Clients often come to the Kazi Law Firm bewildered and uncertain about what “estate planning” is and curious to know whether it is useful for them. Estate planning is a misnomer and gives the impression that you must have an “estate” to benefit from this exercise. However, this couldn’t be further from the truth. Estate planning is not only for the wealthy. (https://www.caring.com/caregivers/estate-planning/wills-survey/)
On the contrary, it is for anyone, regardless of your bank balance, with assets and possessions you want to pass on to your loved ones. Therefore, it is imperative to control what happens to you and your assets upon incapacity or death. Why let the state of Texas decide how to distribute your hard-earned money? The most crucial step in the estate planning journey is to seek knowledgeable counsel. The experienced trust lawyers in Frisco at the Kazi Law Firm can help guide you.
What is a Trust? Why do I Need One?
First, what is a Trust (or a Living Trust), who are the relevant parties involved, and why should you create one? The number one reason for creating a trust is to avoid probate. A trust document is a private legal document that ensures a seamless transition to your loved ones without the need for court intervention. Essentially, it states who you want to manage and distribute your assets if you’re unable to do so and who receives them when you pass away.
The person who creates the trust is called the Settlor or Trustor, and the trustee is the person who manages a trust’s assets. In other words, the trustee is the person who acts as a custodian for the assets held within a trust. They are responsible for managing and administering the finances of a trust per the given instructions. Usually, when a trust is initially created, the Trustor also acts as the trustee until they can no longer do so due to death or incapacity. At this point, the successor trustee steps in to fulfill their duties, which include recording expenses & income, distributing funds to beneficiaries, filing taxes on any income the trust is generating (https://www.irs.gov/e-file-providers/estates-and-trusts) and keeping meticulous records of other transactions that occur. The most critical component of a trustee’s role is to ensure that they are always acting in the best interest of the trust and following its instructions to a tee. In addition, the trustee must put aside their personal goals or differences and act as a fiduciary. Thus, a trustee is held to a higher standard in terms of protecting the investments and distribution of the trust. Finally, a beneficiary is anyone you name in your estate plan who will ultimately benefit from your death. Common beneficiaries include spouses, children, parents, close friends, and family members.
Common Types of Trusts
Let’s take a deeper look at the most common trusts – revocable versus irrevocable trusts. A revocable trust also referred to as a living revocable trust, or simply a living trust is a trust that can be modified, revised, or revoked for any reason at all during the Trustor’s lifetime. By contrast, an irrevocable trust cannot be changed after the Trustor’s death, without all the beneficiaries consenting first. At first glance, an irrevocable trust may not seem like a wise idea, but it can be beneficial for tax purposes. Additionally, irrevocable trusts offer the best protection from lawsuits and creditors. Therefore, this type of trust structure may be prudent for those in litigious professions like doctors or lawyers. Ask your trust attorney in Frisco TX, if this is a viable option for you.
A living revocable trust is established by the Trustor during their lifetime and will ultimately help their loved ones avoid the costly and time-consuming probate process. Another type of living revocable trust is a joint trust, when two people want to create a trust together. This is most seen with married couples. During the couple’s lifetime, both act as co-trustees with the ability to retain control over the assets. Upon one spouse’s passing, the surviving spouse then becomes the sole trustee.
Another common trust in estate planning is the special needs trust. This specific trust is created to benefit a physically or mentally disabled person under the age of 65 who will need life-long care. These trusts are an incredible tool to provide financially for a loved one without jeopardizing any eligibility for supplemental government aid (SSI or Medicaid).
Yet another trust utilized by families is the spendthrift trust. This trust is created where the beneficiary will not have direct access to the assets or funds inside the trust. Instead, the trustee will have incredibly broad powers to give beneficiaries the amount of trust funds they deem fit. Typically, spendthrift trusts are used when a beneficiary is either young or when someone has shown to be financially irresponsible in the past. Again, it is best, to be honest and forthright with your trust lawyer in Frisco when discussing trust creation options to determine the optimal one for your family.
Additionally, there is the option to create a QTIP trust. A QTIP trust is a “qualified terminable interest property trust.” It is used to ensure that income from the trust is paid to a survivor spouse, but the remaining funds are held in the original trust until the second spouse passes. At that point, whatever is left in the trust is distributed to the beneficiaries as instructed.
There is also the option to create a blind trust if the Trustor anticipates any conflicts of interest or disputes among family members. A blind trust is essentially a living trust where beneficiaries have no prior information or knowledge about any of the assets within the trust. The person appointed as successor trustee will ultimately have complete discretion over all of the trust assets and distribution.
The most common misconception about estate planning and trusts, in particular, is that it is only for the uber-wealthy. However, this is an utterly false presumption. Trusts can protect your legacy and ensure that your loved ones are cared for long after you pass away. Generational wealth building starts with personalized estate planning. There is no one size fits all approach to trusts, and thus, the Kazi Law Firm strives to create an estate plan that is as unique as you are! Your trust lawyers in Frisco Texas are standing by to customize your plan today to ensure a seamless and cordial transition tomorrow.
Benefits of Establishing a Trust
There are several advantages to having a trust in Texas. One of the primary benefits is having total control over how your assets will be distributed after your death. You also have the freedom, flexibility, and peace of mind to make changes to the trust during your lifetime. In addition, a trust avoids probate in Texas and ensures a seamless and efficient transition of your assets and belongings to your loved ones without court intervention. Finally, a living revocable trust not only protects you and your assets should you become incapacitated but also formalizes your wishes and transfers your holdings. The immense benefits heavily outweigh the few disadvantages of having a trust. One such disadvantage is the higher up-front cost in creating a living trust. It may seem like an expensive investment, but it pales in comparison to the cost of your estate going through the probate process. Probate is time-consuming and costly in many cases. Also, some feel that transferring and retitling assets into the trust’s name is a cumbersome task. However, keep in mind that it is only arduous the first time and is relatively simple from that point on.
What is a Will Contest or a Trust Contest?
A “will contest” is when a person legally challenges or disputes a deceased person’s Last Will & Testament. Similarly, a “trust contest” is a legal case involving the terms or the administration of a trust. Additionally, will contests and trust disputes are handled in probate court.
Now, the question that naturally springs to mind is when should you dispute a trust in Texas? Well, there are a few common grounds to contest or challenge a trust. The most obvious one is challenging the Trustor’s mental capacity or lack thereof. One may argue that the Trustor was not legally competent or lacked the contracting capacity to sign a trust document. In Texas, the lack of mental capacity implies that the Trustor either did not fully comprehend the trust documents, did not realize what he owned, or mentally grasp how the trust document would distribute the trust property to beneficiaries. Yet another grounds to contest a trust is to claim that the wording in the trust document was ambiguous or unclear in expressing the Trustor’s wishes or intent. Additionally, one could assert that “undue influence” or duress was used to coerce the Trustor to sign the trust document. Finally, an argument could be made that someone forged the Trustor’s signature on the trust document, or the Trustor signed the document not knowing that it was a trust. Finally, the assertion could be made that the Trustor was misinformed about the contents of the document and honestly had no intention of creating a trust.
Moreover, there are times when a trust is challenged not based on the Trustor but due to claims of mishandling by trustees. For example, if the successor trustee fails to follow the terms of the trust document or steals from the trust, a trust contest is warranted. It is imperative to remember that the trustee has a fiduciary responsibility to the beneficiaries. Thus, the trustee must always act in good faith and do what’s best for the beneficiaries, including managing the trust’s investments wisely.
Trust disputes can take weeks or years to resolve and can be costly. Luckily, most disputes are settled outside court, but some may linger for decades, depleting the estate considerably.
At the Kazi Law Firm, your trust lawyers in Frisco will ensure that your trust is created correctly and expeditiously. No one wants to think about incapacity or dying and leaving their loved ones behind, but it is a necessary conversation. Thus, we want to rip it off like a band-aid. The philosophy of your experienced trust lawyers in Frisco is to “do it once and do it right.” Therefore, we strive for efficiency, attention to detail, and above all, delivering a superior client experience.
Therefore, we work diligently to ensure that your trust is created correctly to meet your estate planning goals. It is imperative to take the necessary legal steps to retitle and transfer assets into the trust to ensure that your estate avoids probate. A staggering statistic in 2020 showed that 80% of trusts in the United States fail. The number one reason for this is that people “fail to properly fund the trust.” Don’t become a statistic. Let the trust lawyers in Frisco at the Kazi Law Firm aid you in successfully achieving your estate planning goals. We offer comprehensive trust and estate planning packages complete with your trust, pour-over will, and all ancillary documents, including your living will or medical directive, statutory durable power of attorney, medical/healthcare power of attorney, Texas HIPAA waiver, and guardianship declaration for minor children (if applicable).
Statutory Durable Power of Attorney in Texas
Additionally, there seems to be much confusion surrounding the term “power of attorney” and what that means in reality? Some are concerned that it means relinquishing all power over your assets and property. In contrast, others believe it is hiring an attorney and paying exorbitant legal fees for representation. All the aforementioned premises are false. Let’s delve into this area of the law and learn more about this powerful tool in estate planning.
A durable power of attorney (“DPOA”) is a written document signed before a notary that allows you to designate someone you trust (your agent) to engage in specified business, financial, and legal transactions on your behalf. The power of attorney is called “durable” because it does not terminate upon your mental disability or incapacity. A third party such as a realtor or banker is entitled to rely upon your durable power of attorney and accept your agent’s signature in place of your own. It is a tremendous responsibility to appoint a trustworthy and reliable agent. But what happens if you have a falling out with your designated fiduciary or if you learn unsettling facts about this person’s truthfulness? In such situations, it would be prudent to revoke the power of attorney and appoint someone else to act as your agent.
Section 751.134 of the Texas Estates Code (https://statutes.capitol.texas.gov/Docs/ES/htm/ES.752.htm) indicates that a durable power of attorney can be revoked; however, it does not provide specific instructions for accomplishing this. The statute provides:
“Termination of the agent’s authority or of a durable power of attorney is not effective as to the agent or another person who, without actual knowledge of the termination, acts in good faith under or in reliance on the power of attorney.”
Suppose a power of attorney has remained unused in a safe place, and you have not recorded it in the court records. In that case, destroying the power of attorney and creating a new one will suffice as a legal revocation. However, if the power of attorney has been used or recorded in court records, then the revocation will not be effective as to third parties unless they have actual knowledge of the revocation. Thus, this may require you to ask the agent to return the original power of attorney, contact each institution where the agent has used the power of attorney, and file a revocation in the court records. You should send a written notice enclosing a copy of the revoking document to the agent and every third party that knew of the agent’s authority.
It may seem like a daunting and intimidating task to “fire” your agent. Still, there are other ways to achieve the same goal in a non-confrontational manner.
The first option is to revoke the entire document. For example, you can execute a stand-alone document named” Revocation of Durable Power of Attorney” or executing a new power of attorney that specifically states that it revokes your prior DPOA.
The second alternative is to leave your power of attorney in place and revoke only the estranged agent’s authority. You can easily do this by executing a stand-alone document called a “Revocation of Agent’s Authority.” Once you have terminated your agent’s authority, the successor agent you named in the new DPOA steps in to serve and replaces the former agent.
Additionally, if the estranged agent also happens to be your spouse, a divorce decree automatically terminates the agent’s authority.
For many people, “estate planning” is a daunting and insurmountable task, not to mention depressing and complicated. But it doesn’t have to be. Your trust lawyers in Frisco, Texas, are here to help you navigate the world of estate planning and trusts with ease. There are numerous different types of trusts which serve unique purposes. Let’s start by discussing some of the most common types of trusts in Texas and how they can be a valuable estate planning tool for your family’s legacy.