The New Medicaid Recovery Act for Texas Residents

The federal government now requires each state to implement an estate recovery program, the purpose of which is to attempt to recover part or all of the costs associated with providing long-term care services through Medicaid. To comply with this federal requirement, the Texas Legislature recently directed the Texas Health and Human Services Commission ("HHSC") to establish a Medicaid estate recovery program.

HHSC developed rules after gaining input through a multi-step process that included a state agency workgroup, statewide public hearings, and public comment. The revised rules proposed in December 2004 also reflect input from the Centers for Medicare and Medicaid Services, which is the federal agency that has final approval authority on all Medicaid estate recovery programs.

The Texas Medicaid estate recovery program began operations on March 1, 2005. The Department of Aging and Disability Services ("DADS"), an agency under the oversight of HHSC, administers the program.

Under this program, the state may file a claim against the estate of a deceased Medicaid recipient, age 55 and older, who applied for certain long-term care services on or after March 1, 2005. Claims include the cost of services, hospital care, and prescription drugs supported by Medicaid under the following programs:

• Nursing facility
• Intermediate Care Facility for Persons with Mental Retardation (ICF/MR), which includes state schools
• Medicaid Waiver Programs including
  • Community Living Assistance and Support Services
  • Deaf-Blind with Multiple Disabilities Waiver
  • Home and Community-based Services
  • Texas Home Living Program
  • Consolidated Waiver Programs
  • Community Based Alternatives, which includes Star Plus services
• Community Attendant Services

Exceptions to Filing Claims

Medicaid Estate Recovery Program claims will only be filed when it is cost-effective. Claims that are considered not cost-effective are those where:

• The value of the estate is $10,000 or less.
• The recoverable amount of Medicaid costs is $3,000 or less.
• The cost of the sale of the property would be equal to or greater than the value of the property.

In addition, a claim may not be filed should one or more of the following conditions exist:

• There is a surviving spouse.
• There is a surviving child or children under 21 years of age.
• There is a surviving child or children of any age who are blind or permanently and totally disabled under Social Security requirements.
• There is an unmarried adult child residing continuously in the Medicaid recipient’s homestead for at least one year before the time of the Medicaid recipient’s death.

An undue hardship waiver may be filed when:

• The estate property is: a family business, farm, or ranch; is the primary income producing asset of the heirs; produces at least 50 percent of the livelihood for heirs for at least 12 months prior to the death of the Medicaid recipient; and recovery by the state would affect the property and result in heirs losing their primary source of income.
• Beneficiaries of the estate will be eligible for public or medical assistance if recovery claim is collected.
• Allowing one or more heirs to receive the estate enables them to discontinue eligibility for public or medical assistance.
• The Medicaid recipient received medical assistance as the result of being a crime victim.
• The value assessed by the tax appraisal district is less than $100,000 and the heirs have gross family incomes below 300 percent of the Federal poverty level.
• Other compelling reasons exist.

Additional Information

• Information about the filing process, allowable deductions, and asset transfers can be found in the Texas Medicaid Estate Recovery Program Receipt Acknowledgement Form, which is in PDF format.

• You also may call DADS at 1-800-458-9858. This line is answered by in-office staff from 8 a.m. to 5 p.m. Monday through Friday. Voice mail is available 24 hours a day, seven days a week, with a message that states the call will be returned the next day. Voice mail is monitored by in-office staff from 8 a.m. to 5 p.m. on Saturday, Sunday, and holidays. You can also send e-mail to charline.stowers@dads.state.tx.us.

Rules and Statutes Concerning Medicaid Recovery in Texas

• Texas Probate Code, Section 298, Claims Against Estates of Decedents
• Texas Probate Code, Section 301 Claims for Money Must Be Authenticated
• Texas Probate Code, Section 322, Classification of Claims Against Estates of Decedent
• Texas Administrative Code, Title1, Part 15, Chapter 373

Should You Have a Testamentary Trust for Your Beneficiaries?

When leaving property under your Last Will and Testament for your beneficiaries, whether you leave the property outright or in trust is a major consideration. Your decision will usually be guided by the amount of property you are leaving, but the following factors should also play a role in that decision:

First, minor children should never be left property outright, especially if the property is significant in value. Leaving property to the minor outright will result in one of two scenarios:

(1) A guardianship of the estate will have to be created through the probate court, which will oversee all aspects of the management of the property, including the investments, expenditures and distributions to the minor. The guardian will be required to file an annual accounting with the court and make sure that the accounts are always in balance. This is a costly and time-consuming process and should be avoided if at all possible.

(2) A custodial account will be created for the minor under the Uniform Transfers to Minors Act, but only if that option is provided for under the Will. If so, then the funds will be put into an account for the minor, and the funds must be given to the child when he turns 21 (18 in some states). The custodial account is more flexible and avoids the guardianship headaches; however, it can lead to problems if the child is not mature enough to handle the funds at age 21. If there is no provision for a custodial account in the Will, you only alternative is the guardianship option.

Second, if you were to die today, do you believe your beneficiaries will be able to adequately manage the funds you are giving them? Do they understand when and how to make investments? Can they live within a budget, or are they spendthrifts (i.e., would the money be blown on extravagant living)? Would they be easy targets for children, spouses, or friends? Leaving the property in trust for a beneficiary who has no financial acumen would allow a person or entity that you appoint as Trustee to manage these assets for them and hopefully allow for the extended use and benefit of the assets for the beneficiary.

Third, do your beneficiaries have any creditors or potential creditors? If so, leaving the property to them outright will subject that property to the creditors claims. Just because the property is inherited does not somehow exempt it from the payment of the just debts and expenses of the beneficiary. Leaving the property in trust will allow the money to be held separate and apart from the other assets of the beneficiary, and since the beneficiary is not deemed the owner of the trust assets (for legal purposes), the assets would not be subject to creditor claims.

Fourth, is the beneficiary in a contentious marriage or relationship? Take the following example: Dad dies, and leaves $500,000 to his son Rudy. Rudy is married to Jane. The property that Rudy has received from his dad is now his separate property. However, Rudy places the funds in a joint account, and over a period of time the funds are commingled to the point where it becomes difficult to tell what is Rudy's separate property, and what is their joint property. Jane later files for divorce, and because of the commingling, the property is ruled by the divorce court judge as joint and awards some of the funds to Jane. Another situation might be that after Dad dies and leaves all the property to Rudy, Rudy dies and has a Will leaving everything to Jane. Jane remarries and creates a Will that leaves everything to new husband Buck, cutting out Rudy's children. By leaving property to Rudy in trust, Dad could have guaranteed that the funds would have been segregated, and thus not awardable to the other spouse in a divorce action, and he could also provide what happens to the funds in the event of Rudy's death (e.g., it all goes to Rudy's children, in trust or outright, or it goes to charities, or even to Rudy's spouse--the point being Dad can make the call and not leave it to chance).

Fifth, will the gift to the beneficiaries create an estate tax problem for the beneficiary? Let's say Dad gives Rudy $1 million. The full value of that $1 million (plus any growth on that $1 million) will be includable in Rudy's estate when he dies. Depending on the estate tax exemption available to him in the year he dies, his estate could be paying unnecessary estate tax at his death. By leaving the property to him in trust, none of the property will be subject to tax in his estate, as long as it remains in trust. The property could grow to $10 million and still be exempt (in almost all cases) from estate tax. Rudy can still receive distributions and otherwise benefit from the trust funds; he just can't hold the property outright and exempt that property from estate tax.

For those persons who have adult beneficiaries who are financially secure, in good relationships and are smart money managers, the reasons are not as pronounced for having a trust created for those persons (other than for protection ultimately from estate tax or to ensure that the children of the beneficiary are taken care of on their parent's death). When thinking about your estate plan, take some time to consider any special circumstances that might be surrounding your beneficiaries and try to plan for those circumstances in a way that makes the most sense financially for that beneficiary. The use of a testamentary trust under your Will for that beneficiary can eliminate a great deal of concerns and problems after you are gone.

Will You Owe Estate Tax at Your Death?

Many people worry that they will owe estate tax at their death, but the reality is that fewer than 1% of all Americans will ever be subject to the estate tax. This is especially true (at least for the next few years) as a result of the sweeping tax law changes that took effect in 2001. Let's take a brief look at the most important provisions of the effect that new law had on the estate tax.

In looking at these changes, it helps to understand the following facts:

1. The Estate Tax Exclusion. Each individual has an exclusion against estate tax which is currently $1.5 million. This means that if you died today as a single person, and had less than $1.5 million in assets, then you would not be subject to the federal estate tax (whether you would be subject to your state's inheritance tax depends on your particular state's laws--in Texas, for example, you would pay no state inheritance tax if there were no federal estate tax paid). If you had assets in excess of $1.5 million, you would pay tax on the excess assets over $1.5 million, up to a top rate of 47%. However, the marginal rate for estates that barely exceed the exclusion amount would only be about 15-20%.

2. The Marital Deduction. If you are married, any gifts that you make to a surviving spouse entitles you to a deduction equal to the gift. Thus, if you and your spouse had $4 million in combined assets, and your share of the assets was $2 million, then you would be $500,000 over the exclusion amount. A gift to your spouse of all of your assets would reduce your estate to $0 because of the deduction ($2 million in assets less the $2 million gift to spouse = $0 estate for estate tax purposes). The problem with making an outright gift like this to the surviving spouse is that you have wasted your exclusion against the estate tax and your spouse now includes the full value of the assets you gave to him or her as part of their estate at their death, with only their exclusion to apply against the potential tax. In a future post, I will talk about eliminating this problem by utilizing a trust for the benefit of the surviving spouse that protects your exclusion while providing for your spouse's benefit at the same time.

From the inception of the law in 2001 through 2009 here's how the estate tax changes year by year depending on the year of death:

Year	Exclusion	Highest Rate
2001	$675,000	55%
2002	$1 Million	50%
2003	$1 Million	49%
2004	$1.5 Million	48%
2005	$1.5 Million	47%
2006	$2 Million	46%
2007/08	$2 Million	45%
2009	$3.5 Million	45%

If you die in the year 2010, there is no estate tax. The tax is repealed for that year only. So if you plan on dying, and your estate is large enough, perhaps that should be the year you do it. Unfortunately, the estate tax in that year is replaced by a capital gains tax on appreciated property you own at death, along with some other punishing tax changes that ease the pain of losing the amount of revenue the estate tax generated.

If you die after December 31, 2010 the federal estate tax returns to the same level as in the year 2002, i.e., the exclusion will be fixed at $1 million. The House and the Senate are in debate about whether to eliminate the tax entirely (unlikely) or to raise the exclusion to around $4 million on a permanent basis (more likely).

If you would like to estimate what your potential tax liability could be, you can go to this site and enter in your assets and debts, and it will calculate the potential tax you would have based on those assets and liabilities.

Having a good estate plan means knowing whether you could be subject to the federal estate tax and how to pay as little tax as possible through having the proper types of Wills and other documents. Don't penalize your future beneficiaries because you didn't adequately plan for their protection from unnecessary taxes.

Naming the Right Person as Your Executor

When making your Last Will and Testament, you probably put a lot of thought into who is going to receive your assets. I would argue that as much thought needs to go into who is going to administer your affairs after your death, because naming the wrong person can create a financial hardship for your beneficiaries. Understanding the roles played by the various appointees under your Will may guide you in selecting the right person for that role. This post discusses the role of the Executor and the importance of naming the right person for that position.

Your Executor is the person or entity (such as a bank or trust company) responsible for filing your Will for probate, collecting all your assets, selling property, paying debts and expenses, and filing tax returns. The Executor is NOT responsible for the investment and management of assets of the Estate (other than the continued preservation of the assets during the Estate administration) or for any trusts created under your Will, which is the responsibility of the Trustee. You can name more than one person or entity to serve as co-executors, if you choose, but you should remember that where two co-executors are named, if there is a disagreement between the executors, the estate administration may be delayed. For example, one executor may want to sell a piece of real property to provide cash for the beneficiaries. The other executor might believe the property has potential for growth in value and want to distribute the property directly to the beneficiaries and let them decide whether they want to keep it. If there is a stalemate, nothing can happen, and the property will remain both unsold and undistributed. Ultimately, the dispute might have to be taken to the probate court or to mediation to get resolution on the issue.

The Executor has complete authority over the administration of the Estate, so the person you name should be someone who is financially competent and who also understands the family dynamics. If you are married, in almost all cases the spouse is named as the Executor, but in some situations, such as where the spouse is incapacitated, lacks financial understanding or otherwise needs assistance with the management of the Estate, a child or sibling might be named as the Executor (or as a co-Executor with the spouse). If you are unmarried, a child, sibling or family friend can act as the Executor.

You should ask the following questions about the person you are thinking about naming: (1) Do I trust this person to handle the financial affairs for my beneficiaries? (2) Has this person ever had financial problems of their own? (3) Would they get along with the beneficiaries, and how would they handle conflict? (4) If I name co-executors, can the co-executors work together in harmony? (5) Will they accept advice from estate’s attorney, or will they be a loose cannon, acting without consideration for the consequences to the estate and the beneficiaries?

If you answered "no" to any of these questions, you should strongly consider naming an alternative person as the Executor.

In larger estates, banks and trust companies might be considered because of the complexity of the assets and their expertise in handling such assets. They specialize in their ability to come in and collect all the assets and administer the transfer of closely held businesses and partnership interests in a more efficient and timely manner than perhaps the family member or friend would. Banks and trust companies are also helpful in larger estates where you have no one to otherwise name that has any financial expertise to continue the administration of the estate assets. Of course, the downside to naming a bank or trust company is that they will charge for that expertise. You can expect to pay a corporate fiduciary anywhere from 1 to 3% of the overall value of the estate assets as a fee for their services as executor. Thus, where the estate is valued at $2 million, and the executor charges a 2% fee for its services, the cost to the estate would be $40,000. In some instances this is well worth it; in other cases you are best served just hiring a well-qualified attorney (which you should always have in any event) to guide you through the administration process.

One other note: it used to be that you needed to name someone that lived nearby to facilitate the administration process. With today’s technology, you can name someone who lives in another city or even another state without hindering the estate administration. Many transactions can be done through the mail, by messenger, online or over the phone.

You have probably given a lot of thought into how you are going to have your Estate assets pass at your death. Don’t put someone in charge who will derail everything after your death that you’ve worked so hard to accomplish during your lifetime.

The General Durable Power of Attorney

Planning for disability is an important part of your overall estate planning and one part of the plan that many people tend to either overlook or not prepare for well enough. They think having a Last Will is enough, because they never believe they might eventually become incapacitated. We all know that death is inevitable, so after your death almost any matter can be easily handled with a well-drafted Will that properly distributes all your assets and names competent persons to handle those affairs. But what happens if you become incapacitated and remain in that condition for months or even years? Do you have someone you can trust to manage your personal and financial affairs for you while you are still living? Good estate planning means planning for the unexpected, even it the unexpected is unlikely to happen. Two important documents in your disability planning arsenal discussed in previous posts are the Directive to Physicians and the Medical Power of Attorney.

A General Power of Attorney (“GPOA”) is an important part of the disability planning arsenal. A GPOA is a document that allows a person that you appoint (known in various states as either the “agent” or “attorney in fact”) handle the powers set forth in the instrument. The powers given can be very broad (allowing the agent to do practically anything that you could do if you were not incapacitated), or limited (allowing the agent only to do certain acts). Having a GPOA can also eliminate the necessity of having a costly and time-consuming guardianship created, where all matters concerning your finances are governed by the local probate court. Banks, financial institutions, title companies and others are authorized to deal with your agent so there is no disruption in the management of your financial affairs.

Under the old common law, a power of attorney would terminate immediately upon the death or disability of the person (the “Principal”) creating the power. Death still terminates the power in all states, but now most states provide that the power of attorney can be durable, meaning that the fact that you are incapacitated does not terminate the ability of the agent to act. However, the Principal must specifically provide in the written instrument creating the power that it will be durable. If that language is not there, the power of attorney is only effect if you are not incapacitated.

In addition, the power can be made effective immediately, or it can be made effective only in the event of the Principal’s incapacity. How is incapacity determined? Usually, incapacity can be determined in a written letter signed by the Principal’s treating physician. In most cases, the power of attorney is made effective on disability, since you still have the power to act on all your matters if you are not incapacitated. However, some people have physical disabilities that make it difficult to go to the bank, write checks or sign documents, so having a power that is effective immediately makes sense for them.

In naming an agent to handle your affairs, make sure the person you name is trustworthy and competent. Since the agent can do anything with your assets that you could do, they also have the ability to write checks to themselves or for their own benefit. Conflicts could arise between the agent and other people who might have an ultimate claim to your estate at your death. For example, you might name one of your three children as your agent, and that child goes out and writes large checks for his own benefit. The other two children get wind of this and sue their sibling for his mishandling of the power. Mismanagement is rare, but extreme caution should be exercised.

The GPOA in some states must be recorded in the deed records of the county where the Principal resides to be made valid. In Texas, however, the GPOA must be recorded only if it is intended to be used for real property transactions. If the GPOA is recorded, it can only be revoked by a written revocation filed in the same deed records.

Finally, the GPOA is rendered useless if the person you name dies, resigns or becomes disabled. You should therefore consider naming a successor or successors in such an event.

Four Things You Need to Have in Your Last Will and Testament

In various posts, I have discussed the importance of having a Last Will and Testament and the time, trouble and money having one will save your family. Even a simple Will (if done correctly) is better than not having one at all (see my June 8th and June 9th posts). The type of Will you need will typically depend on the size and complexity of your assets, but all Wills, simple and complex, should have at least the following four things spelled out clearly:

1. A complete distribution of all your assets. This sounds simple enough, but you would be surprised at how often this doesn't happen, especially for those people utilizing the "do-it-yourself" method of Will writing. Make sure that your Will provides a "Residuary" or "Rest and Remainder" clause that make a distribution of all your remaining assets after any specific bequests are made. A failure to have this clause will result (in most states) in a portion of your estate passing by intestacy.

2. Make sure you have contingent beneficiaries named. What if you created a Will and no one was around to accept the benefits? For example, let's say Joe is unmarried. Joe has a Last Will that provides "I leave all of my residuary estate in equal shares to my sister Betty, my brother Bill, and my brother Bob." The Will makes no other provisions for distributions. Bill predeceases Joe, leaving two children who survive him, Tom and Sally, neither of whom liked Uncle Joe. Joe would have never wanted Tom and Sally to receive Bill's share, but since there is no provision in the Will for what would happen in the event Bill predeceased Joe, the share passing to Bill would now pass under the intestacy laws of the state where he resided at his death. The likelihood is that some portion of that share will indeed pass to Tom and Sally. Make sure you spell what happens if someone named in your Will predeceases you. Does it go to that person's spouse, or to his descendants, or to some other person or persons? Don't assume everyone you name in your Will is going to survive you.

3. Have you named executors, trustees and guardians (and successors to them)? Again, a simple matter, but one that stumps some people--not because they failed to name the initial executor, but because they failed to name a backup to the first executor. Just recently I had to deal with a Will where the Decedent named his wife as his executor, but not anyone to succeed her if she failed to serve. Sure enough, she died seven months after he did, and because of complications with several beneficiaries named in the Will it took almost two months to get the probate court to name a successor. My rule of thumb is to always name the initial person, followed by no less than two (and preferably three) successors. This is particularly important for guardians for your minor children, where many times the initial appointees may decline to serve because they don't feel like they can handle the burden of additional children in their household. Don't take a chance on the court appointing someone you might not agree with in a fiduciary role for your estate or as a guardian for your children. Have a solid line of succession and make sure you go back every so often to double-check it.

4. Waive the bond for your named appointees, and also make sure they have all the necessary powers they need. If you don't waive the bond for the named executor, trustee or guardian you name in your Last Will, the court can require the named person post a bond equal to or exceeding the size of the liquid assets of the estate. This might be prohibitive in some instances and the named person may not be able to qualify for the bond. A simple clause waiving the bond for any person named to a fiduciary capacity in your Will eliminates that concern. In addition, make sure that you are giving the executor and trustees all the powers they need to administer the estate or the trust without court interference. In Texas, for example, if you name the executor an "independent" executor, they can serve without court supervision. Other states may have similiar provisions for limited court oversight of the estate administration process. Also, give them the power to do anything they need to do regarding estate assets, such as the ability to sell real property. Believe it or not, in Texas, if you don't give the executor that power, he cannot sell real property without first attaining court approval of the sale (even where he is an independent executor)!

Wills can be extremely complicated documents, which is why lay persons typically make mistakes when trying to draft them as a way of saving money. The result is that it usually costs more in legal fees to fix the problems created by the poor drafting than if the person had just paid a qualified attorney to draft a proper to begin with. Don't be penny wise and pound foolish when it comes to something as important as your estate.

Five Things to Do to Prepare for Death

Well, that doesn't sound very palatable, does it? That's probably because it isn't. No one enjoys preparing for death, but in getting your affairs together, you can save a lot of heartache and trouble for those you leave behind. And considering the emotional state they will probably be in, the less they have to deal with, the better. Here are ten things you can do to lessen their load when you do pass away.

1. Make sure your Will is up to date (or that you have a Will, period). Having an out of date Will or no Will at all (see my June 9, 2005 and June 8, 2005 posts) only increases the odds that the work for your executor will increase significantly. Is your Will clear on who receives your property at your death? What if someone predeceases you and you have made a gift to them? Is there a contingency distribution for that gift? Are all the named executors, trustees, and guardians still living and willing to serve? Has there been any changes in the tax or probate laws of your state that you can use to your advantage? Your Will should be reviewed at least every three years as a matter of course, but also if there are significant changes in your financial situation, marital status, or if there have been changes in your family as a result of a birth or death.

2. Make sure you have all your beneficiary designations up to date. Life insurance, Individual Retirement Plans, 401(k)'s, annuities, and other similiar "non-probate" assets do not pass under the Will, but instead according to the beneficiary designation for the plan or policy. Make sure that you have properly named the correct beneficiary, or that you do not need to make any changes to coincide with any changes that may have recently been made to your Will. One common mistake is that on your non-probate assets you name minor children as beneficiaries without considering the effect. If you die with minor children and you name them as beneficiaries under a plan or policy, a guardianship of the estate will have to be created for your child and administered through the probate courts. This is a costly process, and completely unnecessary. You should have a trust or trusts for your minor children created in your Will that will receive those proceeds at your death and thus eliminates the need for a guardianship.

3. Prepare a listing of all your assets and where they can be found. A common problem in estates is that the executor cannot locate all the assets easily, or worse, can never locate all the assets because there is not enough information to assist in that cause. This isn't The Da Vinci Code. Don't leave little hints and clues and expect your beneficiaries to automatically track those assets down. Write or type everything out and place it in a notebook, noting each of your assets, when and where you acquired it, and where the physical asset is located (or if it is cash or a security, the financial institution where it is held, along with account numbers). Also place in the notebook or file copies of recent account statements, tax returns, title information for vehicles, deeds for real property, names of attorneys and accountants, and copies of insurance policies. If there is a safety deposit box where you keep valuables or important papers, make sure the location is noted and where the key can be found. If you don't have an extra signer on the safety deposit box, understand that your heirs will have to get a court order to get the box drilled if you have your Last Will located there. The extra signer, like a child or sibling, might save some problems down the road.

4. Determine what you would like done with your body at your death. Morbid, yes. Necessary? Absolutely. I've seen family members fight about whether mom should be cremated or buried. If cremated, where are the ashes spread? Are any family members going to get to retain some of the ashes? If you are buried, where will it be? Do you already own a cemetery plot? Do you want to donate your body to science, or maybe just some body parts? These are all important issues, and without being too obvious, need to be addressed before you die. Let your family know your thoughts, and put them down in writing as well, so that there are no questions afterwards.

5. Write a "love letter" to your family and friends. One of the best things you can do for your family members and friends to help provide closure following your death is to draft a handwritten letter to each of those persons, letting them know how much you loved them and how much you treasured your time together. Seal each one in a separate envelope and place these in the file with your other important papers. This letter will be truly special to the recipient and will provide a great final memory of you.

Preparing for your inevitable death is not easy. But the things you do today will have a lasting effect long after you are gone.

Guardianships for Minor Children in Texas

Imagine a husband and wife with two young children, ages 5 and 3. The parents are going off on a trip to Spain, leaving the kids to stay with the husband's parents. En route to Spain, the plane crashes, and both parents are killed. The parents each had a Will, but the Wills were created before the children were born, so there is no provision for a guardian for the children. Dad had two brothers and a sister, and Mom had two sisters. All five are equally qualified, and all want to act as guardians. Before you say this would never happen, it has, and it will again. Every year hundreds of children are left parentless and in need of having a guardian appointed for them.

So in this case, who will the court appoint, and what are their duties after appointment?

In Texas, the Texas Guardianship Code governs the appointment of a guardian where there is either no Will or there is a Will, but no designation of a guardian (or a named guardian has declined to serve). The list begins with any surviving grandparent, followed by a sibling of the decedent, following by any other qualified relative or interested person. There is no preference for one sibling over another (that is, the mother's siblings are no more preferred than the father's siblings). The guiding direction for the court is that any appointment MUST be in the child's best interests.

"Best interests" is not defined by the Guardianship Code, and so the Court will typically look at all the circumstances, such as the living conditions of any proposed guardian, previous relationships between the proposed guardian and the minor children (how often did Uncle Bill visit with the children? were the visits positive ones?), home stability, other children of the proposed Guardian, and other related matters.

Each proposed Guardian has the ability to present any evidence showing their qualifications as Guardian. The Court, along with a court appointed guardian ad litem (an attorney appointed by the Court to represent the minor children's interests) will review all the information and evidence. While in the nature of a trial, the procedures are very informal and the presentation of the evidence is more in the nature of a question and answer period with the Judge of the Court.

The Court will look to the guardian ad litem for a recommendation, but the Court is not bound by that recommendation. After all evidence is presented, the Court will appoint a Guardian based on what the Judge believes best for the children. An important thing to remember is that if a minor child is above the age of twelve (12), the Court can solicit the child's opinion about which proposed Guardian the child would think would be best. Again, the Court is not bound by the recommendation, but will give it due weight. If the child is above the age of fourteen (14), the Court will given even greater weight to that child's opinion.

The problem, of course, is that the children may wind up with people that the parents would never have considered as guardians for the children for one reason or another. But because they never put their wishes down in writing, the children may ultimately suffer the consequences. In naming a guardian for your children, consider all the possibilities and make sure that you name at least one successor to your first choice, just in case the first choice declines or is unable to serve. If you name a married couple as guardians, give consideration to what would happen if that couple got a divorce. Who would the children live with in that instance? You can provide for that possibility in your Will.

Don't pick someone as guardian just because they are good with money. You can always name that person to act as trustee of the funds your child would receive. Instead, when thinking of a guardian, consider who would look out for the emotional and physical well-being of your child and let that guide your decision. Don't allow a court to make that decision for you.

Why Dying Without a Will is More Costly in Texas

In my June 8, 2005 post, I mentioned how property owned by a Texas resident passes when he dies without a Will and warned that without a Will, you are allowing the State to determine who receives your assets at your death.

The dangers of dying intestate are not limited to the distribution of your assets. It is more expensive and troublesome to administer an estate where there was no Will than one where even the simplest of Wills was created. The reason has to do with the dual hearings that must be had to appoint an administrator for the estate and the possibility of a "dependent" administration.

Where there is no Will, Texas law dictates who the heirs will be. But in order for that law to be binding on banks, brokerage houses, and real estate title companies, an heirship proceeding must be held by the local probate court (or where there isn't a probate court, the county court at law). This proceeding is for the purpose of a judge legally declaring the proper heirs so that all the parties know their rights to the estate assets.

Why is this more expensive than the normal probate of a Will? Well, in all Texas heirship determinations, the probate court is required by law to appoint an attorney ad litem to represent the interests of all unknown heirs at law. Thus, not only are the heirs paying for the attorney that is representing the estate, they are also paying for the attorney ad litem, whose costs can run anywhere from $400 to $700, depending on how much work the ad litem has to do to track down all the possible heirs. An ad litem is not required where the Decedent had a valid Will.

In addition, the estate attorney has to publish a notice in a local newspaper to give proper notice to all the potential heirs of the Decedent. Depending on the local paper, this cost can be anywhere from $100 to $200. Again, this publication is not required where there was a valid Will.

The biggest problem with not having a Will is that it subjects the estate to what is known as a "dependent" administration, rather than an "independent" administration. Texas is one of the few states that has independent administration of estates, where the executor named in the Will can operate freely of court supervision, which saves time and legal expenses. The executor does not need approval to sell property, pay expenses, or distribute assets. The executor also does not need to post a bond (assuming the Will waives that requirement). In a dependent administration, however, the probate court supervises every activity of the administrator, and the administrator must file requests with the court for approval to do anything related to the estate assets. Further, the administrator is required to file an accounting with the court showing how every penny of the estate is spent. While in theory this seems like a good idea, it is extremely expensive and time-consuming and can drag out the administration process out for months. The administrator will also be required to post a bond equal to or exceeding the value of all the estate assets.

While all the distributees of the estate can agree on an independent administration, and even the waiving of a bond, if there are any minor distributees, almost all probate courts in Texas will decline to appoint an independent administrator because the goal is to protect the interests of any minors.

In a future post, I will discuss the special problems associated with minors receiving property in Texas through inheritance or under a Will without it passing in trust, and why guardianships are as big a problem as dependent administrations. The moral, of course, of all of this is that just because you do not have a lot of assets does not mean you do not need a Will. The simplest of Wills can help avoid the delays and costs associated with intestacy and provide for a smooth transition of your estate to your loved ones.

How Property Passes When You Die Without a Will in Texas

In Texas, if a person (the "Decedent") dies without a valid will, all probate property passes under the laws of “intestate” succession as set forth in Texas Probate Code Section 38. One common myth is that the property all passes to the State of Texas. That is completely untrue, as shown below. However, the consequences of dying without a Will are that you cannot dictate who will receive your property, who will act as the executor of your estate or who might be the guardian of your children. In effect, you have ceded those decisions to the State of Texas.

Dying without a Will also complicates how your estate will be administered and results in increased costs to the surviving heirs, and these consequences will be discussed in a later post. For now, it is important to understand how property is passed when you do not have a Will.

There are several scenarios that will determine who receives what, and it is governed by whether you are are married, have children (and whether you have children from a previous marriage), and whether your property is community or separate. Community property is basically all property acquired during the marriage (except property acquired with the separate property of a spouse). Separate property is property acquired by gift, under a Will, or through an inheritance.

The following are the different scenarios and the results under each scenario:

I. SURVIVED BY SPOUSE AND CHILD OR CHILDREN:

A. All surviving descendants of Decedent ARE also descendants of Surviving Spouse

1. Separate Real Property

a. 1/3 passes to Spouse for her life (with a remainder interest to children)
b. 2/3 is equally divided among children

2. Separate Personal Property

a. 1/3 to Spouse
b. 2/3 equally divided among children

3. Community Property

All to spouse

B. All Surviving descendants of Decedent ARE NOT also descendants of Surviving Spouse

1. Separate Real Property

a. 1/3 to Spouse for life (remainder to children)
b. 2/3 equally divided among children

2. Separate Personal Property

a. 1/3 to Spouse
b. 2/3 equally divided among children

3. Community Property

a. Decedent’s 1/2 Community Property is equally divided among his children
b. Surviving Spouse retains her 1/2 community prop. interest

II. SURVIVED BY SPOUSE, NO DESCENDANTS, AND BOTH PARENTS:

1. Separate Real Property

a. 1/2 to Surviving Spouse
b. 1/4 to father
c. 1/4 to mother

2. Separate Personal Property

All to spouse

3. Community Property

All to spouse

SURVIVED BY SPOUSE, NO DESCENDANTS, AND ONE PARENT:

1. Separate Real Property

a. 1/2 to Surviving Spouse
b. 1/4 to surviving parent
c. 1/4 to brothers and sisters of Decedent, if any, or to the children of a sibling, if a sibling is deceased

2. Separate Personal Property

All to spouse

3. Community Property

All to spouse

SURVIVED BY SPOUSE, NO DESCENDANTS, AND NO PARENTS:

1. Separate Real Property

a. 1/2 to Surviving Spouse
b. 1/2 to decedent’s brothers and sisters

2. Separate Personal Property

All to spouse

3. Community Property

All to spouse

SURVIVED BY NO SPOUSE, BUT WITH SURVIVING CHILD OR CHILDREN:

All property is equally divided among the children. Children of deceased children take their parents share.


SURVIVED BY NO SPOUSE AND NO CHILDREN:

1. Both of Decedent’s parents alive

a. 1/2 to Father
b. 1/2 to Mother

2. Only one of Decedent’s parents alive

a. 1/2 to surviving parent
b. 1/2 equally divided among Decedent’s brothers and sisters living, or if a sibling is not living, to his or her children then living

3. Neither parent of Decedent survives

All property is equally divided among Decedent’s brothers and sisters, or the children of a deceased sibling


As can be seen, complications can certainly arise on the death of a Texas resident who does not have a Will. The complications are compounded in second or third marriage situations where there are children from a previous marriage, and the surviving spouse suddenly finds herself sharing property with either her husband's children or his parents and siblings. To eliminate these possibilities, and to ensure your property passes to the persons you want, make sure you have a Will and that it is up to date.

What does "Probate" mean?

I can't tell you the number of people who have worried about having their Will go through "probate," making it seem as if it is a process worse than the actual death itself. In Texas, however, the administration of an estate is a relatively painless process, assuming you have everything in order.

First of all, "probate" is derived from the Latin word probatum, meaning "to prove." Thus, to probate a Will (at least in Texas) simply means to prove that the Will is valid. Once the Will is admitted as a valid Will, then the executor named in the Will is approved by the Court. The executor files his or her oath and begins the process of administering the estate.

Texas has an administration process that is probably the simplest in the nation. It is known as "independent administration", and it means that other than proving the Will is valid, the appointment of an executor, and the filing with the probate court of an inventory of the assets that actually pass under the Will, there is no court involvement in the administration of the estate. The executor handles all matters independent of court supervision, and needs no approval from the Court to sell property, distribute assets, pay expenses, or do anything else that might arise in the regular administration of an estate. This saves time and money, since there is no necessity to go to the Court (incurring legal expenses) for approval of anything the executor needs to get done.

This does not mean that the executor has free rein over the estate. The executor must still adhere to the laws of the State of Texas and the terms of the Will. Failure to exercise due care in the administration of the estate could result in liability for the executor, but assuming the executor is receiving sound legal advice and does not try to personally benefit from his entrusted role as the caretaker for the estate, there should not be any problems with the administration.

In future posts I will discuss the administration process in more detail, but readers should know that the length of time to administer an estate can vary. An estate is like a snowflake; no two are alike. Problems between beneficiaries, title or tax issues on real property, missing assets--all these can lead to an increased time to administer the estate. An estate without any problems, which is very clean as far as title and tax issues go, and with no issues between beneficiaries can typically be finalized between one to four months after the Will is admitted and the executor appointed. Of course, there are no guarantees and what you may view as simple, the executor may find rather complicated.

In any instance, "probate" is nothing to be feared, at least in Texas. So if you're going to die, at least have the good sense to do it here.

Texas Medical Power of Attorney

In a previous post, I discussed the Texas Directive to Physicians. The Medical Power of Attorney is a document closely related to the Directive, in that it provides for medical decisions to be made by another in the event you are unable to do so yourself.

The Medical Power of Attorney is a document signed by a competent adult (the person creating the power is known as the "principal") designating a person that the principal trusts to make health care decisions on the principal's behalf should the principal be unable to make such decisions. The individual chosen to act on the principal's behalf is referred to as an "agent."
The following questions and answers are related to the Medical Power.

When does the Medical Power of Attorney go into effect and how long is it effective?

It is effective immediately after it is executed and delivered to the agent. It is effective indefinitely unless it contains a specific termination date, it is revoked, or the principal becomes competent.

When does the agent have the right to make health care decisions on the principal's behalf?

An agent may make health care decisions on the principal's behalf only if the principal's attending physician certifies in writing that the principal is incompetent. The physician must file the certification in the principal's medical record.

Can the agent make a health care decision if the principal objects?

No. Treatment may not be given to or withheld from the principal if the principal objects. This is true whether or not the principal is incompetent.

What health care decision making power does the Medical Power of Attorney grant to an agent?

Under a Medical Power of Attorney, an agent is given wide latitude when consenting to treatment on the principal's behalf. However, an agent cannot consent to:

• Commitment to a mental institution;
• Convulsive treatment;
• Psychosurgery;
• Abortion; and
• Neglect of comfort care.
  
• In the Medical Power of Attorney document itself, the principal may limit the agent's decision-making authority beyond the restrictions above.
  

How is the Medical Power of Attorney revoked?

A Medical Power of Attorney may be revoked by notifying either the agent or the principal's health care provider orally or in writing, of the principal's intent to revoke. This revocation will occur regardless of the principal's capacity to make health care decisions. Further, if the principal executes a later Medical Power of Attorney, then all prior ones are revoked. If the principal designates his/her spouse to be the agent, then a later divorce revokes the Medical Power of Attorney.

What assurance is there that the principal understands the consequences of signing a Medical Power of Attorney?

The Medical Power of Attorney is not legally effective unless the principal signs a disclosure statement that he/she has read and understood the contents of the Medical Power of Attorney before signing the Medical Power of Attorney itself.


Do you need a Medical Power of Attorney?

There is a chance in your lifetime that you may be seriously injured, ill, or otherwise unable to make decisions regarding health care. If this should happen, it would be helpful to have someone who knows your values and in whom you have trust to make such decisions for you.

Who should be selected as an agent?

The principal should be knowledgeable about your wishes, values, and religious beliefs, and in whom you have trust and confidence. In the event your agent does not know of your wishes, that agent should be willing to make health care decisions based upon your best interests.

Can there be more than one agent?

Yes. Although you are not required to designate an alternate agent, you may do so. The alternate agent(s) may make the same health care decisions as the designated agent if the designated agent is unable or unwilling to act.

Who can be an agent?

Anyone may act as an agent other than the following:

(1) the principal's health care provider;
(2) an employee of the health care provider unless the person is a relative of the principal;
(3) the principal's residential care provider; or
(4) an employee of the principal's residential care provider unless the person is the principal's relative.

How can you obtain a Medical Power of Attorney?

You may contact your local hospital, long term care facility, physician, attorney, or state health organization such as the Texas Conference of Catholic Health Facilities, Texas Medical Association, Texas Hospital Association, Texas Health Care Association, or the Texas Association of Homes for the Aging or you can go to this link:

http://www.texasprobate.com/forms/medpoa.htm

Texas Directive to Physicians

If anything good came out of the recent death of Terry Schiavo, it is that there is a new level of awareness for advance Directives for medical treatment. Because Terry Schiavo lacked a written Directive, unnecessary and costly legal wrangling prolonged an unfortunate situation, and has prompted many people to consider having such Directives prepared as part of their own estate plan.

There are two medical Directives that let you specify in advance what medical treatment you would want to receive if an illness or disability prevented you from making your own decisions. A Directive to Physicians (also know as a “living will”) identifies the medical treatment you wish to receive when you are facing death. A durable Medical Power of Attorney appoints a person to make medical decisions for you in the event you are unable to do so yourself.

The Directive to Physicians identifies the medical procedures you do or do not want to receive during your final illness. This document can provide your doctor with instructions on whether you want to receive life-sustaining treatment if you have a terminal condition or are in a persistent vegetative state, and the level of care you wish to receive. For example, you can decline artificial nutrition or hydration, or you can request that only pain-reducing medication be provided to you. A “terminal condition” is defined in the Texas Health and Safety Code as an incurable condition caused by injury, disease or illness that will result in death within six months, even if life-sustaining treatment was provided.

If you sign the Directive, you should inform your physician and ask that it be made part of your medical record. If you become physically or mentally unable to do so, another person may inform your physician.

Executing the Directive

The Directive must be witnessed by two competent adults. Texas law does not require that the Directive be notarized.

At least one witness cannot be a person who:

(1) is related to you by blood or marriage;
(2) has a claim on your estate;
(3) has been designated by you to make a health care treatment decision on your behalf;
your attending physician;
(4) is employed by your attending physician;
(5) is an employee of a health care facility in which you reside, if the employee is involved in providing direct patient care to you or is an officer, director, partner, or business office employee of the health care facility or of any parent organization of the health care facility.

Effect of Directive

The Directive becomes effective - meaning that life-sustaining treatment can be withdrawn - only when you become a "qualified patient." A qualified patient means a patient with a terminal or irreversible condition that has been diagnosed and certified in writing by the attending physician.

You should be aware that no one may force you to sign the Directive. No one may deny you insurance or health care services because you have chosen not to sign it. If you do sign the Directive, it will not affect your insurance or any other rights you may have to accept or reject medical treatment. If your attending physician chooses not to follow the Directive, your physician must make a reasonable effort to transfer responsibility for your care to another physician.

You may designate another person to make treatment decisions for you if you become incompetent, or are otherwise mentally or physically incapable of communication. However, you do not have to do so in order for the Directive to be a legal document. If you do, that designated person may also execute an out-of-hospital do-not-resuscitate order

Enforceability of a Directive Executed in Another Jurisdiction

A Directive or similar instrument validly executed in another state shall be given the same effect as a Directive validly executed under the law of Texas. This does not authorize the administration, withholding, or withdrawal of health care otherwise prohibited by the law of this state.

Revocation

The Directive is valid until it is revoked. You may revoke the Directive at any time, even in the final stages of a terminal illness. If you revoke the Directive, be sure your physician is told of your decision. The physician or the physician designee shall record in the patient's medical record the time and date when the physician received notice of the revocation and shall enter the word "VOID" on each page of the copy of the Directive in the patient's medical record. If you change your mind after executing a Directive, your expressed desire to receive life-sustaining treatment will at all times supersede the effect of a Directive.

Here is a link to website containing a Texas Directive to Physicians form:

http://www.peopleslawyer.net/willform.html