Texas Estate Planning Attorney

How to Protect an Inheritance from Your Children’s Divorces

I was working with a couple who wants to make sure that their children do not lose their inheritance if the children get divorced.

Neither of the two children are married, but both children have "significant others" and the couple anticipates marriage is coming up for each of their children. They fear that one of their children will continue to invest in their spouse's business.

We discussed the options that are available to the couple. We are setting up their estate legal program so that when the children inherit, they will inherit in a trust - we call this trust the Children's Inheritance Trust.

By having the couple leave their estate to their two children's Inheritance Trusts, they make it more likely that the inheritance will be kept separate from any community property that the child may have with their spouse. If a child subsequently gets a divorce, then the child will keep their trust because the trust will not have been commingled with the assets that the child acquired with their spouse.

Most families these days have divorce circumstances. If you want to set up an estate legal program so that your children's inheritance is protected from their past, present, and future divorces, give us a call to start a conversation about the easiest ways to protect what you've worked to build.

 

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.

 

Need for Probate Can’t Be Swept Under the Rug

I was consulted on an estate question today from a family in Forney, Texas.  I haven’t previously represented the family. 

Their Mom passed away about two years ago and her Probate was never complete.  After she died, the family assumed that probate wasn’t necessary or required because Dad has no plans to sell the family assets, their house or other real estate or stock, and he already had access to their bank accounts.

The problem is though that Mom had two heirs that have recently passed away. These two heirs each have several heirs, a couple of which are estranged, a couple of which are real “pieces of work” and one of which that is in jail.  Now, completing Mom's probate might be difficult.  To top it off, the successor heirs are jealous and will likely make the proceeding difficult for the sake of being difficult.  All of their expected shenanigans could have been totally avoided if the family had elected to go through the probate shortly after Mom died.

Some Texas families often mistakenly believe that if they ignore the necessity to complete a probate long enough, then the need will just go away.  But that is a false assumption.  The truth is the longer a family waits to complete a probate, the harder it will be.

I wish that the family had been clients of mine before they decided to use an attorney that recommended that a Will serve as the centerpiece of their estate plans.  If they had been clients of mine, I might have been able to show them the benefits of a revocable living trust and how it could have avoided the need for probate altogether.  Then their delay in completing the probate process wouldn’t have mattered since a trust would likely have removed the need for probate altogether.  

If you have an interest in completing a probate so that property or investments can be properly re-titled after the death of a family member, or if you would like to avoid the need for probate altogether, give us a call and we can have a conversation about how easy it can be.  Remember, the real goal should be to make it easy on everyone.  No Lawyers, No Judges, No Courtrooms.

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.

Simple Steps Texas Couple Takes to Avoid Estate Planning Nightmare with Son’s Blended Family

Today, I helped a man and his wife from Dallas, Texas.  They have accumulated a real estate business that is worth $5-6 million.  They have one child, a son, who is in his late 40’s.  The son has 2 children from his first marriage and is engaged to a girl that has 3 children from her first marriage.  They are NOT fond of the new fiancé and want to make sure that she doesn’t wind-up with their estate or assets.  They really like the fiancé’s 3 children but don’t want their estate to go to them either.  They want to make sure that it is preserved for their son and his kids rather than his new wife and her kids.  And, they don’t feel guilty or selfish in handling it this way since they understand that the fiance’s ex-husband is wealthy and has already done some estate planning for his 3 kids.

They are more concerned, though, that that if his son received this large estate all at once, then it might do more harm than good, because he has always spent more than he has had. So we discussed arranging an estate plan so that after the husband and his wife pass away, the estate will remain in trust for the benefit of the son. The son will receive annual distributions from the Trust. When the son passes away, the remaining assets will remain in the trust for the benefit of the son’s 2 children. The new daughter-in-law would not inherit or receive anything from them, nor would her 3 children.

You too, can make sure that your assets stay in your family, and out of the hands of new spouses and their children by reaching out to us.  Contact us so that we can have a conversation about how simple it is to get things set up the right way - the first time.

Call us at 214.220.2130. 

Donald R. Jones

www.JonesEstatePlanning.com

www.GetMyAffairsInOrder.com

www.NoLawyersNoJudgesNoCourtrooms.com  

 

What Many Texans Don't Know About Trusts and Avoiding Probate

We often have clients that want to avoid Texas Probate. They can often do so by utilizing a Revocable Living Trust and re-titling their assets in the name of the Revocable Trust.  But what a lot of people don’t know is that some assets, like IRA's, annuities and life insurance, by their nature, don’t need to go into a trust to avoid probate.   These types of assets and a few others are established as payable to pre-determined beneficiaries. In other words, the beneficiary is designated at the time the account is established. Provided that the beneficiaries have been properly designated, it isn’t necessary that a Trust hold their titles.

There are other types of assets that do not have to be transferred to a Revocable Living Trust so that probate can be avoided.

1. Personal Items and Effects.  Since your personal belongings are not titled (i.e. there is no deed like you would have with real estate assets, or certificate of title like a motor vehicle would have), family members usually divide personal effects amongst themselves after the death of a loved one without the involvement lawyers, judges or the court.

2. Checking and Savings Accounts.  By giving an adult child signing authority upon your checking account, after the last spouse passes away, that child can have immediate access to the account so that he or she can pay for funeral expenses, close the account, and divide the funds between your heirs.  All of this can be done without the involvement of lawyers, judges or the court.

3. Vehicles.  If the person you want to ultimately receive ownership of your car provides the Will or a photocopy of the Will to the Texas Office of Motor Vehicles, they will transfer the title after death without court intervention.

If your goal is to make things easy on your spouse and your children, and/or to set things up so your family doesn't have to deal with lawyers or judges or participate in the lengthy and costly court probate process, then the assets that would typically require court involvement must be in a trust.  These types of assets include real estate, mineral interests, stocks, Certificates of Deposit, ownership in limited liability companies or corporations, other business interests, and non-IRA investments.

Since many people have a large portion of their estate in retirement accounts, it's fairly easy to avoid probate by retitling the family home and other probate assets to your trust.