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Personal Documents
In Texas, we can clarify and protect our relationships, our estates, and ourselves by executing certain documents. Some of these documents include medical powers of attorney, advanced directives, statutory durable powers of attorney, trusts, and wills.
The Use of a Power of Attorney
There are times when it is impossible or inconvenient for you to take care of your personal affairs "in person." Often this dilemma occurs when you become disabled or otherwise incapacitated. But this problem may present itself simply when you are out of town or out of the country. Regardless of the cause, in these situations it becomes necessary for another person to act in your place. While there are several ways to authorize another person to act on your behalf, usually the simplest way is to execute a durable power of attorney.
In legal terms, a power of attorney designates an agent to act on a principal's behalf. As such, both are bound by agency laws. In everyday terms, this means that the person to whom you give a power of attorney has the written authority to do whatever you authorize them to do. Additionally, you become ultimately responsible for whatever the person who holds the power of attorney does when that person acts in your place.
Before the enactment of certain laws, a power of attorney would lapse when the grantor became incapacitated. Ironically, this is usually when the authorization to act in the grantor's place was most needed. Currently Texas law allows you to sign a durable power of attorney that does not terminate upon your incapacity. In order to be durable, the power of attorney must specifically state that it will remain valid in the event of your incapacity.
Medical Powers of Attorney
When you become seriously ill, your next-of-kin have the legal authority to make all health care decisions for you. A medical power of attorney allows you to name another person as your agent with the authority to make health care decisions on your behalf when you are no longer able to make them yourself. “Health care” means any treatment, service, or procedure to maintain, diagnose, or treat your physical or mental condition. Your agent has the power to make a broad range of health care decisions on your behalf in accordance with your wishes. Your agent cannot consent to voluntary inpatient mental health services, convulsive treatment, psychosurgery, or abortion.
Your agent is obligated to follow your instructions when making decisions on your behalf. Your physician must comply with your agent's instructions or transfer you to another doctor. You should discuss this document with your agent and your doctor and make sure each one has a copy of it after you execute it. You should also name an alternate agent who can be called in the event your agent is unable or unwilling to act as your agent.
This document must be witnessed by two persons who are not your designated agent, not related to you, not health care providers, nor potential heirs. Even after you sign this document, you can still make your own decisions as long as you are able to do so. You have the right to revoke this power either orally or in writing. Additionally, a court appointed guardian has the right to override the medical power of attorney.
General Powers of Attorney
A caregiver frequently takes on the responsibility of handling finances for an incapacitated person, including money management and routine bill paying. But more complicated situations can arise, creating a need for either better planning or court intervention. What happens if the caregiver needs to sell a person's unused automobile to avoid unnecessary depreciation and insurance costs? Who has the authority to make a claim for benefits from an insurance company or trace a missing social security check?
A general power of attorney gives your designated agent the authority to act on your behalf in virtually all situations except health care. Under Texas law, you can now select whether the general power is effective anytime or only upon your incapacity. You have the ability to pick and choose the powers given to your agent. You also have the right to pre-designate alternate agents to act if and when the original agent is incapacitated, deceased, or otherwise unable to serve. Just like the medical power of attorney it can be revoked and may be overturned by a court-appointed guardian.
A general power of attorney is a tool that an agent uses to handle various transactions on behalf of a disabled or absent person. For this reason it can be an inexpensive solution to many emergencies.
Guardianship
If you take no steps toward planning for life’s emergencies, the only alternative for your caregivers may be a legal guardianship. In Texas, a court can appoint an applicant to be the guardian of a person, the guardian of an estate, or both.
The powers and duties of guardians of a person include the right to have physical possession of the ward and to establish the ward's legal domicile, and the duty to care, to protect, and to provide the ward with clothing, food, medical care, and shelter. The powers also include the ability to consent to medical, psychiatric, and surgical treatment other than in-patient psychiatric commitment of the person. The guardian of an estate is entitled to the possession and management of all the property belonging to the ward, subject to the provisions of the Texas Probate Code. There are substantial restrictions and expenses involved with a court controlled guardianship. Guardianship is the least flexible and attractive estate management option when compared to what can be accomplished with powers of attorney.
Most persons desire to maintain control over their own lives as much and for as long as possible. A little advance planning can make that happen and ease the transition if assistance becomes necessary. With simple powers of attorney a person can appoint a medical and a financial decision-maker so that authority is in place when needed.
Advanced Directives to Physicians
An Advanced Directive to Physician (or Living Will) is a written statement that outlines a person's desires as to the use or continuation of artificial life support. It tells the person's attending physician to either avoid using or to terminate the use of life support if they are near death. It only takes effect when the physician certifies in writing that the person is suffering from an incurable or irreversible condition that would produce death without the application of life support, so that the use of life support only serves to prolong the moment of death. The physician must either honor the Directive, or make reasonable efforts to transfer the patient to another doctor who will honor it.
In Texas, various standardized forms of the Directive has been in use for over thirty years. The Natural Death Act that authorizes the Directive was updated in 1989, 1991 and 1993 for clarification, and the standard form underwent a significant change in 1999, but the statute's overall import has remained the same. Any competent adult may execute a written Directive, which should then be given to his or her physician. Likewise, a parent, spouse, or guardian can execute a Directive on behalf of a person under age 18.
A written Directive must be signed in front of two witnesses, and then the two witnesses must then sign the document. Witnesses cannot be related to the person, be health care providers, or be potential heirs or claimants to the person's estate. These restrictions can make it difficult for someone to execute a Directive once he or she is hospitalized. Consequently, executing a Directive before something happens is advisable.
Besides providing for a written Directive, the statute also allows a person to verbally give a Directive, as long as the proper witnesses and the attending physician are present. The physician will then make a note in the person's medical records and the witnesses must sign the entry. However, the ability to give a verbal Directive is dependent on that person's ability to communicate, so it won't help the person who is unconscious or comatose.
In Texas, family members and health care agents are given specific authority to make a decision about withholding or terminating life support, and are unlikely to have to fight about it in court. Nevertheless, if a person has not executed a Directive, the law requires family members to make a decision about life support based on their personal knowledge of the person's wishes. This can be a traumatic experience for grieving family members, and one that can be avoided by executing a Directive in advance.
Appointment of Agent to Control
Disposition of Remains
Many people do estate planning without ever taking into account what is going to happen to their body after death. Granted, this is a very difficult issue to think about. But consider the emotional state of your loved ones at the time of your death. Is it fair to add to their stress by requiring them to decide how to dispose of your remains? And what happens if your loved ones can’t agree on what arrangements should be made?
Many people assume that the person named as agent for health care will also be authorized to make arrangements after death. While that may happen occasionally, it is usually by agreement of the next of kin. If there is a dispute, the law is clear on who has priority in this decision.
Texas law provides that, unless a person properly leaves other written instructions for the disposition of remains, the priority of persons who can control the disposition is:
· the person designated in a written instrument signed by the decedent;
· the decedent's surviving spouse;
· any one of the decedent's surviving adult children;
· either one of the decedent's surviving parents;
· any one of the decedent's surviving adult siblings; or
· the adult person in the next degree of kinship by judgment of heirship.
We call the written instrument referred to in the first item of this list an Appointment of Agent to Control Disposition of Remains. A provision in the Texas Health and Safety Code specifies the contents and the legal sufficiency of this document. Some people do not want their next of kin to have the legal right to make these decisions. In that case, the person can sign an Appointment of Agent to Control Disposition of Remains that gives another the right to control the disposition of remains after death. That way, the person can choose who is to replace the legal next of kin for this decision. The agent and any alternates must agree to be named and also must sign the document. The statute gives the financial responsibility to the person named as agent if the estate does not have the funds for the disposition expenses. This method of planning gives the appointed agent the authority to make all necessary decisions.
Other acceptable methods for leaving written instructions to direct disposition of remains are in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by the person. This means that one can leave instructions regarding cremation, embalming, and other matters relating to the disposition of the body, instead of leaving someone in charge of making those decisions. One may also leave written instructions about the type of funeral or memorial service to be arranged. The instructions can be changed or modified only in writing. If the instructions are in a will, they must be carried out immediately without the need for probate first.
Some people are more concerned about what plans are to be made than who is going to make them. Others are more particular about who has the right to make the decisions. Either way, the easiest way to be certain that wishes are respected is to make them known in writing. This is a very important and often overlooked step in the personal documents planning process.
Do I Need a Will?
A great number of people have trouble dealing with the concept of their own death. It's a tough thing to think about, let alone plan for. Most people know that a will is a document that contains instructions on what to do with a person's estate when that person has died. However, it is a mistake to think that because you do not have great wealth, you don't need a will.
One of the best ways to emphasize the importance of a will is to explain what happens when someone dies without one. Every state has laws of intestacy that determine how property passes upon someone's death if they die without a will. Although the particulars and proportions vary from state to state, every state provides that the first in line to inherit are legal spouses and children. In Texas, if no legal spouse or children exist, parents, siblings and other blood relatives fall next in line.
Some folks think that they don't need a will because the people that they want to give their property to would get it anyway by law. While there is some truth to this idea, it carries an expensive misconception. When a person dies without a will, most of his or her property does not automatically transfer to the legal heirs.
First, a court must decide who are the true heirs of the decedent. A proceeding to determine heirship is filed, notice is published in a newspaper, and an additional attorney is appointed to represent the “unknown or missing heirs,” all at the expense of the estate. Only after a hearing to determine the legal heirs can the estate administration begin.
After the heirship is determined a court proceeding must be instituted and usually a dependent administration begun. Someone is appointed as administrator of the estate who then becomes responsible for handling the affairs of the one who died. This person may be a relative or may be a stranger. Every time the administrator has to do anything for the estate, even simple tasks, he or she must ask the court's permission and get the court's approval before proceeding. This is done by filing a motion and order, and usually holding another hearing. This means more legal fees and court costs that could eventually deplete the estate before any assets are distributed.
In Texas, a person who leaves a will naming an independent executor to serve without the necessity of a bond can avoid complex probate problems. The law authorizes an independent executor to take care of an estate without asking the court's permission each time something needs to be done. This one provision alone can save an estate thousands of dollars in legal fees and court costs. However, in order to qualify for independent administration, the correct wording must be included in the will. The do-it-yourselfer should be particularly careful with wills created using a personal computer and “legal drafting” software. Although the will may be valid for property disposition purposes, rarely is the wording sufficient to comply with Texas law for establishing independent administrations. The small savings in the preparation of the document will seem very insignificant when compared to the added costs of probate for a dependent administration.
A will does not have to be complicated. The main purpose of a will is to designate the beneficiaries of your estate and to name the person you want to handle the distribution. If you have minor children, your will should designate a guardian for your children and a trustee for their benefit if they are to be beneficiaries of your estate. We always recommend that you name alternates for beneficiaries, executors, guardians, and trustees in case the primary persons named die before you do.
Planning with Living Trusts
Additional planning can be done with a revocable management trust. A trust is a legal arrangement where a person, (called a “grantor”), transfers property to a caretaker (called a "trustee"). The trustee then cares for and then distributes the property to the beneficiaries according to the written terms of the trust. Revocable management trusts allow a grantor to act as trustee and beneficiary thereby maintaining control of personal assets as long as he or she is able. When the grantor has been declared incompetent by his or her doctor, the alternate person named to continue the grantor’s financial management steps in to take control. No court permission is necessary. The revocable management trust can have the added benefit of disposing of the trust assets directly after the death of the grantor, even without the need for court-controlled probate proceedings. Of course, the trust must be drafted correctly and assets properly transferred into it for it to be the greatest benefit.
In a revocable management trust, the grantor usually receives the income and retains the right to use trust property during his or her lifetime. The grantor also serves as the first trustee and retains control and all decision-making powers. The grantor chooses an alternate trustee to take over the trust estate in the event of death or incapacity. When the trust ends (usually upon the grantor's death), the assets will be distributed to the beneficiaries as stated in the trust document. The grantor can change or revoke the trust at any time.
A revocable management trust is a primarily a tool used for avoiding probate. The grantor can specify in the trust agreement the beneficiaries who will receive the property after the grantor’s death, very much like the testamentary provisions of a Will. Probate is avoided because the alternate trustee is required to distribute the assets after the death of the grantor according to the terms of the trust and not as part of an estate administration under court control.
A revocable management trust can provide uninterrupted management of assets in the event of the grantor's incapacity. In other words, if the grantor becomes incapable of managing his or her own assets, either permanently or temporarily, the designated alternate trustee will take over. This eliminates the need for costly guardianship proceedings in court and the embarrassment of being publicly declared incompetent. The grantor is also assured that the right person will be in control of the trust, not some stranger or unwanted family member.
A revocable management trust can be simple to implement and use, or it can be more complex, depending on the grantor's assets. The grantor must decide about the use and disposition of assets and then work with a lawyer to complete the agreement. Then the grantor must actually transfer the designated assets into the trust. This can be as simple as changing the name on a bank account, which the grantor can do alone. More difficult transfers such as those involving real estate will require the help of a lawyer.
As a rule, revocable management trusts do not provide tax benefits or asset protection during the lifetime of the grantor. Any income on assets in a revocable management trust will generally be considered the income of the grantor for tax purposes. Also, the property in the trust is ordinarily included in the grantor's estate for death tax purposes. Always consult a CPA and/or financial planner for tax considerations before implementing any trust.
Once implemented a revocable management trust requires some maintenance for it to be the most effective. Every revocable trust should be accompanied by a Will to transfer any assets not contributed to the trust prior to death. Like all estate plans, a trust works best when reviewed periodically to ensure it meets current needs.
What About Life Changes?
There are three areas of life changes that make doing or reviewing legal documents prudent. First is a change in family. Family changes occur when people start living together, get married, have children or grandchildren, dissolve their relationships, or lose a family member through death. Any of these family changes can and will affect the way that property distributions are made by law upon death.
Likewise, a change of property ownership can dictate the need for legal documents. Whether it’s a new will, new deed work, a release, or a joint tenancy agreement, acquisition of real estate can mandate the need for legal documents.
Finally, changing residences, particularly by moving to a new state, triggers the need for legal documents. Documents such as wills and powers of attorney may or may not be valid and enforceable in the new state. The best way to ensure accurate and enforceable information in legal documents after a residency change is to see an attorney licensed in that state.
In short, there is a simple lesson that runs throughout this document. A little time spent now making decisions about the future can make a big difference to those you love when you're gone.
This brochure is provided for informational and educational purposes only. Applicability of the legal principles discussed may differ substantially in individual situations. This information is not intended as a substitute for personal legal counsel.
Copyright © 2006 Moore & Hunt, Attorneys
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