Texas Probate

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. 

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.

A Texas Family Avoids an Estate Planning Nightmare

I met with a family from Garland, Texas today.  They were very emotional in telling me a story about a close family friend, Bob, spending his life savings on long-term nursing home care.  Bob has Alzheimer’s and no longer recognizes his family.  They estimated that Bob had spent around $400,000 thus far and that since his condition is worsening, they assumed that the remainder of Bob’s savings would be consumed by his nursing home expenses.

The family wanted to make sure that Bob’s situation doesn’t happen to them.  Their house is paid for and they have an IRA worth around $225,000 along with some savings and some stocks.  They know that they could not be forced to sell the home to pay for their nursing home costs, but that Medicaid can and will lien their home so that they can reimburse themselves for whatever nursing home expenses they pay on their behalves.

We introduced several options available to them and after discussions, we set up a Trust to protect their home and life savings from nursing home expenses. They were surprised how simple and easy it was to protect their assets. One of the key components, though, was their timing. You can’t set up the protections and expect them to work properly if you are on your way to checking-in to the nursing home.  The key is to get your Trust and planning in place while you are still relatively healthy.  It’s not really “planning” if you wait until you are on the doorstep of the nursing home.  In fact, it’s usually too late at that point.  

The family has the peace of mind of knowing that their assets, their home and their belongings are going to wind-up with their children and not go towards paying for nursing home expenses.  Few people have that luxury.  

They were also pleased to find out that since their assets are going to be placed in Trust, they are “doubly” protected from the probate process when they die.  In other words, the Trust avoids losing their assets to the nursing homes AND after they both pass away, their children won’t have to deal with lawyers, judges or courtrooms in order to have access to their parent’s accounts and things.  With their Trust, after the parents both pass away, their children will have access to their assets to pay for funeral expenses and to distribute their belongings and things without the need of lawyers or courts being involved in the process.  Even more peace of mind!


What Texans Should Know About Probate

I got a call from a Dallas couple today.  They asked a few questions that I thought I would share.  They had heard about Probate and how it should be avoided, but, they really didn’t know what Probate was.  So here’s what I told them:

Probate occurs whenever someone dies owning assets in their individual names.  An estate can go through probate with a Will and without a Will.  The main objective of probate is to change the title of assets from the deceased person to his heirs or beneficiaries.  The title of assets is generally held in the owner’s name. When the owner dies, his assets are frozen and cannot be transferred without the names on the titles being changed.  The probate court is almost always the only body that can change the title of assets from someone that has passed away.  In addition to changing the title, the probate court resolves disputes amongst claimants, approves payment of creditors, inventories assets, and distributes the assets with good legal title to the heirs or beneficiaries named in the will. If there is no valid will, the assets are distributed according to the Texas law of descent and distribution.  There are lots of disadvantages to Probate.  First, probate can be a long and painstaking process. Probate can take from several months to several years to complete.   Another major drawback of probate is that its proceedings and filings are a matter of public record. The probate court records that list your assets and their values and who receives your assets may be open to the public during the probate process and forever after.  And, once they are part of the public record, they find their way to the Internet.   This leaves the surviving spouse or other heirs vulnerable to financial scam artists who may have access to information relating to the surviving spouse’s and other beneficiaries’ inherited assets.

Probate will occur not only in the state in which you reside at the time of your death, but also in every state where you own real estate.  And, in some cases, the probate court may require your executor or administrator to post a financial bond to ensure that he fulfills his duties. Many states’ laws set the fee attorneys and executors can charge. They require that fees be a fixed percentage of the estate.  Using this method, fees can range anywhere from three percent to ten percent or more of your family’s gross estate.  In Texas, we have a vague “reasonableness standard”.  As a result, we sometimes see people paying a lot more than they should for the services that they receive.