Planning to Avoid Probate and Guardianship without Using a Living Trust
Craig Watson, Texoma LIVING WELL Magazine
Arvie is an 85-year-old widow in good health. She delights in her two adult children, who also enjoy a good relationship. Her will was drafted over a decade ago. She owns a house (debt free) and about $150,000 in cash. She has a long term care insurance policy in case she needs nursing home care. She wonders if she needs a power of attorney and a medical directive, so she schedules an appointment with an elder law attorney.
At the appointment, her attorney reviews her will and explains that it leaves her estate equally to her two children, appointing them as executors. He explains the probate process and agrees that she, along with virtually everyone else in Texas, needs a Statutory Durable Power of Attorney, a Medical Power of Attorney and a Directive to Physicians.
Her attorney counsels that a Statutory Durable Power of Attorney is a document that simply authorizes her children, as her agents, to manage her property for her benefit in the event that she becomes incapacitated and unable to handle her affairs. Her children would be able to pay her bills and take care of her property if she were alive but mentally incapacitated. She asks why she needs a Power of Attorney when she has already appointed an executor. He explains that the executor is powerless until appointed by the Probate Court after her death in contrast to the Power of Attorney, which is applicable for the rest of her life. Without a Power of Attorney, her children would be required to initiate a much more expensive, court supervised Guardianship in order to manage her estate and pay her bills if she became mentally incapacitated.
The attorney says a Medical Power of Attorney is different because it applies only to health care decisions, allowing her children to make general health care decisions for her benefit if she is unable to make decisions. He explains that the last document is called a Directive to Physicians and is sometimes referred to as a Living Will because it allows her to express her wish not to be kept alive by artificial means if she ever becomes so ill that there is no hope of recovery.
Then the attorney starts to creatively add value to the meeting. He asks Arvie if she would like to plan her estate so that her children won’t have to go through the probate process. She tells him that she has heard about avoiding probate by using a Revocable Living Trust but that she thinks her estate is too small to justify a trust. She is surprised to learn that she can avoid probate without using a trust.
Because Arvie has a relatively simple estate and, very importantly, because Arvie has two trustworthy children that enjoy a close relationship, her estate can be planned to avoid the expense, delay and public disclosure of probate without using a Living Trust.
Her attorney recommends that she deed her house to her children but reserve the right to live in the house for the rest of her life, known as a Life Estate Deed. For federal income tax purposes, her children would receive a step up in cost basis in her house to fair market value in the event they choose to sell it after her death. Also, her property taxes would remain frozen because she is over the age of 65 and because the house would remain her homestead. Best of all, her house would instantly pass to her children upon her death with no need for a probate.
She added her children to her bank accounts and converted the accounts to be held as “joint tenants with right of survivorship,” meaning she retains ownership of the accounts but that they would instantly pass to her children upon her death without the need for a probate. Finally, her children could simply divide up her personal property, donate it to charity or sell it as they see fit. By taking these actions, Arvie’s children will be able to settle her estate without the expense of probating her Will.
Arvie was glad she went to see her lawyer about a power of attorney because she left his office with a whole lot more than she expected.
Craig Watson’s legal practice is focused on Estate and Tax Planning, Probate, Guardianships, Elder Law and Corporate Law. Formerly a CPA, he has over 20 years of experience and may be reached by calling 903-813-8500.