While the nuances of estate planning can sometimes be a complicated process, the primary purpose has remained unchanged: to provide a way to transfer the property of someone who passes away to his or her living heirs. Along the way, legal practitioners and the legislature crafted techniques to provide solutions for situations where we become disabled or can't otherwise make our wishes known to our physicians and family. For some estates, including the right provisions to minimize estate taxes is also important.
Regardless of the estate size, when we perform estate planning services, we prepare several documents in addition to a will that help address many potential life scenarios. These documents include a health care power of attorney, your directive to physicians, a HIPAA authorization, a declaration of guardian, a statutory power of attorney, and, when necessary, a declaration of guardian for minor children.
Our firm can help you draft a will that keeps your estate’s administration costs to a minimum and, depending on your situation, maximizes or constrains the freedoms afforded to your estate’s administrator(s). Depending on your estate’s size, we can also include provisions in your will to minimize the impact of federal estate taxes.
Directive to Physicians
This is a very important document that most Americans don’t have. It is something you should discuss both with us and with your physician, as some specific medical questions may arise for each individual. As you may recall, there was a rather well known dispute that occurred a few years ago in Florida between a husband and his former wife’s family regarding whether or not to keep the former wife on continued life support. Unfortunately, the courts were forced to intervene because the husband contended that his wife had no desire to be kept alive on life support while her family insisted that she was responsive and would have wanted to explore all possible options for recovery. While the dispute ultimately revolved around the responsiveness of the individual on life support, odds are that a significant portion of the dispute would have been resolved if a properly executed physician’s directive was in place. In Texas, a physician’s directive allows you to make your wishes known to your family and physicians regarding your treatment if you have an irreversible or terminal condition and whether or not you wish to receive support. It also defines what you consider a terminal condition or irreversible condition to be.
While these are fairly straightforward, we can assist you in customizing an advance directive for your unique desires or concerns. As an example, a standard advance directive does not normally address a condition that leaves one in an extended state of pain, but might not be terminal or irreversible.
Health Care Power of Attorney
Who do you want making decisions regarding your medical care if you become incapacitated? That is the primary question that the Medical Power of Attorney addresses. This important document allows you to designate that individual or group of individuals in advance so that court or other intervention is minimized if not unnecessary. When you designate these individuals, this document allows you to also place limits on their ability to make decisions so that those decisions are, for example, consistent with your wishes expressed in your Directive to Physicians.
The Health Insurance Portability and Accountability Act (“HIPAA”) is the Federal law that primarily protects the privacy of your health records and medical treatment. This document is important because it allows the persons you designate to receive information about your health conditions and medical care if you become incapacitated. While the Medical Power of Attorney authorizes someone to make medical decisions on your behalf, more and more medical facilities require a separate HIPAA release in order for others to receive information about your health both past and present.
Declaration of Guardian
This document allows you to designate an individual or group of individuals in advance to oversee your business affairs and personal life. As the name suggests, guardians are tasked with ensuring your well being in the event that you cannot take care of yourself. The Declaration of Guardian also minimizes costs by making it easier for the person designated to be appointed as your guardian based upon your desires expressed in advance. This document, like most of the ancillary estate plan documents, takes effect upon your incapacity.
Statutory Power of Attorney
This document gives the person you designate the power to enter into numerous personal and business transactions on your behalf if you become incapacitated. Think of the Statutory Power of Attorney in this way: if you could enter into a contract, open an account, or sell your property, so can the individual you grant Statutory Power of Attorney authority to. In other words, the person holding this power can perform virtually any act that you could before you became incapacitated. Though it almost always takes effect upon your incapacity, you can always revoke the declaration if you later become capable of making decisions for yourself or, of course, prior to incapacity.
A note about these: they’re not perfect. Despite the fact that the terms and format of this document are provided for by law, some financial institutions may honor them while others will not. In some instances, especially where an individual owns a small business, we may recommend supplementary procedures to ensure that your duly chosen representative has the power to transact business on your behalf.
Our firm can also assist you with coordinating the documents for the donation of your body to science. We do not typically draft these documents as they are largely controlled by the institution you seek to donate to, but we can tailor the remainder of your documents to accommodate the donation and discuss your options.
Depending on your needs and the size of your estate, our firm may recommend and/or assist with the preparation of stand-alone trusts or will provisions containing trusts. In some instances, trusts may be coordinated with business entities for privacy, to own real estate (and even retain the homeowners taxation exemptions), or other reasons. The most commonly used trusts in estate planning involve those that help minimize Federal estate taxation (Texas does not have an estate tax). There are far too many trusts to list here (they easily fill large volumes of books), and each has a unique application that we would be pleased discuss in person. However, the most common trusts we are asked about include the bypass trust, special needs trust, and living trust, which are summarized here.
In truth, “death taxes” currently effect a fairly small portion of estates as the exemption for 2011 sits at $5,000,000.00 (that is, an estate in excess of this amount is technically subject to taxation). By using a bypass trust, an estate up to $10,000,000.00 in size could essentially be transferred without triggering estate taxation. Simply stated, the bypass trust (or A-B Trust) takes advantage of each spouse’s individual exemption by leaving the maximum tax exempt amount from the deceased spouse to the trust itself rather than the surviving spouse.
A special needs trust (or supplemental needs trust) is used where there is a desire or intent to cater for the ‘non-essential’ needs of an individual where a benefit program (typically a government benefit) either already exists for or will exist for the essential needs of the individual. In essence, the trust is designed to allow for the receipt of benefits for core needs like food and shelter (or prevent the disqualification from those benefits) while providing for the individual’s supplemental or special needs like special education or even tickets to a concert. This is a broad simplification of these trusts, but it is a basic overview of their function.
Living trusts can be used in place of a will and are important tools under the right circumstances, but we rarely recommend them. Why? Probate in Texas is fairly straightforward and, unlike other states, it is usually a relatively inexpensive process. In our experience, there is also much broader acceptance of a will and letters testamentary (which are granted to the administrator of the will in probate) by banks and financial institutions than other documents that purport to transfer property or grant an interest in property (sometimes including trust/trustee provisions).
As mentioned previously, there are many other types of trusts, and determining which might be best depends on each client’s individual circumstances.