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Houston Estate Planning Law Blog

PETER FALK’S ESTATE GIVES $3 MILLION TO UCLA

Do you know where you want your assets to go after you pass? Some Texas residents have very specific plans. If you do, you should make sure to formulate legal preparations for the distribution of your estate. This way, you can ensure that your loved ones receive their appropriate share without any problems. In a recent story, a former well-known actor decided to bequeath some of his life earnings to a university for education purposes.

Sources explain that the estate of former “Columbo” star Peter Falk has willed $3 million to the University of California, Los Angeles (UCLA), for student scholarships. The money will be used to create the Shera and Peter Falk Lt. Columbo Memorial Scholarship Fund. The first award will go to five students entering UCLA next fall. It will cover the students’ tuition for four years. The scholarship will focus on aiding undergraduates studying music, military veterans and those with disabilities.

After a long acting career on Broadway, in television and in the movies, Falk passed away last June at the age of 83. Specifically, the actor was best known for his role as a Los Angeles police detective on “Columbo,” which earned him four Primetime Emmy Awards.

Based on his probate arrangements, one might assume that education was extremely important to the former actor. If you are making estate plans, you should consider what is important to you. Do you have a preferred charity that you would like to support? Do you want your children to receive most of your assets? If you have particular plans for your estate, you may want to speak to an experienced lawyer. An attorney will guarantee that the people you care about are taken care of after you pass away.

Source: Washington Post, “Former ‘Columbo’ star Peter Falk bequeaths $3 million to UCLA to provide student scholarships,” Feb. 21, 2012

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TEXAS CONGRESSMAN’S LEGISLATION TARGETING ESTATE TAX GAINS STEAM

The federal estate tax, often referred to colloquially as the “death tax,” takes a cut out of the assets left behind by individuals at the time of their death. Currently, only estates valued over a certain amount are subject to the death tax.

However, while the estate tax is primarily aimed at wealthy individuals, many argue that it does not accomplish its goals and that it has a disparate effect on farmers and small business owners. Through careful estate planning, high net worth individuals can often circumvent the death tax entirely, while those with most of their worth tied up in land or business equipment may take huge hits. When a farmer or operator of a small business dies, their heirs may have to sell off land or other critical assets just to pay estate taxes, potentially resulting in the ruination of a profitable enterprise.

One Texas Congressman, Kevin Brady, is seeking to eliminate the federal estate tax entirely in 2012. Congressman Brady’s bill, the Death Tax Permanency Repeal Act, has garnered bipartisan support from over 190 members of Congress, as well as advocacy groups like the National Cattlemen’s Beef Association.

If full repeal of the estate tax proves impossible, supporters are still looking to make the 2010 estate tax relief package permanent. Under that legislation, still currently in effect, estates worth less than $5 million for individuals or $10 million for couples are exempt from taxation; an estate’s net worth over the exemption limits is taxed at 35 percent (under the former default law, there was only a $1 million exemption, with the excess taxed at a 55 percent rate).

Only time will tell if 2012 will mark the death of the death tax. In the meantime, prudent estate planning will remain the best tool to ensure generational continuity in important family assets.

Source: Iowa Farmer Today, “Time for permanent relief from the federal ‘death tax,’” Kent Bacus, Feb. 10, 2012

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ESTATE PLANS FOR OUR CATS AND DOGS

As Texas residents know, estate plans guarantee that our loved ones are cared for. However, what are your plans for your pet? In a recent national story, a 76-year-old woman has decided to protect her cats after death. Her plan, a pet trust, surfaced after she found one of her late friend’s pets in a dire situation.

An article explains that the woman’s friend, who passed after an illness, made arrangements for one of her cats. The friend understood that her son would take her other cat. After her death, the caretaker backed out, and the son decided that he could not take more animals. Ultimately, one cat found a new home; however, the other was taken to a shelter.

Now, one lady does not want this same story to happen to her cats. To ensure that her pets are cared for, the woman has created a pet trust, which specifies that if the woman’s cats survive beyond her death, they will be taken to a local retirement community. The cats will be supported by money that she has set aside for them. According to the woman, “This way I know that they will not end up at a shelter, where they would be killed because they’re too old to be adopted.”

This type of trust elects a “guardian” who will carry out specific pet-related wishes. This ensures that the animal is cared for after the owner passes. The document includes instructions for care, and property is usually set aside for the new caretaker.

Pet trusts are not allowed in every state. However, sources note that including a pet in a will is not a good idea. Wills provide for how property should be distributed. Typically, they do not include details about caring for the animals, and pet care instructions in a will are not enforceable.

Pet owners tend to overestimate the likelihood that a relative will care for an animal. For this reason, the woman in this story has encouraged many of her friends to draw up these pet trusts.

Source: The New York Times, “The Pet Problem,” Alyson Martin and Nushin Rashidian, Feb. 3, 2012

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DOES MAN’S ADOPTION OF ADULT GIRLFRIEND REPRESENT AN ABUSE OF TRUST LAW?

The laws governing the creation and administration of wills, estates and trusts can be a bit tricky. In a lot of ways, they are fairly straightforward, but as in other areas of law, there are always those quirky little loopholes that, in some cases, can lead to surprising outcomes.

Such a loophole is behind the recent story out of Florida. It’s a story that some Houston readers might think reflects a clever and creative move and others might think shows a disregard for the intent of our laws and constitutes an abuse of the system: a 48-year-old man recently adopted his 42-year-old girlfriend so that he could move assets into a trust for his “children” and thus shield them from a pending wrongful death lawsuit against him.

The man is being sued by the parents of a college student whom he killed in February 2012 when he ran a stop sign when he was drunk. Their wrongful death suit is set to begin next month. Evidently worried that he might lose, the man apparently moved hundreds of millions of dollars into a trust set up to benefit his children. Since the assets now belong to the trust and not to the man himself, they are no longer considered “his” by a court.

By adopting his girlfriend, however, the man created a beneficiary who could access the trust, since she is now his “child.”

Naturally, the family of the deceased child has objected, and a judge called the move “surreal,” but at this point, there does not seem to be anything illegal about what the man did.

What do you think? Was the man just very savvy, or did he do something that, to you, seems underhanded and devious?

Source: ABC News, “Polo Club Found Adopts Girlfriend Amid Civil Suit Over DUI Death,” Christina Ng, Feb. 2, 2012

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LAW OFFERS LITTLE END-OF-LIFE GUIDANCE FOR MANDELA’S KIN

Millions of people across the nation, including many right here in the state of Texas, have been anxious watching the failing health condition of the former South Africa President Nelson Mandela. This may partially be because, like so many families here in the United States, the complexities of estate planning laws have left Mandela’s kin with little end-of-life guidance.

For those who have not been following the story, Mandela has been reportedly lying on the edge of death for the last few months. While doctors insist that he is in “critical but stable condition,” this confronts his family with the difficult decision of when to take the ailing 94-year-old off of machines. Friends who recently visited him in the hospital say he is awake and smiling but family members know that they will need to come up with an end-of-life plan soon.

In the United States, living wills make situations such as this quite easy and often relinquish the burden of making the difficult pull-the-plug decision to the person who is dying. As we’ve mentioned in past posts, this is part of your estate plan where you dictate your medical wishes and end-of-life instructions to your family. But according to reports, this may be less clear under South African law.

Current laws are vague and unclear about who gets to make the decisions for Mandela if and when he is unable to. This can get especially complicated if he has not designated a proxy in his stead. Situations such as this are not uncommon here in Texas though our state laws do offer more guidance than what the Mandelas may be getting.

Source: The New York Times, “Mandela’s Kin Face Gray Area on End of Life,” Rick Lyman, July 11, 2013

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WHAT TO KNOW ABOUT A SPECIAL NEEDS TRUST FOR A DISABLED DEPENDANT

When it comes to the well-being of their children, parents will do just about anything. That includes venturing into the very scary subject of planning for their own deaths. And no, not in a morbid sort of way. The sort of estate plans that readers of our blog hear so frequently about such as naming a guardian, adding beneficiaries to a will, or instructing family members about medical wishes.

But one thing we haven’t covered much on is about how parents with disabled children should plan for the future. While in some cases Social Security Disability benefits and Supplemental Security Income can provide a source of income, in most cases, children with special needs often rely on their parents to provide them with financial support. So what happens when those parents pass away?

If you’re a parent with a special needs child, one important way to make sure that they have financial stability is to establish a special needs trust. It’s worth noting that these types of trusts are not easily done without help from a skilled attorney. That’s because these types of trusts, while flexible in nature, can interfere with benefits received through government assistance programs. If not worded properly, a trust can quickly disqualify a disabled child’s benefits, leaving them in the exact financial crisis you tried to prevent.

Speaking to a lawyer is the first step to establishing the trust. But what about funding? How much money should you set aside? How much of those funds will be distributed at each time? These are all important things to speak to your attorney about because the answer will differ depending on your particular situation.

To someone unfamiliar with estate planning, establishing a special needs trust can seem like an overwhelming process. But this is where your attorney comes in. They can help you understand the complexities of the law and help you prepare financial stability for your special needs child after you’ve passed away.

Source: The Fiscal Times, “Estate Planning Guide for a Special Needs Child,” Sonya Stinson, July 10, 2013

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THINGS TO CONSIDER WITH YOUR LIFE INSURANCE POLICY

In a world of uncertainty, we try our best to inform our blog readers about important estate planning events before it’s too late. One issue we run across from time to time is life insurance policies. Incredibly important, these documents can often carry with them incredible burdens, especially if they aren’t prepared correctly and maintained properly. Hopefully this week’s blog post can clear up some confusion and get our readers on the right track again.

The first thing to consider when establishing a life insurance policy is who to name as a beneficiary. While most people only name a primary beneficiary, it’s often a good idea to list others just in case your primary predeceases you or dies at the same time as you. It’s also important to communicate your intentions with your beneficiaries. Letting them know who the policy is through and the general specifics about the policy before your passing can make sure they’re not blindsided by the process in the future.

It’s important to consider who you’re naming as a beneficiary as well. Consider for a second that you choose your minor child as your beneficiary. Some states will not allow that insurance policy to be paid out until the child is a certain age. On top of that, a guardian might be required which can end up adding additional costs to the process.

Consider too that Texas is a community-property state. This means that regardless of designation on the policy, if your spouse does not waive their right to the money, the policy could be paid out to them instead of the intended recipient.

Not having specific wording in your policy and not maintaining it properly can also cause headaches down the road. But considering these things and clearing them up with a skilled estate planning attorney before hand can help your loved ones from experiencing future frustrations down the road.

Source: Fox Business, “Naming Life Insurance Beneficiaries: 10 Ways to Screw up,” Barbara Marquand, May 22, 2013

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ESTATE PLANNING FOR THE 8 STAGES OF LIFE

Readers of our blog know that we stress the importance of starting your estate plans early and updating them as often as possible.  That’s because, no matter what stage of life you’re at, you’ll want to have the stability and financial cushioning most aspects of estate planning can offer.

But knowing what to do and in what stage of life can often times be a tricky thing.  So, to clear up a little of the confusion for our readers this week, we wanted to go over the commonly considered ‘8 stages of life’ and the specific estate planning measures that should be taken in each one.

Let’s start with the first stage which is your young and single years.  While most of your assets were taken care of when you were younger, after 18 financial responsibility sort of gets thrust upon you.  Assigning power of attorney and putting together a living will are probably the two most important things you can do at this time.

Grouping stages two through four cover the time between pre-marital relationship and ‘just married.’  During this time it will be important to change power of attorney to your spouse if desired and make sure that they are also included in your living will. This will also be the time to discuss combining assets, health insurance coverage, and getting a mortgage for your first home.

Stage five brings you into parenthood with a little one on the way.  It’s at this stage that you’ll want to not only start saving for your child’s future but thinking about guardianships in the event you and your spouse pass enexpectedly.

Because divorce is a very real possibility after gauging the most recent U.S. statistics, we’re including stage six which is divorce.  This is the stage in life where you may want to remove your ex-spouse from your financial accounts and will need to go through the sometimes painful process of dividing your assets.

In the last two stages is where you may want to invest in long-term care insurance and transferring power of attorney over to your children.  Most experts suggest that this be done before your health begins to fail so as to avoid incurring large medical costs that can eat away your retirement funds.

As you can see, estate planning often requires changes over time; but with a heads up you can make sure that you’re on top of the ball the entire way.

Source: Bankrate.com, “8 life stages of estate planning,” G.M. Filisko

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HOW TAX LAW CHANGES COULD AFFECT YOUR ESTATE PLANS DOWN THE ROAD

With tax season well behind many residents in Texas, most people have long put out of their minds the financial information they needed to gather during tax preparation time. But while most people won’t think about their assets until next year, many estate planners suggest that now is the perfect time to start planning-and they’re not just talking about planning for tax season either.

Many estate planners are suggesting that people start considering how the new tax code will affect their financial plans for the future. Though a majority of people will not be affected by the largest tax law change, the increase of estate tax, subtle changes to the tax code could actually have a considerable impact on a majority of people down the road.

Looking over financial assets such as insurance policies and retirement funds now before they go back into a filing cabinet is a suggestion many planners are making to their clients. It might be advantageous to check contributions to retirement funds now versus closer to tax season. Because of the recession, people may have wanted to protect their money by taking smaller risks last year. With the market on the rebound, it may be time to change things around to maximize assets in the end.

During the hectic panic of the fiscal cliff, many wealthy people made decisions about their estates that they may regret next year. With the fear of rising estate taxes and reduction of exemptions for gift tax, many people rushed to turn portions of their estates into trusts. While still protected, forgetting about it could prove ominous if the tax code does not shift the way people were previously predicting.

Although the process might seem long and cumbersome to undertake at this time, failing to do so now could become regretful down the road. The question we pose to you then is why not take the time to protect your assets now while you still can?

Source: The New York Times, “Estate Planning Remains a Moving Target Under the New Tax Law,” Paul Sullivan, April 26, 2013

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HOW LEAVING A FAMILY BUSINESS TO YOUR CHILDREN CAN END BADLY

As we’ve said in past blog posts, if a person does not make the proper arrangements before their passing, the ensuing problems can often times lead to tenuous legal battles and ugly family rifts that never seem to come to a resolution. This is possibly the most true when it comes to family run businesses, which many people here in Texas can attest to.

But according to many business experts, some problems can be averted if a little more attention is paid to estate planning before a company’s owner passes the business on to their children.

It’s advice that could have been used by three Minnesota brothers who finally settled a long-standing legal battle that had been brewing since their father’s death in 2004.

Started in 1960, the men’s father began the family’s legacy by founding a company in the hydraulic brakes industry. The company quickly grew and now has an estimated revenue of around $52 million.

But it seemed that it was always the father’s dream to pass the family-owned business onto his sons, constantly urging them to take jobs at the company. Eventually, the eldest son was promoted to president of the company’s board of directors, soon followed by his younger brother who took up the position as executive vice president. All seemed well, and after the father’s passing, each son owned 50 percent of the company’s voting shares along with the responsibility of continuing what their father had started.

But eventually, the younger brother noticed that he was being left out of meetings, pulled from email lists, and was even being forced to take involuntary administrative leaves. It soon became apparent that his older brother was trying to force him out of the company. Their father’s wills and company plans never included provisions for such a thing and by 2006 the younger brother was forced to sue.

Though the lawsuit was settled in 2011, the division that occurred in the family likely could have been avoided. As some business experts point out, when leaving companies to your children when you pass, it’s often times important to plan meticulously so as to avoid a sticky situation such as the one above to happen to you as well.

Source: Star Tribune, “Lawsuit over control of family-owned MICO ends with $21.8M award,” David Phelps, March 31, 2013

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