Wills and Trusts FAQs
Q: What is the purpose of a Will?
A: A Will is a legal document which states how your assets are distributed at your death. A valid Will avoids many of the costs and delays that may arise from dying without a Will and allows a person to leave property to the beneficiaries he or she desires.
For example, your Will may designate the individual(s) who will care for minor children. You may also set up a trust, for your children. The trust provisions are included in the Will and state the reasons for which your children may receive distributions such as education and health.
Q: Do the deceased person’s assets automatically pass to the surviving spouse and/or children?
A: No. After a person dies, their assets belong to their “estate”, not yet to the heirs, or beneficiaries. Even though the heirs have possession of the assets, they do not have “marketable” title to the deceased person’s assets. Marketable title is achieved in probate. The Executor has no official power until the Court has admitted the Will to probate, and the Executor has taken an Oath. After appointment the Executor can legally transfer title to the beneficiaries, which gives them marketable title.
For example, institutions like banks, stockbrokers, and title companies generally require Letters Testamentary from the Executor named in a Will before those institutions will release large sums of money to beneficiaries or allow the sale of real estate.
Q: If a person dies without a Will, who inherits the assets?
A: If a person dies without a will (or “intestate”), the heirs must be determined in one or two probate court proceedings called Dependent Administration and an Heirship Determination. Legal fees for these Proceedings can easily be $10,000 instead of the usual $3,000 legal fees for probate if the decedent had a Will.
During those Heirship Proceedings, if the deceased person had one marriage, and that one spouse meets other intestate, community property and separate property laws, the surviving spouse usually receives 100% of the Decedent’s assets. If the spouse from that one marriage has died, the assets usually go to the children. However, if the deceased person was in their second marriage, the law gives the children by the first marriage 1/2, 1/3 and 2/3 of all assets, depending on whether the assets are real estate or personal property, community or separate property. The second spouse receives 1/2, 2/3 or 1/3 of the assets.
If you make a valid Will, it prevents the law from determining who will receive your assets.
Q: Is a Will I draft using a Will kit or from the internet template valid?
A: Maybe, but almost always causes delay and extra costs at a time when your heirs are least equipped for either. A valid Will in Texas has many requisites that need to be carried out. Formalities such as proper witnesses, proper execution formalities and proper intent. Only an attorney can legally draft a Will for a person, unless a person drafts his own Will. Will kits are often incomplete, and therefore invalid under state law. An invalid Will is worthless. Will kits for writing a Will are normally not state-specific. If your will fails to follow state law, it could be invalid.
You might think that an internet Will or a Will Kit might seem like an inexpensive and safe option. However, using such means can end up leaving thousands of dollars worth of valuable assets not properly disposed of. The security you get from those sources is false. Choosing the wrong asset allocation method can end up leaving your beneficiaries less assets than you wanted. For example, may families have come to us during a period of stress with poorly drafted Wills which ends up costing everyone far more than they would like.
We advise you to chose experienced attorneys for drafting your Will. Using the unsafe internet options can leave you and your loved ones in worse off positions. With 25+ years of experience, we can draft a Will that will leave you and your loved ones with peace of mind.
Q: Once signed, can your Will later be modified?
A: Absolutely, a Will can be modified at any time, but is generally only changed due to major life changes such as a change in heirs, moving to a different state, or marital status. Changes can be accomplished with a document called a codicil, or by revoking the Will and having a new one drafted. Codicils must be executed with the same formalities of a Will, i.e. two witnesses and a notary.
Q: When do I use a trust?
A: The most common type of trust Badeaux and Associates recommends is a testamentary trust meaning a trust in your Will, usually for your children. Trusts in Wills are excellent vehicles for minor children, and adult children as well. You are the “grantor” and your “beneficiaries” are the persons who receive the assets upon your death, whoever who choose. The “trustee” is the person who manages the trust assets. The trustee and beneficiary can be the same person.
Testamentary trusts are also used to save estates and are commonly called “credit shelter trusts”, “bypass trusts”, or “A/B trusts”.
Q: What is the benefit of leaving assets to your adult children in trust?
A: An advantage of your beneficiaries such as adult children receiving your assets in trust is that their assets are protected from their creditors. “Creditors” includes divorcing spouses, as well as creditors who receive judgments in lawsuits against any of your beneficiaries. Your beneficiaries can be their own trustee.
Q: What are living trusts?
A: Living trusts are similar to a Last Will and Testament in that they dispose of assets after death. The living trust has the added advantage of allowing you to name a trustee to manage your assets for an extended period of time if you become incapacitated after executing the living trust. Living trusts can avoid probate in multiple states if you own real estate in multiple states; however, an easier way to avoid probate in multiple states is to form a limited liability company to hold your out of state real estate.
Disadvantage and misunderstanding of living trusts are so serious that the State Bar of Texas posted a section about living trust abuse on its website. Living trusts are more complicated than a Will, they do not avoid estate taxes, they do not provide creditor protection, you still need a Will, and you must transfer all of your assets into the living trust during your life in order to avoid probate.
Q: Will my heirs have to pay estate taxes?
A: The question has two answers depending on who the heirs are.
a.) If the spouse is the heir, and a U.S. citizen the spouse will rarely have to pay estate taxes for assets he or she inherited. The concept is that the spouse accumulated community property while married and should not pay estate taxes on those assets.
b.) A very favorable estate tax law was passed in December 2010, referred to as the “2010 Tax Relief Act”. Under this law, estates under $5 million are excluded from paying estate taxes. For estates over $5 million, the top federal estate tax rate is 35%.
Unfortunately, the law is temporary, lasting only 2 years, through December 31, 2012.
The estate tax law that applies is the law and estate tax amount applicable at the time of your death; not at the time you make your Last Will and Testament.