The General Durable Power of Attorney

Planning for disability is an important part of your overall estate planning and one part of the plan that many people tend to either overlook or not prepare for well enough. They think having a Last Will is enough, because they never believe they might eventually become incapacitated. We all know that death is inevitable, so after your death almost any matter can be easily handled with a well-drafted Will that properly distributes all your assets and names competent persons to handle those affairs. But what happens if you become incapacitated and remain in that condition for months or even years? Do you have someone you can trust to manage your personal and financial affairs for you while you are still living? Good estate planning means planning for the unexpected, even it the unexpected is unlikely to happen. Two important documents in your disability planning arsenal discussed in previous posts are the Directive to Physicians and the Medical Power of Attorney.

A General Power of Attorney (“GPOA”) is an important part of the disability planning arsenal. A GPOA is a document that allows a person that you appoint (known in various states as either the “agent” or “attorney in fact”) handle the powers set forth in the instrument. The powers given can be very broad (allowing the agent to do practically anything that you could do if you were not incapacitated), or limited (allowing the agent only to do certain acts). Having a GPOA can also eliminate the necessity of having a costly and time-consuming guardianship created, where all matters concerning your finances are governed by the local probate court. Banks, financial institutions, title companies and others are authorized to deal with your agent so there is no disruption in the management of your financial affairs.

Under the old common law, a power of attorney would terminate immediately upon the death or disability of the person (the “Principal”) creating the power. Death still terminates the power in all states, but now most states provide that the power of attorney can be durable, meaning that the fact that you are incapacitated does not terminate the ability of the agent to act. However, the Principal must specifically provide in the written instrument creating the power that it will be durable. If that language is not there, the power of attorney is only effect if you are not incapacitated.

In addition, the power can be made effective immediately, or it can be made effective only in the event of the Principal’s incapacity. How is incapacity determined? Usually, incapacity can be determined in a written letter signed by the Principal’s treating physician. In most cases, the power of attorney is made effective on disability, since you still have the power to act on all your matters if you are not incapacitated. However, some people have physical disabilities that make it difficult to go to the bank, write checks or sign documents, so having a power that is effective immediately makes sense for them.

In naming an agent to handle your affairs, make sure the person you name is trustworthy and competent. Since the agent can do anything with your assets that you could do, they also have the ability to write checks to themselves or for their own benefit. Conflicts could arise between the agent and other people who might have an ultimate claim to your estate at your death. For example, you might name one of your three children as your agent, and that child goes out and writes large checks for his own benefit. The other two children get wind of this and sue their sibling for his mishandling of the power. Mismanagement is rare, but extreme caution should be exercised.

The GPOA in some states must be recorded in the deed records of the county where the Principal resides to be made valid. In Texas, however, the GPOA must be recorded only if it is intended to be used for real property transactions. If the GPOA is recorded, it can only be revoked by a written revocation filed in the same deed records.

Finally, the GPOA is rendered useless if the person you name dies, resigns or becomes disabled. You should therefore consider naming a successor or successors in such an event.

Four Things You Need to Have in Your Last Will and Testament

In various posts, I have discussed the importance of having a Last Will and Testament and the time, trouble and money having one will save your family. Even a simple Will (if done correctly) is better than not having one at all (see my June 8th and June 9th posts). The type of Will you need will typically depend on the size and complexity of your assets, but all Wills, simple and complex, should have at least the following four things spelled out clearly:

1. A complete distribution of all your assets. This sounds simple enough, but you would be surprised at how often this doesn't happen, especially for those people utilizing the "do-it-yourself" method of Will writing. Make sure that your Will provides a "Residuary" or "Rest and Remainder" clause that make a distribution of all your remaining assets after any specific bequests are made. A failure to have this clause will result (in most states) in a portion of your estate passing by intestacy.

2. Make sure you have contingent beneficiaries named. What if you created a Will and no one was around to accept the benefits? For example, let's say Joe is unmarried. Joe has a Last Will that provides "I leave all of my residuary estate in equal shares to my sister Betty, my brother Bill, and my brother Bob." The Will makes no other provisions for distributions. Bill predeceases Joe, leaving two children who survive him, Tom and Sally, neither of whom liked Uncle Joe. Joe would have never wanted Tom and Sally to receive Bill's share, but since there is no provision in the Will for what would happen in the event Bill predeceased Joe, the share passing to Bill would now pass under the intestacy laws of the state where he resided at his death. The likelihood is that some portion of that share will indeed pass to Tom and Sally. Make sure you spell what happens if someone named in your Will predeceases you. Does it go to that person's spouse, or to his descendants, or to some other person or persons? Don't assume everyone you name in your Will is going to survive you.

3. Have you named executors, trustees and guardians (and successors to them)? Again, a simple matter, but one that stumps some people--not because they failed to name the initial executor, but because they failed to name a backup to the first executor. Just recently I had to deal with a Will where the Decedent named his wife as his executor, but not anyone to succeed her if she failed to serve. Sure enough, she died seven months after he did, and because of complications with several beneficiaries named in the Will it took almost two months to get the probate court to name a successor. My rule of thumb is to always name the initial person, followed by no less than two (and preferably three) successors. This is particularly important for guardians for your minor children, where many times the initial appointees may decline to serve because they don't feel like they can handle the burden of additional children in their household. Don't take a chance on the court appointing someone you might not agree with in a fiduciary role for your estate or as a guardian for your children. Have a solid line of succession and make sure you go back every so often to double-check it.

4. Waive the bond for your named appointees, and also make sure they have all the necessary powers they need. If you don't waive the bond for the named executor, trustee or guardian you name in your Last Will, the court can require the named person post a bond equal to or exceeding the size of the liquid assets of the estate. This might be prohibitive in some instances and the named person may not be able to qualify for the bond. A simple clause waiving the bond for any person named to a fiduciary capacity in your Will eliminates that concern. In addition, make sure that you are giving the executor and trustees all the powers they need to administer the estate or the trust without court interference. In Texas, for example, if you name the executor an "independent" executor, they can serve without court supervision. Other states may have similiar provisions for limited court oversight of the estate administration process. Also, give them the power to do anything they need to do regarding estate assets, such as the ability to sell real property. Believe it or not, in Texas, if you don't give the executor that power, he cannot sell real property without first attaining court approval of the sale (even where he is an independent executor)!

Wills can be extremely complicated documents, which is why lay persons typically make mistakes when trying to draft them as a way of saving money. The result is that it usually costs more in legal fees to fix the problems created by the poor drafting than if the person had just paid a qualified attorney to draft a proper to begin with. Don't be penny wise and pound foolish when it comes to something as important as your estate.

Five Things to Do to Prepare for Death

Well, that doesn't sound very palatable, does it? That's probably because it isn't. No one enjoys preparing for death, but in getting your affairs together, you can save a lot of heartache and trouble for those you leave behind. And considering the emotional state they will probably be in, the less they have to deal with, the better. Here are ten things you can do to lessen their load when you do pass away.

1. Make sure your Will is up to date (or that you have a Will, period). Having an out of date Will or no Will at all (see my June 9, 2005 and June 8, 2005 posts) only increases the odds that the work for your executor will increase significantly. Is your Will clear on who receives your property at your death? What if someone predeceases you and you have made a gift to them? Is there a contingency distribution for that gift? Are all the named executors, trustees, and guardians still living and willing to serve? Has there been any changes in the tax or probate laws of your state that you can use to your advantage? Your Will should be reviewed at least every three years as a matter of course, but also if there are significant changes in your financial situation, marital status, or if there have been changes in your family as a result of a birth or death.

2. Make sure you have all your beneficiary designations up to date. Life insurance, Individual Retirement Plans, 401(k)'s, annuities, and other similiar "non-probate" assets do not pass under the Will, but instead according to the beneficiary designation for the plan or policy. Make sure that you have properly named the correct beneficiary, or that you do not need to make any changes to coincide with any changes that may have recently been made to your Will. One common mistake is that on your non-probate assets you name minor children as beneficiaries without considering the effect. If you die with minor children and you name them as beneficiaries under a plan or policy, a guardianship of the estate will have to be created for your child and administered through the probate courts. This is a costly process, and completely unnecessary. You should have a trust or trusts for your minor children created in your Will that will receive those proceeds at your death and thus eliminates the need for a guardianship.

3. Prepare a listing of all your assets and where they can be found. A common problem in estates is that the executor cannot locate all the assets easily, or worse, can never locate all the assets because there is not enough information to assist in that cause. This isn't The Da Vinci Code. Don't leave little hints and clues and expect your beneficiaries to automatically track those assets down. Write or type everything out and place it in a notebook, noting each of your assets, when and where you acquired it, and where the physical asset is located (or if it is cash or a security, the financial institution where it is held, along with account numbers). Also place in the notebook or file copies of recent account statements, tax returns, title information for vehicles, deeds for real property, names of attorneys and accountants, and copies of insurance policies. If there is a safety deposit box where you keep valuables or important papers, make sure the location is noted and where the key can be found. If you don't have an extra signer on the safety deposit box, understand that your heirs will have to get a court order to get the box drilled if you have your Last Will located there. The extra signer, like a child or sibling, might save some problems down the road.

4. Determine what you would like done with your body at your death. Morbid, yes. Necessary? Absolutely. I've seen family members fight about whether mom should be cremated or buried. If cremated, where are the ashes spread? Are any family members going to get to retain some of the ashes? If you are buried, where will it be? Do you already own a cemetery plot? Do you want to donate your body to science, or maybe just some body parts? These are all important issues, and without being too obvious, need to be addressed before you die. Let your family know your thoughts, and put them down in writing as well, so that there are no questions afterwards.

5. Write a "love letter" to your family and friends. One of the best things you can do for your family members and friends to help provide closure following your death is to draft a handwritten letter to each of those persons, letting them know how much you loved them and how much you treasured your time together. Seal each one in a separate envelope and place these in the file with your other important papers. This letter will be truly special to the recipient and will provide a great final memory of you.

Preparing for your inevitable death is not easy. But the things you do today will have a lasting effect long after you are gone.

Guardianships for Minor Children in Texas

Imagine a husband and wife with two young children, ages 5 and 3. The parents are going off on a trip to Spain, leaving the kids to stay with the husband's parents. En route to Spain, the plane crashes, and both parents are killed. The parents each had a Will, but the Wills were created before the children were born, so there is no provision for a guardian for the children. Dad had two brothers and a sister, and Mom had two sisters. All five are equally qualified, and all want to act as guardians. Before you say this would never happen, it has, and it will again. Every year hundreds of children are left parentless and in need of having a guardian appointed for them.

So in this case, who will the court appoint, and what are their duties after appointment?

In Texas, the Texas Guardianship Code governs the appointment of a guardian where there is either no Will or there is a Will, but no designation of a guardian (or a named guardian has declined to serve). The list begins with any surviving grandparent, followed by a sibling of the decedent, following by any other qualified relative or interested person. There is no preference for one sibling over another (that is, the mother's siblings are no more preferred than the father's siblings). The guiding direction for the court is that any appointment MUST be in the child's best interests.

"Best interests" is not defined by the Guardianship Code, and so the Court will typically look at all the circumstances, such as the living conditions of any proposed guardian, previous relationships between the proposed guardian and the minor children (how often did Uncle Bill visit with the children? were the visits positive ones?), home stability, other children of the proposed Guardian, and other related matters.

Each proposed Guardian has the ability to present any evidence showing their qualifications as Guardian. The Court, along with a court appointed guardian ad litem (an attorney appointed by the Court to represent the minor children's interests) will review all the information and evidence. While in the nature of a trial, the procedures are very informal and the presentation of the evidence is more in the nature of a question and answer period with the Judge of the Court.

The Court will look to the guardian ad litem for a recommendation, but the Court is not bound by that recommendation. After all evidence is presented, the Court will appoint a Guardian based on what the Judge believes best for the children. An important thing to remember is that if a minor child is above the age of twelve (12), the Court can solicit the child's opinion about which proposed Guardian the child would think would be best. Again, the Court is not bound by the recommendation, but will give it due weight. If the child is above the age of fourteen (14), the Court will given even greater weight to that child's opinion.

The problem, of course, is that the children may wind up with people that the parents would never have considered as guardians for the children for one reason or another. But because they never put their wishes down in writing, the children may ultimately suffer the consequences. In naming a guardian for your children, consider all the possibilities and make sure that you name at least one successor to your first choice, just in case the first choice declines or is unable to serve. If you name a married couple as guardians, give consideration to what would happen if that couple got a divorce. Who would the children live with in that instance? You can provide for that possibility in your Will.

Don't pick someone as guardian just because they are good with money. You can always name that person to act as trustee of the funds your child would receive. Instead, when thinking of a guardian, consider who would look out for the emotional and physical well-being of your child and let that guide your decision. Don't allow a court to make that decision for you.

Why Dying Without a Will is More Costly in Texas

In my June 8, 2005 post, I mentioned how property owned by a Texas resident passes when he dies without a Will and warned that without a Will, you are allowing the State to determine who receives your assets at your death.

The dangers of dying intestate are not limited to the distribution of your assets. It is more expensive and troublesome to administer an estate where there was no Will than one where even the simplest of Wills was created. The reason has to do with the dual hearings that must be had to appoint an administrator for the estate and the possibility of a "dependent" administration.

Where there is no Will, Texas law dictates who the heirs will be. But in order for that law to be binding on banks, brokerage houses, and real estate title companies, an heirship proceeding must be held by the local probate court (or where there isn't a probate court, the county court at law). This proceeding is for the purpose of a judge legally declaring the proper heirs so that all the parties know their rights to the estate assets.

Why is this more expensive than the normal probate of a Will? Well, in all Texas heirship determinations, the probate court is required by law to appoint an attorney ad litem to represent the interests of all unknown heirs at law. Thus, not only are the heirs paying for the attorney that is representing the estate, they are also paying for the attorney ad litem, whose costs can run anywhere from $400 to $700, depending on how much work the ad litem has to do to track down all the possible heirs. An ad litem is not required where the Decedent had a valid Will.

In addition, the estate attorney has to publish a notice in a local newspaper to give proper notice to all the potential heirs of the Decedent. Depending on the local paper, this cost can be anywhere from $100 to $200. Again, this publication is not required where there was a valid Will.

The biggest problem with not having a Will is that it subjects the estate to what is known as a "dependent" administration, rather than an "independent" administration. Texas is one of the few states that has independent administration of estates, where the executor named in the Will can operate freely of court supervision, which saves time and legal expenses. The executor does not need approval to sell property, pay expenses, or distribute assets. The executor also does not need to post a bond (assuming the Will waives that requirement). In a dependent administration, however, the probate court supervises every activity of the administrator, and the administrator must file requests with the court for approval to do anything related to the estate assets. Further, the administrator is required to file an accounting with the court showing how every penny of the estate is spent. While in theory this seems like a good idea, it is extremely expensive and time-consuming and can drag out the administration process out for months. The administrator will also be required to post a bond equal to or exceeding the value of all the estate assets.

While all the distributees of the estate can agree on an independent administration, and even the waiving of a bond, if there are any minor distributees, almost all probate courts in Texas will decline to appoint an independent administrator because the goal is to protect the interests of any minors.

In a future post, I will discuss the special problems associated with minors receiving property in Texas through inheritance or under a Will without it passing in trust, and why guardianships are as big a problem as dependent administrations. The moral, of course, of all of this is that just because you do not have a lot of assets does not mean you do not need a Will. The simplest of Wills can help avoid the delays and costs associated with intestacy and provide for a smooth transition of your estate to your loved ones.

How Property Passes When You Die Without a Will in Texas

In Texas, if a person (the "Decedent") dies without a valid will, all probate property passes under the laws of “intestate” succession as set forth in Texas Probate Code Section 38. One common myth is that the property all passes to the State of Texas. That is completely untrue, as shown below. However, the consequences of dying without a Will are that you cannot dictate who will receive your property, who will act as the executor of your estate or who might be the guardian of your children. In effect, you have ceded those decisions to the State of Texas.

Dying without a Will also complicates how your estate will be administered and results in increased costs to the surviving heirs, and these consequences will be discussed in a later post. For now, it is important to understand how property is passed when you do not have a Will.

There are several scenarios that will determine who receives what, and it is governed by whether you are are married, have children (and whether you have children from a previous marriage), and whether your property is community or separate. Community property is basically all property acquired during the marriage (except property acquired with the separate property of a spouse). Separate property is property acquired by gift, under a Will, or through an inheritance.

The following are the different scenarios and the results under each scenario:

I. SURVIVED BY SPOUSE AND CHILD OR CHILDREN:

A. All surviving descendants of Decedent ARE also descendants of Surviving Spouse

1. Separate Real Property

a. 1/3 passes to Spouse for her life (with a remainder interest to children)
b. 2/3 is equally divided among children

2. Separate Personal Property

a. 1/3 to Spouse
b. 2/3 equally divided among children

3. Community Property

All to spouse

B. All Surviving descendants of Decedent ARE NOT also descendants of Surviving Spouse

1. Separate Real Property

a. 1/3 to Spouse for life (remainder to children)
b. 2/3 equally divided among children

2. Separate Personal Property

a. 1/3 to Spouse
b. 2/3 equally divided among children

3. Community Property

a. Decedent’s 1/2 Community Property is equally divided among his children
b. Surviving Spouse retains her 1/2 community prop. interest

II. SURVIVED BY SPOUSE, NO DESCENDANTS, AND BOTH PARENTS:

1. Separate Real Property

a. 1/2 to Surviving Spouse
b. 1/4 to father
c. 1/4 to mother

2. Separate Personal Property

All to spouse

3. Community Property

All to spouse

SURVIVED BY SPOUSE, NO DESCENDANTS, AND ONE PARENT:

1. Separate Real Property

a. 1/2 to Surviving Spouse
b. 1/4 to surviving parent
c. 1/4 to brothers and sisters of Decedent, if any, or to the children of a sibling, if a sibling is deceased

2. Separate Personal Property

All to spouse

3. Community Property

All to spouse

SURVIVED BY SPOUSE, NO DESCENDANTS, AND NO PARENTS:

1. Separate Real Property

a. 1/2 to Surviving Spouse
b. 1/2 to decedent’s brothers and sisters

2. Separate Personal Property

All to spouse

3. Community Property

All to spouse

SURVIVED BY NO SPOUSE, BUT WITH SURVIVING CHILD OR CHILDREN:

All property is equally divided among the children. Children of deceased children take their parents share.


SURVIVED BY NO SPOUSE AND NO CHILDREN:

1. Both of Decedent’s parents alive

a. 1/2 to Father
b. 1/2 to Mother

2. Only one of Decedent’s parents alive

a. 1/2 to surviving parent
b. 1/2 equally divided among Decedent’s brothers and sisters living, or if a sibling is not living, to his or her children then living

3. Neither parent of Decedent survives

All property is equally divided among Decedent’s brothers and sisters, or the children of a deceased sibling


As can be seen, complications can certainly arise on the death of a Texas resident who does not have a Will. The complications are compounded in second or third marriage situations where there are children from a previous marriage, and the surviving spouse suddenly finds herself sharing property with either her husband's children or his parents and siblings. To eliminate these possibilities, and to ensure your property passes to the persons you want, make sure you have a Will and that it is up to date.