Many people have a will and think that their estate plans are complete. A comprehensive estate plan will include a will or trust, a financial power of attorney, (commonly called a durable power of attorney), a medical power of attorney with HIPAA compliant language and a directive to physicians, commonly called a living will.
There are six common issues that may occur throughout your life that require you to update your estate plan. These issues are discussed below.
If you have a minor child you need to update your estate plan to provide a guardian for the child. If you do not choose the guardian for your child the court will do it for you without your input! This can result in chaos for the child and everyone involved. You are the person who knows who is the best person to be the guardian for your children. You need to make the choice!
If you leave a portion of your estate to a minor child or an incapacitated child, you will want to leave it in a trust with a trustee in charge of those funds. You can control how the beneficiary receives the property/money and when, or if that beneficiary receives the property/ money free from trust. Do you have a spendthrift child or spouse? If so a trust which includes management for the life of the child and then a beneficiary for the remaining funds after that child dies could resolve that problem. You would not want your child or spouse to be left to depend on the charity of others. Don’t allow them to deplete their funds without regard of their future. It is your money and your loved one. Protect both.
When you get married, your estate plan will change. Prior to marriage you will probably provide for your assets to go to your parents or friends. Typically, after marriage people sometimes want their assets to go to their spouse. After you are married, you need to update your estate plan to reflect this change. If you get remarried, you should update your estate plan as well. Many times there are children from previous marriages, and you need to choose how the assets will be divided among beneficiaries. By planning your estate, it will be executed smoothly. If you do not update your estate plan, the estate can be tied up in court for years and leave beneficiaries to fight among themselves. One recent case is still pending and the person died in 1993! The parties involved are the deceased’s second wife and his children from his first marriage. Prior to the division of the property the parties involved “had a great relationship.” It is essential that each individual makes clear the way that they want their assets to be divided. Protect your loved ones and preserve peace in the family by setting out a plan for their future, a plan they cannot influence, or alter.
3) Increase in Wealth
Many people set up their estate plan when they are younger and have fewer assets. As they grow older, their assets appreciate and they may, without even realizing it, approach the personal exemption for the estate tax. The government gives each citizen a personal exemption from the estate tax. A married couple can set up a by-pass trust and double their exemptions, thus passing twice as much to their beneficiaries free from estate tax. When calculating the estate value for estate tax purposes life insurance proceeds, retirement accounts, bank accounts, real estate, and personal property are all included. Many people believe that choosing a beneficiary for these plans or holding joint accounts excludes the asset from your estate. This is incorrect. These steps may allow the asset to avoid probate, thus bypassing the beneficiary designations in your will, (which may or may not be your intention), however, it will still be included in the estate for estate tax purposes. Given the appreciation of home values and retirement accounts many people are approaching the personal exemption and need to set up bypass trusts to preserve both spouses’ personal exemption as well as pursue other options to avoid paying the estate tax. By setting up a bypass trust, an individual can save estate taxes.
4) Non-Citizen Spouse
Many people do not realize that a non-citizen spouse does not receive the unlimited marital deduction that citizens enjoy. This means that if a citizen spouse passes away and the citizen spouse has assets of over the $5,000,000 personal exemption, the estate tax is due immediately. This can be burdensome since the assets may be in real estate or retirement accounts and may not be liquid. It could force liquidation of assets in ways that are not tax advantageous as well as liquidations where the market is in flux. Congress has altered the rules applicable to non-citizen spouses in the following ways, (all discussed in more detail below):
The unlimited estate tax marital deduction for transfers to non-citizen surviving spouses is disallowed, unless such property is placed in a qualified domestic trust (QDOT);
The unlimited gift tax marital deduction for transfers to non-citizen spouses is disallowed, but the annual exclusion from the federal gift tax is increased;
The full value of jointly held property is included in the estate of the U.S. citizen spouse; and
In certain situations where one spouse is a non-citizen the creation or termination of a joint tenancy can create a tax problem. Any family that is approaching the personal exemption needs to address this issue.
Additionally, a non-citizen spouse may have assets located outside the United States. It is important to carefully plan for these assets to assure that they are given to the proper beneficiaries. This planning includes coordinating United States law, the law of the foreign jurisdiction and applicable treaties between the countries.
5) Health Care Power of Attorney Executed Prior to 1996
In 1996, Congress enacted the Health Insurance Portability and Accountability Act (HIPAA). The result has been that it is much harder for other people to access your health information. Unfortunately, this has been interpreted in many different ways by different hospitals and has resulted in friends and family being denied access to their loved ones information when they are attempting to help. The easiest way to remedy this is with a health care power of attorney that clearly states that the agent is authorized for purposes of HIPAA to view the medical records. If an emergency occurs, it is essential that your agent has access to the proper information to make the right decision for your well-being. If you have a power of attorney executed prior to 1996, it is critical that you update this document! If your current health care power of attorney does not include HIPAA language, or designation of those to receive health care information which complies with HIPAA, you should update or replace your current document.
6) Death of a loved one
Many times we establish our plan and then fail to review the plan when a loved one dies. If it is our spouse, we have commonly left property to our children, but in the case of a childless marriage, or a blended family, questions invariably arise. When a child dies, we assume his share will automatically go to his children, but it may not without having made provision in your will. What if you wrote your will when none of you children had children of their own? Remember, your estate has to go somewhere. Make sure it goes where you want it to go, not where the State of Texas says it must go if you do not leave instruction to the contrary.
The content of this article and any referenced pages or websites, have been written or located for informational purposes only and should not be relied upon as legal advice. Legal advice of any nature should be sought from legal counsel. This information is not intended to create, and receipt of this information does not constitute, an attorney-client relationship.
THIS ARTICLE IS FOR INFORMATION ONLY AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. This does not constitute the establishment of an attorney client relationship between you and this lawyer. Most information is of a very general nature and cannot attempt to cover all fact situations. Nothing contained in this web site should be construed to constitute a recommendation of any product, service, or web site.
Weston Cotten is admitted to practice in all Texas Courts, all Federal District Courts in Texas, and the U. S. Tax Court, though not certified as to any legal specialization. He is a member of the College of the State Bar of Texas.
Feel free to call the office of Weston Cotten, Attorney at Law, with any questions you may have, or visit www.westoncotten.com.
Legal Disclaimer: Unless otherwise indicated, the author is not certified by the Texas Board of Legal Specialization. (Translation: I have not taken and passed a test in any area of legal specialty, but am licensed to practice law before all Texas State and County Courts and several Federal Courts).
The principal office of Weston Cotten, PC is 5223 Garth Road, Baytown, Texas 77521, office phone is 281-421-5774.
Please visit his website at www.westoncotten.com, or call at 281-421-5774. Office located at 5223 Garth Road, Baytown,77521.?