad an immediate annuity for $100,000 in an attempt to reduce Mom and Dad's assets below the Community Spouse Resource Allowance. Now, Mom and Dad have Countable Resources of only $115,000 and Dad has a monthly income stream. While Mom may qualify for Medicaid, the law provides that, the annuity must name the State as the remainder beneficiary for the total amount of Medicaid assistance paid on behalf of the institutionalized individual... If the state is not named as a remainder beneficiary in the correct position, the purchase of the annuity will be considered a transfer for less than fair market value.

Be very careful before purchasing an annuity as part of your Long Term Care Medicaid planning.  In some situations, the buyer of the annuity can end-up worse off than if he or she had simply maintained the cash.

Why LLC's Are Great Asset Protection Tools

Some of my clients need not only estate planning but business planning as well.  A lot of business planning is resolved by the use of LLC’s, or limited liability companies, whereby they are formed and then hold investment properties or rental properties as a way to protect other assets.

The idea of the LLC is to shield the individual and/or other LLCs and entities and their assets from any lawsuit arising from and against a property. For example, let’s say you own a rental property and your tenant slips and falls on the property and is severely injured.  He or she decides to sue you for the damages (medical bills, lost wages, pain and suffering).  If that property is in your individual name, the tenant would be allowed to sue you in your own name and any property that you own in your own name would be subject to his claims.  But, if the property was owned by an LLC, the tenant will have to sue the LLC and only the LLC’s property would be subject to his claims.  And, if the LLC’s only asset is the rental property, the tenant’s recovery will be limited to the property, and any lawsuit will not threaten all of your other assets.  Be mindful, though, that if the tenant was occupying the property prior to the property’s transfer to the LLC, he would likely still have claims against the owner, individually.

An LLC can be a very valuable tool when you own investment properties. LLCs allow you to protect assets and that is the primary goal of professional estate planning. If you would like to look into your needs when it comes to Dallas Estate Planning and whether business planning may also be helpful to you; call me at 214.220.2130 for more information or to set up a free consultation.

Life Insurance: Should it Be a Trust Asset?

Adam and Betty wanted to make their estate settlement simple for each other and for their two kids. Knowing that assets in their own individual names would have to go through a court proceeding called probate, they created a revocable living trust and transferred their stock, home, LLCs into their trust.  They wanted to avoid lawyers, judges and courtrooms. 

Adam and Betty had heard that life insurance policies, IRAs, 401-Ks and annuities automatically avoid probate by their very nature because they are paid to the account’s beneficiary.  So, they didn’t transfer their life insurance policies to the trust.  Adam passed away. The insurance company immediately tells Betty that the insurance company needs a court order from the probate court. What?

Because life insurance agents used to believe that there would be some estate tax savings, the insurance agents would write the insurance applications in a way that the husband would own the life insurance policy on the life of the wife, and the wife would own the policy on the life of the husband.

So, when Adam died, it was determined that Adam owned the policy on Betty's life. When Betty dies, the death benefit will be payable to Adam (or Adam's estate). In either case, Adam's probate is necessary to collect the death benefit when Betty dies. In addition, if the policy that Adam owns has cash value, Betty will not be able to access this cash value until the policy’s ownership gets transferred by the probate court proceeding.

Had they transferred their life insurance policies to their trust prior to Adam's death, probate would not have been necessary. After Adam died, Betty, as the sole trustee, would have been able to access the policy’s cash value or change the beneficiary. But since they assumed that life insurance avoided probate, they ended up being required to complete Adam's probate to correct the life insurance problem, even though all of their remaining assets avoided probate.

If you would like to review your life insurance policy ownership and determine your best options, contact us at 214.220.2130 for an appointment. 

A Trust is the Solution for Dallas Grandparents

A Dallas family asked me a few questions during a free meeting the other day.  They are contemplating setting up an arrangement for their estate. Their goals are to make everything as simple as possible for the surviving spouse, whomever it is; have both of their children involved with their estate, avoid Dallas County probate court after they pass away; and make sure that the money they leave to their grandchildren will be used for good.

We are going to create a revocable living trust for them so that after the first of them passes away, the surviving spouse is the sole trustee and is in complete control of everything, no assets or titles will be frozen, the survivor will have immediate access to do what needs to be done and there is no need to deal with lawyers, judges or courtrooms; their two children will be the Successor Co-Trustees after both parents die, and since there will be no probate, the children can immediately sell their home after the parents pass away; and third, instead of handing $150,000 to each of their grandchild, when they pass away (encouraging possible bad habits from the grandchildren), the grandchildren's parents (their children) will serve as the trustees of the trust for the grandchildren. The parents will have total discretion regarding what the money is used for, and the grandchildren's parents will transfer the inherited funds to the grandchildren when the grandchildren show adequate maturity and financial responsibility.

Have a similar need?  Contact us at 214.220.2130.


Getting Your Estate Legal Affairs in Order Means More Than Legal Documents

One of the most important things you can do for your loved ones is to make sure all of your affairs are in order, not just your estate legal documents.  Here are five additional things that our clients do for their families to ensure a simpler, less stressful estate settlement process:

A List of Your Friends. There's a section in your Estate Planning Portfolio where you can list the names, addresses, and telephone numbers of your closest family members and friends.  Everyone seems to have friends that they want notified but sometimes they are such old friends, that the family isn’t aware of their names and contact information.  Don't leave your family with the job of having to track them down.  Put them in your Portfolio so that the work is done ahead of time and keep it up to date.


Funeral Instructions.  One of the sections in our clients’ Estate Planning Portfolio is for funeral and burial instructions. Documenting your detailed wishes for your preferences (traditional or veteran’s funeral, traditional or graveside service, traditional burial or cremation, type of casket, type of urn, cemetery location, mausoleum or grave, etc.) in the appropriate section of your Estate Planning Portfolio makes things so much easier on your family.  I know from personal experience that trying to determine what a family member would have wanted is an extra layer of unnecessary stress and worry.



Instructions to Your Executor / Successor Trustee.  There's a section in our clients’ Portfolio that has detailed instructions for the people that you designated to handle your estate, legal, tax, and financial affairs after you have passed away. You simply need to let that person know of the existence and location of your customized documents and your Estate Planning Portfolio and they'll be able to find the section that contains their instructions on what to do.


Organized Asset Information. How can your family adequately help manage your estate and your assets if they don’t know they exist?  You can have the most superior set of estate legal documents, does not have detailed records, you will leave them in a frustrating situation.  This will delay your estate settlement because no one will ever know if there is another account or asset out there that will be uncovered at a later date.  Your family will want and need closure.  In our clients’ Portfolio there is a section to list the assets so that your family won’t have to make any guesses in settling your estate.



Your Estate Planning Letter to Your Heirs.  You can communicate your wishes to your family regarding the distribution of your personal effects, such as jewelry, paintings, tools, watches, furniture, and other personal non-titled items. For some, making sure the personal effects go to the correct person is more important than the division of money and other non-personal assets. It's easy to divide $100,000 between four grandchildren, but families have been known to fight over personal effects which had far less fair market value than other estate assets.  Describe your wishes and your feelings to your surviving wife, husband, children, or other loved ones.

If your estate planning legal documents are the only part of your estate plan, you've missed out on an opportunity.  Having a customized set of estate planning legal documents is critical to the process of settling your estate, but having supporting letters, records, and instructions can be the key to making things easy on your family.  Almost every client we have ever had wants that for his or her family.

Contact us at 214.220.2130 to discuss your estate planning options.


Asset Protection Secrets Revealed

Here’s yet another story on why avoiding probate is a good idea.  I represent a North Dallas, Texas man whose wife died in an auto accident.  She died “intestate” meaning without a Will.  In fact, she didn’t have any estate planning in place.  She didn’t have a Will, Trust, Power of Attorney, Medical Power of Attorney, Advance Directive / DNR (Do Not Resuscitate Order) or anything else.  It just so happens that the wife purchased their family home before she and her husband married, making it her separate property and not their community property.  The difference is really big in the eyes of the law.  The husband wants to sell the house and move out-of-state near his parents so that he can get some help raising their young children. 

Under the Texas Law of Intestacy, and the law of Descent and Distribution, since the house was separate property, the children will receive ownership of the house subject to the husband’s life estate.  But, since they are minors, the court is going to likely require that the estate be administered, that a guardian ad-litem is appointed for the children, and the court will scrutinize any sale of the house to make sure that the children’s best interests are protected.  In short, the process is going to be long, expensive and frustrating because of the court oversight.

Since she didn’t have a Will or a Trust or any other legal planning, we will never know what the wife wanted, but, like most people, we believe that she would have wanted it to be easy on her husband and children and not lengthy and expensive.  Her husband is now in a real bind because he has to continue to make house payments on the house note while he pays rent on a rent house down the street from his parents.  It will likely be six months before he’s in a position to put the house on the market and, the process is even more complicated because he’s now living out of state and has to travel back and forth to Dallas for court.

If they had been clients of ours before the wife passed away, through the use of a Trust, the husband could have sold the house immediately without the delays from court intervention or oversight and without legal expense.  They would likely have had a Will too, but as a “secondary” document, with pour-over provisions.  That means that their primary estate planning tool would have been their Trust with the Will serving as a back-up.

It’s a sad story made even sadder by the predicament that the family is left with.  The frustrating thing is that it all could have been easily avoided.  If you want your family to avoid complications like these, contact our office so that we can speak about the options available to you.

Donald R. Jones, Attorney

The Jones Law Firm

3109 Carlisle St., Suite 100

Dallas, Texas 75204

214.220.2130 office | 214.220.2131 fax





Little Known Facts About Medicaid and Your Home – And Why They Matter

I helped a couple today from Irving, Texas.  It’s a really sad story.   Betty has Alzheimer’s and has moved in with her brother and his family.  Before moving in with her brother, Betty got some really bad advice.  She had heard that in order to qualify for Medicaid and to have Medicaid pay for her nursing home care, she couldn’t own a residence in her name.  So, she deeded her residence to her son, Larry and daughter-in-law, Rachel.  A few years ago, the Larry borrowed around $500,000 from a local bank to start a new business in Dallas.  The bank required that Larry and Rachel both personally guarantee the loan, which they did.  The business recently stopped making payments on the bank note and closed its doors.  In order to protect their assets from the bank’s collection on the personal guarantee, Larry and Rachel had to file personal bankruptcy.  Since Betty’s house is now in Larry’s and Rachel’s name, it has become an asset of their bankruptcy estate and will likely be foreclosed upon to pay the bank.

Had Betty consulted with us, we would have advised her against deeding her home to Larry and Rachel for the very reasons that occurred.  There are several ways that she could have qualified for Medicaid and maintained control and ownership of her home.  Most of them involve the use of Trusts.

If you are interested in learning more about protecting your assets and your home while qualifying for Medicaid, contact us for an appointment.

Don’t Be Fooled by Remarriage and Asset Protection

I helped a Mesquite, Texas couple today with their estate planning needs.  The husband has had some recent health issues.  He had a few questions about protecting their assets if he passed away first and his wife decided to remarry.  He wants to make sure that their kids receive their estate’s assets and that they don’t go to a new husband or the new husband’s family.

Their questions reminded me an old, silly joke:  Fred and Wilma are sitting together on their front porch one day.  Fred asks Wilma out of the blue “Wilma, if I were to die, would you remarry?”  Wilma said “Fred, don’t be silly, you are in great health.”  Fred said, “I know, but would you?”  Wilma said “Maybe so.  We’re still pretty young.”  Then Fred asked, “Would you let him live in our house?”  Wilma replied, “Fred this is weird.”  Fred said, “I know, but would you?”  Wilma said, “I guess so, its paid for.”  Then Fred said, “Would you let him drive my truck?”  Wilma said, “Fred, can we stop this?”  Fred asked her again.  Wilma said, “I guess so.  It would just be sitting there I suppose.”  Then Fred said, “Ok, one more.  Would you let him play with my golf clubs?”  Wilma replied, “No.”  Fred said, “Why not?”  Wilma said “He’s left-handed”.

It’s a silly story designed to illustrate that affairs and remarriage happen.  Protecting your assets from remarriage for the benefit of your children is one of things that we do at The Jones Law Firm.  There are several ways to do so and they all involve the use of Trusts.

Contact us at The Jones Law Firm to learn more.