Estate Planning Basics

By Kirk R. Wilson, J.D., LL.M.

What is “estate planning”? I like to define it as organizing your financial affairs so that you have systems in place to accomplish two objectives. First, to provide for your care should you become incapacitated. Second, to pass your estate to your family, or other heirs, at your death in an intelligent manner. This means minimizing the cost and problems associated with transferring your estate to your loved ones. It also may mean putting systems in place for to provide for children or other persons who may need assistance in managing their inheritance.
To make sure you are provided for during your lifetime if you become incapacitated, you should at a minimum have a durable financial power of attorney naming an agent who can act for you and manage your assets on your behalf while you are unable to do so. You should also have a medical power of attorney designating an agent or agents to make health care decisions for you if you are unable to make them for yourself.
The starting point for doing your estate planning is to make a list of your assets and to look at each asset to determine what will happen to it at your death or upon your incapacity. For example, some of your assets, such as life insurance and IRAs, have beneficiary designations. Those assets will pass automatically at your death to the person or persons you have named as beneficiaries. While you are living, your agent under your financial power of attorney can only deal with these types of assets if the power of attorney specifically says so.
Other assets, such as bank or brokerage accounts, or even real estate, can be set up in a form - called joint tenancy with right of survivorship - that will automatically pass to the surviving joint tenant(s) at your death. A similar type of account, called a pay-on-death account, as its name indicates passes automatically at your death to the designated payee.
If you hold title to assets in any of these forms, those assets will pass at your death according to the terms of the contract under which they are created. This is because each of these forms of ownership is essentially a small estate plan. In fact, if all of your assets are held in one of these forms, your entire estate will pass automatically. This will be true regardless of what your Will may say. In fact, having a Will in that situation is of absolutely no value, since nothing will pass under the Will through a court-supervised probate proceeding.
Assets or property that you own which is not held in one of these forms will be subject to probate at your death, and for this reason you will need to have a Will, or a living trust, in order to specify who will receive your probate estate. If you don’t have a Will, the State of Texas has an estate plan for you called “intestate succession”.
The Texas Estates Code spells out the rules as to who will inherit your estate, which are intended to provide the “right result” in most cases. However, to be sure that the persons you want to provide for in fact get what you wish to give them, having a Will is highly recommended. A properly drafted Will also allows for a simplified probate process called independent administration that avoids unnecessary delay and legal fees in the administration of your estate.
While it may be tempting to consider putting all of your assets into a form that avoids probate, in many cases there can be important reasons to channel your estate, or most of it, through your Will. For example, you if you have young children, you may want to have their inheritance flow into a trust that can be managed for them until they are old enough to receive it. In that case, if most of your assets are held in a form that passes automatically to your children, and they are minors, the court will need to appoint a guardian to receive and hold their inheritance, and then turn it over to them when they turn 18 (at which point they may not be mature enough to invest it wisely).
This is why it is important to look at each asset individually to make sure that your estate plan intelligently coordinates all of your assets to carry out your wishes. If you have a large estate, worth more than $5 million, you may also need to add estate tax planning provisions to your Will, or you may be a good candidate for a living trust. But for all estates, the purpose of estate planning is to make sure you have your financial affairs in order so that you have the assurance of knowing you and your loved ones will be well cared for.

[The author is a Woodlands-based estate planning attorney at the firm of O’Donnell, Ferebee, Medley & Frazer, P.C. He is licensed to practice law in Texas and California, is a board-certified probate, estate planning and trust law specialist in California, and holds an advanced law degree (LL.M.) in taxation. He can be reached at (281) 875-8200. The firm’s website is www.ofmflaw.com.]

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