The State of Texas has your back.

It has a law specifically crafted to cover procrastinators and other good folk who have not found time to write a will.  Yes, that’s right – the State of Texas has written your will for you.  Your heirs are going to be so pleased.  They will bless your name for generations.  Or not.

Your heirs’ inheritance depends on the existence of other family members.  If you die without a spouse, then everything  goes to your children and their descendants.  If you have no children, then it goes to your mother and father in equal portions if both are still alive – if not, then the deceased parent’s portion goes to your brothers and sisters and their descendants.  If both parents are deceased, then the entire share goes to your siblings.  If you die without surviving spouse, children, parents and siblings, then we go up the ladder to your grandparents and back down to aunts, uncles and cousins.

Adopted children can inherit from parents, but parents can’t inherit from adopted children.  Some cases allow foster children to inherit as if they were adopted.

If  you die and you have a spouse, it’s a whole ‘nother game.  If you have children, then your personal estate is divided  1/3 to your spouse and 2/3 to your children.  Your land goes to your children, but your spouse is entitled to a life estate in 1/3 of the land.  If you don’t have any children, then all of your personal estate and ½ of the land goes to your spouse, but the other ½ goes to your other heirs (see the paragraph above).

Now let’s throw in community property laws.  After all, if you are married then everything you own is considered community property – so you really only own an undivided half of the marital estate.  Your share gets divided up – but your spouse keeps the other half.  Pretty soon you are dealing in 1/16^th property interests among distant relatives.

The only worse thing than dying without a will is dying with a poorly written will.  I refer you to Bleak House by Charles Dickens,  a not-so-fictional piece of work about a probate case that outlasted a generation of lawyers.  The State of Texas could not have done better.

Dogs, cats, horses, iguanas, parrots.   What will happen to your pets when you die?

This is a big issue.  Even the  Texas Supreme Court has recognized the strong ties between owners and pets.  Justice Willett, writing for the Court in  Strickland v. Medlen, said  “Over 50% of pet owners say they would rather be stranded on a deserted island with a dog or cat than with a human…… American pets now outnumber American children by more than four to one…. many animal owners view their pets not as mere personal property but as full-fledged family members, and treat them as such…”

So how do you provide for care of your pet?  Well, you can’t leave money directly to a pet.  You shouldn’t leave money outright to an individual to take care of a pet.  What’s left?  A pet trust, of course.

Texas is one of several states that officially authorizes pet trusts.  The trust can be contained in your will  or set up through a separate document.   There is an advantage to having a separate document because it can provide that the care for your pet starts on your disability, not upon your death.

You then fund the trust directly or through your estate.  The amount of money should take into account your pet’s current standard of care – food, treats, daycare, veterinary care, grooming, boarding, travel expenses.  The trustee has a duty to pay for the care of the pet. You can provide detailed requirements in the trust as to how the caregiver must care for your pet.

It’s a good idea to appoint someone other than the trustee as the pet caregiver, to make sure there are checks and balances in place.   Other safeguards to put in place –  micro-chip or have DNA samples of your pet preserved, let your friends and neighbors know about the trust, and have a door or window sign at your residence for emergency workers.

“Nothing in Life is so exhilarating as to be shot without result.”  Winston Churchill

Gather your weapons and prepare for war.  We are all in the midst of defending against the tribulations that come with old age.  Protect yourself.   We are not talking vitamins and exercise – we are talking about making sure that people respect your choices.

You need a Medical Power of Attorney.  If you have a stroke or are sedated in an operating room, you need to have a delegate who will make health decisions for you.  Not the doctor, not the minister, and maybe not your child or parent.  Your delegate needs to know how you feel about feeding tubes, limb amputation and cancer treatments.  Your delegate needs the ability to put personal feelings aside to follow your wishes.

You need  a Designation of Guardianship.  The laws have rigged guardianship in such a way that you have to pay the attorneys who are fighting to declare you incompetent.  The protections against a bogus guardianship case are few.  Spike their efforts and make your own preferential declaration regarding a guardian.  If “they” determine that you need a guardian, at least you’ve had a say.

You need a Financial Power of Attorney.  Designate someone to act for you on financial matters.  Do it now, while you are able to put together a portfolio of your assets.   Be careful with the language – many banks, insurance companies and title companies will not honor a Power of Attorney unless it is carefully drawn.

A victorious campaign is the result of careful planning.   Generals don’t go on the internet to figure out how to build a drone – they hire an expert.   So should you.  Call us.   This is one war that is too important to lose.

This is an excerpt from a recent National Association of Elder Law Attorneys summary:

The Patient Protection and Affordable Care Act, a historic national health care reform law was enacted on March 23, 2010 with the goal of expanding and improving the health care of all Americans. The following is an overview of major provisions affecting older adults and people with special needs, which will gradually take effect between now and January 1, 2014.

For more detailed information, see additional NAELA brochures on the law’s provisions for Medicaid, Long-Term Care, Medicare, Special Needs, the CLASS Act, and Nursing Home Transparency and Elder Justice.

The health care reform law:

Insurance Reforms
• Provides immediate assistance to individuals with pre-existing conditions through temporary high-risk pools.
• Allows young adults to continue to receive coverage through their parents’ insurance plans until age 26.
• Prohibits insurers from placing lifetime dollar limits on coverage.
• Prohibits insurers from dropping coverage when a beneficiary becomes ill — a practice called recission.
• Starting in 2014:
– Sets up insurance “exchanges” in each state to allow individuals and small businesses to compare and purchase insurance plans.
– Requires insurers to offer coverage and renewal of insurance to individuals regardless of health status and limits premium variation.
– Sets limits on annual out-of-pocket health costs for those with incomes up to 400 percent of the federal poverty level.
– Provides subsidies to eligible individuals and families with incomes between 133–400 percent of the federal poverty level to purchase insurance.
– Expands Medicaid to cover individuals 64 years of age and under with incomes up to 133 percent of the federal poverty level.

Medicare
• Preserves all of Medicare’s guaranteed benefits.
• Provides Medicare beneficiaries who enter the Part D prescription drug “donut hole” coverage gap in 2010 with a one-time $250 rebate check. Checks will be mailed throughout the year as beneficiaries enter the coverage gap. Individuals will not need to request or apply for the payment.
• In 2011, provides Medicare beneficiaries who reach the “donut hole” with a 50 percent discount when buying Part D-covered brand-name prescription drugs and a seven percent discount when buying generic prescription drugs.
• Gradually closes the Medicare Part D “donut hole” over the next 10 years.
• Starting in 2011, covers free annual physicals and eliminates co-payments and deductibles for preventive care like colonoscopies and mammograms.
• Starting in 2012, lowers payments to Medicare Advantage (MA) plans (i.e., managed care plans) in some parts of the country. As a result, some MA plans may cut optional benefits such as vision and dental, but guaranteed benefits cannot be reduced.
• Provides bonus payments to Medicare Advantage plans that provide high quality services. Plans are required to use some of the bonus to offer additional benefits to beneficiaries.
• Starting in 2014, requires Medicare Advantage plans to spend at least 85 percent of every dollar they receive on health care. (The average in 2008 was 80 percent, down from 95 percent in 1993, and for many insurers can be 70 percent or lower.)

Long-Term Care
• Establishes the Community Living Assistance Services and Supports (CLASS) program, a national, voluntary long-term care insurance program that will provide a cash benefit to enrollees for the purchase of long-term care services.
• Provides federal funds for states to create programs that allow more older adults and people with special needs to receive long-term care at home instead of in a nursing home.
• Requires federal action to combat elder abuse and neglect.
• Authorizes grants to improve long-term care staffing and training.

Tax Changes
• Increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent of adjusted gross income for regular tax purposes. This change is a reduction in a tax break that benefits many older adults; however, the law waives the increase for individuals age 65 and older for tax years 2013 through 2016.

This information is provided as a public service and is not intended as legal advice. Such advice should be obtained from a qualified Elder and Special Needs Law attorney.

A Trust is a legal chameleon.

At its most basic, a Trust is an agreement by a fiduciary (trustee)   to hold property for the benefit of another.  A Trust is not a separate legal entity.

There are three players in a Trust – the settlor (who establishes and sometimes funds the Trust), the Trustee (who administers the Trust) and the beneficiary (for whose benefit the Trust exists).

A Trust should always be established with a specific objective in mind.  A Trust may be used to minimize taxes, control property after the grave, protect assets, provide money for special needs children and adults and avoid probate.    There are usually trade-offs involved – it may be loss of control and ownership,  taking a short-term tax hit for a long-term disadvantage, or limiting access to keep the assets from creditors.

Texas has a Trust Code that applies to express trusts (usually written) that contain property.  The Code does not apply to constructive trusts (which is a remedy in a lawsuit and not technically a trust at all), resulting trusts (which apply to some situations involving real property) , business trusts (which are considered partnerships) and deeds of trust (Texas’ version of mortgages).

Most estate planning involves two types of written trusts – testamentary (contained in a will) and living.  The living trusts are divided into two other categories – revocable and irrevocable.

Now comes the tough part:  choosing the right trust.  There are all sorts of single-purpose living trusts that are accepted by the IRS for favorable tax treatment.  With the right language,  life insurance policies, annuities and  investment properties can be held in a Trust and not included in someone’s estate.  There are also Trusts that  allow individuals to qualify for government benefits.   Trusts are often used in second marriages to equalize property among children.

The second challenge is making the Trust stick.  It has to be properly drafted, name a qualified Trustee, and be properly funded.   The Trustee has a fiduciary duty to the beneficiary.  A bonded corporate trustee is an excellent choice for a trust with more than $500,000 in corpus (trust property);  although there are some corporate trustees that will serve  on smaller trusts.

In the hands of a sophisticated planner, Trusts can be a great tool.

A guardianship is a special type of court proceeding that is often used to protect an incapacitated elder.

The purpose of a guardianship action is to decide if a person – the proposed ward – has capacity to take care of his or her affairs.  If the proposed ward is lacking capacity in any area, and there is no less restrictive alternative, then the court appoints a guardian.  There are two types of guardians – the guardian of the estate, and the guardian of the person.

A guardianship action starts with filing an application in a court with probate jurisdiction.  There are only ten counties in Texas with designated probate courts – Dallas County has three,  Tarrant County has two,  and Collin and Denton Counties each have one.

The probate judge  immediately appoints an attorney ad litem to represent the proposed ward.

After that, the procedure depends upon the judge and county and, quite frankly, gets a bit hazy.   Sometimes the court appoints a court investigator or a guardian ad litem.  The Court will order a medical examination of the proposed ward if there is not a medical evidence letter on file.    At some point, the court will have a hearing to determine if the proposed ward is incapacitated and, if so, the court will decide on the guardianship.

Some guardianship actions devolve into family battles over money and control.  see Dante’s Divine Comedy, specifically the main articles Inferno and Purgatorio.

It’s best to avoid guardianship for a number of reasons.  Usually a  guardianship isn’t necessary when the proposed ward has done some advance planning, e.g.  medical and financial powers of attorney, advance designation of guardian.

In either event, Hammerle Finley can help you.  Please give us a call

Shakespeare’s play “ King Lear” is a tragic story of estate planning gone awry.

The aging king of England decides to step down from his throne and leave his kingdom to his three daughters.   Instead of seeking expert advice from an experienced estate planner,   King Lear interviews his daughters to determine how the estate should be divided.

The two oldest daughters, of course, want him to gift them the entire kingdom immediately, and make him a lot of promises about how they will take care of all of his future needs.   King Lear, not realizing that a better solution would be to place the kingdom in a family limited partnership or a trust, hands them the keys to the kingdom.

With unrestricted ownership of the assets, the daughters treat King Lear badly.  He goes mad and wanders the countryside.    King Lear does not have a durable financial power of attorney, so there is not anyone to help him manage the few assets he had left.  He also does not have a medical power of attorney, which would allow someone to make health care decisions for him during his incapacity.

Clearly a guardianship is  called for, to address both the financial exploitation he had suffered and to help him get care.    But who would be the guardian?  All three daughters had equal preference under the law.  Unfortunately, King Lear hadn’t signed a Declaration of Guardian In the Event of Later Incapacitation, which would have prevented his two evil daughters from being named guardian.

The youngest daughter, who loves her father, is horrified.  She marries the King of France, and he obligingly invades England to try to save Lear.  Everyone tries to poison, maim or cheat  everyone else.  Eventually all of the main players die, leaving the kingdom in tatters.

Some version of Shakespeare’s fictional account is played out by families daily.   A parent can minimize family conflict with careful estate planning.

Divorce is fraught with the opportunity for emotional and financial missteps.   I’m not talking about the divorcing couple – I’m talking about the couple’s parents.

What is the appropriate response of a parent to a child’s announcement that she is filing for divorce?  Is it a promise of unlimited financial aid to pay for a pitched legal battle?  An offer to let her move in with you?   How about taking on the care of the grandkids?

Can you rule out the possibility that she and her husband will reconcile?  Think how difficult that next family gathering will be if you jump into the current disagreement with both guns blazing.

No question about it, you are in an unenviable position.

Here’s 5 things you may want to consider for your long-term sanity -

• Your child is in emotional turmoil.  Maybe the spouse is really abusive and crazy – but maybe your child is, too.   She may not be telling you the truth about a lot of things.  Don’t join the emotional circus…..independently verify the facts.  Don’t pile on with complaints about the spouse.
• A divorce is a business transaction.  If your child isn’t personally responsible for paying the lawyer and the experts , then she has no incentive to be reasonable.   Possibly you have to guarantee some costs, but don’t give her carte blanche on spending.
• Yes, the grandkids are of ultimate importance.  If their physical welfare or emotional development is in peril, then you may be justified in actually intervening in the divorce or petitioning for access.  If, however, they are being used as a weapon in the fight between your child and her spouse, then you need to tread very lightly.  You may want to seek some counseling to determine what’s best for everyone.
• Your child is an adult.  She needs to act like one.  Cut the strings.  Maybe she can move into your house for an emergency shelter, but give her a 2 month limit and then kick her out.  She needs a job.  She needs to live within her means.
•  Perhaps your child is too passive or emotionally/physically traumatized to deal with the divorce.  You do need to encourage her to do the basics.  She needs her own lawyer.  She may need some counseling or help devising a life plan.  You can be supportive without being domineering.

Remember, you made your own life decisions.  It’s now her turn – she made her marriage, and she needs to make her divorce.

If you had been the captain of the Titantic and had been forewarned that it would hit an iceberg at 11:40 p.m. on April 14, 1912,   would you have taken some evasive action?

What if you knew that, come 12:01 a.m. on January 1, 2013,  everything over $1 million in your estate would be taxed, maybe at rates as high as 55%?   Wouldn’t it be prudent to take some evasive action now?

So why haven’t you?

Here ‘s what is about to change, thanks to politics and Congress.   The extension on the estate tax cuts runs out at the end of this year. That 55% tax rate is going to kick in $8 million sooner.

Right now, there is a $5 million exemption before estate taxes become relevant.  As an extra bonus, the exemption is portable between spouses.  The end result is that a husband and wife have a total of a $10 million exemption.

The portability and the exemption aren’t automatic.  To claim the exemption and to make it portable to the spouse, the deceased’s estate has to file a form 706 with the IRS within 9 months from the date of death.

Beginning next year, the tax cuts run out and the exemption drops back to $1 million plus change.  A lot of estates will be exposed to an estate tax, and a lot of people will be unhappy.   Without addressing the threshold question of why death should be a taxable event  – here are some of the uncertainties.

There are less than 9 months left in this year.  If a person dies now, will the estate still be able to claim portability and the $5 million exemption if the 706 is filed after January 1, 2013?

After January 1, 2013, will there still be portability on the $1 million amount, so that a couple will get a total of $2 million, or does the portability go away?

What happens to the portable amount for estates that filed a 706 prior to January 1, 2013?  If the deceased’s estate was worth $3 million, then there should be a $2 million leftover exemption that is portable to the spouse.     But if the spouse dies after December 31, 2012, her estate is eligible to claim only a $1 million exemption.  Will her estate get to claim her spouse’s left over $2 million exemption, too, or is it lost forever?

And the big question – what will Congress do?

Which leads to the final question - will you sit on the deck and watch disaster unfold, or will you seize control of the wheel and change destiny?

Groom:  “I,____, take thee,_____, to be my lawful wedded Wife, to have and to hold from this day forward, for better for worse, for richer for poorer, in sickness and in health, to love and to cherish, till death us do part….”

Have you ever thought how intertwined  those vows are in today’s world?  Especially the part linking “poorer” with “sicker.”   As the highly-paid policy wonks are fond of reminding us,  married couples are one serious illness away from filing bankruptcy.

So how does a couple in a community property state like Texas keep from having one spouse’s medical bills drain away their life savings?   There are three primary laws that are working against you.

Community property laws state that everything that is earned or purchased during marriage is presumed to be community property, and is equally available to the creditors of both the husband and wife.  The first line of defense is to change the characterization of the property – argue an asset (a bank account, a vacation home) is not community property, but is actually the “separate property” of the healthy spouse and therefore cannot be reached by the sick spouse’s creditors.

If the couple has actually preserved the “separate” characterization of the property (side note, this is difficult to do without some serious planning), you would think that would be the end of the argument , except ……

For the second law.    This one holds that each spouse has the duty to support the other spouse and is liable to anyone who provides “necessaries” to the other spouse.    Most people would consider medical expenses to be a necessary.   Under this second law, all of the spouse’s assets can be reached by the other spouse’s creditors.

The thoughts are coming fast and furious, aren’t they?  If you have $200,000 in assets, you think, then you will just gift them away, or sell them to your kids for $10, or pop them into a trust.  Any of those alternatives would be better than having the creditor take everything.

Ah, but then you have violated the third law.  This one says that you can’t transfer assets to defraud your creditors.  There are all sorts of ugly penalties associated with this law.

So what is a married couple to do?

One option, available only before the couple is married,  is to enter into a prenuptial agreement that provides the spouses will not be liable for each other’s medical expenses.

Another option is to transfer the money out, either to an exempt asset or to a third party like a child or a trustee, before the medical debt is incurred.   The intention of the transfer is not to defraud a creditor, because no debt exists at the time of the transfer.   If done properly, the sick spouse may be able to qualify for Medicaid to help with long-term medical expenses.

The third option is to buy enough medical and long-term care insurance so that medical expenses are covered.  The couple has to do this while still healthy enough to qualify and, of course, must be able to pay the premiums.

Note that none of those strategies  will work for the healthy spouse whose sick spouse  has already incurred significant medical expenses.   At that point, the only viable option to preserve assets, unfortunately,  is divorce.

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