Friday, September 23, 2011 Will Lawyer In Houston Explains the Basics of Estate Planning and What That Means For YOU
When a person with assets over $100,000 passes away, their assets will be handled in one of three ways:
(1) if they had no will, their assets will be distributed as mandated by the Texas probate code through a court proceeding called probate;
(2) if the person had a valid will, the estate will still have to go through the Harris County probate process, but the court will carry out their wishes as stated in their will; or
(3) if the person had a valid living trust (and their assets were re-titled in the name of their living trust), their wishes would be carried out in private, without the court's involvement.
So ... why does it matter to you?
The answer to this question depends on how much you care about what your loved ones have to deal with after you are gone and how much control you want to have as to who gets what, and when and how they get it.
If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friend/creditor who petitions the court will make these decisions on your behalf through a process called probate. Why do you care about probate? Often, the probate process can take 6-12 months, can be extremely costly, and the process is completely public. The probate process can often lead to squabbling between family members and airs the family's dirty laundry.
If a person leaves a valid will, it will still have to go through the probate process described above, but the court will have the benefit of knowing how you want your affairs handled. Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you), the court will pass on your assets to the specific people you have identified in your will.
Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.
A living trust (that has been properly funded), on the other hand, gives you more control. If you are working with an attorney who has expertise in this field, you can control WHO gets your assets, and WHEN and HOW they get it without the court's involvement. Even better--with a living trust, it is a private administration and can generally be handled in a short period of time.
You may be asking yourself: why would someone in Texas ever do a will instead of a living trust? Typically, a person will choose a will over a living trust for one of two reasons:
(1) they don't know the difference between the two, or
(2) the "cost" of doing a living trust.
There are some obvious advantages to doing a living trust over a will, but starting with something is better than nothing. If you are not yet ready to make a leap into the world of living trusts, a basic, will-based estate plan is a starting point. In addition to giving the court direction about how you want your assets distributed, a will-based estate plan should also include your advance health care directive (which identifies the person(s) that will make health care decisions for you, if you are incapacitated) and a durable power of attorney (which identifies the person(s) that will make financial and legal decisions, when you can't).
While we all care about what happens to our assets, every person over the age of 18 needs to have an advance health care directive and durable power of attorney. Thursday, January 20, 2011 Houtson Trust Lawyer Discusses Having the Right Tools for the Right Job
By: Kimberly Hegwood, Houston Trust Lawyer
A will is a simple legal document which describes what should happen to your assets upon death...and it is, frankly, not enough for most families. That is because the actual distribution is controlled by probate, without a plan in place. Upon your death, the will becomes a public document available for inspection by all comers. And, once your will enters the probate process, it is no longer controlled by your family, but by the court and probate attorneys.
Oh, this can be cumbersome, time-consuming, expensive, and an emotional trauma--all added on to a family's time of grief and vulnerability. Con artists and others have been known to use their knowledge about the contents of a will to prey on survivors. This, as you can imagine, must be avoided at all costs.
What is great about a Living Trust, is that it actually avoids probate and keeps everything totally private--because your property is owned by the trust. That way, technically there is nothing for the probate courts to administer! Whomever you name as your "successor trustee" gains control of your assets and distributes them exactly according to your instructions.
And one more big thing: a will does not take effect until you die, and is therefore no help to you with lifetime planning. As we all start to live longer, this is an increasingly important aspect of these considerations. A Living Trust can help you preserve and increase your estate while you are alive, and offers protection should you become disabled.
A few questions I often receive as a trusts lawyer in Houston:
"Who are the trustees for my Living Trust? Can I be one?"
YES. In fact, most Living Trusts have the people who created them acting as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your hand-picked successor trustee assumes control over your affairs, not the court's appointee. That's nice peace-of-mind!
"Does a Living Trust help me to avoid income taxes?"
NO. You see, the purpose of creating a Living Trust is to avoid living probate, death probate, and reduce or even eliminate federal estate taxes. It is not a vehicle for reducing income taxes (see an accountant for that!).
In fact, if you are the trustee of your Living Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created.
We manage these trusts for our clients -- and we update them too! ( More on that in a future Note, perhaps.) So, if you want to set one up (and I don't blame you), send me an email, or give us a call: 281-218-0880 -- and we will get this process started for you. Thursday, November 18, 2010 Houston Estate Tax Lawyer Offers Gift Suggestion for Your Grandchildren
By Kimberly Hegwood, Houston estate tax lawyer
As your Houston estate tax lawyer, I’d like to ask how your holiday shopping is going? If you are like me you are trying your best to fit that in with all of the other holiday planning and day-to-day obligations. What if I told you to skip the malls when looking for a holiday gift idea for your grandkids? What if you give them a family limited partnership instead?
Huh?
Let me explain…
While the estate tax lapse seems to be hogging the spotlight this year, there is also a lesser-known gap that is offering many people a tax-free way to pass on some of their wealth to their grandchildren.
The generation-skipping transfer tax, or GST, has also been repealed for 2010. This means that you can leave outright gifts to your grandchildren as long as those gifts meet certain conditions. The definition of a “gift” is fairly broad, but one way to take advantage of this is to set up a partnership and then give away units to your grandchildren. This will mean that you can put funds into a family limited partnership and transfer them tax-free but also transfer it in a way to keep the kids from getting control of the assets all at once and possibly squandering them.
The GST is different than income, estate and gift taxes. The purpose of this tax is to keep people from transferring property many generations down without paying any tax. So, the GST is imposed if the transfer avoids gift or estate tax.
So, say a man dies with a large estate and leaves his property in a trust with the income payable to his children. At his death, his trust assets go to his children. The man’s estate would then owe estate tax. But when his children die, the trust property would not be taxable in their name so the family will have avoided paying for a generation of estate tax. In this instance, the GST would apply.
It is important to point out that the GST applies to anyone, not just family, so this would apply to unrelated beneficiaries as long as they were at least 37 and one-half years younger than the deceased.
There are limits to what you can exempt in generation skipping gifts and you are only allowed to use them in certain circumstances. So, it is important to talk to an experienced Houston estate tax attorney when considering this.
So, as you are pondering your holiday list you might want to consider this for your grandchildren. This will be a gift they will remember (and thank you for!) for the rest of their lives! Wednesday, November 10, 2010 Houston Estate Tax Lawyer Talks 2010 Election Results ... and Your Finances
As a Houston estate tax lawyer, I can say change came back to Washington last week, and, depending on your politics, you may still be basking in the afterglow--or fighting back depression.
But based on pre- and post-election statements, we can make a few educated guesses about what it all means for the taxes YOU will be paying starting next year, as well as other financial implications.
I hasten to add that this is (educated) prediction-making, and that I certainly do not have the time (nor do you) to provide a fully-exhaustive list of how you may be affected. But that said, I as a Houston estate tax lawyer, have been watching these sort of policy fluctuations for a while...
The "Bush Tax Cuts"
This is going to be the battle to watch, but with the political winds at their back, the Republicans seem to be indicating that they will be pushing hard to extend these tax reductions (from 2001 and 2003), at least for another year.
What makes this most likely is that President Obama seems to agree with them (http://news.yahoo.com/s/ap/20101105/ap_on_bi_ge/us_obama_taxes).
What does this all mean? A few things come to mind...
Capital Gains & Dividends Taxes Likely To Stay Lower
If the "Bush tax cuts" are indeed extended, the tax rate on profits from the sale of long-term assets should stay at 15 percent, even for folks in the upper income tax brackets. And investors whose income is in the 10 percent or 15 percent bracket won't owe any capital gains taxes.
And, as for dividends, under the current tax law, qualified dividend income is taxed the same as long-term capital gains (that is, at a maximum tax rate of 15 percent). Similarly, those in the two lower income tax brackets received certain dividends tax-free.
Without special treatment, dividends would be treated as ordinary income, meaning they could be taxed at the top marginal tax rate, currently 35 percent (or as high as 39.6 percent in 2011 if the tax cuts expire).
But again, that doesn't seem to be what will happen.
Tax Brackets on Ordinary Income
Without Congressional action and presidential approval, the current tax rate brackets of 10, 15, 25, 28, 33, and 35 percent would be replaced in 2011 by the "pre-Bush" brackets of 15, 28, 31, 36, and 39.6 percent. Which, of course, would mean across-the-board rate hikes for American taxpayers.
And though I could be wrong, it is looking good that these lower rates would be retained.
The Estate Tax
You would think that this issue would have become easier to predict, but I regret to say that the outlook remains chaotic. It is unclear what a fix would be (if any), and whether it would happen as part of an income-tax compromise. There is sentiment, apparently, on the Hill for providing estates of people who died this year a retroactive choice of which tax rules to use.
If you are the heir or executor of someone who died in 2010, we can help you determine whether using 2010 rules is best. It may not be for those with assets between about $1.3 million and $4 million, because of complex rules levying taxes on heirs when assets are sold.
All This Being Said...
There is nothing better than sitting down with someone who will look at YOUR specific situation. Because no matter what Congress does, your estate must be handled with the sensitivity and competency to weather the storm of any future tax changes. Which, of course, is what we have been doing all year.
So, to make that an easier move to make...
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Kimberly Hegwood Tuesday, October 19, 2010 Houston Estate Tax Attorney Reveals Do-It-Now Tax Moves, And More
By Kim Hegwood: Houston Estate Tax Attorney
Since so many tax issues are up in the air right now, as a Houston estate tax attorney, I believe you should organize your tax moves into three categories: those you should do now, those you can decide last-minute in December, and Roth conversions.
If you have "income flexibility" in any way, your list should include:
"Do-it-Now" Moves from a Houston Estate Tax Attorney
* Make a maximum contribution to your 401(k), which is $16,500, or $22,000 if you are 50 or older this year.
* Sell taxable bonds now and pay the capital gains tax at 15% rather than a much higher rate in 2011.
* Make gifts of the annual exclusion amount.
"Do It Soon" Moves from a Houston Estate Tax Attorney
* Prepare to give away large sums of money late in December. This year the gift tax is only 35% and there is no "Generation-Skipping" inheritance tax. However, you don't want to make taxable gifts now just in case Congress reinstates the GST tax retroactively.
* Identify possible charitable contributions for deductions purposes. If taxes go up next year, you will want to defer these deductions.
* Accelerate your income if possible. If it looks like taxes rates will rise, you will want to take in as much as possible in 2010 rather than 2011.
The Roth Do-Undo
This year, taxpayers can convert regular IRAs into Roth IRAs. There are many considerations in this decision, so do give us a call about it, if you are considering it (281-218-0880).
Good news: If you convert now, you have until October of 2011 to undo the conversion or decide whether to pay taxes in 2010 or 2011 and 2012.
After all, with Congress putting so many key tax decisions off, this kind 20-20 hindsight could come in handy.
Tuesday, August 17, 2010 Houston Estate Tax Lawyer Reveals Another Issue With Having "No Estate Tax"
By Kim Hegwood, Houston Estate Tax Lawyer
The current environment with no estate tax seems to be causing a bunch of unintended consequences (as if that is a surprise!). Here is another...
A standard estate plan for a married couple, put together by many advisors, uses "A-B" trusts. Upon the death of the first spouse, the single trust is split into the decedent's trust and the survivor's trust. The amount in the decedent's trust is usually equal to the federal estate tax exemption. The remaining assets go to the survivor's trust for the surviving spouse's benefit.
The problem with this setup in 2010 is that a deceased spouse may unintentionally give the surviving spouse nothing. With no federal estate tax, all assets pass to the decedent's trust, leaving nothing for the survivor's trust. The decedent's trust most likely benefits the surviving spouse, but probably has many more restrictions than the survivor's trust.
For example, the surviving spouse may only be an income beneficiary with the remainder going to the children. This setup can also cause a couple to pay more state estate taxes than necessary.
That is why it is important that we schedule a review of your current plan, because even though the estate tax is sure to change, there are so many other aspects of your plan which are affected by our environment. Don't be caught by surprise! Call me, your neighborhood Houston estate tax lawyer and schedule a free Lifetime Legacy Planning Session so we can give things a look. These sessions are normally $750, but I will waive the fee for the first 10 people that call before August 31st.
I am personally dedicated to the success of your family-- and your state of mind! Can other estate planning lawyers say that?
Friday, July 23, 2010 Houston Estate Tax Lawyer Discusses Why So Many Businesses Fail
From the Desk of Kim Hegwood, Houston Estate Tax Lawyer
You know that the failure rate in small business in this country is very high. At least 85% and maybe as high as 98% of new small businesses fail before they hit the five year mark and the statisticians and the accountants will tell you that they believe that the reason for that failure is under-capitalization and poor fiscal management.
I can point you to small businesses that have failed with enough money to do everything they needed to do ten times over. And some management consultant will tell you it is poor management ability. I suggest to you what it is in most cases is that the small business owner decided that once he or she was in business they didn't have to sell.
Many people in many types of small businesses believe they do not have to sell. For example, doctors believe that they don't have to sell. There are a lot of restaurant owners who believe that. Many retail store owners believe that "we open the doors and the customers come to us and we don't have to sell anyone."
You obviously have some method you use to promote what it is that you do or you would not even be in existence. But you may only have one method or two methods or three methods that you use. The more methods, the more business. Diversity is the creative opposite of laziness.
So may I humbly suggest that you need to think: "How can I use more methods to attract people to do business with me than any other competitor will use?" Again, the more methods the more business. Hopefully that thinking process has begun to take place for you today. Thursday, May 20, 2010 Do More Than "Just" Avoid the Estate Tax as Part of Your Texas Estate Planning
It is an all-too-common misconception that smart estate planning in Texas is all about avoiding the “estate tax".And, if that were the case, only the very wealthy would be affected by it--since (until this year, with no current legislation in place) only those with estates carrying over $3.5 million in value were not exempt.
You may fall into that category, but even if you DON'T (and if you do), you should be considering the following questions as a family as part of your overall Texas estate plan. You see, regardless of what is happening in Congress, you should focus your attention on what issues you can deal with now:
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What are your values and goals?
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The key question to ask is, "How do you want your success to affect your children and grandchildren?"
Every family has a different answer to that question, and it is an extremely important--foundational--component of how we work with our client families. Some planning only takes "money" into consideration. And while that is certainly an important item to consider, the money is really only there to create a specific destiny, and style-of-life that you would want to see carried into successive generations.
And it does not require a lot of "it" [money] for you to be able to pass along your most precious values. I often urge my clients and friends to actually take the time to consider this question, because it may seem obvious on its face...but your answers will often surprise you.
And we are here to provide any kind of support along the way which you might require. We're pretty practiced in helping families cut through the clutter of financial statements--and find the hidden gems of core values and relationships.
And THOSE are the only things which really do last forever.
Let's talk more, if you want to explore these issues. Because regardless of how Congress eventually acts, walking without the right kind of estate plan in Texas can create an even worse mess when the time comes--and it's not just about the money.
With that, I will leave you until next week. But to make the process even easier...well, see below:
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Special Early Summer Email Offer
$750.00 Towards Lifetime Legacy Planning Audit
Special Gift Certificate
Print This Blog Post, and bring it to our office to claim your
$750 credit towards a Lifetime Legacy Planning Session
(normally $950)
Expires May 24th, 2010
Not valid with any offer
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