Frequently Asked Questions
Frequently Asked Questions (FAQ)
For a more detailed discussion of some common questions about Estate Planning please see the following categories:
FREQUENTLY ASKED QUESTIONS
Estate Planning (Go back to top of page)
- What is my ‘estate.” According to the IRS, your “estate” is everything you own, or have an interest in, at the time of your death. This includes, but is not limited to the following: personal residence and other real estate, bank accounts, retirement accounts, life insurance, vehicles, personal property, and household furnishings.
- Do I need Estate Planning? Yes, everyone, whether married or single, needs some form of Estate Planning.
- What is a Will? A Will, or Last Will and Testament, is a legal document in which you, the testator, state how you want your Estate to be distributed upon your death. In Texas, to be valid it must either be “wholly in your own handwriting, signed and dated by you, or if not in your own handwriting then it must be signed by you and two witnesses. It is best if there is also a self-proving affidavit as well.
- What is a trust and do I need one? A trust is simply a vehicle that holds assets. It is another way to distribute your estate upon your death. To place assets into a trust they must be titled in the name of the trust. For example, if a Charlie and Lucy Brown want to place their residence into a trust they will execute a deed listing them as the grantors and then name their trustee as the grantee (the trustee should be named as the grantee instead of the trust because the trustee is the “legal” owner of the assets in the trust.) This process is called “funding.”
- Not everyone needs a trust. However, they are beneficial for those who want to keep their estate private upon their death, want to make it harder to contest their estate plan, want to “pre-settle” their estate, or have a complicated estate.
- What is a trustee? A trustee is the person you name to carry out the terms of your trust. The trustee must carefully follow your dictions which you have laid out in your trust document.
- Do I need a Will or a Trust? That depends on what your goals are. Most provisions that are included in a trust can also be included in a Will. Functionally speaking, a Will and a Trust accomplish the same objective: to distribute your estate upon your death.
- What if I do not have a Will or Trust? Believe it or not, even if you have never visited an attorney to have them create one for you, you have a Will. The only problem is that it was written by the State of Texas instead of you. When a person dies without a Will their estate will be distributed according to the laws of descent and distribion found in the Texas Probate Code (See Sections 37-47A of the Texas Probate Code). For some people, these statutes are sufficient, however in the vast majority of cases the individual or couple wants to do something with their Estate other than what the State will do with it. If your Will or Trust is more than five (5) years old you ought to have it reviewed to make sure it complies with your wishes and provides the most tax efficient manner of distribution.
- What is involved in tax planning and do I need it? Tax planning is an advanced area that includes provisions to reduce, and possible eliminate, transfer taxes. Transfer taxes include: Estate Tax, Gift Tax, and Generation Skipping Tax. Whether or not you need it will be determined by your net worth and the current applicable laws.
- How much can I expect to pay? Most of my work for Estate Planning is done on a flat fee basis. This means there is one price for everything and you will not be billed on an hourly basis. The fee will be determined by what type of planning we agree upon. The type of planning will be determined by what is in your estate and your goals. In most every situation, it is cheaper to put an estate plan into place before your death rather than make your heirs endure a possibly long probate process.
- What about my retirement plans or life insurance? These assets are included in your estate but they will not pass through your Will. Any assets that passes by a beneficiary designation form is considered a “non probate asset.” This means that the beneficiary designation form controls their disposition. For many clients, the largest portions of their estate do not pass through their Will or Trust. Therefore it is vitally important the beneficiary designation forms be completed correctly so they will coordinate with your overall estate plan. It is possible to include special trusts in your Will or Trust so that any life insurance, retirement account, or annuity can be distributed per the terms of your trust.
Probate (Go back to top of page)
- I have heard that you want to avoid probate if possible. Is this true? In some states such as California and Florida probate can be a painful (both emotionally and financially) process. However, in Texas, because of our Independent Administration laws, the probate process can be quite simple. One the other hand, not every estate will qualify for independent administration. When this is the case, the Court may order a Dependent Administration. This requires court approval for most every action by the executor which leads to a longer, more expensive process.
- If I have a Will must my estate go through probate? Probably yes. The only time an estate that is governed by a Will does not proceed through probate is when there are no probate assets. For example, if the only assets in the estate are those that pass by beneficiary designation forms, then no probate is necessary. Otherwise, having a Will means probate is most likely necessary. But remember that it does not have to be a difficult thing.
- Is there any way to avoid probate? Yes, you can make a Revocable Living Trust (RLT) the centerpiece of your estate plan. If you have an RLT then upon your death your successor trustee simply steps in and continues to administer the trust just as you did. However, even if you have an RLT probate may be necessary if the RLT was not completely funded.
- What if I own property in another state? If you own out of state property, such as a vacation home, then a revocable trust may be the best option. Without a RLT, your out of state property is subject to two probate proceedings: one here in Texas and another in the state where your property is located.
- How much does it cost? That is a hard question, it will depend on what is in the estate and what needs to be done to transfer the assets.
- How long does it take? In many situations the probate process can take 3-6 months. However, some are shorter while others last longer.
- What is an executor and what do they do? An executor is the person you name in your Will to handle your estate upon your death. The role is three fold: (1) Gather all of the assets in your estate; (2) Pay any outstanding debts you may owe, if any; and (3) Distribute the remaining property per the terms of your Will. To be appointed the executor, or another person who can offer the appropriate testimony, must go to court with the attorney and be appointed by the Judge. This is normally a very short hearing and take about 3-5 minutes.
Small Business and Non Profit Organizations (Go back to top of page)
- How do I know if I need an entity? You can operate a business as a sole proprietorship or you can create a business entity. Some business entities offer limited liability which offers a level of protection that you can not get with a sole proprietorship. The Texas Secretary of State has some very good information when it comes to choosing a business entity.
- What is involved in creating a business entity? To create the entity you must file a Certificate of Formation with the Secretary of State and pay the requisite filing fee.
- Once the entity is officially created what do I do next? Next you need to determine how the business will be run and what guidelines it will follow. This is accomplished with the bylaws or regulations. We will draft these for you taking into consideration your desires for the business.
- What is a professional entity and do I need one? A professional entity is one created by someone who will be performing a professional service. The Secretary of State has created a form to help determine why type(s) of entity(ies) are available to certain professionals.
- What if I want to form a nonprofit organization? Forming a nonprofit or a tax exempt organization is a three step process. First, you must create the entity with the State of Texas. Second, you be tax exempt, you must file with the IRS for tax exempt status. This is done by filing a Form 1023. Once the IRS makes their determination, you can seek exemption from certain State Taxes from the Comptroller’s Office.
- What does it mean to be a nonprofit? A nonprofit organization is one that re-invests any profit that is made back into the company; there are no dividends to shareholders. I have written an extensive article detailing some things to consider leading or working for a nonprofit – you can access it here