How Can I Protect My Assets?

Asset protection planning involves analyzing your individual circumstances and applying a lawful series of techniques to protect your assets from claims of future creditors. The techniques are designed to deter potential creditors from pursuing your assets, generally by making it difficult or impossible for future creditors to acquire your assets or collect judgments against you.

Where significant assets are involved, Asset Protection planning often includes setting up a series of trusts or partnerships to hold legal title to your assets. A future creditor, recognizing how difficult it would be to collect on any judgment, might be willing to settle for pennies on the dollar.

There is a definite line between "legal" Asset Protection planning and actions to defraud creditors, which are criminal. For that reason, it is essential to have an experienced attorney guide you through the process.

What is estate planning?

Estate Planning is a process to consider alternatives for, to think through and to set up legally effective arrangements that would meet your specific wishes, if something happens to you or those you care about. Proper Estate Planning is more than just a simple Will. Estate Planning also typically minimizes potential taxes and fees and sets up a contingency plan to make sure your wishes regarding health care treatment are followed.

On the financial side, a good Estate Plan coordinates what would happen to your home, investments, business, life insurance, employee benefits (such as a 401(k) plan), and any other property in the event you became disabled or died. On the personal side, a good Estate Plan includes directions to carry out your wishes regarding health care matters so that if you ever are unable to give the directions yourself, someone selected by you could make those decisions and would know when you would want them to authorize heroic measures on your behalf or when you would prefer they pull the plug.

How can I reduce my Estate Tax upon my death?

According to the current law, in 2015, Federal Estate Taxes are only charged against Estates with assets exceeding $2 million. If you think your Estate will exceed $5,430,000 at the time of your death, or $10,860,000 million if you are married, proper planning can be used to reduce death (estate) taxes by lowering the value of your Estate at the time of your death. The amount that is exempt from Federal Estate Tax will increases with inflation adjustments, and then in 2010 there is no federal estate tax. However, in 2011 the Federal Estate Tax will be returned to the 2002 level of $1 million.

What is a Living Will and how is it different from a Will?

A Living Will, also known as a Directive to Physicians, is a separate document from a Will. A Living Will designates how you wish to be cared for regarding your medical care and treatment while you are still alive, should you be unable to specify those wishes yourself. For example, you can designate whether or not you wish to be kept on life prolonging machines if there is no longer any hope that you will recover from an accident or long-term terminal medical condition.

The difference between a Will and a Living Will is that the Living Will dictates how you will be cared for while you are still alive and a Will dictates how your assets will be divided after you pass away.

What is a Trust?

A trust is a legal entity that owns assets for the benefit of a third person (a "beneficiary"). The Grantor or Settlor of a Trust is the person who set up and gave money or property to the Trust. The Trustee of a Trust is the person charged with keeping the assets safe and invested properly. The Trustee is also charged with distributing assets from the Trust to the Beneficiary at the proper time. The Grantor can pretty much decide how the money must be kept and when it may be distributed. For example, the Grantor may decide that the money is to be invested or kept in interest bearing accounts, real estate or only in government insured FDIC accounts. Additionally, the Grantor may decide that distributions can only be made to the beneficiary when that beneficiary reaches a certain age or the Grantor may decide to split out distributions such as one-half when the beneficiary turns age 18 and the remainder when the beneficiary reaches the age of 21. The Grantor of a Trust can also be the Trustee of a Trust, if the Grantor decides to set a Trust up in such a manner. For example, the Grantor may set him or herself up to be the Trustee of a Trust for his or her child's benefit.

What is a Bypass Trust?

A Bypass Trust, sometimes called a Life Estate or A-B Trust, is a way for couples of combined estates of more than $2 million, in 2008, to be exempt from estate tax if one or the other dies. This amount, which is exempt from Federal Estate Tax, increases to $3.5 million in 2009 and then in 2010 there is no federal estate tax. However, in 2011 the Federal Estate Tax is returned to the 2002 level. As you can tell, the amount is unpredictable and the government will probably change this amount many times during our lifetime.

A Bypass Trust is designed to let the $2 million tax exemption, or whatever amount it may be at the time of the first death, be used by each spouse. Through a Bypass Trust, the surviving spouse can receive any portion of the decedent's estate free of estate tax. The surviving spouse never legally owns the property within the Bypass Trust because it is legally owned by the Trust, but the surviving spouse can use the assets and property within the Trust estate. However, when the surviving spouse dies, the amount remaining in the Bypass Trust passes free of estate tax to the next generation.

When should I consider preparing a Revocable Living Trust instead of a Will?

Because probate in Texas is relatively inexpensive (the fee to file your application for probate in the Texas courts is typically less than $250), there is usually no need for a Revocable Living Trust if all of your assets are located within Texas. However, this is not true in other states where probate fees can range to as much as two to five percent (2%-5%) of the entire estate. In those certain states, it would clearly make financial sense to avoid probate by implementing a Revocable Living Trust. Therefore, one of the reasons for considering a Revocable Living Trust would be if you owned real estate in a state other than Texas where probate fees are high.

A second reason for considering a Revocable Living Trust is for the privacy aspects it provides. For famous athletes or people living in smaller cities this sometimes is an issue. A Revocable Living Trust can provide privacy as a Trust, unlike a will, would not be filed in the courts upon that person's death.

A third reason for implementing a Revocable Living Trust is if you would prefer that a bank, or other institution, assist in handling your financial affairs once you become disabled. Powers of Attorney are often used to help handle financial matters for disabled persons, but institutions cannot be named under a Power of Attorney, only individuals may be named. Thus, in this instance a Revocable Living Trust would be the preferred method.

One reason not to have a Revocable Living Trust is the myth that it saves more estate taxes than a Will. The same federal estate tax laws apply to both a Will and a Revocable Living Trust so there is no benefit of one over the other with respect to saving estate taxes.

A second reason not to have a Revocable Living Trust is that you believe it will protect your assets. In fact, a Revocable Living Trust provides absolutely no protection from lawsuits and it is not considered a "Spendthrift" Trust, which would protect your assets.

Finally, as a consumer tip, never allow an attorney to charge you a percentage of the estate to handle a probate in Texas. While that type of transaction might be legal in some other states and a good reason to have a Revocable Living Trust in those other states, you should avoid that in Texas and obtain an estimate of the legal fees from your attorney before the estate administration begins.

Because Revocable Living Trusts can be quite complicated, it is in your best interest to seek legal counsel to assure your plan goes as smoothly as possible.

What is a Living Trust?

A Living Trust is an effective way to provide lifetime and after-death property management and estate planning. When you set up a Living Trust, you are the Grantor; anyone you name within the Trust who will benefit from the assets in the Trust is a Beneficiary. In addition to being the Grantor, you can also serve as your own Trustee, the Original Trustee. As the Original Trustee, you can transfer legal ownership of your property to the Trust. While this can save your estate from estate taxes when you die, it does not alleviate your income tax obligations.

Within a Living Trust you must provide the name of a Successor Trustee who will take over the management of the Trust if you die or become incapacitated. You don't have to go through the court to appoint a successor trustee. After your death, your Successor Trustee either terminates the Trust and distributes the assets to the beneficiaries you named in the Trust, or he/she continues to maintain the Trust on behalf of your beneficiaries, depending on the terms of the Trust.

What is a Spendthrift Trust?

A Spendthrift Trust helps to protect the beneficiary from creditors. Most of the assets in the Trust will be safe from banks or creditors. However, creditors can still collect any money paid directly to the beneficiary from the Trust. If you think that your beneficiary could have problems with creditors, you can give the Trustee broad control over the Trust. The Trustee may be instructed by the Trust to withhold income and/or principal from the beneficiary.

For maximum effectiveness, a Spendthrift Trust should be irrevocable. It must also give the Trustee full discretion over the assets of the Trust, so the Trustee will have full power in deciding when and how much money should be given to your beneficiary.

If I set up a Living Trust, do I still need a Will?

Yes. Your Will serves as a back up for assets that you either don't or are not able to transfer to your Living Trust. Any asset not transferred to the Trust will not pass under the terms of the Trust document. However, in your Will, you can include a clause that designates where the assets that you haven't left to anyone else should go. If you don't have a Will, any asset that isn't transferred by your Living Trust will go to your closest relatives in the order determined by state law. These laws may not distribute your assets in the manner you would have chosen. A Will is a vehicle by which you can assure that your assets, not covered under the Trust, are distributed according to your wishes.

What are some of the disadvantages of using pre-printed will forms?

Preprinted Will Forms usually do not fulfill the needs of the person writing the Will. These preprinted forms are general in nature and do not take into account the unique needs of the person using the form. Therefore, property may accidentally be left out, inheritors might not be included, and possible tax advantages may not be taken into account. In addition, if part of the form is pre-printed, part of it is typed and another part of it is handwritten someone might be able to contest the Will claiming part of it had been forged. This is because any change in a Will leaves room for doubt as to whether the testator, who is the person writing the Will, made the changes or if someone else did. People tend to cross out, delete or add words to these pre-printed forms. It can be hard to ascertain who made these changes and why. This problem also puts the Will in jeopardy of being contested.

What happens if a person dies without a Will?

If a person dies without a Will, he or she will be considered to have died intestate. In this case, property will be distributed in accordance with the laws of the state. Often, the surviving spouse will get half of the estate and any children will inherit the other half. Additionally, if there are children from previous marriages, many complicated issues may arise. If a person dies without a Will and without any trace of any heirs, all property will escheat (be turned over) to the state.

What happens if a person dies with a Will?

In general, after the testator, the person with the Will, dies, the person named in the Will to carry out its terms, known as the executor or personal representative, files the original Will and other legal papers in a probate court, which is usually located in the county where the testator lived. The executor files a petition with the probate court describing the basic information about the decedent and asking the court to admit the Will to probate. After probate, it is usually difficult for family members to upset or contest a Will. In most states, it is possible for very small estates to be distributed through summary administration or small estate procedures. These procedures are less formal than the traditional process of probate administration.

What is an executor?

An executor is a fiduciary who is in charge of gathering all of the assets of the estate, paying all of the debts and expenses of the estate and distributing the assets to the beneficiaries as stated in the Will.


What happens if a named executor is unable or unwilling to serve?

If the named executor is either unwilling or unable to serve when the Will goes to probate, the court will appoint the alternate executor or a new executor. Beneficiaries of the Will can file a petition with the court suggesting a particular person as their choice for an executor.

What are some of the various types of wills?

There are various types of Wills. An Ambulatory Will is a Will that a person can change during that person's lifetime. A Double Will is one in which two people join together, each leaving that person's property and estate to the other person. The surviving person then owns both estates. This type of Will is also sometimes called a Counter Will, Joint and Mutual Will, or Reciprocal Will. Holographic Wills are ones that are entirely handwritten, dated and signed by the person whose Will it is. A Living Will is one that authorizes the withholding or cessation of life-sustaining medical treatments from an individual, who has been too incapacitated due to a life threatening and debilitating illness to make that decision. A qualified attorney can help you decide which type of Will is best for you.

Who should make a Will?

Each year a large number of people die without Wills leaving major decisions in the hands of the courts. Every adult person should seriously think about making a Will regardless of age or family situation. Wills are especially important for parents of children who are under eighteen, since they can name a guardian in a Will and make arrangements for the children's financial support.

Can I disinherit relatives I don't like?

Yes, you can disinherit anyone from your Will as long as the laws of the state in which you reside when you make your Will allow it. Normally, you can disinherit any distant relative, even children. However, some states dictate that a spouse cannot be completely disinherited. Because laws differ from state to state, it would probably be in your best interest to consult with an experienced attorney on this matter.

What are some of the basic requirements for a Will to be valid?

A valid Will must be in written form. It must be signed by the person making the Will and it must be witnessed by two or three competent persons, unless it's a Holographic Will, written entirely in testator's own handwriting.

Is a lawyer necessary for drafting a Will?

Wills prepared without attorneys can be legally sound if the proper procedures are followed.  However, it is in your best interest to consult with an attorney, to minimize possible complications. The costs of drafting a Will with an attorney is far less than those costs incurred to probate Wills that have not been drafted properly.

Can anyone be named as a beneficiary?

There are important restrictions on naming beneficiaries. In many states spouses have certain automatic rights that cannot be compromised in the Will.

How can you change your Will? The following are valid ways you can change your Will:

Write a new Will. The law presumes that by writing a new Will, the Testator wants to revoke the previous Will. However, to be safe, most Wills include a phrase similar to "I revoke all previous Wills" just in case it is not already assumed by the state that the new Will supersedes the old one.

Write a Codicil. To be effective, a Codicil should make specific reference to the existing and still effective Will, as it makes additions, deletions, or amendments to that Will. As with Wills, a Codicil can be holographic if written entirely in the Testator's own handwriting, or it can be witnessed, in which case it must follow all formalities of a witnessed Will. A witnessed Will may also be amended by a holographic Codicil.