TEXAS ESTATE PLANNING

Transcription

1 TEXAS ESTATE PLANNING Dianne Reis Editors: Ward Miller Donna Cole Production: Anne Loughman Amanda Winkler James Publishing, Inc. Contact us at (800) or Rev. 7, 10/12

2 TEXAS ESTATE PLANNING F-2 Copyright James Publishing, Inc. ISBN: [ ] This publication is intended to provide accurate and authoritative information about the subject matter covered. It is sold with the understanding that the publisher does not render legal or other professional services. If legal advice or other expert assistance is required, seek the services of a competent professional. Persons using this publication in dealing with specific legal matters should exercise their own independent judgment and research original sources of authority and local court rules. The publisher and the author make no representations concerning the contents of this publication and disclaim any warranties or merchantability or fitness for a particular purpose. We view the publication of this work as the beginning of a dialogue with our readers. Periodic revisions to it will give us the opportunity to incorporate your suggested changes. Call us at (714) or send your comments to: Managing Editor James Publishing, Inc Cadillac Ave., Suite H Costa Mesa, CA First Edition, February 2005 Revision 1, September 2006 Revision 2, July 2007 Revision 3, August 2008 Revision 4, August 2009 Revision 5, August 2010 Revision 6, September 2011 Revision 7, October 2012

3 F-3 ABOUT THE AUTHOR ABOUT THE AUTHOR Dianne Reis is a graduate of Harvard University and the University of Texas School of Law, where she served as an associate editor of Texas Law Review. She is a member of the College of the State Bar of Texas, the Estate Planning Council of North Texas, the Plano Bar Association, the Collin County Bar Association, and the National Academy of Elder Law Attorneys (Texas Chapter). She is currently serving on the board of directors of the estate planning section of the Collin County Bar Association. Ms. Reis is board certified in estate planning and probate law by the Texas Board of Legal Specialization, and is certified in elder law by the National Elder Law Foundation. She has a solo practice in Plano focusing exclusively on estate planning, probate, and Medicaid planning. Rev. 7, 10/12

4 TEXAS ESTATE PLANNING F-4 ACKNOWLEDGMENTS I would like to thank my husband, Eric Reis, for both his moral support and his professional expertise. I would also like to thank Barbara Ferguson and the rest of the lawyers at Thompson & Knight LLP for the many forms and other assistance they have given me over the years.

5 F-5 EDITORIAL ADVISORY BOARD EDITORIAL ADVISORY BOARD The following individuals have assisted in this book by providing editorial feedback on one or more chapters. Barbara B. Ferguson Thompson & Knight L.L.P. Dallas, TX Janet P. Hope Plano, TX Michael Kreager The Kreager Law Firm San Antonio, TX William R. Mureiko Thompson & Knight L.L.P. Dallas, TX Susan Whitson Periquet Webb & Webb, P.C. Plano, TX Eric Reis Thompson & Knight L.L.P. Dallas, TX Donald L. Totusek Francis & Orr, L.L.P. Dallas, TX Rev. 7, 10/12

6 TEXAS ESTATE PLANNING F-6 ABBREVIATED TABLE OF CONTENTS Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6-9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Client Communications Non-Probate Assets Community Property Ancillary Documents Medicaid-Oriented Estate Planning [Reserved] All Wills Wills for Single Persons Simple Wills for Married Testators Tax-Planned Wills for Married Couples Codicils to Wills Generation-Skipping Transfer Planning [Reserved] All Trusts Revocable Inter Vivos Trusts Single Persons Revocable Inter Vivos Trusts Married Couples Funding the Revocable Trust Irrevocable Trusts Non-Charitable Beneficiaries

7 F-7 TABLE OF CONTENTS EXPANDED TABLE OF CONTENTS Chapter 1 Client Communications I. CLIENT COMMUNICATIONS A. Dealing With the Client 1:01 Questionnaires 1:02 Conflicts of Interest Disclosure for Spouses 1:03 Fee Agreements 1:04 Documenting Non-Representation 1:05 Tax Planning Flowcharts 1:06 Cover Letters B. Malpractice Allegations 1:10 Claim May Not Arise Until After Client Is Unavailable 1:11 Statutes of Repose 1:12 Privity of Contract 1:13 Further Undermining of Privity Defense 1:14 Conflict of Interest Between Testator and Beneficiaries 1:15 Effect of Belt on Estate Plans that Deviate From the Intestacy Scheme 1:16 Evidence of the Client's Intent 1:17 Substantive Issues in Defining Malpractice 1:18 Avoiding Liability and Protecting the Integrity of the Plan 1:19 Documenting Intent 1:20 Triggering the Statute of Limitations II. FORMS Form 1-1, Estate Planning Questionnaire (For Single Client) Form 1-2, Estate Planning Questionnaire (For Married Clients) Form 1-3, Cover Letter Transmitting Estate Planning Questionnaire (Two Versions: Single Clients and Married Clients) Form 1-4, Regular Mail Cover Letter Transmitting Estate Planning Questionnaire (Two Versions: Single Clients and Married Clients) Form 1-5, Conflict of Interest Disclosure and Consent to Joint Representation of Spouses Form 1-6, Fee Agreement Form 1-7, Declination Letter Form 1-8, Non-Hire Letter Form 1-9, Instructions Regarding the Storage of Wills Form 1-10, Cover Letter Transmitting Simple Wills to a Married Couple Form 1-11, Cover Letter Transmitting Wills With Bypass Trusts to a Married Couple Form 1-12, Cover Letter Returning Original Documents Rev. 7, 10/12

8 TEXAS ESTATE PLANNING F-8 Chapter 2 Non-Probate Assets I. GENERAL POINTS 2:01 Types of Non-Probate Assets 2:02 Advantages of Avoiding Probate 2:03 Disadvantages of Avoiding Probate 2:04 Advising Clients About Non-Probate Assets II. III. JOINT TENANCY WITH RIGHT OF SURVIVORSHIP A. History and the Texas Presumption 2:10 No Presumption of Survivorship for Joint Tenancies (Prob C 46) 2:11 Texas Changes to the Uniform Probate Code for Multiple-Party Bank Accounts (Prob C 439) 2:12 Types of Jointly Owned Assets in Texas B. Joint Tenancy Survivorship Agreements (Prob C 46) 2:20 Joint Ownership Is Not Enough 2:21 Writing Requirement Does Not Require Signature 2:22 Payable to Survivor Language Sufficient for General Joint Tenancies 2:23 Payable to Survivor Language Not Sufficient for Multiple-Party Bank Accounts (Prob C 439) 2:24 Unilateral Severance of Non-Bank Account Joint Tenancy C. Right of Survivorship in Community Property 1. History of Attempts at Right of Survivorship 2:30 Constitutional Prohibition on Converting Community Property 2:31 The Texas Two-Step 2:32 Partition Agreements 2:33 Constitutional Amendment Allows Survivorship in Community Property 2. Community Property Survivorship Agreements 2:40 Survivorship Agreement Must Be in Writing and Signed 2:41 Safe Harbor Language for Survivorship Agreement 2:42 Reserved 2:43 Not Revoked by Divorce 2:44 Unilateral Severance of CPWROS 2:45 Procedure Not Widely Used D. Right of Survivorship in Real Property 2:50 Real Property JTWROS Rare in Texas 2:51 General Recognition of Right of Survivorship Has Been Slow 2:52 Recognition of Bank Account Right of Survivorship Has Been Difficult MULTIPLE-PARTY BANK ACCOUNTS A. General Points 2:60 Bank Accounts Treated Differently Than Other Joint Tenancies 2:61 Statutory Definitions: Account; Financial Institution 2:62 Freeze Notices 2:63 Creditors Rights in Insolvent Estates 2:64 Bank s Right of Set-Off 2:65 Unilateral Severance of a Right of Survivorship

9 F-9 TABLE OF CONTENTS B. Joint Accounts 1. Definition and Presumptions 2:70 Definition of a Joint Account 2:71 Presumption Against Survivorship 2:72 Ownership of Joint Accounts 2. Survivorship Agreements 2:80 Survivorship Agreement Must Be Signed by First to Die 2:81 Survivorship Agreement May Be Independent of Bank Signature Card 2:82 Safe Harbor Language for Survivorship Agreement 2:83 Second Safe Harbor 2:84 Checkbox Signature Cards 3. Rights After Death of Party to the Account 2:90 Bank Not Liable to Estate 2:91 Rights Among Parties Are Not Pro Rata 2:92 Liability of Financial Institution for Failure to Create Valid JTWROS C. P.O.D. Accounts 2:100 Definition of a P.O.D. Account 2:101 Rights When There Are More Than One Original Payee D. Trust Accounts 2:110 Definition of a Trust Account 2:111 Purpose of Bank Trust Accounts 2:112 Similarity to P.O.D. Accounts 2:113 Rights When There Are Two or More Trustees E. Convenience Accounts 2:120 Definition of a Convenience Account 2:121 Purpose of Convenience Accounts 2:122 Payment After Death of the Last Surviving Party 2:123 Distinction From Joint Account Without Survivorship 2:124 Combination Accounts 2:125 Convenience Accounts Not Readily Available IV. OTHER NONTESTAMENTARY TRANSFERS: PROB C 450 2:130 Specified Nontestamentary Transfers Are Valid 2:131 Applicable Types of Transfers 2:132 No Requirement for Written Agreement V. BENEFICIARY DESIGNATIONS FOR RETIREMENT PLANS AND ACCOUNTS A. General Points 2:140 Scope 2:141 Beneficiary Designation Has Income Tax Consequences 2:142 Distribution Options After the Death of the Participant 2:143 Who Is a Designated Beneficiary? 2:144 Naming a Trust as the Beneficiary 2:145 Making Beneficiaries Identifiable B. Making the Designation in Specific Situations 2:150 Conduit Trusts 2:151 Separate Accounts 2:152 Remote Beneficiaries in Accumulation (Non-Conduit) Trusts 2:153 The Estate of a Beneficiary 2:154 UTMA Accounts Rev. 7, 10/12

10 TEXAS ESTATE PLANNING F-10 C. Special Considerations 2:160 Adoption 2:161 Powers of Appointment D. Asset Protection of Inherited IRAs 2:162 Asset Protection of Inherited IRAs Under Federal Bankruptcy Law 2:163 Asset Protection of Inherited IRAs Under State Law 2:164 Planning Implications of the Uneven Treatment of Inherited IRAs 2:165 Inter Vivos Trust vs. Testamentary Trust E. Designating the Beneficiaries 2:166 The Beneficiary Designation Form VI. FORMS Form 2-1, Beneficiary Designation Instructions (Simple Will Plan) Form 2-2, Beneficiary Designation Instructions (Bypass Trust Plan) Form 2-3, Conduit Trust Form 2-4, Accumulation Trust Form 2-5, Attachment to Beneficiary Designation Chapter 3 Community Property I. BASIC RULES 3:01 Characterization of Property: Community or Separate 3:02 Property Acquired in Another State 3:03 Inception of Title 3:04 Federal Retirement Benefits 3:05 Distributions from Trusts 3:06 Undistributed Trust Income 3:07 Distributed Trust Income 3:08 Evidentiary Issues and Presumptions; Commingling II. III. CONSEQUENCES OF CHARACTERIZATION 3:10 Divorce 3:11 Federal Tax Consequences: Basis Step-Up; Estate Tax Inclusion 3:12 Creditors Rights 3:13 Intestacy / Standing to Contest Wills REIMBURSEMENT RIGHTS 3:20 Inception of Title Rule 3:21 Claim for Reimbursement 3:22 Life Insurance 3:23 Calculating the Reimbursement 3:24 Reimbursements Are Subject to the Judge s Discretion 3:25 Equitable Liens; Effect on Ownership 3:26 Exceptions to Reimbursement 3:27 Waiver of the Reimbursement Right

11 F-11 TABLE OF CONTENTS IV. FRAUD ON THE COMMUNITY 3:30 General Points 3:31 Presumption of Constructive Fraud 3:32 Consequences of Fraud on the Community 3:33 Interaction With Right to Reimbursement Doctrine V. EQUALIZING ESTATES 3:40 Comparison of Community Property and Common Law 3:41 Life Insurance 3:42 ERISA Preemption 3:43 Tax Consequences of the ERISA Beneficiary Designation VI. WIDOW S ELECTIONS 3:50 Election of Community Property Interest or Gifts Under Will 3:51 Will Must Show Intent to Establish Election 3:52 Election Must Be Knowing 3:53 Rationale for Planning a Widow s Election VII. AVOIDING PRO RATA DIVISION AT DEATH 3:60 Effect of Devise of Interest in Community Property 3:61 Agreement for Non-Pro Rata Division 3:62 Estate Planning to Facilitate Non-Pro Rata Division Chapter 4 Ancillary Documents I. DURABLE POWER OF ATTORNEY A. History 4:01 Old Common Law 4:02 Modern Durable Power of Attorney 4:03 Springing Power of Attorney B. Considerations & Limitations 1. Dangers to Principal 4:10 An Agent May Alter an Estate Plan 4:11 Certifying Disability for a Springing Power 2. Reluctance of Third Parties 4:20 Liability Risks; Extra Work 4:21 Statutory Exculpatory Provisions 4:22 Steps to Reduce Problems C. Choosing an Agent 4:30 Trustworthiness 4:31 Ability and Willingness D. Execution Requirements 4:40 Drafting and Signing Requirements 4:41 Model Language for Durability Not Mandatory 4:42 Appropriate Principals and Agents 4:43 Recording Generally Not Required 4:44 Statutory Durable Power of Attorney 4:45 Statutory Form Not Sufficient for Medicaid Planning Rev. 7, 10/12

12 TEXAS ESTATE PLANNING F-12 E. Storing the Power of Attorney 4:50 The Principal 4:51 The Agent 4:52 The Drafting Attorney F. Termination 4:60 Death, Divorce, Guardianship, Revocation 4:61 Problems With Termination by Divorce 4:62 Bankruptcy Does Not Terminate a Durable POA 4:63 Temporary Guardianship or Guardian of Person Do Not Terminate a Durable POA 4:64 How to Terminate by Revocation II. MEDICAL DIRECTIVES A. General Points 4:70 Communicating a Medical Directive 4:71 Directives From Other States 4:72 Directives Do Not Affect Insurance B. Medical Power of Attorney (MPOA) 1. General Points 4:80 Statutory Forms Mandatory 4:81 Care Providers Can Not Require an MPOA 2. Choosing an Agent; Agent s Authority 4:90 Ineligible Agents 4:91 Agent Authority Without an MPOA 4:92 MPOA Agent s Authority 4:93 Advantages to Authority With an MPOA 4:94 Agent s Duty to Consult and Follow Principal s Wishes 3. Execution 4:100 Basic Requirements 4:101 Principal and Witnesses Must Be Competent 4:102 Principal and Witnesses Must Be Adults 4:103 Ineligible Witnesses 4. When the MPOA Takes Effect 4:110 Must Be a Springing Power 4:111 Doctor s Obligations 4:112 Determination of Incompetency 5. Termination and Revocation 4:120 Terminated by Competency or Revocation 4:121 Revocation by Principal 4:122 Revocation by Divorce 4:123 Revocation Because of Duress or Fraud 4:124 Not Revoked by Guardianship C. Directive to Physicians 1. History & Overview 4:130 Right to Refuse Treatment 4:131 Communicating a Refusal of Treatment 4:132 Standards: Clear & Convincing or Substituted Judgment 4:133 Texas: Substituted Judgment 2. Authority to Decide About Life-Sustaining Treatment 4:140 With a Directive to Physicians 4:141 Without a Directive to Physicians

13 F-13 TABLE OF CONTENTS 3. Execution of Directive 4:150 Generally Executed Before Principal Faces Actual Situation 4:151 Statutory Form Not Mandatory 4:152 Execution Requirements 4:153 May Be Given Orally 4:154 Parents Can Execute for Minor Child 4. Using the Directive 4:160 Directive May Request to Use Life-Sustaining Treatments 4:161 Directive May Distinguish Between Irreversible and Terminal Conditions 4:162 Doctors Must Use Reasonable Care in Carrying Out Directive 5. Revocation 4:170 Competence Not Required for Revocation 4:171 May Be Revoked Orally 4:172 Physician Not Liable if Revocation Not Communicated D. Do Not Resuscitate Order 4:180 Purpose 4:181 Execution Requirements 4:182 Distinction From Directive to Physicians E. HIPAA Authorization 4:183 Background 4:184 General Rules Concerning Protected Health Information 4:185 Potential Problems With HIPAA s Restrictions 4:186 The Professional Judgment Exception 4:187 Whether to Prepare a HIPAA Authorization for the Client 4:188 Agent Under Medical Power of Attorney Is Entitled to Access Protected Health Information of an Incapacitated Principal 4:189 Agent Under Medical Power of Attorney Might Have Trouble Accessing Protected Health Information of a Principal Whose Capacity Is Uncertain 4:190 Sharing Information With People Other than the Medical Agent 4:191 Compound Authorizations 4:192 Required Elements 4:193 HIPAA Authorization Form III. GUARDIANSHIP A. Court Appointed Guardianship 4:200 Appointment 4:201 Authority of Guardian 4:202 Purpose B. Declaration of Guardian 4:210 Designate or Disqualify Persons as Guardians 4:211 Priority of Guardians 4:212 Selection of Designated and Disqualified Guardians 4:213 Execution C. Guardianship for Children 4:220 Methods of Appointment 4:221 Requirements for Validity IV. FORMS Form 4-1, Durable Power of Attorney Form 4-2, Medical Power of Attorney Rev. 7, 10/12

14 TEXAS ESTATE PLANNING F-14 Form 4-3, Directive to Physicians (Living Will) Form 4-4, Declaration of Guardian Form 4-5, HIPAA Authorization Form 4-6, Declaration of Appointment of Guardian for My Children Chapter 5 Medicaid-Oriented Estate Planning I. GENERAL POINTS A. Introduction 5:01 Scope of Chapter 5:02 Appropriateness of Medicaid Planning 5:03 Legality of Medicaid-Motivated Transfers B. Medicaid Long-term Care Program 5:10 General Points 5:11 Nursing Care Must Be Medically Necessary 5:12 Person Must Be in a Medicaid Bed 5:13 Resource and Income Limits 5:14 Excluded Resources 5:15 Protected Resource Amount for a Community Spouse C. Penalized Transfers 5:20 Ineligibility Periods 5:21 Lookback Period 5:22 Ineligibility Penalties 5:23 The Penalty Start Date Prior to :24 The Penalty Start Date After :25 Exemptions to the Transfer Penalties 5:26 Exemption for Transfers to UTMA Accounts D. Estate Recovery 5:30 General Points 5:31 Avoiding Recovery May Prevent Eligibility 5:32 Lady Bird Deed II. III. PRACTICAL ISSUES 5:40 Clients Who Do Not Want Medicaid 5:41 Long Term Care Insurance 5:42 The Long Term Care Partnership Program 5:43 Client May Move to Another State for Long-Term Care 5:44 Recordkeeping The Application Process 5:45 Recordkeeping Liquidation of Assets 5:46 Homesteads in Trust STRATEGIES A. Durable Power of Attorney 1. General Points 5:50 The Statutory Form Is Not Ideal for Medicaid Planning 2. The Power to Create and Fund Trusts 5:60 Statutory Form Does Not Allow the Creation of Trusts 5:61 Medicaid Applicants May Need to Create Trusts

15 F-15 TABLE OF CONTENTS 5:62 Establishing a QIT for an Incapacitated Person 5:63 Extent of Authority May Vary 3. The Power to Make Gifts 5:70 Making Gifts in a Guardianship 5:71 Statutory Form Is Not Designed for Medicaid Gifts 5:72 Giving Assets to Spouse 5:73 Statutory Form and Self-Dealing 5:74 Transfer of Remainder Interest 4. Need for Power to Be Immediately Effective 5:80 Gifts May Need to Be Made Before Caseworker Is Involved 5:81 Proving Incapacity May Be Difficult 5. Sample Clauses to Modify the Statutory Form 5:90 How to Use These Clauses 5:91 Broad Gifting Power 5:92 Per Stirpes Gifts to Children for Medicaid 5:93 Per Stirpes Gifts to Children for Any Purpose 5:94 Per Stirpes Gifts to Children for Any Purpose, Plus Unlimited Gifts to Spouse for Medicaid 5:95 Annual Exclusion Gifts, Plus Unlimited Gifts to Spouse for Medicaid 5:96 Gifts Reflecting Existing Estate Plan 5:97 Charitable Giving B. Qualified Income Trust or Miller Trust 5:100 A QIT Avoids the Income Cap 5:101 When and How to Create the QIT 5:102 Setting up the Trust s Bank Account 5:103 Making the Income Deposit C. Lady Bird Deed 5:110 A Lady Bird Deed Avoids Estate Recovery Against the Homestead 5:111 Basic Structure 5:112 Why It Works 5:113 When to Execute the Lady Bird Deed 5:114 Due-on-Sale Clauses 5:115 Use of Lady Bird Deeds for Non-Medicaid Purposes 5:116 Preserving the Title Insurance Coverage for the Remainder Beneficiary 5:117 Grantor Might Not Be Able to Obtain Title Insurance for an Exercise of the Power of Sale 5:118 Revoking the Lady Bird Deed 5:119 Drafting Options in the Lady Bird Deed 5:120 Addressing the Predeceasing Beneficiary 5:121 Conveying the Lady Bird Deed Remainder to a Trust 5:122 Selected Trust Provisions D. Testamentary Supplemental Needs Trusts 1. SNTs for Spouses 5:125 Non-Medicaid Spouse Needs a New Estate Plan 5:126 SNTs Can Interfere With Access to Money 5:127 Discretionary SNTs Are Beyond the Scope of This Book 5:128 Benefits of SNTs 2. SNTs for Non-Spouses 5:130 SNT May Be Appropriate for a Disabled Child 5:131 Distinguish Between SSDI and SSI 3. Sample Provisions to Modify a Will to Add an SNT 5:140 How to Use These Provisions 5:141 Bequest and Appointment of Trustee Rev. 7, 10/12

16 5:142 SNT Trust Provisions 5:143 Contingent Trust Alteration 5:144 Distributions Provision Alteration TEXAS ESTATE PLANNING F-16 IV. FORMS Form 5-1, Qualified Income Trust Form 5-2, Lady Bird Deed Form 5-3, General Warranty Lady Bird Deed Form 5-4, Trust to Serve as Remainder Beneficiary of Lady Bird Deed Form 5-5, Husband s Will With Spousal SNT Form 5-6, Wife s Will With Spousal SNT Form 5-7, Husband s Will With Minors Trusts and SNT for Child Form 5-8, Wife s Will With Minors Trusts and SNT for Child [Chapters 6-9 Reserved] Chapter 10 All Wills I. BASIC REQUIREMENTS A. Probate Property 10:01 Assets That Pass Under a Will 10:02 Assets That Do Not Pass Under a Will B. Testator s Age and Intent 10:10 Must Be 18, Married, or in Military 10:11 Must Have Testamentary Intent 10:12 Intent Shown by Disposing of Property After Death 10:13 Some Phrases Convey Testamentary Intent 10:14 Organization of Will Can Cast Doubt on Testamentary Intent C. Testator s Capacity 1. Requirements for Capacity 10:20 Must Possess Sufficient Mental Capacity 10:21 Capacity Is Lower Than That Required to Contract 10:22 Only Need Capacity at the Time of Execution 10:23 Evidence Demonstrating Capacity 2. Problems With Capacity a. Undue Influence 10:30 Overview 10:31 The Existence of an Influence 10:32 The Operation of the Influence to Overpower the Testator 10:33 The Execution of a Testament That Would Not Have Been Executed b. Other Problems 10:40 Insane Delusions 10:41 Fraud Treated as Undue Influence 10:42 Mistake Does Not Invalidate Will

17 F-17 TABLE OF CONTENTS II. III. IV. REVOCATION OF WILLS 10:50 General Points 10:51 By Subsequent Will 10:52 By Physical Act 10:53 Presumption of Revocation 10:54 Dependent Relative Revocation 10:55 Revival by Codicil 10:56 Revocation as a Result of Divorce FORMALITIES OF EXECUTION A. Standard Wills 10:60 Overview 10:61 Date 10:62 Signature 10:63 Witnesses 10:64 Self-Proved Wills 10:65 Wills Executed Before and After :66 Multiple Originals and Copies 10:67 Storage of Originals 10:68 The Importance of Probating the Will 10:69 Lost Wills B. Non-Standard Wills 10:70 Holographic Wills 10:71 Oral Wills APPOINTMENTS A. Executor 1. Qualifications and Appointment 10:80 Qualifications 10:81 Voiding Testator s Choice of Executor 10:82 Community Property as a Conflict of Interest 10:83 Appointment 2. Duties and General Requirements 10:90 Duties 10:91 Co-Executors 10:92 Bonding Requirement 10:93 Liability 10:94 Compensation 3. Independent Administration 10:100 Advantages and Creation 10:101 Independent Administration by Will 10:102 Court-Created Independent Administration 10:103 Importance of Named Alternates B. Guardian for Minor Children 10:110 Qualifications 10:111 Appointment 10:112 Duties 10:113 Bonding 10:114 Compensation Rev. 7, 10/12

18 C. Trustee for Testamentary Trust 10:120 Qualifications 10:121 Appointment 10:122 Duties 10:123 Bond 10:124 Compensation 10:125 Liability 10:126 Resignation 10:127 Removal D. Successor Custodians and Successor 529 Plan Owners 10:128 Appointments in Wills V. COMMON PROVISIONS A. Introductory Material 10:130 Title 10:131 Declaration of Intent and Family 10:132 Domicile 10:133 Marital Status 10:134 Names of Children 10:135 Gender and Number Clause B. Definitions 1. Definition of Survival 10:140 Simultaneous Death 10:141 Default 120-Hour Rule 10:142 Time Period 2. Definitions of Descendants & Heirs 10:150 Adoption 10:151 Stranger to the Adoption Rule 10:152 Division of Property 10:153 Anti-Lapse Statute and Class Gifts Rule 10:154 Nieces and Nephews 10:155 Wipeout Clauses C. Bequests 10:160 In General 10:161 Primary Residence 10:162 Homestead 10:163 Ademption 10:164 Exoneration of Liens 10:165 Gifts of Contents 10:166 Tangible Personal Property 10:167 Shipping Expenses D. Special Provisions 10:170 Perpetuities Saving Clause 10:171 Tax Allocation Clause 10:172 Abatement for Non-Tax Debts 10:173 Spendthrift Clause 10:174 Will-Not-Contractual Clause 10:175 Negative Bequests (Disinheritance) 10:176 No-Contest Clauses 10:177 Funeral and Burial Information 10:178 Facility of Payment Clause TEXAS ESTATE PLANNING F-18

19 F-19 TABLE OF CONTENTS VI. BEQUESTS TO MINORS A. Guardianship 10:180 Necessity of Guardianship 10:181 Disadvantages B. Custodianship (Texas Uniform Transfers to Minors Act) 10:190 Creation of Custodial Arrangement 10:191 Appointment of Custodian 10:192 Authority and Responsibility of Custodian 10:193 Termination of Arrangement 10:194 Advantages and Disadvantages C. Minors Trusts 10:200 General Points; Advantages Over Custodial Account (TUTMA) 10:201 Tax Planning VII. FORMS Form 10-1, Will Execution Instructions For Husband and Wife, Each Executing a Will Form 10-2, Written Memo Re Disposition of Person and Household Effects Chapter 11 Wills for Single Persons I. UNMARRIED TESTATOR WITH DESCENDANTS A. Will With Minors Trusts 11:01 General Points 11:02 Part A Gifts 11:03 Part B Fiduciaries 11:04 Part C Trusts 11:05 Part D Distributions 11:06 Part E Administration 11:07 Part F Definitions 11:08 Signature Pages B. Will With No Trust Provisions 11:10 General Points 11:11 Part B Fiduciaries 11:12 Part C Administration C. Will With Pot Trust 11:20 General Points 11:21 Part C Trusts 11:22 Part D Distributions D. Will With Generation-Skipping Trusts 11:30 General Points 11:31 Part A Gifts 11:32 Part C Trusts 11:33 Part E Administration Rev. 7, 10/12

20 TEXAS ESTATE PLANNING F-20 II. UNMARRIED TESTATOR WITH NO DESCENDANTS A. Will With Bequests to Persons Other Than Descendants 11:40 General Points 11:41 Part A Gifts 11:42 Part D Distribution 11:43 Part E Administration B. Issues Raised by Gifts to Persons Other Than Descendants 11:50 Generation Skipping Transfer Tax 11:51 Will Contests III. FORMS Form 11-1, Will for Unmarried Testator With Minors Trusts Form 11-2, Will for Unmarried Testator With No Trust Form 11-3, Will for Unmarried Testator With Generation-Skipping Trusts Chapter 12 Simple Wills for Married Testators I. MARRIED TESTATORS WITH DESCENDANTS A. Wills With Minors Trusts 12:01 General Points 12:02 Part A Gifts 12:03 Part B Fiduciaries 12:04 Part C Trusts 12:05 Part D Distribution 12:06 Part E Administration 12:07 Part F Definitions 12:08 Signature Page B. Wills With No Trust Provisions 12:10 General Points 12:11 Part A Gifts 12:12 Part B Executor 12:13 Parts C & D Administration and Definitions II. WILLS FOR THE SECOND MARRIAGE A. Wills With Immediate Gifts to Children or a Trust for the Surviving Spouse 12:30 General Points 12:31 Obstacles to Disinheriting the Surviving Spouse 12:32 A-1. Personal and Household Effects 12:33 A-2. Principal Residence 12:34 A-3. Reimbursement Rights 12:35 A-3. Spousal Elections 12:36 A-4. Retirement Plans 12:37 A-5. and C-1. Spousal Trust vs. Immediate Gifts to Children 12:38 Choosing Fiduciaries and Customizing Distribution Standards 12:39 E-2. Tax and Expense Allocation 12:40 E-7. No-Contest Clause

21 F-21 TABLE OF CONTENTS B. Contractual Wills 12:50 Definition and Purpose 12:51 Joint Wills 12:52 Contractual Non-Joint Wills 12:53 Material Provisions Test 12:54 Current Applications of Contractual Wills III. FORMS Form 12-1, Husband s Will With Minors Trusts Form 12-2, Wife s Will With Minors Trusts Form 12-3, Husband s Will With No Trust Form 12-4, Wife s Will With No Trust Form 12-5, Husband s Will (Second Marriage) Form 12-6, Wife s Will (Second Marriage) Chapter 13 Tax-Planned Wills for Married Couples I. INTRODUCTION A. Overview 13:01 General Points 13:02 Amount of Exemption 13:03 Purpose of Bypass Trust 13:04 Exemption Portability 13:05 Planning With Retirement Plans B. Flowcharts 13:10 Use and Advantages of Flowcharts 13:11 Retirement Plans 13:12 Life Insurance 13:13 Example: Sample Tax-Planned Estate II. PARTS A AND D GIFTS AND DISTRIBUTIONS A. Specific Bequests 13:20 Personal and Household Effects 13:21 Primary Residence B. Bypass and Marital Deduction Formula Clauses 1. Expressing the Amount of the Gift 13:30 Forward Pecuniary Formula Clause 13:31 Fractional Share Clause 13:32 Fractional Share vs. Pecuniary: Effect on Capital Gain Recognition 13:33 Reverse Pecuniary Clause 2. Funding Mechanisms 13:40 Generally: The Most Common Funding Mechanisms 13:41 True Worth Funding 13:42 Fairly Representative Funding 13:43 Comparing Fairly Representative Funding With True Worth Funding 13:44 Minimum Worth Funding 13:45 The Fractional Share Clause Alternative 13:46 Prohibit Funding With Non-Qualifying Property Rev. 7, 10/12

22 TEXAS ESTATE PLANNING F-22 III. IV. PART B FIDUCIARIES 13:50 Choosing Trustees (B-1(b)) 13:51 Corporate Trustees 13:52 Different Trustee for Incapacitated Spouse Than for Children (B-1(b) & (c)) 13:53 Trustee s Power to Appoint Own Successor (B-2(a)) 13:54 Requiring a Corporate Trustee (B-2(d)) 13:55 Removing and Replacing a Trustee (B-4) PART C TRUSTS A. Marital Deduction Trust (C-1) 1. General Points 13:60 Purpose of Marital Deduction 13:61 Qualified Domestic Trusts for Non-Citizen Spouses 13:62 Common Types of Marital Trusts: GPOA and QTIP 13:63 Life Estates Do Not Qualify Unless an Election Is Made 13:64 Trusts Must Be Drafted Carefully 2. Qualifying Income Interest 13:70 Definition of Income Is Left to State Law 13:71 Qualifying Income Under Texas Law 13:72 Unitrust New Alternative to Traditional Income Definition 13:73 Forbidden Conditions 13:74 Unproductive Property 13:75 Income During Administration and After the Surviving Spouse s Death 3. Distributions (C-1 (a)) 13:80 Trust Income Must Be Payable Annually 13:81 Principal Accessible Only by Spouse 4. GPOA Trust vs. QTIP Trust a. Distinctions Between GPOA and QTIP 13:90 GPOA Includes General Power of Appointment 13:91 QTIP Requires Election b. GPOA Trusts 13:100 Marital Deduction Requirements 13:101 Power of Appointment Must Be Exercisable in Favor of Spouse or Spouse s Estate 13:102 Power of Appointment Must Begin Immediately 13:103 Power of Appointment Cannot Be Restricted 13:104 Power of Appointment Must Be Exercisable by Spouse Alone c. QTIP Trusts i. Elements of QTIP Trusts 13:110Power of Appointment in Spouse Not Required 13:111 QTIP Election Made on Estate Tax Return 13:112Election Can Be Partial and Can Be by Formula ii. QTIP-ing an IRA 13:120 Must Be Able to Compel Withdrawals From IRA 13:121 Amount of Withdrawal 13:122 Leaving an IRA to a Trust Instead of the Spouse Risks Accelerating the Withdrawal Schedule 13:123 Income Must Be Redefined

23 F-23 TABLE OF CONTENTS B. Bypass Trust (C-2) 1. General Points 13:150 Name of the Trust 13:151 Generally Flexible 2. Invasion for Health, Education, Maintenance, and Support (HEMS) 13:160 Income Beneficiary Should Not Have GPOA 13:161 Exception for HEMS 13:162 Permissible Words and Phrases 13:163 Comfort Allowed in Some States 13:164 Happiness Allowed in Some States 13:165 Texas Statutory Savings Clause 13:166 Exception With Consent of Adverse Party 3. Distribution and Invasion Alternatives (C-2 (a)) 13:170 Trust Income Plus HEMS 13:171 First Marriage: Trust Can Accumulate Income 13:172 First Marriage: HEMS Distributions to Children 13:173 Second Marriage: Income Distributions Only 13:174 Second Marriage: Percentage of Trust Assets Each Year, Instead of Income 4. Making the Bypass Trust Eligible for a QTIP Election 13:180 Advantages 13:181 Disadvantages 5. Distributions to Descendants 13:190 Purpose and Issues 13:191 Standard of Distribution 13:192 Parent s Obligation of Support 6. Special Power of Appointment 13:200 Purpose and Issues 13:201 Choice of Recipients 13:202 Allowing Disclaimed Property 13:203 Making a Gift Incomplete Until the Surviving Spouse s Death V. NON-PROBATE ASSETS A. General Points 13:210 Importance of Including All Assets in Estate Plan 13:211How to Include Non-Probate Assets B. Multiple Party Accounts 13:220 Right of Survivorship 13:221 Payable on Death C. Property Subject to Beneficiary Designations 1. General Points 13:230 Property Subject to Beneficiary Designation 13:231 May Name Trustee as Beneficiary 2. Naming the Beneficiary 13:240 Avoid Naming Estate as Beneficiary 13:241 Name Surviving Spouse as 50% Beneficiary 13:242 Rollover Considerations 3. Coordinating Will Provisions for Estate Administration Purposes 13:250 Surviving Spouse Gets Own Interests Outright 13:251 Coordinate Will Provisions With Beneficiary Designations Rev. 7, 10/12

24 TEXAS ESTATE PLANNING F Making the Trust s Beneficiaries the Designated Beneficiaries 13:260 Need Designated Beneficiary to Avoid Income Tax 13:261 Trust Must Meet Four Requirements 13:262 Making Beneficiaries Identifiable 13:263 Descendants Predecease Spouse 13:264 Power of Appointment: Older Beneficiaries VI. DISCLAIMER PLANS 13:270 How a Disclaimer Plan Works 13:271 Advantages 13:272 Disadvantages 13:273 Drafting a Will in Anticipation of Disclaimer (A-2 and C-5) VII. OTHER PROVISIONS 13:280 Tax Allocation Clause 13:281 Minor s Trusts (C-2 or C-3) 13:282 Division of Trusts (C-7 or C-8) 13:283 Trusts With Multiple Beneficiaries (D-6) 13:284 Formula Clause Does Not Require Any Particular Election (E-3) 13:285 Occupancy of Residence (E-8) 13:286 Powers of Appointment Not Exercised (E-9) VIII. FORMS Form 13-1, Simple Wills Flowchart Form 13-2, Tax-Planned Wills Flowchart Form 13-3, Husband s Will With Marital Deduction Trust Form 13-4, Wife s Will With Marital Deduction Trust Form 13-5, Husband s Will With Outright Marital Deduction Gift Form 13-6, Wife s Will With Outright Marital Deduction Gift Form 13-7, Husband s Will With a Disclaimer Plan Form 13-8, Wife s Will With a Disclaimer Plan Form 13-9, Husband s Will With QDOT Provisions Form 13-10, Wife s Will With QDOT Provisions Chapter 14 Codicils to Wills I. GENERAL POINTS A. What Is a Codicil? 14:01 An Amendment to a Will 14:02 Treated Like a Will B. When Is a Codicil Preferable to a New Will? 14:10 Generally a New Will Is Preferable 14:11 Capacity Issues 14:12 Poor Eyesight or Other Physical Problems 14:13 Small Changes 14:14 Substantive Issues

25 F-25 TABLE OF CONTENTS II. III. EXECUTION REQUIREMENTS 14:20 Signatures 14:21 Capacity 14:22 Intent 14:23 Holographic Codicils CONSTRUCTION AND EFFECT OF A CODICIL A. Construction of Codicil 14:30 Construed With Will 14:31 Generally Codicil Prevails in Conflict B. Codicil May Republish Will 14:40 Will Republished if Codicil Contains Sufficient Reference 14:41 Will Construed as of Date of the Codicil 14:42 Codicil Can Validate or Revalidate a Will 14:43 Proper Execution of Republished Will Is Presumed C. Effect of Republication in Particular Situations 14:50 General Points: Later Date Can Change Construction 14:51 Pretermitted Child 14:52 Divorce Between Dates of Will and Codicil 14:53 Death of Legatee Between Dates of Will and Codicil 14:54 Contractual Wills 14:55 Devise of Securities and Subsequent Accession 14:56 Interested Witness 14:57 Bequest to Attorney 14:58 Adoption by Others 14:59 Exoneration of Liens IV. REVOCATION OF A CODICIL OR WILL 14:70 Revocation of Codicil Reinstates Original Will 14:71 An Invalid Codicil Can Revoke a Will 14:72 Dependent Relative Revocation V. FORMS Form 14-1, First Codicil to Last Will of Testator (Male Testator) Form 14-2, First Codicil to Last Will of Testator (Female Testator) Chapter 15 Generation-Skipping Transfer Planning I. THE GENERATION-SKIPPING TRANSFER TAX (GST TAX) A. Purpose of the GST Tax 15:01 Generation-Skipping Trusts Can Avoid Estate and Gift Tax 15:02 GST Tax Exists to Limit Generation Skipping B. What Is a Generation 15:10 GST Tax Taxes Generation-Skipping Transfers 15:11 Definition of Skip Person 15:12 Descendants of Grandparents and the 25-Year Rule 15:13 Move-Up Rule Rev. 7, 10/12

26 TEXAS ESTATE PLANNING F-26 C. Amount of GST Tax 1. Rate and Exemption 15:20 Rate 15:21 Exemption 2. Inclusion Ratio 15:30 Tax Rate Is Multiplied by the Inclusion Ratio 15:31 Computation of the Inclusion Ratio 15:32 Two Trusts Can Simplify Administration and Minimize Taxes 15:33 Division Into Two Trusts May Be Made at Any Time D. Direct Skips vs. Taxable Distributions and Terminations 15:40 Direct Skips 15:41 Trusts: Taxable Distributions and Terminations 15:42 New Basis at Taxable Termination (IRC 2654) 15:43 Trusts: The Move-Down Rule 15:44 Payment of the Tax 15:45 Allocation of the Tax II. III. EXCLUSIONS 15:50 Annual Exclusions 15:51 Medical and Educational Expenses 15:52 General Powers of Appointment ALLOCATION OF THE EXEMPTION A. Whether and When to Allocate 15:60 Whether or Not to Allocate 15:61 Timely Allocations vs. Late Allocations B. Retroactive Allocations 15:70 Late Allocation May Be Treated as Timely 15:71 Statutory Retroactive Allocations 15:72 Extensions in Individual Cases C. Deemed Allocations 1. Basic Rules 15:80 Unallocated Exemption Is Deemed Allocated 15:81 Original Rules 2. New Rules 15:90 Lifetime Transfers 15:91 Indirect Skip and GST Trust 15:92 Exceptions to GST Trust Definition Are Confusing IV. FORMS Form 15-1, Generation-Skipping Transfer Tax Chart Form 15-2, Husband s Generation-Skipping Transfer Will Form 15-3, Wife s Generation-Skipping Transfer Will [Chapters Reserved]

27 F-27 TABLE OF CONTENTS Chapter 20 All Trusts I. GENERAL POINTS A. Purposes and Uses 20:01 Tax Planning 20:02 Property Management for Minor or Incapacitated Beneficiaries 20:03 Probate Avoidance 20:04 Problems With Using Trusts to Avoid Probate 20:05 Interaction With Public Benefits Eligibility Rules B. Definitions and Parties 20:10 A Trust Is a Legal Relationship 20:11 Settlor 20:12 Beneficiary 20:13 Trustee C. Creation and Elements 20:20 Creation and Construction 20:21 Trust Purpose 20:22 Intent 20:23 Funding 20:24 Writing Requirement 20:25 Rule Against Perpetuities D. Revocable Trusts 20:30 Validity and Execution Requirements 20:31 Trusts Are Revocable Unless Otherwise Stated 20:32 Revocation as a Result of Divorce 20:33 Sample Trust Provisions Regarding Revocability E. Invalidity 20:40 General Points: Causes and Effects of Invalidity 20:41 Mistake 20:42 Mental Capacity 20:43 Undue Influence F. Alternative to a Trust: Custodial Accounts 20:50 Creation of Custodial Arrangement 20:51 Advantages and Disadvantages of Custodian Accounts 20:52 Advantages of Trusts Over Custodial Accounts II. SPENDTHRIFT TRUSTS A. Purpose and Creation 20:60 Purpose 20:61 Creation B. Limits of Spendthrift Protection 20:70 Limited Protection Against Claims for Child Support 20:71 Discretionary Trusts and Support Trusts 20:72 Mandatory Distribution 20:73 Too Much Control May Undermine Spendthrift Clause Rev. 7, 10/12

28 TEXAS ESTATE PLANNING F-28 C. Self-Settled Spendthrift Trusts 20:80 No Spendthrift Protection for Self-Settled Trusts 20:81 Partially Self-Settled Trusts 20:82 Retirement Plans III. TRUSTEES A. Powers 20:90 Multiple Trustees 20:91 Generally Powers Are Very Broad 20:92 Trust Instrument Can Limit or Expand Statutory Powers 20:93 Self-Dealing Can Be Specifically Authorized 20:94 Managing and Selling Property 20:95 Suing and Being Sued 20:96 Caring for Minors and Incapacitated Beneficiaries 20:97 Unsecured Loans 20:98 Winding Up the Trust 20:99 Termination of Uneconomic Trusts B. Duties 1. General Points 20:100 Duties Under the Trust Instrument 20:101 Duties Under Statutory and Common Law 20:102 Settlor Can Include Exculpatory Clause 20:103 Exculpatory Clause Does Not Relieve All Liability 20:104 Some Duties May Be Delegated 2. Specific Duties 20:110 Duty to Collect and Protect Trust Property 20:111 Duty to Invest and Manage Prudently 20:112 Duty to Diversify 20:113 Duty to Divest Trust of Imprudent Investments 20:114 Duty of Loyalty 20:115 Duty to Be Impartial With Co-Beneficiaries 20:116 Duty to Provide Accountings Upon Demand 20:117 Affirmative Duty to Keep Beneficiaries Informed 20:118 Successor Trustee s Duty to Review C. Succession 1. Appointment 20:120 No Particular Language Required 20:121 Legal Capacity Is the Only Requirement 20:122 Court Can Name a Trustee 20:123 Trust Can Allow Beneficiaries to Vote on Trustee 20:124 Bond Required Unless Waived 2. Resignation and Removal 20:130 Resignation With Court Approval 20:131 Non-Judicial Resignation 20:132 Removal 20:133 Statute of Limitations on Removal Actions

29 F-29 TABLE OF CONTENTS IV. ADMINISTRATION A. Allocation to Principal or Income 1. General Points 20:140 Code Has Been Revised; Trustee Must Allocate Receipts 20:141 Trustees May Adjust the Allocation 2. Allocation of Receipts 20:150 Changes From Prior Law 20:151 Receipts From Entities Are Generally Income 20:152 Rent Is Generally Income 20:153 Discount Obligations 20:154 Retirement Plans, IRAs, and Annuities 20:155 Natural Resources 20:156 Other Liquidating Assets 20:157 Derivatives and Options 3. Allocation of Disbursements 20:160 Expenses Charged Against Income 20:161 Expenses Charged Against Principal 20:162 Expenses Divided Equally Between Principal and Income 4. Deviating From the Default Provisions 20:170 Settlor Can Alter Statutory Default Allocation Rules 20:171 Trustee Can Not Be Given Full Discretion 20:172 The Unitrust Alternative B. Distributions 20:175 Distribution Standards That Refer to a Beneficiary s Standard of Living 20:176 Distribution Standards That Refer to a Beneficiary s Other Income or Resources C. Reformation of a Trust 20:180 Petitions to Modify or Terminate 20:181 No Judicial Proceeding Needed to Divide or Combine D. Trust Certificates 20:185 Purpose 20:186 Statutory Requirements V. PET TRUSTS 20:190 General Points 20:191 Pet Must Have Been Alive During Settlor s Life 20:192 Rule Against Perpetuities 20:193 Remainder Beneficiaries 20:194 Excess Funding 20:195 Trust Enforcer 20:196 Choice of Trustee and Caretaker 20:197 Validity in Other States 20:198 Alternatives to the Statutory Pet Trust 20:199 Sample Pet Trust Provisions VI. FORMS Form 20-1, Statutory Pet Trust Provisions Rev. 7, 10/12

30 TEXAS ESTATE PLANNING F-30 Chapter 21 Revocable Inter Vivos Trusts Single Persons I. PURPOSES AND USES A. General Points 21:01 Definition; Tax Effects 21:02 Trust as an Incapacity Planning Tool 21:03 Delegation of Management B. Trust as a Will Substitute 21:10 Administrative Burdens 21:11 Privacy 21:12 Real Property in Multiple States 21:13 Protection From Will Contests 21:14 Probate Avoidance 21:15 Interaction With Public Benefits Eligibility Rules II. SIMPLE RIVT WITH MINORS TRUSTS FOR UNMARRIED SETTLOR 21:20 General Points 21:21 Introduction 21:22 Part A Purpose and Funding 21:23 Part B Distributions 21:24 Part C Trustee 21:25 Part D Postponement of Distribution 21:27 Part E Administration 21:30 Part F Definitions 21:31 Signature Pages III. FORMS Form 21-1, Revocable Inter Vivos Trust for Single Person With Descendants Chapter 22 Revocable Inter Vivos Trusts Married Couples I. SIMPLE RIVT WITH MINORS TRUSTS FOR MARRIED COUPLES 22:01 General Points 22:02 Introduction and Part A Purpose and Funding 22:03 Part B Distributions 22:04 Part C Trustee 22:05 Part D Postponement of Distribution 22:06 Part E Administration 22:07 Part F Definitions II. TAX-PLANNED RIVT FOR MARRIED COUPLES 22:20 General Points 22:21 Part B Distributions 22:22 Part D The Survivor s Trust

31 F-31 TABLE OF CONTENTS 22:23 Part E The Marital Trust 22:24 Part F The Bypass Trust 22:25 Part H Administration 22:26 Part I Definitions III. FORMS Form 22-1, Simple Revocable Inter Vivos Trust for Married Couples Form 22-2, Tax-Planned Revocable Inter Vivos Trust for Married Couples Chapter 23 Funding the Revocable Trust I. GENERAL POINTS 23:01 Funding Depends on Purpose of Trust 23:02 Difficulties With Owning Assets in Trust 23:03 Income Tax Treatment 23:04 Tax Identification Number II. III. IV. REAL PROPERTY 23:10 Homestead Exemption From Creditors 23:11 Homestead Exemption From Property Taxes 23:12 Due-on-Sale Clauses 23:13 Title Insurance 23:14 Drafting Deeds That Preserve the Title Coverage 23:15 Preparing the Deed; Recital of Consideration 23:16 Recording 23:17 Out-of-State Property TITLED PERSONAL PROPERTY 23:20 Bank and Brokerage Accounts 23:21 Certificates of Deposit 23:22 Stocks and Bonds 23:23 Motor Vehicles UNTITLED PERSONAL PROPERTY 23:30 Normal Personal Property 23:31 Valuable Personal Property V. NONPROBATE ASSETS 23:40 Joint Tenancy With Right of Survivorship 23:41 Retirement Plans and Life Insurance VI. POUROVER WILLS 23:50 General Points 23:51 Part A Gifts 23:52 Part B Executor 23:53 Part C Administration 23:54 Part D Definitions Rev. 7, 10/12

32 TEXAS ESTATE PLANNING F-32 VII. FORMS Form 23-1, SS-4 Form Form 23-2, SS-4 Instructions Form , Authorization for Online Filing of Form SS-4 Form 23-3, General Warranty Deed Form 23-4, Cover Letter Requesting Recording Form 23-5, Trust Certificate Form 23-6, Letter of Instructions Form 23-7, Application for Certificate of Title (State Form) Form , Affidavit of Motor Vehicle Gift Transfer Form 23-8, General Bill of Sale Form 23-9, Specific Bill of Sale Form 23-10, Pourover Will (Husband) Form 23-11, Pourover Will (Wife) Chapter 24 Irrevocable Trusts Non-Charitable Beneficiaries I. TAX EFFECTS 24:01 Estate Tax 24:02 Gift Tax 24:03 Avoiding Termination at Age 21 II. III. IV. CRUMMEY TRUSTS A. Beneficiary s Withdrawal Right 24:10 Withdrawal Right = Annual Exclusion 24:11 Cristofani: Withdrawal Rights to Contingent Beneficiary 24:12 Time Restriction on Exercise of Withdrawal Right 24:13 Beneficiary Must Be Notified 24:14 Summary of Crummey Rules for Withdrawal Right B. Beneficiary s Tax Consequences 24:20 Release Accumulates Taxable Gifts 24:21 Testamentary Power of Appointment Delays Gift 24:22 Lapse of Power of Appointment Avoids Some Gift Tax 24:23 Strategies Involving Lapse of Power of Appointment 2503(C) TRUSTS 24:30 Basic Requirements 24:31 Trustee s Discretion May Not Be Limited 24:32 Trustee Cannot Consider Beneficiary s Other Resources 24:33 Trustee Can Be Directed to Invest in Policy on Beneficiary s Life 24:34 Beneficiary Must Have a General Power of Appointment EXTENDED 2503(C) TRUST 24:40 Advantage of an Extended 2503(c) Trust 24: (c) Trust Extended by Right to Withdraw

33 F-33 TABLE OF CONTENTS 24:42 Withdrawal Right Must Apply to Entire Corpus 24:43 Withdrawal Right Can Have Time Limit 24:44 Requirement of Notice to Beneficiary V. INVESTMENT AND INSURANCE IRREVOCABLE TRUSTS 24:50 General Points 24:51 Transfer of Assets 24:52 Payment of Premiums 24:53 Life Insurance and Employment Benefit Plans 24:54 Distributions During Life/Trust Term 24:55 Disposition at Death/Termination of Trust 24:56 Continuation in Trust for Descendant 24:57 Administrative Provisions 24:58 Trustee Powers 24:59 Trust Irrevocable 24:60 Definitions VI. RELATED DOCUMENTS 24:70 Crummey Notices 24:71 Partition Agreement 24:72 Tax Identification Number 24:73 Trust Certificate VII. FORMS Form 24-1, 2503(c) Trust for Two Settlors Form 24-2, Insurance Trust; One Settlor; One Beneficiary Form 24-3, Insurance Trust; One Settlor; Children as Beneficiaries Form 24-4, Investment Trust; One Settlor; One Beneficiary Form 24-5, Investment Trust; One Settlor; Children as Beneficiaries Form 24-6, Investment Trust; Two Settlors; One Beneficiary Form 24-7, Investment Trust; Two Settlors; Children as Beneficiaries Form 24-8, Crummey Notices Form 24-9, Partition Agreement Table of Cases Index Rev. 7, 10/12

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